European Union: CJEU Issues Long-Awaited Coty Decision On Luxury Goods Supplier's Online Platform Ban

In Short

The Ruling: On December 6, 2017, the Court of Justice of the European Union ("CJEU") issued its long-awaited judgment in the Coty case, which clarifies the extent to which an online platform ban within a selective distribution system for luxury goods is compatible with EU competition law.

The Result: Following Advocate General Wahl's opinion, the CJEU ruled that an online platform ban within a selective distribution system aimed at preserving the luxury image of goods complies with Article 101 of the Treaty on the Functioning of the European Union ("TFEU")—to the extent that: (i) the clause has the objective of preserving the luxury image of those goods; (ii) it is laid down uniformly and not applied in a discriminatory fashion; and (iii) it is proportionate in light of the objective.

Looking Ahead: The ruling will be of significant value in various ongoing national cases, putting an end to the debate between the Commission and several national competition authorities, at least regarding luxury goods. The CJEU did not discuss to what extent its reasoning would apply to non-luxury goods, leaving scope for a stricter approach by national authorities for such goods.

On December 6, 2017, the CJEU issued its long-awaited judgment in case C-230/16 Coty Germany GmbH v Parfümerie Akzente GmbH. In this judgment, the CJEU clarifies its position regarding selective distribution systems aimed at preserving the luxury image of goods and provides valuable guidance on the conformity of an online platform ban with Article 101 TFEU and the Vertical Block Exemption Regulation ("VBER").

This judgment is of particular interest given the contradictory positions adopted at European Union and national levels regarding online marketplace bans.

Background

This case relates to Coty Germany, one of the leading suppliers of luxury cosmetics in Germany. In order to preserve the "luxury image" of its brands, Coty sells certain of these brands via a selective distribution network. In contrast to the contract at issue in Pierre Fabre, Coty's selective distribution contract did not impose an absolute online sales ban, as it authorized internet sales activity through the distributors' own website or through a third-party platform, in a nondiscernible manner to the public (e.g., the name of the platform is not visible). However, it prohibited the use, in a discernible manner, of a third-party platform for the internet sale of its goods.

The dispute in the main proceedings is between Parfümerie Akzente GmbH, one of Coty's authorized distributors, and Coty Germany, which sought an injunction to prevent Parfümerie Akzente from distributing its products via the platform Amazon.de. Following the dismissal of the action by the Court of First Instance, Coty appealed the judgment before the Oberlandesgericht, which referred several questions to the CJEU concerning the application of EU competition law in the context of a selective distribution system for luxury goods.

Under the CJEU's case law and Commission's guidance, a selective distribution system is considered to fall outside Article 101§1 TFEU, which prohibits anticompetitive agreements, provided that: (i) it is legitimate with regard to the nature of the goods concerned; (ii) resellers are chosen on the basis of objective criteria of a qualitative nature laid down uniformly and applied in a nondiscriminatory fashion; and (iii) the criteria laid down satisfy the proportionality test.

The CJEU Ruling

Following Advocate General Wahl's opinion in this case, the CJEU ruled the following:

The preservation of the luxury image of contractual goods may justify the use of a selective distribution system under Article 101 TFEU, provided that the selective distribution system meets two conditions: (i) the resellers are chosen on the basis of objective criteria of a qualitative nature that are laid down uniformly for all potential resellers and applied in a nondiscriminatory fashion; and (ii) the criteria laid down do not go beyond what is necessary.

The CJEU thus confirmed its previous case law. However, in order to clarify the Pierre Fabre judgment, the CJEU made clear that controversial paragraph 46 of the judgment, in which the Court ruled that the "aim of maintaining a prestigious image is not a legitimate aim for restricting competition" and cannot justify the online sales ban at issue, must be read in the context of the case. The CJEU noted in particular that in the Pierre Fabre case, the clause contained an absolute online sales ban and concerned non-luxury cosmetic goods.

The prohibition imposed on members of a selective distribution system for luxury goods—of making use, in a discernible manner, of third-party platforms for internet sales—may be a legitimate restriction under Article 101 TFEU in light of the objective of preserving the luxury image of the contractual goods, provided that it fulfills the three conditions set out above.

Within the assessment of these conditions, the CJEU observed that the clause at issue clearly had the objective of preserving the luxury image of the contractual goods, and it appeared to be laid down uniformly and not applied in a discriminatory fashion.

With regard to the condition of proportionality (iii) above, the CJEU considered that the prohibition at issue was appropriate and did not go beyond what is necessary in light of the objective pursued. In this regard, the CJEU noted in particular that the clause at issue did not contain an absolute online sale prohibition. Furthermore, this clause enabled Coty to exercise an effective control on the conditions under which its products were sold, which would be more difficult if the products were sold via a third-party platform in the absence of contractual links between the supplier and the platform.

The prohibition imposed on members of a selective distribution system for luxury goods—of making use, in a discernible manner, of third-party platforms for the internet sale—does not constitute a hardcore restriction within the meaning of the VBER.

The CJEU considered that such a prohibition restricts neither passive sales nor the territory into which or the customer to which a distributor can sell within the meaning of Article 4(b) and (c) of the VBER. The Court considered that customers using online platforms do not constitute a specific customer group to whom distributors would be prevented to sell under the clause. Consequently, the selective distribution system at issue may benefit from the VBER. This reasoning appears to apply irrespective of the nature of the good, potentially even to nonselective distribution schemes.

This judgment validates the supportive position adopted by the Commission regarding online platform bans, including in its recent Final Report on the 2015 e-commerce sector inquiry, which contrasted with the strict approach adopted by several national competition authorities, in particular in France and Germany.

In a speech given in December 2017, the president of the Bundeskartellamt, Andreas Mundt, has already pointed to the limited scope of the judgment, which would be applicable only to luxury goods. The authority seems keen to continue its strict approach with respect to other goods. Mundt also vowed to fight for a more restrictive approach in the upcoming discussion on the new VBER.

Three Key Takeaways

  1. In accordance with its previous case law, the CJEU confirmed that selective distribution systems aimed at preserving the luxury image of the contractual goods are considered to comply with Article 101 TFEU to the extent that: (i) resellers are chosen on the basis of objective criteria of a qualitative nature that are laid down uniformly for all potential resellers and applied in a nondiscriminatory fashion; and (ii) the criteria laid down do not go beyond what is necessary.
  2. In accordance with the Commission's position, the CJEU adopted a supportive approach regarding online platform bans. While a factual assessment is still necessary, the CJEU's judgment suggests that online platform bans are likely to be considered compatible with Article 101 TFEU within a selective distribution system for luxury goods. It also noted that such a ban would not constitute a hardcore restriction under the VBER. This ruling will thus force the French and German authorities to reconsider their position.
  3. The CJEU did not clarify to what extent the same reasoning may apply to selective distribution for non-luxury goods. However, the CJEU's reasoning with respect to hardcore restrictions seems to apply equally to non-luxury goods. As a result, suppliers of non-luxury goods could also benefit from a block exemption under the VBER. Still, it is unclear whether national authorities, and the Bundeskartellamt in particular, will have the same interpretation, given their often more aggressive approach toward platform bans.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Charlotte Breuvart
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