SELECTIVE DISTRIBUTION: ONLINE SALE RESTRICTIONS & LUXURY BRAND IMAGE JUSTIFICATION AFTER COTY

 

On 6 December 2017 the Court of Justice of the EU (CJEU) delivered a long awaited preliminary ruling in Coty case C-230/16[1], The judgement follows the Advocate General’s opinion and provides guidance on the legality of online sale bans in selective distribution agreements in the EU, focusing on  the ‘luxury brand image’ justification.

Background of the case

The CJEU reviewed the Coty case upon the German court application for a preliminary ruling. The dispute was between Coty Inc. (Coty) and Parfümerie Akzente GmbH (Akzente, an authorized offline distributor of Coty). Coty sued Akzente in the German court for violating a condition under the selective distribution agreement that prohibited Akzente from selling Coty’s luxury products (under brands Marc Jacobs, Calvin Klein and Chloe) on open third party platforms (e.g. Amazon.de, etc.).

The CJEU supported the Advocate General’s opinion in this case, and generally confirmed that a selective distribution agreement aimed at preserving the brand image of a product shall normally be compatible with Article 101(1) TFEU under certain conditions; and online sale restrictions (not absolute) shall be acceptable in the context of a selective distribution agreement as such not restrictive by object.

Highlights of the CJEU’s judgement

  • Criteria for selective distribution network. The CJEU refers[2] to its previous judgement in Pierre Fabre Dermo-Cosmétique 2009 [3] to confirm that a selective distribution is outside the scope of Article 101(1) TFEU, to the extent that (i) re-sellers are chosen on the basis of objective criteria of a qualitative nature, laid down uniformly for all potential re-sellers and not applied in a discriminatory fashion, that (ii) the characteristics of the product in question necessitate such a network in order to preserve its quality and ensure its proper use and, finally, that (iii) the criteria laid down do not go beyond what is necessary.
  • “Necessity” of the online sales restriction may be explained by the need to preserve the quality of the luxury goods. The quality of such goods is not just the result of their material characteristics, but also “of the allure and prestigious image which bestow on them an aura of luxury.”[4] The image enables consumers to distinguish them from similar goods. Hence, any impairment to that aura of luxury may affect the actual quality of those goods.[5]
  • Nature of the online sale restrictions. The online sale restriction at issue is not absolute. It applies solely to the internet sale of the contract goods via third-party platforms which operate in a “discernible manner”[6] towards consumers. Hence, authorized distributors shall be permitted to sell the contract goods online: both (i) on their own websites (as long as they have an electronic shop window for the authorized store and the luxury aura of the goods is preserved), and (ii) via unauthorized third party platforms when the use of such platforms “is not discernible to the customer”.[7]
  • Such online sales restriction provides the supplier with a guarantee that the goods in question will be exclusively associated with the authorized distributors,[8] which is one of the objectives sought when recourse is made to the selective distribution system.

 Concluding remarks

Hence, the (non-absolute) online sale restrictions in the selective distribution system appear to be lawful in relation to Article 101(1) TFEU. They can be regarded as being such as to preserve the quality and luxury image of the luxury brand goods. They enable the supplier of luxury goods to check that the goods will be sold online in an environment that corresponds to the qualitative conditions that it has agreed with its authorized distributors.

The prohibition shall not be absolute and shall concern only sales of contract goods at third party platforms. Authorized distributors shall be permitted to sell the contract goods online via unauthorized third party platforms when the use of such platforms is ‘not discernible’ to the customer (although the CJEU has not provided any definition of the notion of ‘discernible/not discernible to the customer’).

 

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[1] http://curia.europa.eu/juris/document/document.jsf?text=&docid=197487&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=306359

[2] Para 24, Coty case C-230/16

[3] Judgment of 13 October 2011, Pierre Fabre Dermo-Cosmétique, C‑439/09

[4] Para 25, Coty case C-230/16

[5] See also 2009, Copad, C‑59/08, para 24-26

[6] Para 52, Coty case

[7] Para 55, Coty case.

[8] Para 44, Coty case

Source of the image used in this piece: http://www.Intellectualpropertymagazine.com

 

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