AG opinion in Coty case: A luxury supplier may ban its authorised resellers from selling its products on an internet marketplace provided selective distribution criteria are met
On 30 March, the Court of Justice of the European Union (the “CJEU”) heard a case relating to a dispute in Germany between a luxury perfumer, Coty, and one of its distributors, regarding the legality of preventing members of a selective distribution system from selling on an internet marketplace such as eBay or Amazon.
In an opinion published on 26 July, Advocate General (“AG”) Wahl concluded that such a restriction imposed on an authorised retailer in the context of a selective distribution system would not infringe the competition rules provided that the following conditions are met:
- authorised resellers should be selected solely on the basis of objective, qualitative criteria which are uniformly applied in a non-discriminatory manner;
- having regard to the product in question, including the prestige image, there must a legitimate requirement for a selective distribution arrangement, for example to preserve quality of product and/or to ensure proper use; and
- the selection criteria for admission to the selective distribution system must not be excessive or go beyond what is necessary for ensuring the appropriate distribution of the goods.
The AG considered that a restriction of this nature, based on qualitative criteria, may in fact improve competition because it protects the luxury image of the products concerned by:
- ensuring that the products are sold in an environment which meets the qualitative requirements imposed on the selective distribution network; and
- preventing other businesses from benefiting from the investments and efforts made by the supplier and other authorised distributors to improve the quality and image of the products concerned.
The AG’s opinion is likely to be welcomed by suppliers of luxury brands. Selective distribution systems are often used by such suppliers, as they allow the supplier to sell only to distributors selected on the basis of certain specified criteria. This can help to achieve consistent standards and quality of service concerning the sale of the products, and members of the selective distribution network can be restricted from selling to unauthorised distributors.
The AG’s opinion is not binding on the CJEU. The judgment is pending and we will provide an update in due course. In the meantime, please let our competition team know if you would like to discuss any of the issues raised.