COTY - The ECJ sides with owners of luxury brands

Posted on 08 December 2017

COTY - THE ECJ SIDES WITH OWNERS OF LUXURY BRANDS

The European Court of Justice ("ECJ") has ruled that a supplier of luxury goods can prevent its authorised distributors - part of the supplier's selective distribution system - from selling those luxury goods via third-party platforms such as 'amazon.de'.

In a judgment that will please luxury brand owners, the ECJ confirmed that properly constituted selective distribution schemes can be used to preserve the luxury image of luxury goods. The ECJ observed that an obligation imposed on authorised distributors to sell the luxury goods online solely through their own online shops and not via third-party platforms, provides the luxury brand owner with a guarantee that its luxury goods will be exclusively associated with the authorised distributors. The ECJ went on to say that such an association is one of the objectives behind a luxury brand owner setting up a selective distribution scheme for its products.

The judgment also commented that the absence of a contractual relationship between the supplier of the luxury goods and the operator of the third-party platform prevented the supplier from being able to require the operator of the third-party platform to comply with the quality conditions that had been imposed by the supplier on its authorised distributors. This meant there was a risk of deterioration of the online presentation of the luxury goods, which was liable to harm their luxury image. The ECJ observed that third-party platforms typically sell goods of all kinds, and the fact that luxury goods are not sold via such platforms but solely via the online shops of authorised distributors contributed to their luxury image.

It should be noted that Coty was not seeking to prevent all sales of its luxury goods via third-party platforms, but only sales via such platforms where it was discernible to the consumer that the platform was operated by a third party and not by the authorised distributor.

Whilst the position in respect of luxury goods has now been clarified, this does not mean that all brand owners can restrict sales of their products via third-party platforms. This is an issue which has been explored by the German Competition Authority, and it has consistently held that restrictions on internet sales via third-party platforms are not justified for mainstream, non-luxury brands.

The Coty judgment is unlikely to be the final word on this issue. Numerous questions still remain unanswered when it comes to restrictions on internet sales. These include, how will brand owners respond when operators of third-party platforms modify their websites to include a "luxury" section and voluntarily offer to adhere to brand owners' guidelines for the presentation of their goods? And what view will the ECJ come to when it is asked to explain why "high-quality goods" should not be treated in the same way as "luxury goods"? Answers on a postcard please.

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