The Court of Justice of the EU (CJEU) has just ruled, in the context of a selective distribution system for luxury goods, that contractual clauses prohibiting authorised distributors from selling those goods on branded third-party Internet platforms can be compatible with the EU competition rules.
Such a prohibition must meet three conditions:
- its objective is to preserve the luxury image of the goods;
- it is applied objectively and in a non-discriminatory manner; and
- the restriction is proportionate and does not go beyond what is necessary.
This judgment will be welcomed by the luxury goods industry, which, in the wake of the European Commission Vertical Guidelines, has been concerned about the negative impact on the image of luxury goods of sales through branded third-party platforms such as eBay or Amazon and an overly rigid application of the EU competition rules in that respect.
Background
Coty Germany sells luxury cosmetics in Germany. In order to preserve the brand's image, the products are made available to consumers solely through a selective distribution network, i.e. authorised distributors. The sales outlets of those authorised distributors must meet certain requirements in terms of their environment, décor and furnishing. Coty's authorised distributors are allowed to sell online, but only in their own web shops and provided the luxury nature of the products is maintained. They are expressly prohibited from selling online via third-party platforms.
Parfümerie Akzente, one of the Coty’s authorised German distributors, sold Coty products on Amazon in Germany, in violation of the distribution agreement. Coty Germany brought proceedings before a German court against Parfümerie Akzente, with a view to prohibiting it from distributing Coty products on Amazon. The Frankfurt court of appeal referred the case to the CJEU.
Judgment
Referring to Dior v Copad (C 59/08), the CJEU recalled that luxury goods may benefit from a selective distribution system designed primarily to preserve their image. This does not breach EU law, to the extent retailers are selected on the basis of objective qualitative criteria, uniformly applicable to all potential retailers in a non-discriminatory fashion and which do not go beyond what is necessary (paras. 24 and 29).
The Court noted that the quality of luxury goods results not only from their material (or tangible) characteristics but also from their overall allure and prestigious image. An "aura of luxury" is an essential aspect of the goods as it enables consumers to distinguish them from similar goods. Impairment of this aura of luxury is likely to affect the actual quality of the goods (para. 25).
As the clause in question does not prohibit Internet sales in general, only the use of third-party platforms, the Court concluded that the prohibition is an appropriate measure to preserve the prestigious image of luxury cosmetics. The Court added that while the clause restricts a certain type of Internet sale, it does not amount to a general restriction on customers or on passive sales to end users within the meaning of Article 4(b) and (c) of Commission Regulation (EU) No 330/2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices (para. 68).
