CJEU Rules on Banning Sale of Luxury Goods Online
According to a landmark ruling issued by the Court of Justice of the European Union in December last year in a case involving Coty, luxury owners may now ban their authorized distributors from selling their luxury goods online.
Luxury brands will therefore no longer be sold freely on online platforms such as Amazon, eBay, or the Czech and Slovak Aukro (Allegro). The Court of Justice upheld an earlier opinion of Advocate General Wahl, and ruled that in systems of selective distribution of goods, it is possible to restrict online sales if it is necessary to maintain the luxury image of the goods.
The ruling concerned a dispute between luxury cosmetics maker Coty Germany GmbH, whose flagship cosmetic brands include Calvin Klein and Chloé, and German-based distributor Parfümerie Akzente GmbH over a selective distribution system contract. Selective distribution means that goods may be sold only by pre-selected and pre-approved, i.e. authorized, distributors, who shall meet a number of conditions in order to maintain the required standards of sale of these goods.
Parfümerie Akzente GmbH sold luxury goods not only in its network of brick-and-mortar stores and boutiques, but also through the website amazon.de. According to Coty Germany GmbH, this breached the conditions of the distribution contract, which only allowed online sales under very strict conditions. One of the conditions, later referred to by Parfümerie Akzente, stated that: „distributor is entitled to offer and sell goods on the internet, however only if such online sales are made through an „electronic shop window“ of an approved store“. One of the main conditions set by Coty Germany GmbH was to maintain the luxury image of its goods – the form and nature of online sales were supposed to sufficiently foster and emphasize the luxury character of their brands and sales were not allowed to take place under another brand or via an unauthorized subject.
Parfümerie Akzente GmbH did not agree to these conditions and refused to cease distribution through Amazon, which generated significant turn-over. Coty Germany GmbH filed an action to ban the distribution of its goods through the „amazon.de“ online platform. The national court dismissed the action concluding that the contractual clause banning online sales on amazon.de is not compliant with German competition laws. The appellate court, Oberlandesgericht Frankfurt am Main, decided to stay the proceedings and applied to the Court of Justice of the European Union for a preliminary ruling concerning Article 101 TFEU and its application.
The CJEU ruled as follows:
Selective distribution system for luxury goods designed, primarily, to preserve the luxury image of those goods complies with Article 101(1) TFEU to the extent that resellers are chosen on the basis of objective criteria of a qualitative nature that are laid down uniformly for all potential resellers and applied in a non-discriminatory fashion and that the criteria laid down do not go beyond what is necessary. Article 101(1) TFEU must be interpreted as not precluding a contractual clause which prohibits authorised distributors in a selective distribution system for luxury goods designed, primarily, to preserve the luxury image of those goods from using, in a discernible manner, third-party platforms for the internet sale of the contract goods, on condition that that clause has the objective of preserving the luxury image of those goods, that it is laid down uniformly and not applied in a discriminatory fashion, and that it is proportionate in the light of the objective pursued. Article 4 of Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices must be interpreted as meaning that, in circumstances such as those at issue, the prohibition imposed on the members of a selective distribution system for luxury goods, which operate as distributors at the retail level of trade, of making use, in a discernible manner, of third-party undertakings for internet sales does not constitute a restriction of customers, within the meaning of that regulation.
This ruling of the Court of Justice of the European Union is a landmark decision for all parties involved in selective distribution systems who sell goods on the internet. The ruling also tackles certain unresolved questions brought about by older decisions of the CJEU. The Court of Justice has now clearly stated that producers of certain kind of goods have the right to restrict their sale on online platforms. It is however necessary to emphasise that this does not apply universally, but only too goods whose character requires selective distribution (luxury or technologically advanced goods for which luxury and quality are the defining features). When assessing the application of the ruling to online sales in the EU, a number of other factors, such as the specific distribution network in the particular EU state, prevailing form of sales, character of the online platform etc. will have to be taken into account. In other words, the ruling does not automatically apply to the distribution of any (albeit luxury) goods on all online platforms.