It is lawful to prohibit sales on Amazon to protect a luxury brand, the ECJ says
(The original Italian version is published on Diritto 24 – Il Sole 24 Ore)
On 6 December 2017, the EU Court of Justice (ECJ) issued the already well-known Coty Germany ruling in case C-230/16, which discussed the legitimacy of some clauses of a selective distribution contract adopted in the context of the sale of luxury cosmetics. Specifically, Coty Germany had acted for trademark infringement against one of its distributors which sold the products on the www.amazon.de website. The distributor defended itself by replying that contractually excluding this resale channel constituted an agreement restricting competition which was prohibited, amongst others, by Article 101 (1) TFEU.
The referring court therefore first asked whether a selective distribution system for luxury products, primarily aimed at preserving the luxury image of such products, complied with Article 101 (1) TFEU. The Court replied affirmatively, based on the following reasoning:
agreements constituting a selective distribution system necessarily affect competition in the internal market;
however, they are not prohibited by Article 101(1) TFEU, if: a) 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; b) the characteristics of the product in question necessitate such a network in order to preserve its quality and ensure its proper use; and c) the criteria laid down do not go beyond what is necessary;
the quality of luxury products is not just the result of their material characteristics, but also of their aura of luxury that is an essential feature, therefore an impairment to that aura is likely to affect the actual quality of those goods; hence, a selective distribution system which seeks to ensure that the goods are displayed in sales outlets in a manner that enhances their value may preserve the quality and ensure the proper use of such goods.
In light of these considerations, the ECJ answered the first questions stating that “a 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”.
By a second question, the referring court asked whether Article 101(1) TFEU precludes a contractual clause which prohibits, to authorised distributors in a selective distribution system like the one described above, from using, in a discernible manner, third-party platforms for the online sale of the contract goods. As mentioned, the platform in suit was Amazon’s German website available at www.amazon.de.
In its reply, the ECJ highlighted that the obligation imposed on authorised distributors to sell the goods online solely through their own online shops, and the prohibition on those distributors of using a different business name, as well as of using third-party platforms in a discernible manner, guarantees to the supplier from the outset, in the e-commerce context, that those goods will be exclusively associated with the authorised distributors. On the contrary, “the internet sale of luxury goods via platforms which do not belong to the selective distribution system for those goods, in the context of which the supplier is unable to check the conditions in which those goods are sold, involves a risk of deterioration of the online presentation of those goods which is liable to harm their luxury image and thus their very character”. In addition, the Court stated, given that those platforms constitute a sales channel for goods of all kinds, the fact that luxury goods are not sold therein and that their sale online is carried out solely in the online shops of authorised distributors “contributes to that luxury image among consumers and thus to the preservation of one of the main characteristics of the goods sought by consumers”.
In the light of the foregoing, the ECJ answered the second question by stating that the contested clause complied with Article 101 (1) TFEU “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, these being matters to be determined by the referring court”.
In the concrete case, actually, the Court appeared to substitute itself to the referring court, noting that the specific clause in question was adequate to safeguard the luxury image of the products and did not go beyond what was necessary to achieve that purpose, given that it did not forbid online sales tout-court but only those made on third-party platforms recognisable by consumers, and that – according to the recent inquiry of the European Commission in the e-commerce sector – 90% of consumers purchase goods directly on the sites of retailers and not on third-party platforms.
The decision is undoubtedly of great interest to all companies active in the sale of luxury products, which see the protection guaranteed to their brands strengthened. On the other hand, the ruling also shows the importance of a correct drafting of the agreements that aim to set up selective distribution networks, to avoid incurring the prohibitions referred to in Article 101 (1) TFEU.