U.S. cosmetics company Coty Inc. can block retailers from selling its products on online platforms, such as Amazon and eBay. That is the ruling from the European Union's highest court in what has been called a landmark case for luxury brands. Following a decision and request for guidance from the Higher Regional Court of Frankfurt, the European Court of Justice (“ECJ”) took on Coty’s case against distributor Parfümerie Akzente GmbH (“Akzente”), regarding the legality of restrictions imposed by the perfume and cosmetic maker on its authorized distributor regarding the sale of products via third party platforms online.
“A supplier of luxury goods can prohibit its authorized distributors from selling those goods on a third-party internet platform such as Amazon,” the ECJ held on Wednesday. “Such a prohibition is appropriate and does not, in principle, go beyond what is necessary to preserve the luxury image of the goods.”
The ECJ's decision, which comes on the heels of a longstanding fight between luxury brands and online retailers, sets the record straight regarding whether luxury goods companies can prevent retailers from selling their products online, namely via marketplaces. With this in mind, the ECJ's decision is expected to have far-reaching consequences for selective distribution systems, in general, and for third party platform bans, in particular.
The matter, itself, follows from Coty’s request that the lower court prohibit Akzente from selling Coty products via Amazon's Germany-specific site. According to its complaint, Coty alleges that in 2012, it introduced new terms and conditions for its selective distribution system, including that brick-and-mortar distributors, such as Akzente, were prohibited from selling Coty products online. Coty, which holds the fragrance licenses for Calvin Klein, Balenciaga, Marc Jacobs, and Miu Miu, among others, alleged that Akzente subsequently violated the terms of their agreement by selling its perfume products on Amazon.
The ECJ’s ruling is particularly critical as an increasingly number of companies seeking to tightly control the distribution of their products online. Thomas Graf, a partner at Cleary Gottlieb Steen & Hamilton LLP in New York, told Reuters: "The case may matter for some products, like luxury products, more [than others]. But it has general implications because it deals with the conditions that suppliers can define for selling via online channels, such as marketplaces."