Coty Germany GmbH V Parfümerie Akzente GmbH (Case C-230/16)

The European Court of Justice has today (6th December 2017) published its landmark judgement in case of Coty Germany GmbH –v- Parfümerie Akzente GmbH (Case C-230/16). The headline in the press release from the European Court of Justice is:

“A supplier of luxury goods can prohibit its authorised distributors from selling those goods on a third-party internet platform such as Amazon. Such a prohibition is appropriate and does not, in principle, go beyond what is necessary to preserve the luxury image of the goods.”

Coty Germany sells luxury cosmetic goods in Germany. In order to preserve the luxury image of those goods, Coty markets certain of its brands through a ‘selective distribution network’, that is to say through authorised distributors. The sales locations of those authorised distributors must comply with a number of requirements relating to their environment, décor and furnishing. Those authorised distributors are allowed to sell the goods online, provided that they use their own electronic shop window or non-authorised third-party platforms as long as the use of such platforms is not ‘discernible’ to the consumer. By contrast, the distributors are expressly prohibited from selling the goods online via third-party platforms which operate in a discernible manner towards consumers.

Coty Germany originally brought proceedings before the German courts against one of its authorised distributors, Parfümerie Akzente, to enforce the above restrictions and to prohibit it from distributing Coty goods via the ‘amazon.de’ platform. The German court requested the Court of Justice to rule as to whether or not the relevant restriction is lawful under EU competition law.

In today’s judgement the ECJ first stated that a selective distribution system for luxury goods, designed primarily to preserve the luxury image of those goods, does not breach EU competition laws, provided that the following conditions are met: (i) resellers are chosen on the basis of objective criteria of a qualitative nature which are laid down uniformly for all potential resellers and not applied in a discriminatory fashion; and (ii) the criteria laid down do not go beyond what is necessary. The Court referred to the earlier Pierre Fabre case and stated its judgement not to be inconsistent with that case and that Pierre Fabre did not “intend to set out a statement of principle according to which the preservation of a luxury image can no longer be such as to justify a restriction of competition, such as that which stems from the existence of a selective distribution network, in regard to all goods, including in particular luxury goods, and consequently alter the settled case-law of the Court.”

The Court noted in this context that the quality of luxury goods is not simply the result of their material characteristics, but also of “the allure and prestigious image which bestows on them an aura of luxury”, citing the Copad case in 2009. That aura is an essential aspect of those goods in that it enables consumers to distinguish them from other similar goods; so any impairment to that aura of luxury is likely to affect the actual quality of those goods.

In the Court’s judgement, EU competition law does not preclude a contract clause, such as the one in the present case, which prohibits authorised distributors of a selective distribution network of luxury goods designed, primarily, to preserve the luxury image of those goods, from using, in a discernible manner, third-party platforms for internet sales of the goods in question, provided that the following conditions are met: (i) the clause has the objective of preserving the luxury image of the goods in question; (ii) it is laid down uniformly and not applied in a discriminatory fashion; and (iii) it is proportionate in the light of the objective pursued.

Whilst it will be for the German court to determine whether those conditions are met in this case, in the ECJ’s own view “the clause at issue appears to be lawful” – and the ECJ is entitled to provide the relevant ‘points of interpretation’ back to the German court, citing the L’Oréal case in 1980. Factually, it was common ground that the relevant clause had the objective of preserving the image of luxury and prestige of Coty goods, and it was also clear from the documents submitted to the ECJ that the German court considered the clause to be objective and uniform and to apply without discrimination to all authorised distributors.

Further, according to the Court, it is appropriate for a supplier of luxury goods to impose a prohibition on its authorised distributors from using ‘discernible’ third-party platforms for the online sale of those goods in order to preserve the luxury image of those goods.

That prohibition does not appear to go beyond what is necessary to preserve the luxury image of those goods. In particular, given the absence of any contractual relationship between the supplier and the third-party platform which would enable the supplier to require the platform to comply with the quality criteria which the supplier has imposed on its authorised distributors, an authorisation for those distributors to use such platforms subject to their compliance with pre-defined quality conditions cannot be regarded as being as effective as a prohibition on the use of such platforms.

Finally, in the event that the German court should conclude that the relevant restriction is caught, in principle, by the prohibition on anti-competitive agreements under EU law, the Court pointed out that it is possible that the clause might still benefit from the Vertical Agreement Block Exemption. This is because, in circumstances such as those in this case, the restriction on the use, in a discernible manner, of third-party undertakings for online sales does not constitute a restriction of customers nor a restriction of passive sales to end users (being restrictions which are automatically excluded from the benefit of a block exemption because they are liable to have severely anti-competitive effects).

So the European Court of Justice has reached two important, and related, conclusions:

First, that selective distribution systems relating to the distribution of luxury products, and designed primarily to preserve the ‘luxury image’ of those products are not necessarily caught by the prohibition on anti-competitive agreements where the selective distribution system meets two criteria: (1) the resellers are chosen on the basis of objective criteria of a qualitative nature which are determined uniformly for all and applied in a non-discriminatory manner for all potential resellers; and (2) the criteria established do not go beyond what is necessary. There is existing guidance to help to assess whether these criteria are met.

Second, with regard more specifically to the provision under which Coty Germany prohibits its authorised distributors from using in a discernible manner third party platforms for online sales of the relevant goods, such a clause is not necessarily caught by the prohibition of agreements where: i) it has the objective of preserving the luxury image of the goods in question; (ii) it is laid down uniformly and not applied in a discriminatory fashion; and (iii) it is proportionate in the light of the objective pursued.

The Court also emphasised that Coty did not impose an absolute prohibition on online sales, but only required its authorised distributors not to sell the products via third party platforms in a discernible manner, since such platforms are not required to comply with the qualitative requirements which it imposes on its authorised distributors. The relevant provision still allowed authorised distributors to distribute the products via their own internet sites and to make use of third party platforms in a non-discernible manner in order to distribute the products. ‘Discernible manner’ basically means that the third party platform bears third party branding in some manner as against being, say, a white labelled platform provided for the reseller.

This Court judgement will be very encouraging news and a welcome development for those suppliers who wish to sell their products online through a network of authorised resellers in a manner which preserves the image and quality of the product including by restricting its authorised resellers from selling those products on third party branded platforms. It is also consistent with the economic reflections of the European Commission in its E-Commerce Sector Inquiry Report published in May this year, to which the Court also chose to refer in support of its judgement, which firmly suggests Europe’s future ‘direction of travel’ on this issue.