According to Advocate General Nils Wahl’s opinion, delivered on July 26, in the Court of Justice of the European Union’s (CJEU) case Coty Germany GmbH v Parfümerie Akzente GmbH (case C-230/16), suppliers of luxury goods may prohibit their authorized retailers from selling their goods via third-party internet platforms. Such bans do not necessarily infringe Article 101(1) of the Treaty of Functioning of the European Union (TFEU) (which prohibits anticompetitive agreements).
Background of the Case
On July 16, 2016, the Higher Regional Court of Frankfurt lodged a request for a preliminary ruling with the CJEU asking whether selective distribution systems that serve to ensure a “luxury image” for the goods constitute an aspect of competition that is compatible with Article 101(1) TFEU and, whether bans on sales via third-party internet platforms constitute a restriction “by object” and should be viewed as “hardcore restrictions” under the Commission’s Vertical Agreements Block Exemption Regulation (VBER).
The initial dispute arose when Coty, a supplier of luxury cosmetics in Germany, brought an action against one of its authorized retailers, Parfümerie Akzente, for having infringed a provision in Coty’s selective distribution agreement that prohibited the retailers from distributing the luxury products via third-party platforms, such as Amazon, in order to preserve the brand image. The agreement provided that the authorized retailers could only sell the products online through an “electronic store window,” provided that the luxury character of the products was preserved.
The Advocate General’s Opinion
In his opinion, the Advocate General argues that selective distribution systems relating to the distribution of luxury and prestige products and aimed mainly at preserving the “luxury image” of these products are compatible with Article 101(1) TFEU, when, in accordance with consistent case-law, three conditions are met (as set out in Metro SB v Commission C75/84): (i) the product in question must be of such nature that it requires selective distribution; (ii) the supplier limits its resellers based on purely qualitative criteria, laid down uniformly and applied in a non-discriminatory manner; and (iii) the criteria established do not go beyond what is necessary.
With regard to the second question, as to whether a supplier may prevent its authorized distributors from selling luxury products via third-party platforms, the Advocate General concludes that a restriction of that kind should be analyzed in a similar manner to the first question, i.e., following the “Metro conditions.” The Higher Regional Court of Frankfurt will need to carry out the full analysis.
However, according to the Advocate General, restrictions on sales via third-party platforms are justified inter alia, by the fact that they are likely to improve competition based on qualitative criteria, as they ensure that the luxury products are sold in an environment meeting the qualitative requirements imposed by the supplier, while protecting the brand against “parasitism” from unauthorized retailers.
Advocate General Wahl stresses that the ban on third-party platform sales should be treated differently from outright bans on online sales, which qualify as restrictions by object and are prohibited under Article 101 TFEU (Pierre Fabre Case C-439/09). In the former case, authorized distributors still have the opportunity to sell the products via their own websites.
Finally, the Advocate General concludes that if restrictions on sales over third-party platforms were to be viewed as anti-competitive because the “Metro conditions” were not met, they could still benefit from an exemption under Article 101(3) TFEU, either on the basis of an individual case-by-case analysis or on the basis of the VBER. In fact, the prohibition in question does not constitute a “restriction by object” nor does it constitute a “hardcore restriction,” so as to exclude the agreement from the benefit of the Block Exemption Regulation. In his view, the prohibition does not amount to a restriction on the retailer’s customers or a restriction of passive sales to end users.
Clarification Expected in the CJEU’s Judgment
The CJEU is not bound by Advocate General Wahl’s opinions and it will be interesting to see whether the CJEU abides by the AG’s reasoning. The judgment, which is anticipated towards the end of the year, will be particularly enlightening because it will provide clear and unequivocal guidance on what type of action is expected from members of a selective distribution network with regard to the legality of online sales via third-party platforms. To date, national competition authorities and courts in EU Member States have had diverging approaches, despite the Commission’s Guidelines on Vertical Restraints (2010/C 130/01) which suggest that such restrictions on sales over third-party platforms are not anti-competitive. The Commission has reiterated its view in its formal intervention in the present case, stating that “mere marketplace bans are not hardcore restrictions,” but stressed that such restrictions should not go beyond what is necessary to protect the selective distribution system.