The Advocate General’s Opinion regarding the preliminary ruling before the European Court of Justice in Case C-230/16, Coty Germany, has been issued today. He suggests the European Court of Justice to conclude that a supplier of luxury cosmetics can legally impose certain contractual limitations on members of its selective distribution network, namely the possibility to prevent them from selling through online third party platforms such as Amazon and eBay.
Coty is a manufacturer and wholesaler of luxury cosmetics. One of its authorized distributors, Parfümerie Akzente GmbH, sells through physical and online stores (both through its own web page and through third parties’ platforms). They both signed a selective distribution agreement, according to which the manufacturer restricted the resale of goods to authorized distributors selected according to specified criteria, and limited the possibility of resale of such goods to non-authorized distributors.
The conflict arose in 2012, when Coty reviewed the distribution agreement that incorporated a clause regarding the online sale of products through the internet. The purpose of the review was to include a clause establishing a prohibition for its distributors to sell through unauthorized online distribution platforms if the logo was visible externally (for instance, using the “amazon.de” platform). The agreement explicitly recognized the right of distributors to sell online if the sale was made through a website owned by the distributor and as long as the luxury character of the products was protected. Nevertheless, the distributor declined to subscribe to this new version and Coty filed suit. From its point of view, this was a necessary measure to guarantee a high quality distribution.
A first-tier court rejected Coty’s application arguing that the clause was against EU competition law. The judgment referred to the ruling of the European Court of Justice on the Pierre Fabre case (C-439/09), where the Court held that the aim of maintaining a prestigious image was not a legitimate aim to justify a restriction of competition by object under article 101.1 of the Treaty, such as the –blunt- prohibition of online sales.
As a result, Coty pursued its claim to the Oberlandesgericht de Frankfurt am Main, which decided to refer the case to the European Court of Justice.
The Advocate General has held that the referring court should examine the specific contractual clause and determine whether the marketplace ban has been imposed uniformly and in a non-discriminatory manner, whether the characteristics of the products require the measure to protect its quality and whether or not the restriction goes beyond what is necessary for the attainment of a legitimate object. According to the conclusions today, a supplier of luxury goods may prohibit its authorised retailers from selling its products on third-party platforms such as Amazon or eBay. Such a prohibition is likely to improve competition based on qualitative criteria.
Furthermore, the Advocate points out that the fact that authorised distributors are prohibited from making use in a discernible manner of such platforms cannot, in the present state of development of e-commerce, be assimilated to an outright ban on or a substantial restriction of internet sales.
The European Court of Justice is expected to issue its judgment before the end of the year. It will undoubtedly be a landmark case, with significant consequences for any sector where selective distribution systems are implemented. It will also give a hint of the direction that the European Court of Justice wishes to take in relation to online distribution.