ECJ ruling gives luxury brands more online control

Are Luxury Brands to be Pushed out from Online Marketplaces?

The Court of Justice of the European Union (ECJ) made an important judgement this week. It means a supplier of luxury goods can prohibit its authorised distributors from selling those goods on a third-party Internet platform such as Amazon.

The ruling, on 6 December, is based on a case between prestige cosmetics group, Coty Germany, and Parfümerie Akzente, one of Coty’s authorised distributors. Coty Germany brought the case before the German courts in order to stop Parfümerie Akzente distributing Coty goods via Amazon’s German online marketplace, Amazon.de.

The German courts referred the matter to the ECJ for a ruling under EU Competition Law and the Luxemboug-based court has found in Coty’s favour. It essentially says that brands can protect their luxury image by preventing distributors from selling their products in locations or websites that may tarnish that image*.

The Court noted: “The quality of luxury goods is not simply the result of their material characteristics, but also of the allure and prestigious image which bestows on them an aura of luxury. That aura is an essential aspect of those goods in that it thus enables consumers to distinguish them from other similar goods. Therefore, any impairment to that aura of luxury is likely to affect the actual quality of those goods.”

Luxury brands on the front foot

The ruling allows Coty – whose more than 77 beauty brands include Calvin Klein, Chloé and Marc Jacobs at the higher end – to include contract clauses restricting sales on third-party platforms for internet sales. This is on the proviso that the clause’s objective is to preserve the luxury image of the goods; that it is uniform and not discriminatory; and that it is proportionate.

Coty said in a statement: “Coty welcomes this decision which confirms that the character of luxury brands necessitates and justifies selective distribution, whatever the distribution channel. After years of uncertainty, this means luxury brands can determine how they are placed on digital platforms and it is a clear ruling for the protection of luxury brands’ image.”

Clarity still needed

Other companies like Coty that sell high-end brands will now have a stronger legal footing when dealing with EU distribution partners about where their products are sold online. However, give that no definition of luxury was established in this ruling, the picture is far from clear as to which brands will fall under it, and which ones will not.

The Brussels-based Computer & Communications Industry Association, whose members include eBay and Amazon, warned that the ECJ ruling was not a green light for widespread bans. Jakob Kucharczyk, Vice-President for Competition and EU Regulatory Policy, said: “The need to preserve a luxury image of products stood very much at the centre of this case. The majority of marketplace bans do not concern luxury products, but mass-market products that can be found in just about any physical store.

“The judgment is definitely not a carte blanche for manufacturers to impose absolute marketplace bans for all goods. The court explicitly states that marketplace bans are only legal if they aim to preserve luxury image in a proportionate way. That would not be the case for the majority of today’s marketplace bans.”

* In a technical statement, the ECJ qualified its judgement as follows: “A selective distribution system for luxury goods – designed primarily to preserve the luxury image of those goods – does not breach the prohibition of agreements, decisions and concerted practices laid down in EU law, provided that these conditions are met:

– resellers are chosen on the basis of objective criteria of a qualitative nature, laid down uniformly for all potential resellers and not applied in a discriminatory fashion

– the criteria laid down must not go beyond what is necessary.”

by Fabio Bernardini
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