European Court Clarifies Prohibition of Third Party Platform Sales for Luxury Goods
On 6 December 2017, the European Court of Justice (ECJ) issued its judgment on online platform sales bans for luxury goods in selective distribution systems in Coty (C-230/16).
The ECJ ruled that luxury goods manufacturers can block their selective distribution system distributors from selling their products on online third party platforms:
The ECJ’s judgment will be of interest to luxury goods manufacturers with selective distribution systems (which meet the above criteria) that wish to restrict third party platform Internet sales which may harm the online luxury image of their brands.
The judgment follows its 2011 judgment in Pierre Fabre (C-439/09). In that case, the ECJ ruled that a blanket ban on Internet sales in a selective distribution system for cosmetics and personal care products amounted to a by object restriction of competition. By object restrictions by their very nature have such a high potential for negative effects on competition that it is unnecessary to demonstrate any actual or likely anti-competitive effects on the market.
The Coty judgment refers to a 2009 judgment on luxury goods, Copad (C-59/08). In that case the ECJ found that the setting up of a selective distribution system which aims to ensure that the contract goods are presented in a manner that enhances their value, contributes to the reputation of the goods and sustains the aura of luxury surrounding them.
Coty allows its products to be sold through its authorised distributor’s own website (which preserves the luxury image), and through unauthorised third party platforms which the customer cannot identify as being third party. Its products may not be sold through third party online platforms which operate “in a discernible manner towards consumers.” In practice, this means that the distributors cannot use online platforms where customers would be able to tell that the products were being sold on a third party website. Coty’s distributor sold Coty products both through its own website and an online third party marketplace, which Coty objected to.
In Coty, the ECJ concludes that the ban imposed by Coty is not an absolute prohibition, as was the case in Pierre Fabre. The ECJ finds that the sale of luxury goods via online platforms which do not belong to the selective distribution system involves a risk of deterioration of the online presentation which is liable to harm their luxury image and their very character. The ban allows Coty to check that its goods are sold online in an environment that corresponds to the quality-based conditions it has agreed to with the authorised distributors. It cannot impose quality criteria on a platform with which it does not have a contractual relationship. Finally, the fact that luxury goods are not sold online via third party platforms reinforces their luxury image. The ban therefore does not go beyond what is necessary for the aim of preserving the luxury image and the prohibition on discernible third party platforms appears to be lawful.
Finally, the ECJ concludes that a ban such as that imposed by Coty is not a hardcore restriction of competition. Although it restricts a certain kind of Internet sale, it does not restrict the distributors’ customers from buying the products or restrict the distributor from making passive sales to end users of the products.
The Coty judgment is interesting for a number of reasons.