Online sales bans for internet platforms allowed

On 6 December 2016 the Court of Justice of the European Union (CJEU) rendered its judgment in the much discussed case of Coty Germany, ruling that suppliers of luxury goods can prohibit their authorised distributors from selling those goods on third-party platforms.

The case concerns the selective distribution system of Coty, the leading German supplier of luxury cosmetics. Coty's distribution contract expressly prohibits its distributors from selling relevant goods via third-party online platforms which operate in a discernable manner towards consumers. Legal proceedings were initiated when Coty's distributor Akzente sold through the platform ‘amazon.de’.

In this context the CJEU was asked whether selective distribution systems relating to luxury products, and designed mainly to preserve the ‘luxury image’ of those products, are compatible with the cartel prohibition of Article 101(1) TFEU. In yesterday’s judgment, the Court repeats it earlier case law that selective distribution systems are compatible with the EU cartel prohibition if resellers are chosen on the basis of objective criteria of a qualitative nature that are laid down uniformly and not applied in a discriminatory fashion and that do not go beyond what is necessary. A clause as used by Coty, that prohibits authorised distributors from selling through third-party online platforms, is similarly allowed when it has the objective of preserving the luxury image of the goods in question, is laid down uniformly and not applied in a discriminatory manner; and is proportionate in the light of the pursued objective. It is left to the national court to apply this criterion, but the CJEU suggests that it is fulfilled, notably because Coty's clause aims to ascertain that consumers associate the relevant products only with the authorised (luxury) distributors - which is the very aim of a selective distribution system.

In addition, the CJEU suggests that the Coty clause - even if it violates Article 101(1) TFEU - may benefit from the block exemption for vertical agreements of EU Regulation 330/2010, as it does not have the object to restrict competition. Notably, it does not restrict the territory into which the distributor can sell, nor does it prevent the distributor from selling to any particular customer group.

The president of the German Federal Cartel Office Mr. Mundt, as well as the industry lobby group CCIA which includes Amazon and eBay, have already issued statements claiming that the scope of the CJEU's judgment is strictly limited to the distribution of luxury products. This may well be the case for the conditions under which the clause prohibiting sales via online platforms would not violate Article 101(1) TFEU. However, the arguments used by the CJEU to say that such clause could benefit from the exemption of Regulation 330/2010 - even if it would violate Article 101(1) TFEU - could arguably be applied to all products and not to luxury products alone. Hence, the CJEU's judgment solves one tricky question - but expect more debate about the question when a product is luxury and when the block exemption of Regulation 330/2010 applies.

READ THE JUDGEMENT