A ban on selling luxury goods was not the early Christmas present online retailers had hoped for in December 2017. The European Court of Justice (ECJ) enabled just that when it handed down its judgment in Coty Germany GmbH v Parfümerie Akzente GmbH [2017].

The ruling stated that ‘a supplier of luxury goods can prohibit its authorised distributors from selling those goods on a third party internet platform such as Amazon’. Online retailers should not panic though because, as ever, the ruling does not mean blanket bans are going to be rolled out and overpower entire swathes of online selling.

Background to Coty Germany GmbH v Parfümerie Akzente GmbH [2017]

German cosmetic goods seller Coty owns various well known brands such as Hugo Boss, Gucci and Calvin Klein. It sells its luxury brands through an authorised distributor network, the members of which must comply with certain conditions to preserve the luxury image of the goods. These conditions require certain levels of decor and furnishing in stores and extend to their online presence. Accordingly, distributors must only use their own website, or a third party website that is not discernible as such to customers.

Selling through a platform such as Amazon where the customer can see clearly that the seller is operating through Amazon is therefore prohibited. This is precisely the circumstance in which Parfümerie Akzente ran into trouble with Coty which brought proceedings for breach of its contractual restriction when Parfümerie Akzente sold its goods via Amazon.de in Germany.

What about the restriction on trade and competition?

The risk that Coty’s contract might prevent competition in breach of EU rules is a reasonable proposition, and one on which the German court hearing the case referred to the ECJ for clarification. More precisely, it queried whether it fell foul of the prohibition of agreements, decisions and concerted practices laid down in EU law.

However, the ECJ ruled that ‘a selective distribution system for luxury goods, designed primarily to preserve the luxury image of those goods’ would not breach such rules if:

  1. 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
  2. the criteria laid down must not go beyond what is necessary.

(ii)

Furthermore a contractual provision such as the one Coty included relating to third party internet platforms was also acceptable if the following conditions were met:

  1. that clause has the objective of preserving the luxury image of the goods in question;
  2. it is laid down uniformly and not applied in a discriminatory fashion; and
  3. it is proportionate in the light of the objective pursued.

In the present case the ECJ considered that these conditions had been met.

Restricting the sale of ‘luxury’ goods in the right circumstances is ok

The ECJ’s commentary noted 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’. This recognises that certain types of goods, luxury goods in particular, do not compete on price alone and protecting non-material aspects of goods is acceptable in the right circumstances. Those circumstances are now laid down clearly but the definition of luxury will need refining.