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This briefing note is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.

Luxury goods, selective distribution and third party platforms
 Briefing 
Author
Andrij Jurkiw, Nina O'Sullivan and Lewis Cohen
Date
28 July 2017

Luxury goods, selective distribution and third party platforms

Advocate General Wahl has issued his Opinion in the Coty case that a supplier of luxury goods can prevent goods which qualify for selective distribution from being sold via third party platforms such as Amazon.

We will report on the European Court of Justice's (CJEU) decision in due course. In the meantime, the Advocate General's Opinion leaves open the key question as to whether it would be unreasonable for a supplier of luxury goods to prevent sales of its products via third platforms where those third party platforms complied with the relevant criteria imposed by the luxury supplier for the presentation of those products on the internet (this is a set of circumstances that may require an individual assessment by a Competition Regulator).

The Coty case comes at an interesting time given the Commission's sector inquiry into e-commerce and its Final Report (discussed in our recent bulletin) which considered, amongst other practices, absolute marketplace (platform) bans. The inquiry showed a 'rather scattered picture' with more than 90% of respondent retailers using their own online shop when selling online, but with the use of marketplaces increasing and playing a particularly important role in Member States such as Germany, the UK and Poland. Some 18% of retailers reported having clauses in their agreements with suppliers restricting marketplace sales ranging from absolute bans to bans against selling on marketplaces that do not fulfil certain quality criteria.

The Commission concluded in its Report that the importance of marketplaces as a sales channel varies significantly depending upon a number of factors. It said marketplace bans should not be considered as hardcore restrictions but they were not necessarily compatible with EU competition rules. They could therefore be subject to intervention by the Commission or a national competition authority when justified by the market situation.

A further question, which should be determined once and for all by the CJEU (but does not arise in this case), is whether selling the luxury products for less than the recommended selling price affects the luxury character and image of the products. We will report on the CJEU's decision in due course.

Background

Coty is a leading supplier of luxury cosmetics in Germany, selling certain brands via a selective distribution network. In March 2012, Coty revised its selective distribution network contracts and included a condition that authorised retailers were "prohibited from collaborating with third parties [which were unauthorised] if such collaboration is directed at the operation of the website and is effected in a manner that is discernible to the public".

One of Coty's authorised retailers, Parfümerie Akzente, refused to agree the amendments. Coty sought an order from the German courts preventing Parfümerie Akzente from selling its cosmetics via amazon.de. The Frankfurt Higher Regional Court referred a number of questions to the CJEU concerning selective distribution networks and the legitimacy of the clause preventing authorised retailers from selling via third party sites such as Amazon.

Opinion

Advocate General Wahl's Opinion makes the following points.

First, selective distribution networks are permitted where they follow the long established criteria for such networks, namely:

1.     The resellers are chosen on the basis of objective criteria of a qualitative nature which are determined uniformly for all and applied in a non-discriminatory manner for all potential resellers;

2.     The nature of the product in question, including the prestige image, requires selective distribution in order to preserve the quality of the product and to ensure that it is correctly used; and

3.     The criteria established do not go beyond what is necessary.

Secondly, at this stage of development of online selling, a supplier of luxury goods is permitted to insist that goods which qualify for selective distribution are not sold via third party platforms. The key factor appears to be the preservation of the luxury character of the goods, by improving the quality and image of the products concerned. In that regard, the supplier of the luxury goods can insist that its goods are presented on the internet in a particular way, provided that such criteria are applied without distinction across its selective distribution network and the criteria go no further than is necessary (these would be issues for the German court to determine).

The requirement that the criteria must go no further than is necessary is always going to be the tricky one to determine effectively. In this case, the Advocate General's Opinion is that the particular restriction on sales via third party platforms is likely to improve competition based on qualitative criteria: first, it ensures that the products are sold in an environment meeting the qualitative requirements imposed by the supplier, and second it assists in guarding against 'parasitism' by ensuring that the investment and effort made by the supplier and its authorised distributors to improve the quality and image of their products does not benefit other undertakings. Further, the particular restriction in this case is not an outright ban on online sales, as authorised distributors remain able to distribute the goods via their own sites (and to make use of third party platforms in a non-discernible manner).

The CJEU's judgment in this case and the subsequent application of it by the German Court is awaited with eager anticipation.