On 30 March, the Court of Justice of the European Union (the “CJEU”) heard a case relating to a dispute in Germany between a luxury perfumer, Coty, and one of its distributors, regarding the legality of preventing members of a selective distribution system from selling on an internet marketplace such as eBay and Amazon.
Selective distribution systems are often used by luxury brands, as they allow the supplier to sell only to distributors selected on the basis certain specified criteria. This can help to achieve consistent standards and quality of service concerning the sale of the products, and members of the network can be restricted from selling to unauthorised distributors. In order to be legitimate selective distribution systems are required to meet the following conditions:
- having regards to the product in question there must a legitimate requirement for a selective distribution arrangement, for example to preserve quality of service and/or to ensure proper use;
- the selection criteria for admission to the system must not be excessive or go beyond what is necessary for ensuring the appropriate distribution of the goods; and
- authorised resellers should be selected solely on the basis of objective, qualitative criteria which are uniformly applied in a non-discriminatory manner.
A manufacturer with a selective distribution system can control online sales by requiring resellers to:
- have at least one physical store;
- ensure that if they have a website, that website meets certain minimum standards; and
- ensure that if third party platforms are used, that they also meet such minimum standards.
In the Coty case, the German court has made a preliminary reference to the CJEU, asking in short:
- whether online marketplace bans in selective distribution agreements amount to ‘hardcore’ (i.e. very serious) restrictions of competition law; and
- whether preserving a luxury image is a legitimate aim compatible with competition law.
The outcome of this case is likely to have a significant impact on the way in which luxury goods are sold online. Brand owners may find they cannot prevent their goods being devalued by being sold on internet marketplaces or, conversely, online marketplaces may find their business model is curtailed. The decision is pending and we will provide an update in due course. In the meantime, please let our competition team know if you would like to discuss any of the issues raised.
Gustaf Duhs