In practice, suppliers of luxury goods trade their products through selective distribution networks formed by authorized distributors who must comply with a number of requirements for the purpose of preserving the exclusive character of their products.
With the boom in sales of products in the Internet through third parties’ platforms, some problems are appearing between principals and distributors. For instance, at the end of July 2017, the Court of Justice of the European Union published a press note in which Advocate General Wahl, stated its opinion regarding the express contractual prohibition of distribution of luxury goods in the Internet through third parties’ platforms.
In the said press note, the Advocate General expressed non-binding opinions regarding the existing distribution agreement between one of the leading supplier of luxury cosmetic products in Germany: Coty Germany, and one of its authorized distributors: Parfümerie Akzente.
From year 2012 on, Coty Germany inserted a clause in all its contracts that, in case distributors wished to sell the products in the Internet (1) sales should be conducted by means of an “electronic showcase” of the authorized establishment, this is, through the authorized distributors’ webpages and (2) the luxury character of the goods should be respected.
As a consequence of said new clause, Coty Germany, expressly prohibited the distribution of its products through non authorized third parties’ platforms.
When Coty Germany learned that Parfümerie Akzente distributed its products through Amazon and, given its refusal to accept the aforementioned restrictive clause introduced in the distribution contract, Coty Germany brought an action before the German courts seeking an order prohibiting Parfümerie Akzente from distributing the contract goods via the platform amazon.de.
Due to the thoroughness with which these matters should be handled, the German courts transferred the question to the Court of Justice of the European Union so that it clarified if this kind of prohibitions are compatible with the European Union competition law.
Settled case-law of the Court of Justice of the European Union acknowledges that the election of a selective distribution network with the primary focus on preserving the luxury image of the products is not comprised within the prohibition of practices which have the effect of preventing, restricting or distorting competition (collusive practices), according to the Court of Justice of the European Union’s judgment of 13th of October 2011 (C439/09).
Advocate General Wahl reckons that a contractual clause that prohibits the distribution of goods through third parties’ platforms cannot be embedded as a collusive practice provided that:
- It is dependent on the nature of the product;
- It is determined in a uniform fashion, this is, applicable to all the members of the selective distribution network;
- It is applied without distinction
- It does not go beyond what is necessary.
Advocate General Wahl remarks that not only the clause could be licit, but it could even improve competition and solve problems of parasitism between distributors as it could prevent other companies from benefiting from the investment and effort dedicated by the supplier and other authorized distributors in order to improve quality and the image of the products under consideration.
Regarding the proportionality of the measure, Mr. Wahl reckons that the prohibition to distribute in third parties’ platforms like Amazon is not disproportionate, due to the fact that it is not an absolute prohibition to distribute through the Internet, but a prohibition of platforms which do not warranty an appropriated sales environment for luxury goods.
Finally, the Advocate General understands that in the case that the mentioned restrictions established by Coty Germany in the distribution contract were categorized as collusive practices, they could benefit from the complex system of exemptions provided in the Regulation 330/2010, as in his view, the prohibition does not constitute (i) a restriction of the retailer’s customers or (ii) a restriction of passive sales to end users.
Eduardo Vilá
Vilá Abogados
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11th of August 2017
