Words: Stephen Sidkin

For a brand owner, a website is far more than an online shop. It’s a showroom, a stockroom, and a customer service desk rolled into one. For retailers, it’s often the fastest way to reach customers, clear stock and compete in an increasingly crowded market.

That can leave suppliers and retailers asking the same question from opposite ends of the supply chain: who gets to decide how a brand is sold online?

Brand owners often have legitimate reasons for wanting some control. They may want products presented properly, customers to receive the right advice, and technical or specialist products sold by retailers with the necessary expertise. They may also want returns, warranties and after-sales service handled consistently.

For many brands, though, the biggest concern is seeing their products reduced to just another discounted listing on a website that does nothing to reflect the brand’s value.

That matters because the way a product is sold shapes how customers understand it, use it and value it. The retailer is a key part of the customer experience, which is why many suppliers operate selective distribution systems.

There are legal limits, however. A supplier cannot use brand protection as a disguise for restricting normal price competition. It cannot dictate the price a retailer charges, penalise retailers simply for discounting or impose rules that effectively prevent online sales while claiming they’re only about brand presentation.

New precedents

Those issues were recently considered by the Court of Appeal in a case involving Deckers and one of its retailers, Up & Running, over the sale of HOKA running shoes.

Deckers operated a selective distribution system. Up & Running wanted to sell surplus stock through a separate discount website, but Deckers objected and ended the supply relationship. Although the Competition Appeal Tribunal initially ruled against Deckers, the Court of Appeal reached a different conclusion and found in their favour.

While this judgment doesn’t give suppliers a free hand to impose whatever online restrictions, they like it equally doesn’t mean every restriction on online sales is unlawful.

What matters isn’t the label attached to the restriction. Simply calling a system “selective distribution” doesn’t make it lawful, just as describing something as an online sales restriction doesn’t automatically make it unlawful. The real questions are why the restriction exists, how it operates, how consistently it’s applied and what effect it has in the market.

So how can suppliers restrict online sales without falling foul of UK and EU competition law? It starts with understanding both the product and the market. Suppliers should be clear about why a particular product justifies greater control over how it’s sold.

That argument is usually stronger for premium, luxury, technical or specialist products than for everyday items where the method of sale has little impact on the customer’s purchasing decision. Crucially, the justification should never be based on maintaining higher prices.

If retailers need approval before launching a new website, the agreement should say so. It should also explain the criteria the supplier will use when deciding whether to grant approval.

Those criteria might include the retailer’s identity, product information, staff expertise, customer service, use of trademarks, returns handling, warranty support, product imagery and the overall presentation of the brand. What they shouldn’t do is suggest approval depends on avoiding discounting.

Pricing

Pricing is an area where suppliers need to tread particularly carefully.

They can usually recommend resale prices or set maximum resale prices, provided these don’t become fixed or minimum prices in practice. Retailers must remain genuinely free to decide what they charge.

That freedom needs to exist not only in the contract but in day-to-day dealings. Pressure, threats, delayed deliveries, withdrawing commercial benefits or applying policies selectively can all undermine that freedom and create competition law problems.

Market position also plays a part. UK and EU competition rules are generally more accommodating where suppliers and retailers fall below the relevant market share thresholds and avoid so-called “hardcore” restrictions.

That doesn’t remove the need for careful drafting, but it does form part of the overall commercial risk assessment. A supplier with limited market power in a competitive market faces a different legal landscape from one whose products customers have few alternatives to.

However, retailers should approach the issue from the opposite direction.

If a supplier refuses to approve a new online sales channel, the retailer should ask why. What are the approval criteria? How have they been applied? If the issue is genuinely about product presentation or customer experience, it may well be possible to address those concerns.

If, however, the real objection is simply that the retailer intends to sell at a lower price, the legal position becomes very different.

Ultimately, the more transparent both parties are about their reasons, the easier it becomes to distinguish between protecting brand standards and restricting price competition.

Stephen Sidkin is a commercial law partner at Fox Williams LLP