HomeInsightsCourt of Justice of European Union finds that supplier of luxury goods can prohibit its authorised distributors from selling those goods on third party internet platforms

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Coty Germany sells luxury cosmetic goods in Germany. In order to preserve their luxury image, it markets some of its brands via a selective distribution network, i.e. through authorised distributors. The sales locations of those authorised distributors must comply with a number of requirements to preserve the luxury image. Authorised distributors are allowed to sell the goods online, provided that they use their own electronic shop window or non-authorised third party platforms on condition that the use of such platforms is not noticeable to the consumer. By contrast, they are expressly prohibited from selling the goods online via third party platforms that are clearly third party platforms, such as Amazon and eBay.

Coty Germany brought proceedings before the German courts against one of its authorised distributors, Parfumerie Akzente, with a view to preventing it, in accordance with the terms of the contract, from distributing Coty goods via the platform “amazon.de”. The German courts asked the CJEU to rule on whether the clause prohibiting such sales was lawful under EU competition law.

The CJEU said that a selective distribution system for luxury goods, designed primarily to preserve the luxury image of those goods, does not breach the prohibition of agreements, decisions and concerted practices under EU law, provided that the following conditions are met:

  • resellers are chosen on the basis of objective criteria of a qualitative nature, laid down uniformly for all potential resellers and not applied in a discriminatory fashion; and
  • the criteria laid down does not go beyond what is necessary.

The CJEU said that the quality of luxury goods is not simply the result of their material characteristics, but also of the allure and prestigious image, which bestows on them an aura of luxury. That aura is an essential aspect of those goods in that it thus enables consumers to distinguish them from other similar goods. Therefore, any impairment to that aura of luxury is likely to affect the actual quality of those goods.

The CJEU also found that the prohibition of agreements, decisions and concerted practices under EU law does not preclude a contractual clause that bans authorised distributors of luxury goods from using, in a discernible manner, third party platforms for internet sales of the goods in question, provided that the following conditions are met: (i) that clause has the objective of preserving the luxury image of the goods in question; (ii) it is laid down uniformly and not applied in a discriminatory fashion; and (iii) it is proportionate in the light of the objective pursued. It will be for the German courts to determine whether those conditions are met.

The CJEU said that the clause in question had the objective of preserving the image of luxury and prestige of Coty goods. Further, it was clear form the evidence that the German courts considered the clause to be objective and uniform and non-discriminatory.

Further, the CJEU said, the ban on using third party platforms was appropriate to preserve the luxury image of those goods and did not appear to go beyond what was necessary to preserve the luxury image of those goods. In particular, given the absence of any contractual relationship between the supplier and the third party platforms, authorising distributors to use such platforms subject to their compliance with pre-defined quality conditions was not as effective.

Finally, if the German courts conclude that the clause is caught, in principle, by the prohibition of agreements, decisions and concerted practices laid down in EU law, the CJEU said that the clause might benefit from a block exemption. In the CJEU’s view, the clause in question did not constitute a restriction of customers nor a restriction of passive sales to end users, restrictions which are automatically excluded from the benefit of a block exemption because they are liable to have severely anticompetitive effects. (Case C-230/16 Coty Germany GmbH v Parfumerie Akzente GmbH — to access the judgment in full, go to the curia search form, type in the case number and follow the link).

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