November 1, 2017
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EUROPEAN UNION: Online Sale and the Scope of Luxury Brands’ Control over Authorized Distributors
In Coty Germany GmbH (Coty) v. Parfümerie Akzente GmbH (PA) (Case C-230/16), the EU Advocate General (AG) issued an opinion on July 26, 2017, on whether a supplier in a selective distribution network may prohibit its authorized resellers from selling products via non-authorized third-party undertakings, such as Amazon or eBay.
Coty is a leading supplier of luxury cosmetics, selling products from certain brands via a selective distribution network. PA is an authorized distributor of Coty brands with points of sale in physical locations as well as online, including its own online store and via “Amazon.de.”
In 2012, Coty revised the network contract, including a prohibition on authorized resellers’ use of non-authorized, third-party undertakings, such as Amazon. PA refused to agree to the revised terms. Coty then filed an action seeking PA’s sales via Amazon be prohibited. The German court referred to the Court of Justice of the European Union (CJEU) the question whether the prohibition was compatible with EU competition law.
The AG initially stated that there may be legitimate reasons to justify a reduction in price competition in favor of competition relating to other factors than price (such as providing specific services in relation to high-quality products), as price is not the only form of effective competition. The AG then noted that the CJEU has recognized the legality of selective distribution systems based on qualitative criteria, referring to the decision in Metro (C-26/76), according to which the following criteria must be fulfilled: (i) resellers are selected on the basis of objective criteria of a qualitative nature which are determined uniformly for all and applied in a nondiscriminatory manner for all potential resellers; (ii) characteristics of the product must necessitate such a network to preserve quality and ensure proper use; and (iii) the criteria do not go beyond what is necessary.
The AG noted with regards to luxury products, that in the context of trademark law, the CJEU has emphasized that luxury products are defined not only by reference to material characteristics, but also on the specific perception customers have of them and particularly the “aura of luxury” they enjoy with the customers. Impairment of that “aura of luxury” is likely to affect the actual quality of those products and the selective distribution systems can in themselves, for example, preserve quality.
The AG consequently opined that seeking to preserve the luxury image of the products by prohibiting use of third-party sales platforms—while satisfying the Metro-criteria—may be compatible with EU competition law. The case is now pending the decision of the CJEU.
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