It has long been recognised that luxury brands have a legitimate interest in controlling the physical environment in which their goods are sold – and that this does not necessarily amount to anti-competitive conduct. The issue has now come up in the context of online sales via third party platforms.
Suppliers of luxury goods will be encouraged by the recent opinion of an Advocate General of the European Court of Justice (ECJ) that, under certain conditions, suppliers may prohibit their authorised retailers from selling their products on third party platforms such as ebay and Amazon.
The opinion arises from a case pitching Coty, one of Germany's leading suppliers of luxury cosmetics, against one of its authorised retailers, Parfümerie Akzente (PA).
Coty distributes its goods through a selective distribution network of authorised retailers who are required to meet a number of qualitative standards imposed by Coty; these include a requirement that "the décor and furnishing of the sales location, the selection of goods, advertising and the sales presentation must highlight and promote the luxury character of [Coty's brands]". In 2012 Coty introduced a change to its distribution agreements in order to prohibit its authorised retailers from selling Coty's products over third party online platforms. This change was intended to preserve the luxury image of Coty's goods.
PA has distributed Coty products for a number of years as an authorised retailer both in its bricks and mortar shops and over the internet, including over amazon.de. When Coty attempted to amend its distribution contract with PA to prohibit PA from selling its products over third party platforms, PA refused to approve the change. As a result, Coty brought an action before the German courts to seek an order to prohibit PA from selling its products over amazon.de.
The German courts referred the issue to the ECJ to determine whether the prohibition proposed by Coty is compatible with EU competition law.
Advocate General Wahl (AG) commented that it was recognised under EU law that it may be necessary to implement a selective distribution system for the sale of luxury goods in order to preserve the reputation of such goods and to ensure that they are used correctly. He commented that selective distribution systems "protect the development of the brand image", noting that "brands, and in particular luxury brands, derive their added value from a stable consumer perception of their high quality and their exclusivity in their presentation and marketing".
The AG found that selective distribution systems for luxury and prestige products which are designed to preserve the luxury image of such goods are not necessarily caught by the prohibition of agreements set out in Article 101 of the Treaty of the Functioning of the European Union (TFEU) provided they comply with certain criteria, noting that such systems may in fact have a beneficial effect on competition.
With regard to the prohibition proposed by Coty, the AG found that such a restriction would not necessarily be caught by the prohibition set out in Article 101 of the TFEU provided that the restriction:
• is dependent on the nature of the product;
• is determined in a uniform fashion and applied without distinction; and
• does not go beyond what is necessary.
The AG noted that the prohibition proposed by Coty would not impose an absolute prohibition on online sales. It would instead require Coty's authorised distributors not to sell its products on third party platforms, as such platforms are not required to comply with the same sorts of qualitative requirements that Coty imposes on its authorised retailers.
In view of the above, the AG opined that the prohibition proposed by Coty would be permissible under certain conditions.
Although non-binding, the AG's opinion will be welcomed by suppliers of luxury goods that wish to exert more control over the ways in which their products may be distributed online by preventing sales over third party platforms. The case will now be considered by the ECJ.
UK law is currently closely aligned to EU competition law, and the Competition and Markets Authority would apply a similar analysis to that of the EU authorities. Although divergence of law and practice, in theory, is possible post-Brexit, we expect that the logic of applying consistent principles will result in continuing convergence, given that most luxury brands operate throughout the EU and UK.
Coty Germany GmbH v Parfumërie Akzente GmbH
If you require further information on anything covered in this briefing please contact Emily Arnold ([email protected], 020 3375 7601), Peter Wienand ([email protected]) or your usual contact at the firm on 020 3375 7000. Further information can also be found on the Fashion & Luxury page on our website.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, August 2017