Luxury brand owners can stop their goods from being sold on third-party online platforms

In response to a request for a preliminary ruling from the Higher Regional Court, Frankfurt am Main, Germany, the CJEU has delivered a judgment which enables brand-owners to restrict their distributors from selling on online market places.

Coty owns a number of high-end perfume brands. Coty operated a selective distribution network for the distribution of the perfumes.  Parfümerie Akzente was an approved distributor.  Coty sought to introduce changes to the selective distribution criteria, to specify that an authorised retailer could only sell on the internet through an “electronic shop window” of an authorised store, and to prohibit the use of unauthorised third party websites.  It then brought an action to prevent Parfümerie Akzente selling the products on  Parfümerie Akzente argued that the requirement not to sell on third party websites was contrary to EU competition law.  Ultimately a number of questions were referred to the CJEU regarding the use of selective distribution as the means of distributing luxury products and restrictions which prevent people selling on third party online platforms.

The CJEU concluded as follows:

  • luxury brand owners are able to use the protection of the luxury image of their products as the sole justification for implementing a selective distribution system, provided that the criteria imposed for entry into the system are objective, applied uniformly and in a non-discriminatory manner. This appears to be a departure from statements in Pierre Fabre (C-483/09) that the aim of maintaining a prestigious product image was not a legitimate reason for restricting competition. Instead, the CJEU followed the earlier case of Copad (C-59/08), where the CJEU held that the aura of luxury is bestowed on goods by their allure and prestigious image and it is that aura of luxury which enables consumers to distinguish them from similar goods.  Consequently, an impairment to that aura is likely to affect the actual quality of those goods, justifying characteristics and conditions of a selective distribution system which seek to ensure that the goods are displayed in sales outlets in a manner that enhances their value;
  • a supplier may prohibit members of a selective distribution system from selling its products on third party platforms in order to preserve the luxury image of its products;
  • a restriction preventing distributors of luxury products in a selective distribution network from selling on third party online platforms (such as Amazon and eBay) is not a hardcore restriction. In particular the CJEU rejected the argument of the German competition authority that a third party platform ban is either a customer group or a restriction on sales to end users; and
  • given the restriction is not a hardcore restriction, it can benefit from the verticals agreement block exemption.

The judgment is limited only to luxury products, but the reasoning behind the judgment would suggest that the principle is of general application, and could apply to any distribution network and any products.  The European Commission has since publicly confirmed its own view that the judgment applies this widely.

It is worth noting that the Advocate General had broadly recognised the importance of brands more generally, not just luxury brands. However, the CJEU limited itself to responding to the questions asked (as is customary) which related to luxury goods specifically.