On March 14, 2017, the Paris Court of Appeals heavily sanctioned internet marketplace Brandalley for having sold on its website perfumes whose brands belong to French cosmetics leader L'Oréal, despite Brandalley not being an authorized distributor.
This decision may come as a surprise as the same Court had just last year ruled in favor of internet marketplaces, including Brandalley, in cases where cosmetics owners Coty and Caudalie were found to have been unable to demonstrate the legality of their selective distribution networks (see our previous May and September 2016 Bulletins: "Internet marketplaces trump selective distribution contracts" and "Paris Court of Appeals pokes another hole in luxury selective distribution network").
However, the Paris Court of Appeals in L'Oréal used the same reasoning as before, but this time the selective distribution network was found to have met all the requirements to be considered lawful under EU Regulation 330/2010 on vertical agreements. According to well-established case law, it is for the supplier of the selective distribution network to prove its lawfulness. In this case, L'Oréal adduced all its French selective distribution contracts in evidence and was found to have proved that:
- Its perfume market share was less than 30%, based on studies carried out by NPD, an institute which the Court characterized as an authority recognized in the past by the French Competition Authority and the European Commission.
- The disputed provisions contained in its selective distribution agreements did not constitute "hard-core" restrictions on competition.
The Court found that the clauses which prevented the authorized distributors from selling the products to a distributor, intermediary, wholesaler or retailer within the EEA and EFTA which did not belong to the selective distribution network were valid as they constitute the very essence of a selective distribution network.
Brandalley also disputed a provision that prevented authorized distributors from actively marketing new products which had not yet been launched in France for the year following their launch in another Member State. According to the Court, this did not constitute a prohibited restriction either as it was justified expressly in the agreements by the necessity not to jeopardize the launch of a product in the event of staggered launches, the purpose of which was to test the product for a limited period of time in a particular area.
- Brandalley's allegations that L'Oréal’s selective network was not "water-tight", based on the facts that L’Oréal did not produce its distribution contracts with parties in other EU Member States and did not explain how it policed unsold stock remaining in the hands of former distributors, did not convince the Court that such network was not “water-tight”.
Thus, as Brandalley did not demonstrate that the L'Oréal products it proposed for sale on its website were obtained through the L'Oréal selective distribution network, Brandalley was found to have violated Article L. 442-6 of the French Commercial Code which, inter alia, holds liable a party who participates in the breach of the prohibition for distributors bound by a selective distribution agreement to sell outside the network.
Furthermore, Brandalley was found to have
- committed free-riding;
- harmed the brand image of the products;
- misled consumers by advertising price reductions whereas L'Oréal did not recommend retail prices to its distributors;
- committed acts of unfair competition.
The Paris Court of Appeals therefore ordered Brandalley to pay L'Oréal €500,000 in damages.
Decision: CA Paris 14 March 2017 no. 15/23991