In the August edition of our agentlaw newsletter we reported on the view expressed by the Advocate General to the European Court that Coty Germany (the luxury beauty supplier behind Calvin Klein, Chloe and Marc Jacobs’ fragrance and cosmetic product lines) should be able to prevent authorised retailers in its selective distribution system from selling its luxury goods on third-party platforms such as Amazon (please click here to read more on this).
In the matter at issue, one of Coty’s authorised retailers, Parfumerie Akzente, had distributed Coty products in Germany as a member of Coty’s selective distribution system for many years both at its brick-and-mortar stores and online. Internet sales were carried out partly on Parfumerie Akzente’s own website and partly via Amazon in Germany at www.amazon.de.
Coty put forward certain amendments to the selective distribution agreement that it had in place with the members of its selective distribution system. In respect of the provisions concerning online sales, the proposed amendments permitted the authorised retailers selling Coty products on the internet, provided that internet sales activity is conducted through an “electronic shop window” of the authorised retailer “and the luxury character of the products is preserved”. In addition, authorised retailers were prohibited from engaging a third-party undertaking to sell Coty products which is not an authorised retailer of Coty.
As a result of the proposed amendments, Parfumerie Akzente would not be able to distribute Coty products via www.amazon.de. Not surprisingly, Parfumerie Akzente refused to sign the amendments.
Coty brought an action in the German national court seeking an order prohibiting Parfumerie Akzente from distributing Coty products via www.amazon.de. The action was dismissed on the basis that such a restriction was contrary to German competition law or EU competition law. Coty appealed to the Frankfurt Higher Regional Court. However, that court was uncertain as to whether the selective distribution agreement between Coty and Parfumerie Akzente was lawful under EU competition law. As a result, the Frankfurt Higher Regional Court referred certain questions to the Court of Justice of the European Union, including whether EU competition law prohibited a supplier from preventing authorised retailers in a selective distribution system from selling its luxury goods on third-party platforms such as Amazon.
On 6 December 2017 the Court of Justice of the European Union (“CJEU”) released its judgment on this issue.
The CJEU began by referring to settled case law in order to emphasise the established principle that a selective distribution system for luxury goods does not breach EU competition law if:
(a) retailers are admitted to, or rejected from, the selective distribution system on the basis of objective criteria of a qualitative nature
(b) such criteria is laid down uniformly and not applied in a discriminatory fashion; and
(c) the criteria must not go beyond what is necessary to preserve the quality or proper use of the goods.
The CJEU noted that the quality of luxury goods includes not only the material characteristics of the goods, but also the allure and prestigious image which gives the goods an aura of luxury. It is that aura which is a key aspect of the goods as it enables consumers to distinguish the goods from other similar goods.
More specifically, the CJEU agreed with the view expressed by the Advocate General and confirmed that a clause in a selective distribution agreement of luxury goods which prohibits authorised retailers from using third-party platforms for internet sales of those luxury goods will not breach EU competition law provided that:
(i) the clause has the objective of preserving the luxury image of the goods in question;
(ii) the clause is laid down uniformly and not applied in a discriminatory fashion; and
(iii) the clause is proportionate in the light of the objective pursued.
In the case of Coty the CJEU commented that the clause at issue in Coty’s selective distribution agreement appears to be lawful. However, it will be for the German court to determine whether conditions (i) to (iii) are satisfied in the particular case.
The view of the Advocate General and the recent decision of the CJEU is somewhat surprising in light of the announcement of the German competition authority (“the Bundeskartellamt”) in 2015 which criticised the provision in the selective distribution agreement of sports footwear brand ASICS which prohibited authorised distributors from using online marketplaces such as Amazon and eBay. The decision in respect of ASICS followed a similar investigation by the Bundeskartellamt in 2014 of the conditions set by Adidas for the online sale of its products, in particular Adidas’ restriction on sales via online marketplaces. The Bundeskartellamt decided that such restriction gave rise to serious competition concerns. The investigations into both Adidas and ASICS were concluded after the brands amended the particular clauses which were the subject of competition law objections. It therefore appears that the CJEU and the Bundeskartellamt are moving in different directions regarding their interpretation and application of EU competition law in this regard.
Going forwards, it will be also interesting to see whether the decision of the CJEU which relates specifically to luxury goods sold in a selective distribution system is extended to other goods sold over the internet through online marketplaces such as Amazon and eBay.
Overall, the decision of the CJEU is good news for luxury brand owners which consider that third-party platforms do not have sufficient prestige to sell their products. However, before seeking to impose a blanket restriction on authorised retailers in respect of such online sales, brand owners will still need to ensure that any proposed restrictions comply with, and continue to comply with, the requirements of EU competition law.
It should also be borne in mind that this matter relates to Coty’s selective distribution system in Germany and is specific on its facts with the German national court still to determine whether Coty’s actions comply with EU competition law. As a matter of English law, if a distributor was to expressly refuse to sign an agreement put before it, the terms of that agreement would likely not apply to the relationship between the parties. It follows that if this matter was brought before the English court, the court may take a different view in granting (or refusing to grant) an order restricting a distributor from acting in a certain way when the distributor had refused to agree to such restriction from the outset. In short, suppliers will need to ensure that their actions accord with English law before trying this at home!