On 18 July 2016, Germany moved another step closer to enshrining a right for distributors in selective distribution systems to sell over online marketplaces. This is not sudden move by the German courts, in fact we have reported similar stories in May 2014 and September 2014.
The current matter is a request from a German Court for a preliminary ruling by the European Court of Justice (ECJ). The court asked several questions relating to the interpretation of Article 101 of the TFEU and its compatibility with bans on online marketplace sales. These questions were:
• Are luxury brands eligible to use a selective distribution system solely on the grounds of protecting their luxury image?
• Is a general ban on online marketplaces lawful, even if the marketplaces meet the criteria of the selective distribution system?
• Whether a ban on the use of these platforms constitutes a restriction by object by reason of it being a restriction of active or passive sales to end users or being a restriction of customer group?
The prevailing view in the German case law is that an absolute ban on the use of these marketplaces has as its object the restriction of competition. Instead, if suppliers wished to prevent such sales, they would have to prove that the online marketplace did not meet the quality standards asked of other retailers in the selective distribution system.
Whilst the position in Germany is defendable, it almost directly contradicts EU law in the form of 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 whilst luxury retailers in Germany may be emailing their lawyers each time one of these cases goes public, where does the German position leave the rest of the EU? Is this the end of high priced luxury retailing as intense online price competition pulls prices sharply down? Will £1000 handbags suddenly be found for £500 after a quick internet search? Will this author soon be sashaying around, draped in the finest designer clothes, bought at a snip online?
The answer to these questions is of course no. Retailers have many tools at their disposal to ensure goods are only sold through outlets which match their image and at prices inline with their expectations. Some methods rely on other provisions in EU legislation, even in Germany there is the concession that some bans and stipulations by retailers are proportionate to maintain brand image. Other methods to protect image are simply commercial such as retailers selling to their distributors at a higher price, helping insure in turn that the distributor doesn’t make sweeping price cuts to the end user.
What is more likely in the long term is that perhaps the German judgments will cause a trickle down effect throughout the EU, as retailers start adjusting their distribution agreements to ‘justify’ any ban on online marketplace sales. Indeed many would be well placed to start this process now, before the German position becomes the general ECJ position.
At the time of writing, the ECJ has not replied to the German court’s questions.
Case C-230/16 – Coty Germany GmbH v Parfümerie Akzente GmbH (OJ 2016 C 260/21).