The Coty case: Prohibition of sale of luxury goods on third-party online platforms is legal

12.28.2017

The CJEU’s judgment in the important Coty case is now in. The Court’s decision is consistent with the opinion of Advocate General Wahl, establishing that a prohibition of the sale of luxury items by authorised distributors on third-party online platforms does not contravene Article 101 TFEU, subject to fulfilment of certain conditions.
CJEU judgment of 6 December 2017 in Case C 230/16 - Coty Germany GmbH v Parfümerie Akzente GmbH

"Luxury image" can justify the use of a selective distribution system

The CJEU, consistent with previous decisions and the opinion of the Advocate General, confirmed that the preservation of a ‘luxury image’ may justify the use of a selective distribution system, provided (the Metro conditions):

 

  1. that the nature of the products requires the use of a selective distribution system
  2. that resellers are chosen on the basis of objective criteria of a qualitative nature that are laid down uniformly for all potential resellers and applied in a non-discriminatory fashion
  3. that the criteria are necessary and proportionate.

Sale on third-party online platforms can be lawfully prohibited

In the context of a selective distribution system set up for the purpose of preserving a ‘luxury image’, the implementation of certain contractual provisions seeking to maintain the ‘luxury image’ of the goods will be in compliance with Article 101 TFEU. Such provisions presuppose - as does the very establishment of the selective distribution system - that the above criteria are met.

The question in the Coty case was then if the prohibition of sale of third-party online platforms met all of the conditions. The Court held that all conditions had been met, and that the prohibition was thus necessary and proportionate, as:


  1. the prohibition provided the supplier with a guarantee that the luxury goods would be exclusively associated with the authorised distributors, which is precisely one of the objectives of a selective distribution system
  2. the prohibition enabled the supplier to check that the qualitative conditions are met and to take action against non-compliance within the contractual framework
  3. third-party online platforms such as Amazon and Ebay sell goods of all kinds, for which reason a prohibition of sale through such platforms helps preserve the ‘luxury image’ of the goods
  4. distributors were permitted to sell the contract goods online both via their own websites, as long as they did so through an electronic shop window, and via unauthorised third-party platforms, as long as the use of such platforms was not discernible to the consumer.

With (d), the Court lays down that the circumstances of the Coty case are different from the previous judgment in Pierre Fabre Dermo-Cosmétique (case C 439/09), which case concerned an absolute prohibition on the Internet sale of non-luxury goods.

Lastly, the Court noted that the clause did not qualify as a hardcore restriction, i.e. it did not restrict the customers to which the distributors were allowed to sell, nor did it restrict their passive sales to end users. As reasons for this, the Court referred to (d) above and the distinction to the Pierre Fabre Dermo-Cosmétique judgment (C 439/09), and the fact that the authorised resellers were entitled, under certain conditions, to market themselves on third-party platforms and online search engines, thus allowing end users to find the resellers’ online offers via search engines on the Internet. Thus, the Block Exemption Regulation on vertical restraints may apply if criteria 1-3 above are not met and the provision is thus caught by the prohibition in Article 101 TFEU.

What now?

The judgment shows that preservation of a ‘luxury image’ may justify a selective distribution system and may justify a supplier in implementing contractual provisions within such selective distribution system restricting the sales channels available to resellers, as long as criteria 1-3 above are met. It is decisively important in this connection that the goods can be defined as luxury goods, justifying such preservation.

Read the CJEU judgment.

Read our comments on the opinion of the Advocate General: AG Wahl: Requirement of use of an "electronic shop window" in a selective distribution system was not anti-competitive