On 26 July 2017, the much anticipated opinion by Advocate General Nils Wahl in the case C-230/16 Coty v Parfümerie Akzente was released. The opinion in particular provides valuable insights into the question of whether or not a supplier of luxury goods is allowed to prohibit its authorised retailers from selling its products on third-party platforms such as Amazon or eBay. It remains to be seen whether the ECJ will follow the rather liberal stance taken by AG Nils Wahl.

Background

Coty is one of Germany’s leading suppliers of luxury cosmetics. It sells its products by way of a selective distribution network, in particular authorised retailers. The latter must meet a number of requirements when selling Coty’s products, be it offline or via the internet. With regard to online sales, Coty introduced in 2012 a provision in its distribution contracts according to which the retailer’s online shop shall appear as an „electronic shop window” of the authorised shop, thereby preserving the luxury character of its goods. Furthermore, the contract prohibits the visible use of unauthorised third parties for internet sales of Coty’s products, i.e. Amazon, eBay etc.

Parfümerie Akzente, one of Coty’s authorised retailers for many years, sold Coty’s products both in its brick and mortar locations as well as online. Notably, it has sold Coty’s products both via its own online store and via Amazon. In response to Parfümerie Akzente’s refusal to approve the amendments to the distribution contract introduced in 2012, Coty brought an action before the German courts seeking an order prohibiting Parfümerie Akzente from distributing its products via Amazon.

It is in this context that the Regional Supreme Court of Frankfurt am Main, Germany, requests a ruling from the ECJ in order to determine whether a third party platform ban as implemented by Coty is compatible with the competition law of the European Union and that AG Nils Wahl delivered his non-binding opinion.

The Opinion of AG Wahl in brief

Referring to the so called Metro criteria introduced in the Metro case C-26/76 in 1977 and as consequently uphold thereafter, AG Wahl is essentially of the opinion that the prohibition of authorised retailers from using third party platforms for internet sales in a visible manner may not necessarily fall under the prohibition of agreements according to art. 101(1) TFEU if the platform ban (1) is necessary due to the nature of the product, (2) is determined in a uniform manner and applied without discrimination and (3) does not go beyond what is necessary.

AG Wahl argues in this context that competition includes not only price but also quality competition. Hence, a prohibition of sales via third party platforms may have, in fact, a pro competitive-effect in that it improves the luxury images of the products concerned and helps to protect specific investments of the parties involved in the selective distribution network which otherwise could be frustrated by free riders. In this light, a platform ban may be considered necessary because it helps building, maintaining and protecting a certain brand image, inter alia a cornerstone for the introduction of selective distribution schemes.

With regard to the ECJ’s Pierre Fabre decision and in particular to its much debated paragraph 46, AG Wahl clarified that this decision must be read against its specific case facts, i.e. the de facto online sales ban in general resulting from the criteria to be imposed on Pierre Fabre’s retailers (see MLL-News of 17.11.11, german). According to AG Wahl, the Pierre Fabre case therefore may not be construed in a way that every single restriction of online sales does necessarily fall under the prohibition of agreements according to art. 101(1) TFEU.

AG Wahl concludes his opinion with the remark that, if the Metro criteria should, in fact, not be satisfied in the case at hand, the platform ban should still be considered block exempted and legal under the block exemption regulation no 330/2010. In his view, platform bans may in particular not be deemed restrictions of the retailer’s customers and of passive sales to end users and therefore do not constitute restrictions ‘by object’ without the need to assess its effects on competition anymore.

Comments

While particularly Swiss courts upheld formalistic views in recent cases, AG Wahl takes a rather liberal stance in his opinion and emphasizes that competition also is about quality and not just about the price.

We appreciate the opinion that, for the sake of actual competition, undertakings must have some leeway in order to differentiate themselves in terms of quality, service and image, just to name a few relevant factors other than price. This must in particular apply for selective distribution networks and as to the question how and over what channels products are sold.

Whereas, in our view, the ECJ is unlikely to exclude third party platform bans from the prohibition of art. 101(1) TFEU, it is rather to conclude that such bans are no hardcore restrictions (keine Kernbeschränkung) and thereby exempted by the general vertical block exemption regulation provided that in particular the market share requirements are also met.

The Swiss Competition Commission and appellate courts are likely to take the ECJ’s decision in that matter into consideration for its own decision making. Therefore, the ECJ’s decision in the case at hand will also have a relevant impact on Swiss competition law. It remains to be seen whether or not the ECJ will follow the rather liberal stance taken by AG Wahl that provides a welcomed counterweight to the rather formalistic tendencies particularly in the recent Swiss competition law practice. In any case, we will keep you informed.