April 20, 2010 / 2:58 PM / 7 years ago

UPDATE 2-New EU rules let brand owners restrict online sales

 * Rules let brand owners sell only to brick-and-mortar shops
 * Rules ban curbs on Internet sales for approved sellers
 * LVMH, PPR, luxury brand groups welcome new regulation
 * EBay says rules also ban some unfair online restrictions
   (Adds LVMH, PPR, lawyer comments, closing shares)
 By Foo Yun Chee
 BRUSSELS, April 20 (Reuters) - Luxury brand owners seeking to protect their image and exclusivity can bar online retailers without bricks-and-mortar outlets from distributing their products under updated EU antitrust rules.
 To counter criticism from online retailers such as eBay (EBAY.O) and Amazon (AMZN.O) and from consumer groups that the provision could restrict user choice, the European Commission said it would closely monitor developments.
 "The Commission will be particularly attentive to concentrated markets to which price-discounters either online only or traditional may not have access," the European Union competition watchdog said in a statement on Tuesday.
 It said the provision allows manufacturers to choose distributors on the basis of quality standards for presenting their products, whether online or otherwise. For brand owners, the absence of bricks-and-mortar outlets can constitute a reason to decline a distributor.
 Brand owners, often in the high-end or luxury goods market, had argued for the requirement to deter so-called free-riders who benefit from the marketing spent on luxury brands without bearing the same costs.
 "Brand owners seem to have won on this issue. Consumers' choice could be limited," said Michael Rosenthal, a partner at Hunton & Williams.
 Industry body European Alliance, which represents three-quarters of global luxury brands, said the regulation showed the Commission recognised the importance of the luxury goods industry, which employs 800,000 people, directly and indirectly, in Europe.
 "This new regulatory framework will allow us to continue the significant investment our sector makes for our online presence, as well as in our physical outlets," Guy Salter, a spokesman for the organisation said.
 LVMH (LVMH.PA), the world's largest luxury group, and French retail and luxury group PPR (PRTP.PA), which owns Gucci Group, itself behind brands such as Yves Saint Laurent and Stella McCartney, welcomed the updated regulation.
 "This framework will allow the luxury goods industry to continue to meet the expectations of consumers, to encourage the development of the digital economy, and to sustain our industry growth," Pierre Gode, LVMH's vice-president, said in a statement.
 EBay said the updated rules also did away with many unfair restrictions currently facing online companies and that it would work with EU governments to "expose any attempts to unfairly limit online sales".
 Luxury stocks were up on Tuesday, but analysts said the upward move was more driven by the general market and Burberry's (BRBY.L) upbeat forecast and Coach's (COH.N) strong first-quarter earnings.
 Shares in LVMH, Hermes (HRMS.PA) and PPR ended with gains.
 The new "vertical restraints block exemption regulation" will go into force in June, with a one-year transitional period, the EU regulator said. It will be valid until 2022.
 It replaces existing guidelines exempting distribution agreements between manufacturers and distributors from strict EU competition rules if they comply with certain criteria.  The Commission said approved distributors were free to sell on the Internet without limitations on quantities, customers' location and restrictions on prices, provided both manufacturer and distributor were not overly dominant in the market.
 "The rules adopted today will ensure that consumers can buy goods and services at the best available prices wherever they are located in the EU, while leaving companies without market power essentially free to organise their sales network as they see best," said Competition Commissioner Joaquin Almunia.  (Additional reporting by Luke Baker and Astrid Wendlandt in Paris; Editing by Rupert Winchester)  

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