According to the Court of Justice, the contractual clause through which the luxury product supplier prohibits distributors from selling online on third-party platforms such as Amazon or eBay is legitimate.
The long-awaited judgement of the EU Court of Justice has recently been published, granting the possibility to luxury products suppliers to prohibit distributors in the selective distribution network from selling online on third-party platforms.
The case brought to the attention of the European Judges involved Coty Germany, the German cosmetics colossus controlled by Jab Holdings (group that made the news due to the sale of its majority share of Jimmy Choo brand to Michael Kors for over 1 billion dollars) that over the years has created a selected network of authorized retailers chosen according to strict quality standards, in order to preserve the luxury image of some of its brands.
In particular, the stores of these distributors must observe a number of requirements in terms of environment, equipment and furnishing also having the chance of selling those products on the Internet.
In 2012 with reference to this last aspect Coty Germany proposed a modification to the existing contracts with its distributors, providing for limitations on online sales.
More specifically, the online products were to be offered only through an «electronic showcase» of the authorized store and the luxurious connotation of the products was to be preserved. It was also expressly forbidden to make use in a recognizable manner of third parties that were not authorized for Internet sales of the products covered by the contract.
The Parfümerie Akzente, distributor of Coty Germany for many years, refused to approve the aforementioned contract amendment since it wanted to continue selling the products covered by the contract via the well-known platform “amazon.de”.
Therefore, Coty Germany applied to the German Court to prohibit Parfümerie Akzente from distributing the products through such online platform.
In this context, the Oberlandesgericht Frankfurt am Main asked the Court of Justice whether the prohibition imposed by Coty Germany was compatible with EU competition law.
On 26th July 2017, Advocate General Nils Wahl filed his conclusions to which the Court substantially conformed through the judgement published on 7th December 2017.
The Luxembourg judges verified the compliance of the selective distribution system adopted by Coty Germany with the European competition law and, in particular, with art. 101 paragraph 1 of the Treaty on the Functioning of the European Union. In this regard, it was noted that a selective distribution system of luxury products, aimed primarily at safeguarding the image of such products, complies with European law, provided that the selection of retailers takes place according to objective criteria of a qualitative nature, applied in a non-discriminatory manner between potential retailers.
With reference to the limitations imposed by Coty Germany in online sales, instead, the Court focused on the legitimacy of this contractual provision in the light of Reg. No. 330/2010 and, in particular, if said clause restricts the customers to whom authorized distributors can sell luxury products, or if it restricts the passive sales of authorized distributors to final customers since these restrictions are deemed to be contrary to European legislation.
In this regard, the Court found that in the case in hand the restrictions imposed by Coty Germany to its distributors did not constitute violations of art. 4 of Reg. No. 330/2010 because the contract clause did not prohibit any online sale, but only those made through recognizable third-party platforms (i.e. Amazon.de). Moreover, this limitation was proportional to the pursued objective of preserving the luxury allure of the products covered by the distribution contract, also due to the fact that third-party platforms, having no contractual obligation with the manufacturer, could not be considered obliged to meet the standards required by Coty Germany from its distributors.
The judgement opens the way for companies operating in the luxury sector to maintain high quality and image standards of their brands through appropriate contractual provisions also in online sales.
(Bologna Office– Massimo Campailla and Marta Tonioni – 0039 (0)5 12750020)
