EU Court of Justice allows online sales restrictions (Coty case)

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Long expected by manufacturers of brand-name products, brick-and-mortar-distributors, internet retailers and online platform providers as Amazon, eBay, Zalando, the Court of Justice of the European Union (CJEU) just decided yesterday on 6 December 2017 – its “Santa Claus decision” – that manufacturers may lawfully ban sales via third party platforms.

In a previous Legalmondo post we analysed this dispute (“the Coty case”) just resolved by the CJEU. According to its decision, such platform ban is not necessarily an unlawful restriction of competition under article 101 Treaty on the Functioning of the European Union (“TFEU”): The court has confirmed that selective distribution systems for luxury goods, which shall primarily preserve the goods’ luxury image may comply with European antitrust law.

More specifically, the court decided that platforms bans are lawful, namely that EU law allows restricting online sales in

“a contractual clause, such as that at issue in the present case, which prohibits authorised distributors of a selective distribution network of luxury goods designed, primarily, to preserve the luxury image of those 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 Oberlandesgericht to determine whether those conditions are met.”

(cf. the CJEU’s press release No. 132/2017).

This is the intermediary result of the Coty case as it is now up to the Higher Regional Court of Frankfurt to apply these requirements in the Coty case. Simply put, the question in that case is whether owners of luxury brands may generally or at least partially ban the resale via internet on third-party platforms. The Coty case’s history is quite interesting: The luxury perfume manufacturer Coty’s German subsidiary Coty Germany GmbH (“Coty”) set up a selective distribution network and its distributors may sell via the Internet – but banned to sell via third party platforms which are externally visible as such, i.e. Amazon, eBay, Zalando & Co. The court of first instance decided that such ban of sales via third party platforms was an unlawful restriction of competition. The court of second instance, however, did not see the answer that clear. Instead, the court requested the CJEU to give a preliminary ruling on how European antitrust rules have to be interpreted, namely article 101 TFEU and article 4 lit. b and c of the Vertical Block Exemptions Regulation or “VBER” (decision of 19.04.2016, for details, see the previous post “eCommerce: restrictions on distributors in Germany). On 30 March 2017, the hearing took place before the CJEU. Coty defended its platform ban, arguing it aimed at protecting the luxury image of brands such as Marc Jacobs, Calvin Klein or Chloe. The distributor Parfümerie Akzente GmbH instead argued that established platforms such as Amazon and eBay already sold various brand-name products, e.g. of L’Oréal. Accordingly, there was no reason for Coty to ban the resale via these marketplaces. Another argument brought forward against the platform ban was that online platforms were important for small and medium-sized enterprises. Indications on how the court could decide appeared on 26 July 2017, with the Advocate General giving his opinion, concluding that platform bans appear possible, provided that the platform ban depends “on the nature of the product, whether it is determined in a uniform fashion and applied without distinction and whether it goes beyond what is necessary” (see the previous post Distribution online – Platform bans in selective distribution (The Coty case continues)”).

 

Practical Conclusions:

  1. This “Santa Claus decision” of 6 December 2017 is highly important for all manufacturers of brand-name products, brick-and-mortar-distributors, internet retailers and online platform providers – because it clarifies that manufacturers of brand-name products may ban sales via third party platforms (Amazon, eBay, Zalando and Co.) to ensure the same level of quality of distribution throughout all distribution channels, offline and online.
  2. As a glimpse back in advance: the district court of Amsterdam already on 4 October 2017 decided that Nike’s ban on its selective distributors not to use online platforms as Amazon was a lawful distribution criterion to safeguard Nike’s luxury brand image (case of Nike European Operations Netherlands B.V. vs. the Italy-based retailer Action Sport Soc. Coop, A.R.L., ref. no. C/13/615474 / HA ZA 16-959). More details soon!
  3. The general ban to use price comparison tools as stipulated by the sporting goods manufacturer Asics in its “Distribution System 1.0“ shall be anti-competitive – according to the Bundeskartellamt, as confirmed by the Higher Regional Court of Düsseldorf on 5 April 2017. The last word is, however, still far from being said – see the post “Ban of Price Comparison Tools anti-competitive & void?”. It will be interesting to see how the Coty case’s outcome will influence how to see such bans on price comparison tools.
  4. For further trends in distribution online, see the EU Commission’s Final report on the E-commerce Sector Inquiry and details in the Staff Working Document, „Final report on the E-commerce Sector Inquiry.
  5. For details on distribution networks and distribution online, please see my articles

 

The Coty case is extremely relevant to distribution in Europe because more than 70% of the world’s luxury items are sold here, many of them online now. For further implications on existing and future distribution networks and the respective agreements, stay tuned: we will elaborate this argument on Legalmondo!

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Benedikt Rohrssen
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