16 September 2016
Following a dispute in Germany between perfume and cosmetics manufacturer Coty and one of its retail distributors (Parfümerie Akzente), a German court has sought clarifications on the proper application of the EU competition rules in respect of online distribution to the Court of Justice of the EU ("CJEU"). The case will likely decide how much control luxury brand owners have over distribution of their products on online platforms such as Amazon or eBay. Whilst not a party to the German case, Amazon.com has recently sought permission to intervene in the case in order to ensure the views of third party online platforms are heard.
The original dispute arose in Germany after Coty sought to prevent Parfümerie Akzente from making sales through Amazon’s market place.
On 18 July 2016 the Frankfurt Court of Appeals requested the CJEU to provide a preliminary ruling on whether a restriction by luxury brand owners on the use of online platforms is compatible with Article 101 of the Treaty on the Functioning of the European Union (“TFEU”).
Questions to the CJEU
The CJEU has been asked to consider the following:
- Is the use of selective distribution systems by luxury brand owners to protect the ‘luxury image’ of their products compatible with Article 101(1) TFEU?
- Is a general ban on online platforms compatible with Article 101(1) TFEU, even if the platform meets the criteria of the selective distribution system?
- Does prohibiting the use of online platforms constitute a restriction by object under Article 101(1) TFEU as it restricts customer group retailers can sell to and their ability to make passive sales?
For luxury brand owners, the ability to have some control over the retail environment, whether online or offline, is an important consideration when setting up a selective distribution policy. The nature of the products concerned will also be relevant in assessing whether restrictions are permissible. Whether Amazon will be able to argue its case will however depend on whether the Court grants it permission to intervene. Demonstrating sufficient interest has historically been a difficult hurdle for companies to overcome, particularly where they have not been involved in the proceedings before the national court.
Background to online selective distribution
The European Commission Guidelines on Vertical Restraints (“the Guidelines”) allows a supplier operating a (qualitative) selective distribution system to impose equivalency requirement restrictions on authorised distributors in respect of online versus offline sales. For example, obligations on authorised retailers to meet equivalent criteria in respect of online product presentation and sales advice as applies to their bricks and mortar sales. However, Coty was seeking to impose an outright ban on the use of third party platforms (such as Amazon marketplace) and no doubt sought solace in the Guidelines which do specifically permit restrictions on sales through third party internet sites where those sites display the platform’s name and/or logo (Guidelines, paragraph 54).
In a number of Decisions on selective distribution agreements, the German Bundeskartellamt ("FCO") has taken a dim view of prohibitions on online sales. For example, the FCO’s investigation into Sennheiser’s selective distribution system resulted in the removal of a prohibition on sales on third-party platforms. In that case Amazon itself was already an authorised distributor but the ruling opened up the possibility of sales being made over third party platforms, for example Amazon Marketplace. In its investigations into Adidas and ASICS the FCO also found that general prohibitions on sales via third party platforms in selective distribution systems restrict intra-brand competition, and harmed small and medium-sized distributors.
Brand owners and online retailers will be watching this case with interest as the CJEU will clarify a central question of whether it can ever be acceptable under competition law to restrict internet sales in order to protect brand image.