On 12 July 2018 the Higher Regional Court of Frankfurt am Main (Germany) has issued its decision in the case 'Coty Germany GmbH v Parfümerie Akzente GmbH'. It has held that a supplier of luxury goods may prohibit its authorised distributors from selling through a third-party internet platform, such as Amazon.de, to protect the luxury image (decision of 12 July 2018, 11 U 96/14).
The court upheld the application of Coty Germany GmbH, which sells luxury perfumes and cosmetics through a selective distribution system. The decision follows the highly regarded ruling of the Court of Justice of the European Union in this case issued last December (decision of 6 December 2017, C – 230/16).
Background of 'Coty'
Coty supplies brand perfumes and cosmetics for i.a. Hugo Boss, Davidoff or Jil Sander. By contractual provision Coty prohibited its distributors from selling its products through third-party internet platforms not authorized by Coty, including the platform Amazon.de used by the defendant. Coty expected selling through not authorized platforms can affect the luxury image of its products. Where sold on one platform with other non-luxury goods the luxury character of its goods might become less obvious to the consumer Coty feared.
The Higher Regional Court of Frankfurt found that distribution bans for certain internet platforms such as Amazon.de are admissible in selective distribution contracts. Such provision does not fall within the scope of Art. 101 TFEU.
According to the Higher Regional Court of Frankfurt, brand cosmetic products have a luxury image that can be damaged by sales on internet platforms such as Amazon.de. Ensuring this image of the product can justify a selective distribution system. The objective quality criteria established by Coty had also been applied uniformly and without discrimination. Only concerning the European Court's observations on the proportionality of such system the court expressed doubts.
As a result, however, the court was able to leave open the question as to whether Art. 101 TFEU was applicable, since the agreement, in any case, was concluded in accordance with Art. 101 (3) TFEU, Art. 2 ff. Reg. No. 330/2010 (Vertical Block Exemption Regulation) and does, therefore, not raise concerns under competition law. In particular, the prohibition at hand does not constitute a hardcore restriction within the meaning of Art. 4b) Vertical Block Exemption Regulation (restriction of customer groups). Customers of third-party platforms cannot be separated from other online buyers. Moreover such clause does not restrict passive sales to end users within the meaning of Article 4c) Vertical Block Exemption Regulation. Under certain requirements, authorised distributors are permitted to advertise on the Internet and via search engines.
Selective distribution agreements can provide the distributor with far-reaching guidelines regarding the use of third-party platforms on the Internet. The use of third-party platforms such as Amazon.de can even be excluded as long as distribution via Internet is not completely prohibited. The future will tell whether the requirements laid down by the Higher Regional Court of Frankfurt can be applied to selective distribution systems outside of 'classic' luxury goods.
Restrictions on online distribution are still in the spotlight. A collection of recent decisions:
On 12 December 2017 (KVZ 41/17 – ASICS) ( LINK), full text decision available in German language only) the Federal Court of Germany found that ASICS may not generally forbid its resellers to use price search engines.
On 18 July 2016 the Federal Cartel Office (LINK) announced that toy producer Lego committed towards the Office to change its rebate scheme. The setup of Lego's rebate scheme only enabled brick and mortar stores to fulfil the requirements of the highest rebates. Before, comparable constellations have been seen in cases 'BSH' and 'Gardena'.
On 27 June 2014 (LINK) the Federal Cartel Office has closed proceedings after Adidas changed its contractual terms. The office regarded the provisions as general prohibition of sale on online platforms.
On 13 October 2011 (C-439-09 – Pierre Fabre) (LINK) the European Court found that a prohibition of sales on the Internet in selective distribution systems generally constitutes a restriction of competition.
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