| WHAT YOU NEED TO KNOW - KEY TAKEAWAYS |
- A selective distribution system for luxury goods can fall outside EU competition law provided the Metro criteria are satisfied.
- Each potentially restrictive clause within a selective distribution agreement must be analysed separately in light of the Metro criteria.
- A ban on reselling luxury goods via online marketplaces such as Amazon is capable of satisfying the Metro criteria.
- The Commission's view, in light of the Coty judgment, is that a marketplace ban that does not comply with the Metro criteria will not amount to a "hardcore" restriction of competition irrespective of the product category concerned (luxury or non-luxury).
- This means that if the market shares of the parties are below 30%, the Commission considers that a marketplace ban can still benefit from the block-exemption available under the VBER.
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Context
There has been a lack of certainty for some time as to whether a selective distribution system for luxury goods may fall outside EU competition law. For example, in its 2011 Pierre Fabre judgment, the Court of Justice of the EU (the "Court") found that (a) "the aim of maintaining a prestigious image is not a legitimate aim for restricting competition" and (b) an outright ban on the online sale of certain cosmetic and body hygiene products did not comply with EU competition law. Therefore, the Court's recent judgment in Coty was much anticipated. We commented on the Coty judgment in an earlier article.
The Coty judgment
The Brief summarises the key findings in Coty. In particular, a selective distribution system for luxury goods can escape EU competition law provided that the criteria established in the Metro case are satisfied, namely:
- resellers are chosen on the basis of objective criteria of a qualitative nature, laid down uniformly for all potential resellers;
- the goods necessitate use of a selective distribution system to preserve their quality and/or to ensure their proper use; and
- the criteria for admission to the system are proportionate, (the "Metro criteria").
Coty clarifies that a selective distribution system can, subject to the Metro criteria being fulfilled, be operated for luxury goods in order to preserve their luxury image. However, the Commission notes in the Brief that each potentially restrictive clause within a selective distribution agreement must be analysed separately under the Metro criteria.
The key clause in Coty concerned a ban on authorised retailers using discernible third party platforms such as Amazon.de for online sales (i.e. a "marketplace ban"). In its assessment, the Court considered that a marketplace ban could be an appropriate means of preserving the luxury image of the goods concerned. The Court also found the restriction proportionate since it did not prevent authorised distributors selling online through their own websites, or using platforms that were not discernibly operated by a third party.
The Commission's views on the Coty judgment
The Commission states in the Brief that marketplace bans do not amount to a "hardcore" restriction by object under the VBER irrespective of the product category concerned (luxury or non-luxury). In particular, the Commission concludes that the Court's reasoning that the marketplace ban in Coty neither amounted to a restriction of the customers to whom distributors may sell within the meaning of Article 4(b) VBER nor a restriction of passive sales to end users by authorised distributors within the meaning of Article 4(c) VBER, applies equally regardless of whether the products concerned are luxury products.
The Commission notes that this position is supported by (amongst other things) the need to preserve the benefit of legal certainty for parties to an agreement as regards the validity of that agreement under Article 101 – there should be no need to consider the type of product to determine whether VBER applies.
The Commission's position seems logically and economically sound. However, it should be noted that the Court in Coty only expressly commented on the position under VBER as regards luxury goods. This has led some, including Andreas Mundt, the leader of the German Bundeskartellamt ("BKA"), to suggest that the judgment is limited in its application to luxury goods.
Whether or not a marketplace ban amounts to a hardcore restriction is important as the benefit of the block exemption under the VBER will be lost where an agreement contains hardcore restrictions. On the other hand, provided that the market shares of the parties to the agreement are below the 30% market share threshold stated in Article 3 of the VBER, the parties will still have the benefit of the block exemption if marketplace bans do not constitute hardcore restrictions.
Concluding observations
The position taken by the Commission in the Brief that marketplace bans (unlike outright bans on online selling) are not hardcore restrictions regardless of product category will have significant persuasive force. However, it remains to be seen whether all national competition authorities (in particular, the BKA) and national courts will interpret the Coty ruling in the same way.
