On 6 December, the Court of Justice of the EU (CJEU) agreed with the arguments of luxury brand owner Coty, which was seeking to restrict the sales of its products via online retailers, such as Amazon and eBay, finding that such restrictions did not breach European competition rules.

The judgment applies specifically to high-value products where limiting the distribution network can be said to protect the ‘aura of luxury’ of such goods. Such selective distribution systems already exist offline. The CJEU has confirmed that a similar approach may be taken online, effectively blocking online retailers from selling eligible products without the brand owners’ permission. Coty brands include fragrances by Calvin Klein, Chloé, Davidoff and Marc Jacobs.

The legality of online platform bans has been a matter of dispute since the CJEU’s 2011 ruling in Pierre Fabre Dermo-Cosmétique, in which the court found that “the aim of maintaining a prestigious image is not a legitimate aim for restricting competition”. This latest judgment clarifies that statement, however, by setting out certain conditions that allow for such a restriction, namely: (i) resellers are chosen on the basis of objective criteria of a qualitative nature, laid down uniformly for all potential resellers and not applied in a discriminatory fashion; and (ii) the criteria laid down must not go beyond what is necessary.

An ‘aura of luxury’

In its judgment, the Court notes that the quality of luxury goods is not simply the result of their material characteristics, but also of the allure and prestigious image which bestows on them an aura of luxury. That aura is an essential aspect of those goods in that it thus enables consumers to distinguish them from other similar goods; therefore, any impairment to that aura of luxury is likely to affect the actual quality of those goods.

The case will now return back to the Oberlandesgericht Frankfurt am Main (Higher Regional Court, Frankfurt am Main, Germany), which originally referred the question of whether the restriction was lawful under EU competition law to the CJEU.

Implications for non-luxury brands

The position of non-luxury brands in regards to online platform bans remains unclear, however. This may become an area of dispute in the coming years, as brand owners begin to turn against online retailers, such as Amazon, citing the online giant’s relative inaction in the face of counterfeiting. Birkenstock is one of the highest profile brands to have barred retailers from distributing its footwear on the site.