Case C‑230/16, Coty Germany GmbH: Common Sense Prevails (by ...

The Court Judgment in Case C-230/16 is out (available in French and in English). And, in the spirit of times, here is an online channel providing the first comment on it.

The judgment follows faithfully AG Wahl’s Opinion, which came out in July (and which we discussed on the blog). It seems to be also in line with the position consistently expressed by the Commission since the Guidelines on vertical restraints.

The vast majority of our readers will remember that the case is about the legality of a ban on the use of online marketplaces by the members of a selective distribution system. The Court has ruled the following:

• Where the conditions of Metro I are fulfilled, a restraint aimed at preserving the luxury image of a product is presumptively lawful – in other words, it falls outside the scope of Article 101(1) TFEU altogether.
• A selective distribution system that provides for an online marketplace ban is not caught by Article 101(1) TFEU where the conditions of Metro I are fulfilled (that is, where the nature of the product requires the use of the system). Such a ban does not go beyond what is necessary to preserve the luxury image of the product.
• An online marketplace ban is not a hard-core restriction within the meaning of Article 4 of the Vertical Block Exemption Regulation if it does not limit passive sales and/or the customers to which the distributor can sell the product.
• The ruling in Pierre Fabre is confined to the specific circumstances of that case, i.e. an absolute ban on online sales (paras 33-34).

More important than the ruling are the implications than one can infer from it, which can be summarised as follows:

• The Court makes it clear beyond doubt that the object of an online marketplace ban is not the restriction of passive sales and/or the customers to which distributors can sell. This is in line with the position expressed by the Commission in the context of the e-commerce sector inquiry.
• By way of consequence: the Court strongly signals that an online marketplace ban is not a restriction by object within the meaning of Article 101(1) TFEU.
• What are the implications? The first implication is that a case-by-case analysis of effects would in any event be required for non-luxury goods. Byzantine discussions about whether Asics or Mizuno shoes qualify as luxury goods seem entirely irrelevant in this regard. The ‘by object’ shortcut would not apply, irrespective of the nature of the good.
• Insofar as an online marketplace ban is not a hard-core restraint within the meaning of the Regulation, the benefit of the block exemption applies irrespective of the nature of the product. Again, the ‘luxury or not luxury’ dilemma will be largely irrelevant in practice as a result.

I have summarised my understanding of the ruling in the table below:

Other comments

Copad was the key precedent all along

The Court approaches the question in the way I would have done it. As I mentioned in July, the key precedent was Copad, an intellectual property case. In Copad, the Court ruled that a trade mark licensor can invoke its rights to prevent a licensee from selling to non-members of a selective distribution system.

That ruling is based on a key premise: if companies cannot protect their intangible property (brand image, trade mark, goodwill) when dealing with third parties, they will refrain from licensing and from selling via independent distributors. Why would firms do something that would force them to lose control of the image they want to convey?

More importantly: why would EU law penalise firms that sell or produce via third parties and favour those that produce in-house? Copad and Coty suggest that EU law is agnostic about the business model that companies choose. There is no reason why vertical integration should be favoured over licensing and/or selling via third parties. And there are many good reasons why the latter should not be treated more strictly.

The protection of intangible property is important for all producers, not only the producers of luxury goods. Asics or Mizuno shoes may not be seen as a luxury product (it is all in the eye of the beholder). This, at the end of the day, does not really matter. What matters is that conveying a particular image may also be important for these companies.

Trade mark law seeks to protect all producers, not only producers of luxury goods. There is no reason why EU competition law should be different. Coty appears to be in line with this position.

The administrability trap in EU competition law

The ‘by object’ prohibition of online marketplace bans has been defended by many in the past few months. One of the arguments that has frequently been invoked is the ease of administration of a ‘by object’ rule. If we know that a practice can be bad for competition, is it not better to lay down a prima facie prohibition so we all know where we stand?

Coty shows that the Court was not impressed with these arguments. If everything were about the easy administration of a rule, then every practice would be prohibited by object, and this is clearly not the case.

What is more, this view ignores that prima facie legality rules are also easy to administer, and are an integral element of EU competition law.

Metro I, where the Court clarified that, in some circumstances, selective distribution systems are presumptively compatible with Article 101(1) TFEU (irrespective of the market share!) is a wonderful example. We know now that the legality rule may apply even when the agreement provides for an online marketplace ban.

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