Summary: In a much-anticipated opinion, Advocate General Wahl, advisor to the European Court of Justice, has stated that EU competition law does not prevent a supplier of luxury goods from banning retailers from selling its products on third-party platforms such as Amazon or eBay. Although not legally binding, this will raise suppliers’ hopes that the Court will follow suit in its final judgement and settle this much-disputed question in their favour.
E-commerce has been a key focus of European competition authorities in recent years. Since it published its final report into the e-commerce sector in May, the Commission has announced investigations into the way consumer electronics, video games, hotels, clothing and merchandising products are sold online (see our previous coverage on this: European Commission’s e-commerce agenda continues apace). National authorities have been similarly active.
A particular point of contention has been the extent to which suppliers who use a selective distribution system to sell their goods can restrict the way in which authorised retailers use the internet.
In 2011, the Court of Justice held in the Pierre Fabre case that an outright ban on online sales in a selective distribution agreement was a restriction of competition “by object” and would only be permitted if objectively justified.
In July 2014, Adidas changed its distribution terms to remove a more limited ban, relating solely to online sales via third-party platforms, in order to bring to an end an investigation by the German competition authority. In November 2015, the French authority dropped a similar probe into the sportswear manufacturer after it changed its distribution terms.
On 26 July 2017, Advocate General Wahl (the “AG”) issued his opinion in Coty v Parfümerie Akzente, a case in which it is hoped Europe’s highest court will resolve once and for all the question of whether platform bans are permitted under EU competition law.
Coty Germany GmbH (“Coty”) is a German manufacturer and distributor of many well-known luxury perfume and beauty brands, such as Marc Jacobs, Chloé and Max Factor. It sells its products through a selective distribution system which requires the bricks and mortar shops of its authorised retailers to meet a number of requirements in terms of environment, décor and furnishing. Sales can be made online provided they are made through an “electronic shop window” of the authorised store and the luxury character of the goods is preserved; sales are not permitted via online resale platforms such as Amazon or eBay.
In 2012, Coty brought an action before the German courts seeking an order preventing its long-term authorised retailer, Parfümerie Akzente GmbH (“Akzente”), from selling Coty products through the website Amazon.de.
The lower German court held that Coty’s platform ban infringed European competition law and was therefore unenforceable. Coty appealed this decision to the Frankfurt Supreme Regional Court which stayed the proceedings and made a reference to the Court of Justice.
The key questions before the Court are:
- whether a selective distribution system which aims to maintain a brand’s luxury image is compatible with Article 101 TFEU; and
- if so, whether a ban on authorised distributors in a selective distribution network making sales via online market places amounts to a restriction of competition by object.
The AG's opinion
The AG states in his opinion that according to long-established case law, selective distribution systems relating to the distribution of luxury and prestige products, and mainly intended to preserve the luxury image of those products, are not necessarily caught by Article 101 if they meet three criteria, namely that:
- 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 way for all potential resellers;
- the nature of the product in question, including its prestige image, requires selective distribution in order to preserve the quality of the product and to ensure that it is correctly used; and
- the criteria established do not go beyond what is necessary.
In terms of the contested platform ban imposed by Coty, the AG states that this appears to fall outside Article 101 because it is likely to improve the luxury image of the products concerned and protects against “parasitism”, by ensuring that the investments and efforts made by the supplier and by other authorised distributors to improve the quality and image of the products concerned do not benefit other undertakings.
The ban in question is clearly distinguishable from the clause at issue in the Pierre Fabre case since Coty still allows authorised distributors to distribute the contract products via their own internet sites, which, unlike third party platforms, are required to comply with the qualitative requirements it imposes.
The AG also states that, even if a platform ban were caught by Article 101, it would likely be eligible for exemption under the Vertical Block Exemption Regulation. This Regulation exempts selective distribution systems from Article 101 TFEU regardless of the nature of the product concerned and the nature of the selection criteria provided the market share of both the supplier and the buyer each do not exceed 30% and the criteria do not include certain hardcore restrictions.
What happens now?
The AG’s opinion is not legally binding and certainty on this issue will only be achieved once the Court of Justice hands down its judgment. In the meantime, suppliers may find some comfort in the fact that it is rare for the Court to come to a substantially different conclusion from one of its Advocates General.
If the Court sides with Coty, national competition authorities in the EU will have to fall in line with its approach.