The European Union's highest court is set to consider what is being pegged 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”) will hear Coty, Inc.'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.
The ECJ's decision, which comes on the heels of a longstanding fight between luxury brands and online retailers, stands to determine whether luxury goods companies can prevent retailers from selling their products online, namely via marketplaces, such as Amazon, Alibaba, and eBay. 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 case, which is slated to go before the Luxembourg-based ECJ on Thursday, stems from a lawsuit filed by Coty. In its suit, Coty 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.
In July 2014, the Regional Court of Frankfurt issued a decision against Coty, dismissing the suit and arguing that the newly-adopted terms and conditions infringe both German and larger European antitrust rules (as they are anti-competitive and stand to harm consumers) and are thus, unenforceable. Coty appealed the decision and the Regional Court, thereafter, sought guidance from the ECJ on whether such online distribution bans infringe European anti-competition laws.
The ECJ’s ruling will be 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."
UPDATED (7/26/2017): "A supplier of luxury goods may prohibit its authorized retailers from selling its products on third-party platforms such as Amazon or eBay," Advocate General Nils Wahl at the European Union's Court of Justice said in a non-binding opinion. According to a release from the ECJ:
Such a prohibition, which seeks to preserve the luxury image of the products concerned, is not, under certain conditions, caught by the prohibition of agreements, as it is likely to improve competition based on qualitative criteria.
In his Opinion today, Advocate General Nils Wahl points out, first of all, that the Court has already held that, in view of their characteristics and nature, luxury goods may require the implementation of a selective distribution system in order to preserve the quality of those goods and to ensure that they are properly used.
According to case-law that is still valid, selective distribution systems relating to the distribution of luxury and prestige products, and mainly intended to preserve the ‘luxury image’ of those products ‒ such as the Coty Germany system ‒ are not necessarily caught by the prohibition of agreements, where they meet three criteria:
(1) the resellers are chosen on the basis of objective criteria of a qualitative nature which are determined uniformly for all and applied in a non-discriminatory manner for all potential resellers,
(2) the nature of the product in question, including the prestige image, requires selective distribution in order to preserve the quality of the product and to ensure that it is correctly used, and
(3) the criteria established do not go beyond what is necessary.
Furthermore, and with regard more specifically to the contested provision according to which Coty Germany prohibits its authorised retailers from using in a discernible manner third party platforms for internet sales of the contract goods, the opinion of the Advocate General is that such a clause is not necessarily caught by the prohibition of agreements where:
(1) it is dependent on the nature of the product,
(2) it is determined in a uniform fashion and applied without distinction, and
(3) it does not go beyond what is necessary. It will ultimately be for the [the Oberlandesgericht Frankfurt am Main (Supreme Regional Court, Frankfurt am Main)] to examine whether this is the case.
Judges at Europe's highest court, who follow their advisers' opinions in four out of five cases, will rule on the case "Coty Germany GmbH v Parfümerie Akzente GmbH" in the coming months.
EU antitrust regulators crafted rules in 2010 allowing brand owners with less than a 30 percent market share to block online retailers without a bricks-and-mortar shop from distributing their products.
* The case is Coty Germany GmbH v Parfümerie Akzente GmbH, C-230/16.