The dispute (Case C‑230/16) involved a selective distribution contract between Coty Germany GmbH (“Coty”) and Parfümerie Akzente GmbH (an authorised distributor of Coty’s products) (“Akzente”), and the interpretation and interplay of Article 101(1) of the Treaty of the Functioning of the European Union (“TFEU”) and Article 4 of Regulation (EU) No. 330/2010 (the Vertical Agreements and Block Exemptions Regulation).
The main issue was whether a clause of the selective distribution contract, which prohibited Akzente’s distribution of Coty’s products via the online marketplace platform, Amazon, contravened Article 101(1) TFEU on the basis that it was anti-competitive.
Akzente had distributed Coty’s products from its sales outlets including bricks-and-mortar stores, and online. The online sales were carried out via Akzente’s website and via amazon.de. The contract between Coty and Akzente contained a number of stipulations aimed at ensuring Coty’s luxury image was maintained, including (but not limited to), a requirement that all sales locations must be approved by Coty, that the décor and furnishing of the stores, the advertising and sales presentation of the products must all promote the luxury character of Coty.
The dispute arose after Akzente refused to re-sign the contract after Coty had made certain amendments to the agreed terms relating to internet sales. The amended terms stipulated that online sales were permitted provided they took place via Akzente’s ‘electronic shop window’ or on third party platforms provided that use of the platform would not be discernible to a consumer of the products. Sales via online platforms which operate in a discernible manner towards consumers were prohibited. Coty brought proceedings to prevent Akzente from selling its products on Amazon (amazon.de).
The initial action was dismissed on the grounds that the disputed term of the selective distribution agreement restricted competition, and was therefore contrary to Article 101(1) TFEU which prohibits agreements which prevent, restrict or distort competition within the internal market.
Coty appealed the judgment to the Oberlandesgericht Frankfurt who referred four questions to the CJEU for preliminary ruling which, in brief, sought to establish whether the clause was anti-competitive and therefore incompatible with Article 101(1) TFEU and Article 4(b) of Regulation No 330/2010.
In its judgment, the Court considered the case law set out in:
- Metro (C-26/76) in which it was found that selective distribution networks were not prohibited by Article 101(1) TFEU provided that: (i) resellers are chosen on the basis of objective criteria of a qualitative nature, laid down uniformly for all potential resellers and not applied in a discriminatory fashion (ii) the characteristics of the product in question necessitate such a network in order to preserve its quality and ensure its proper use; and (iii) that the criteria laid down does not go beyond what is necessary;
- Pierre Fabre Dermo-Cosmétique (C‑439/09), in which it was found that a total ban on internet sales by Pierre Fabre’s distributors was not objectively justified within the meaning of Article 101(1) TFEU and did restrict competition; and
- Copad (Case C-59/08), in which it was found that selective distribution networks which are aimed at sustaining the aura of luxury surrounding those goods thereby preserving the reputation of those goods as luxury products, and enabling the consumer to distinguish them, are not prohibited by Article 101(1) TFEU provided the Metro criteria are met.
The Court distinguished the Coty case from Pierre Fabre on the basis that the contractual obligations at issue here did not impose a blanket ban on internet sales by Akzente, and that the goods in Pierre Fabre were not luxury goods. The Court pointed out that the judgment in Pierre Fabre should not alter the settled case law which derived from the Metro case, and said that essentially each case should be examined on its own facts.
The CJEU found that a selective distribution system for luxury goods which is designed primarily to preserve the luxury image of those goods, is not prohibited by Article 101(1) TFEU provided that the Metro conditions are met.
Further, the Court held that Article 101(1) TFEU does not preclude a clause which prohibits authorised distributors from using third party platforms (in a discernible manner) for online sale of luxury goods. This is provided that the clause is aimed at (i) preserving the luxury image of those goods; (ii) is laid down uniformly; (iii) is not applied in a discriminatory fashion; and (iv) is proportionate.
The Court’s reasoning was based on the fact that the contractual obligations surrounding internet sales were also aimed at preserving the luxury aura of the goods concerned by ensuring that the goods will be sold in an online environment which reflects the agreement between Coty and Akzente. It effectively ensures that Coty as the supplier retains control over how the goods are being sold by a third party who is not contractually bound by Coty.
In many ways, the case is in-line with previous case law in this area. The preliminary ruling will be good news to luxury brand owners seeking to take advantage of a selective distribution agreement to preserve the ‘luxury’ image of their brand, and particularly because the case will make it easier for luxury brand owners to control third party sales made via online marketplaces, such as Amazon, by its authorised distributors.
Interestingly, the CJEU does not really give us a definition of a ‘luxury good’. The judgment refers to the ‘aura of luxury’ that may be the result of the allure and prestigious image surrounding those goods which, if impaired, will affect the quality of the goods.
With the face of retail changing due to the rapid growth and popularity of online sales and sales via e-commerce platforms, it will be interesting to see how luxury brands continue to manage their luxury brand image online.