Competition law generally states that any outright ban on a dealer using the internet as a sales channel will be viewed as preventing the dealer from reaching a wider customer base, and so will almost inevitably infringe the law. However, the decision in Coty Germany GmbH (Case C‑230/16), confirmed that this is not the case for luxury brands where they are restricting distributors from selling through third-party platforms.
The Court of Justice of the European Union (CJEU) began by restating the accepted position on selective distribution systems for luxury goods (ie systems that restrict products to authorised dealers only and set down quality criteria for those dealers). These did not infringe competition law so long as dealers were selected on the basis of proportionate, objective and qualitative criteria that were applied in a non-discriminatory manner. The rationale for this is that, for certain products, their ‘aura of luxury’ is considered an inherent feature of the goods themselves and so systems that maintain that ‘aura’ throughout the sales process are justified. For such goods, preventing distribution through third-party marketplaces, where product presentation could not be controlled by the brand, was in keeping with such a system and so permissible.
Coty does not prevent all sales of its luxury goods via third-party platforms, but only sales via platforms where it was discernible to the consumer that the platform was operated by a third party and not by the authorised distributor.
The CJEU also ruled on a point of interpretation of the Vertical Agreements Block Exemption. This Block Exemption provides that agreements such as distribution agreements that comply with its various criteria are ‘good to go’ from a competition law perspective. It contains various blacklisted terms which, if present in the agreement, mean that it cannot benefit from the Block Exemption. Among the blacklisted terms are those that restrict the customers to whom a dealer may resell and, where the dealer is part of a selective distribution system, any restriction on their active or passive sales to end users. Would a ban on sales through third-party platforms amount to a blacklisted restriction? The CJEU took the view that such a ban was neither a customer restriction nor a ban on active or passive (internet) sales, because there was no distinct group of customers that could only be reached through third-party platforms – customers could still buy online by finding a dealer through internet search engines – and because a dealer would still be free to sell via the internet generally, even if one specific internet channel (third party platforms) was closed off.
In the wake of Coty, luxury brands should review their contracts with the following in mind:
- any outright ban on dealers selling via the internet will (almost inevitably) be found to be anti-competitive; and
- for luxury goods brands that operate selective distribution systems, there can be confidence that requiring dealers not to sell through third party platforms is a permissible criteria of that selective distribution system.