In what is being hailed as landmark case in distribution law, the Court of Justice of the European Union (the ‘CJEU’) on 6 December 2017 gave a judgment confirming that luxury goods suppliers can ban sales through online marketplaces. The case brings some clarity to the law and may be greeted with a sigh of relief by luxury goods manufacturers. However, in reality, does it really change market practice?
The case concerned the German luxury cosmetics brand Coty, and a disagreement they had with an authorised reseller. Coty at the time was amending their distribution agreements and the amendment included a ban on selling through online marketplaces. The reseller took the case to a tribunal who ruled it a violation of Article 101 TFEU, the prohibition of anti-competitive agreements. Coty appealed and the regional tribunal of Frankfurt referred the question over the use of online marketplaces to the CJEU.
On 6 December, the CJEU held that in a selective distribution system, a clause which aimed to uphold a luxury brand by prohibiting the use of online marketplaces, will not breach Article 101. This type of clause is not a restriction under Article 4(b) of Regulation 330/2010, nor a restriction on passive sales under Article 4(c) of Regulation 330/2010 (the ‘Block Exemption’). However, the clause in question must not go beyond what is necessary and it must be objectively justified and enforced in a non-discriminatory way.
What is also particularly interesting about this case is that it flies in the face of what was a growing movement that distributors should not be restricted in their ability to sell via online marketplaces. We reported in September 2014 how a ban on Casio watches being sold through online marketplaces outside of a selective distribution system, had been struck down by the German courts.
Whilst some will say that Coty rolls back progress on internet selling, others gave good reason to say that the case reaffirms what was always the correct position according to the letter of the law. This is evidenced by paragraph 54 of the Vertical Restraints Guidelines (OJ 2010 C130/1) which had been used for years (and still is throughout the EU) as a basis for legitimate bans on online marketplaces. Paragraph 54 states:
“where the distributor’s website is hosted by a third party platform, the supplier may require that customers do not visit the distributor’s website through a site carrying the name or logo of the third party platform”
So where does the Coty case leave the law? The Court’s judgment at least affirms that for luxury goods, a ban on using online marketplace can be justified subject to certain conditions and will not breach competition law throughout the EU. However there are certain ambiguities of interpretation inherent in the decision. Principally there is the question of what is a luxury brand or product? Many manufacturers currently use the selective distribution model even though their product does not really fall into the category of luxury. There is a danger that many brands and their lawyers will use this case as a cover to apply selective distribution systems and online marketplace bans to products that are in fact not really luxury, nor can really justify online marketplace bans such as these.
What was particularly logical and pro-consumer about the previous German cases was how the German Courts have picked apart the arguments as the quality of online marketplace selling. The German Courts reasoned that online marketplaces were perfectly acceptable and high quality places to sell goods. There is a danger that many brands which are not luxury goods brands, will continue to impose similar bans without the objective justification.
There is a danger notwithstanding this judgment, that the CJEU’s reasoning may be interpreted differently by Member States’ competition regulators and Courts. Some will be eager to combat what they will see illegitimate uses of the Block Exemption by companies looking to control pricing. This area of law is by no means settled and it will only take one prominent company to come undone to remind others that tailored and careful legal analysis, is necessary in each case.