Luxury brands can lawfully prevent their authorised dealers from selling their products on third party online platforms such as Amazon.com and eBay, according to Advocate General Wahl's Opinion for the European Court of Justice (ECJ) in Coty v Parfümerie Akzente, published on 26 July.
Under Coty's distribution contracts, dealers can only sell Coty's luxury cosmetic products online through their own websites. Coty applied to the Frankfurt Oberlandesgericht for an order prohibiting dealer Parfümerie Akzente from selling Coty products on Amazon.de. In April 2016, the Oberlandesgericht asked the ECJ for guidance on whether a marketplace ban constitutes an unlawful ban on passive sales. Online sales are generally considered to be "passive" sales under EU competition law.
Luxury goods suppliers can sell their products through a selective distribution system where necessary to preserve the product's image and quality, and to ensure that the product is used correctly. Such selective distribution systems do not infringe EU competition law if dealers are appointed based on qualitative, objective criteria which are applied uniformly and in a non-discriminatory fashion, and those criteria go no further than necessary to protect the product.
AG Wahl observed that clauses in a selective distribution contract such as Coty's, which restrict dealers from selling goods on third party platforms in a discernible manner, do not necessarily breach competition law. The nature of the product must be assessed, and the clause must be applied uniformly to all dealers, without going beyond what is necessary to protect the product.
In Coty, AG Wahl considered it unlikely that Coty's restriction infringes EU competition law (although this will be verified by the Oberlandesgericht, after the judgment of the ECJ). Coty does not restrict its dealers from selling through their own online stores. AG Wahl also noted that third party platforms are not required to comply with the qualitative criteria in the selective distribution system. A prohibition on marketplace sales therefore safeguards the supplier's and dealers' investment in the quality and image of the products, and may improve competition based on qualitative criteria.
If the Oberlandesgericht finds that the clause does restrict competition, AG Wahl considered that the clause does not restrict passive sales or Parfümerie Akzente's customer group, so could benefit from exemption, e.g. under the Vertical Agreements Block Exemption.
While not binding on the ECJ, brand owners are likely to welcome AG Wahl's Opinion. The Opinion is in line with comments made by Johannes Laitenberger, the Director General of competition at the European Commission (EC), at a conference in January 2017, and with the findings of the EC's e-commerce report in May 2017. The EC found that dealers' own online shops are their most important online sales channel. Marketplaces occupy very different places in the market in different Member States, depending on the size of the retailer and the type of product being sold, although marketplaces are particularly widely used in Germany. Subject to the Coty ruling, the EC considered that absolute marketplace bans do not generally amount to a de facto prohibition on internet or passive sales. If the Opinion is upheld by the ECJ, national competition authorities, e.g. in Germany, may have to soften their stance on these restrictions.