Keeping goods exclusive

A recent ruling of the CJEU, Coty Germany GmbH v Parfumerie Akzente GmbH (Case C 230/16), confirms that luxury brand-owners can place restrictions on the types of website on which their goods can be sold, as part of their selective distribution network arrangements aimed at preserving the luxury image of such brands. Previous CJEU decisions had established that certain restrictions were, in principle, permissible in respect of bricks and mortar shops. This decision establishes that online restrictions are potentially justifiable also. 

Background to the decision

Coty Germany GmbH is a German supplier of luxury cosmetics. Parfumerie Akzente GmbH is one of its authorised distributors. For many years, Akzente sold Coty products through its bricks and mortar locations and online, including via amazon.de. The agreement between Coty and Akzente was in Coty’s standard form for its selective distribution network, and set out requirements relating to the environment, décor and furnishing of Akzente’s stores, and the signage outside. A supplemental agreement dealing with online sales provided that “the authorised retailer is not permitted to use a different name or to engage a third-party undertaking which has not been authorised”. 

In 2012, Coty sought to amend the supplemental agreement to provide that “the authorised retailer is entitled to offer and sell the products on the internet, provided, however, that that internet sales activity is conducted through an ‘electronic shop window’ of the authorised store and the luxury character of the products is preserved”. Akzente refused to sign the amended agreement. 

Coty sought an order from the German courts to prevent Akzente selling its goods on amazon.de. The court dismissed the action at first instance, on the grounds that the amended agreement was contrary to article 101 TFEU, which prohibits restrictions on competition, and Regulation No 330/2010, on vertical agreements. The German appeal court referred a number of questions to the CJEU. 

The cjeus's decision

The CJEU reiterated its findings in previous judgments that a selective distribution network is not, in itself, prohibited by article 101(1), to the extent that: 

• resellers are chosen on the basis of qualitative objective criteria;
• the criteria are applicable uniformly to all resellers and not applied in a discriminatory fashion;
• the characteristics of the product in question necessitate such a network in order to preserve its quality and ensure its proper use; and
• the criteria laid down do not go beyond what is necessary (judgment of 13 October 2011, Pierre Fabre Dermo-Cosmétique, C 439/09).

Moreover, the CJEU noted that it had previously held that luxury goods may require a selective distribution network. The quality of such goods results not just from their material characteristics, but also their aura of luxury, which enables consumers to distinguish them from similar goods. An impairment to that aura of luxury is likely to affect the actual quality of those goods. The characteristics and conditions of a selective distribution system thus may help preserve the quality of such goods. Criteria determining the manner in which such goods are to be displayed in sales outlets can contribute to the reputation of the goods at issue and therefore contribute to sustaining the aura of luxury surrounding them (judgment of 23 April 2009, Copad, C 59/08). 

Against that backdrop, the CJEU observed that the obligation Coty imposed on authorised distributors in the amended agreement to sell the contract goods online solely through their own online shops, and the prohibition on those distributors using a different business name, as well as the use of third-party platforms in a discernible manner, provided Coty with a guarantee, from the outset, that those goods would be exclusively associated with the authorised distributors in e-commerce. Moreover, it allowed Coty to check goods were being sold online in an environment which complied with the qualitative requirements in its selective distribution agreements, and take action against the distributor if not. In contrast, the lack of a direct contractual link between Coty and third party online platforms could prove difficult for Coty in the event of issues with the platforms. 

Thus, the CJEU concluded the amended agreement’s provisions were appropriate to preserve the luxury image of the goods, and did not go beyond what was necessary. 

Commentary

In view of the CJEU’s previous decisions on selective distribution networks for luxury goods, the decision was perhaps of no great surprise. However, this judgment provides welcome clarity on the types of online arrangements that may or may not be permitted. In addition, it highlights the importance of considering competition law issues, as well as IP issues, in drafting such agreements, and ensuring that any such restrictions can be objectively justified, are fairly applied and do not go too far.