Advocate-General (AG) Wahl submitted a non-binding opinion to the European Court of Justice (ECJ) that luxury brand suppliers should have the right to choose who sells their products and how their products are sold in order to protect their image and exclusivity.
AG Wahl’s opinion comes in response to the request for an ECJ preliminary ruling in the case ofCoty vs. Akzente. In the case, Coty, a leading supplier of luxury cosmetics in Germany, prohibited its authorized retailers from selling its products on third party platforms such as Amazon and e-Bay. Parfürmerie Akzente, an authorized reseller of Coty products, sold Coty goods on third-party sites, against Coty's instructions. Akzente brought a case against Coty and the Oberlandesgericht in Frankfurt referred the matter to the ECJ for a preliminary ruling, raising the following key questions:
- Is the protection of a product’s brand image a legitimate interest that justifies the setting up of a selective distribution system?
- Does a ban against sales on online third-party platforms amount to a “restriction of competition by object” within the meaning of Article 101(1) TFEU or a “hard core restriction” within the meaning of the Vertical Block Exemption Regulation?
With regard to the first question, AG Wahl concludes that a supplier of luxury goods may prohibit its authorized retailers from selling its products on third-party platforms such as Amazon or eBay. He based this conclusion on the following arguments:
- Competition is not only price-driven, it also involves a company’s ability to distinguish itself. European competition law should protect competition as a whole by allowing the possibility for selective (online) distribution systems to be reviewed.
- The specific characteristics or properties of products may be capable of rendering a selective distribution system compatible with Article 101(1) TFEU. AG Wahl emphasises that those properties may lie both, in the physical qualities of the products, and in the products’ ‘luxury’ image. Selective distribution systems enable luxury brand suppliers to preserve the brand image by ensuring certain qualities of the points of sale. Consequently, a selective distribution system for luxury brands may positively affect competition.
- The ECJ’s Pierre Fabre ruling, which suggested that a ban on internet sales should be considered as restriction by object, involved an absolute prohibition of online sales. Coty’s prohibition only bans sales on third party platforms that do not meet Coty's qualitative requirements.
- A selective distribution system can be applied to online sales, if the Metro criteria are respected (the properties of a product justifies selective distribution, the resellers are selected based on objective criteria, and the objective criteria established are proportional).
In response to the second question, it is clear that AG Wahl does not consider platform bans to constitute hardcore restrictions of competition. AG Wahl points out that even if the Metro criteria are not met in the present case and the clause in question is found to violate Article 101(1) TFEU, Coty’s restriction can still be exempted under Article 101(3) TFEU or the block exemption Regulation No 330/2010. Coty’s prohibition against third party platforms is likely to improve the luxury image of its products in various ways. Besides ensuring that Coty products are sold in an environment that meets Coty’s qualitative requirements, the restriction also makes it possible to guard against free-riding, by ensuring that the investments and efforts made by the supplier and by other authorized distributors to improve the quality and image of the products do not benefit other undertakings.
The opinion of AG Wahl seems a logical conclusion in this internet age. Interest in e-commerce is growing and it is reasonable that retailers of luxury goods should be able to apply a selective distribution system, including a marketplace ban on certain types of online sales.
How likely is the ECJ to agree with AG Wahl? It has followed AG opinions in four out of five cases. The Court is likely to rule on this matter before the end of this year and we will keep you apprised of future developments.