Luxury brand's win on ruling to restrict online sales
This case concerns a request for a preliminary ruling in respect of EU competition rules in the context of a dispute concerning Coty Germany GmbH, a supplier of luxury cosmetics and Parfümerie Akzente GmbH, one of Coty's authorised distributors.
Coty markets its products using a selective distribution network, including Parfümerie Akzente. The distribution network is based on selective contracts in combination with affiliated undertakings. Physical stores are strictly controlled and must be approved by Coty in regard to environment, décor and furnishing. In respect of online trading, Coty's distributors agreed to a supplemental agreement that the authorised retailer, such a Parfümerie Akzente, "is not permitted to use a different name or to engage a third-party undertaking which has not be authorised". The aim of such agreements being for Coty to control it's selective distribution network and maintain the luxury image of its brands.
Following EU Regulation No 330/2010 coming into force, Coty revised its selective distribution contracts as well as the supplemental agreement in respect of online sales, amending the agreement to provide that internet sales activity is conducted through an "electronic shop window" of the authorised store. The aim of the amendment being for Coty to impose further controls and selectivity in where it's luxury products are sold.
Parfümerie Akzente refused to sign the amended agreement and Coty brought action against them in the German National Court seeking an order prohibiting Parfümerie Akzente from selling Coty's products on 'amazon.de', a site previously used by Parfümerie Akzente in its retail activity and now unauthorised by Coty. The national court dismissed Coty's claim however on appeal, the Regional High Court, Frankfurt am Main, decided to stay the proceedings for a preliminary ruling to be made by the European Court of Justice, particularly in respect of how Article 101(1) TFEU and Regulation 330/2010 should be interpreted.
Article 101(1) TFEU states as follows:
- 1. The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which:
- a. directly or indirectly fix purchase or selling prices or any other trading conditions;
- b. limit or control production, markets, technical development, or investment;
- c. share markets or sources of supply;
- d. apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
- e. make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
The following decisions were made by the European Court of Justice:
- Article 101(1) TFEU must be interpreted to mean that a selective distribution network for luxury goods, designed to preserve the luxury branding of such goods is compliant to the extent that distributors are chosen on the basis of an objective criteria of a qualitative nature and are uniformly applied to all potential resellers without discrimination.
- Article 101(1) TFEU must be interpreted as not precluding a contractual clause, on condition that the clause has the objective of preserving the luxury image of the goods.
- Article 4 of Regulation 330/2010 must be interpreted as meaning that a selective distribution system, which operates at the retail level of trade and makes use of third-party undertakings for internet sales does not constitute a restriction.
EU competition rules are widely recognised and strictly enforced, particularly in respect of vertical agreements and concerted practices between businesses. This decision by the European Court of Justice now permits luxury retailers to protect their luxury branding and gives tighter controls of where their products are sold without breaching EU competition rules and without the risk of facing financial penalty.