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Brand Matters

Luxury goods: protecting their brand image
Brand Matters

Brand MattersIssue 7 | November 2017

Date
10 November 2017

Andrij Jurkiw Partner

With online sales now integral to many retail businesses, the issue of whether luxury goods suppliers can stop goods which qualify for selective distribution from being sold via third party platforms such as Amazon and eBay is more important than ever.


Luxury goods: protecting their brand image

With online sales now integral to many retail businesses, the issue of whether luxury goods suppliers can stop goods which qualify for selective distribution from being sold via third party platforms such as Amazon and eBay is more important than ever. Advocate General Wahl recently issued his non-binding Opinion (discussed in our bulletin) on this issue in the Coty case, saying that suppliers of luxury goods can stop them from being sold via third party platforms in order to preserve their brand image.  The big question is whether judges at the European Court of Justice will follow this when they decide the case, with the decision coming out on 6th December 2017.

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 Commission concluded in its Report that the importance of marketplaces as a sales channel varies significantly depending upon a number of factors.  The use of marketplaces is increasing and they play a particularly important role in Member States such as Germany, the UK and Poland. The Commission concluded that marketplace bans should not be considered as hardcore restrictions, but that they were not necessarily compatible with the EU competition rules. They could, therefore, be subject to intervention by the Commission or a national competition authority when justified by the market situation.

The Advocate General's Opinion in Coty 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 platforms complied with the 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).

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

In another development, involving the supply of spare parts for luxury watches, the General Court has stated that the goal of protecting a brand image cannot justify a restriction of competition through the establishment of a selective repair system.  However, the Court went on to say that the objective of preserving the quality of products and ensuring their proper use may, in itself, justify such a restriction.  This leaves open the question as to whether a selective repair system is, in fact, necessary to preserve the quality of specific products and ensure their proper use.  In this case, both the EU Commission and the General Court felt it was.  The debate on this point is likely to continue.