On 6 December 2017, the Court of Justice of the EU (the "Court") delivered a highly anticipated ruling on the use of selective distribution systems and third-party platform bans in luxury retail. The judgment is likely to be well-received by the luxury goods industry as the Court found that the preservation of a luxury image could justify preventing authorised distributors from selling products on third-party platforms such as Amazon.
Parfümerie Akzente ("Akzente") was a member of Coty's network of authorised distributors in Germany. Akzente refused to sign an amendment to its distribution agreement preventing it from selling Coty's luxury branded cosmetics products via third party platforms, such as Amazon. Coty subsequently sought an order prohibiting Akzente from distributing its luxury cosmetics brands via "amazon.de".
The Court was requested by the Higher Regional Court of Frankfurt court to answer questions concerning the compatibility of Coty's distribution system with EU competition law.
The Court held that selective distribution systems designed primarily to preserve the image of luxury goods could be compatible with EU competition law without further analysis, provided that any restrictions on resellers:
- have the objective of preserving the luxury image of the goods in question;
- are laid down uniformly and are not applied in a discriminatory fashion; and
- are proportionate in light of the objective pursued..
Significantly, the Court distinguished the 2011 Pierre Fabre judgment, confirming that the Court did not intend in that case to establish a general principle with the effect that the preservation of a luxury image can no longer be used to justify restrictions on the operation of a selective distribution network. In particular, the Coty judgment clarifies that the ruling in Pierre Fabre was specific to the nature of the products concerned (non-luxury cosmetic and body hygiene goods) and the nature of the restriction (a total ban on online sales).
The Court considered that Coty's prohibition on sales via third-party platforms was an appropriate and proportionate means of ensuring that luxury goods were only associated with authorised distributors. In particular, the prohibition enabled Coty to maintain a direct contractual relationship with the distributor through which it could ensure compliance with all agreed quality conditions. Distributors were not prevented from selling through their own websites or using third-party platforms in a manner that was indiscernible to the public. As such, the Court considered that the restriction did not go beyond what was necessary to preserve the luxury image of luxury goods.
Finally, the Court considered that Coty's restriction on sales via third party platforms would not amount to a more serious "by object" restriction of competition as it did not impose a total ban on online sales or online advertising, and did not restrict the customers to whom authorised distributors were permitted to sell.
The Court's judgment does not provide further clarity on when goods will have a sufficient allure and prestigious image to bestow on them an "aura of luxury". Therefore, we expect a continuing debate on this point. However, the judgment does clarify the application of the European Commission's Vertical Agreements Block Exemption Regulation to restrictions on sales via third-party platforms.
When read alongside the Commission's Final Report on the E-commerce Sector Inquiry, this judgment evidences the emergence of consistency in the approach of the Court and the Commission on the assessment of third-party platform bans.
What is selective distribution?
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- Imposing restrictions on the resale of goods by independent distributors can amount to an anticompetitive restriction of competition for the purposes of Article 101(1) TFEU.
- In limited circumstances, the EU competition rules allow suppliers to place restrictions on the resale of their goods, having regard to the nature of those goods, to preserve their quality and ensure proper use.
- Suppliers are able to apply criteria for the admission of authorised dealers to so-called selective distribution networks so that goods are only distributed by technically qualified dealers and/or goods are only sold in an appropriate sales environment.
- The Coty judgment confirms that suppliers may ban resellers who have been appointed to a selective distribution network from using third party platforms to resell luxury goods as this can undermine the "aura of luxury".
- Further guidance is set in the Commission's Vertical Agreements Block Exemption Regulation and the Guidelines on Vertical Restraints.
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Co-author: Zac Davies
All articles in the December edition of the Competition newsletter
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