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Advocate General issues opinion on online sales restrictions in the Coty case

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27/07/2017

Advocate General Wahl has issued his opinion to the European Court of Justice in the Coty case advising that luxury suppliers should be able to prevent their products from being sold on third party online platforms such as Amazon or eBay in certain circumstances.

The opinion relates to a dispute between US beauty products supplier Coty’s German subsidiary and German retailer Parfümerie Akzente, which refused to comply with a clause in Coty’s contracts requiring it not to supply its products on third party platforms. Coty brought an action in the German courts seeking an order to prevent Parfümerie Akzente from distributing Coty’s products via the Amazon marketplace. The case was referred to the European Court of Justice by the German court to rule on whether the clause was legal and enforceable under EU competition law.

In his opinion, Advocate General Wahl considered that luxury suppliers have an interest in preserving the luxury image of their brands and may wish legitimately to use selective distribution networks to help to preserve the quality of those goods and to ensure that they are properly used.

The Advocate General reviewed the relevant case law and stated that selective distribution systems relating to the distribution of luxury and prestige products, and mainly intended to preserve the luxury image of those products ‒ such as the Coty Germany system ‒ are not necessarily caught by the prohibition on anticompetitive agreements in Article 101 TFEU, where they meet three criteria: (1) the resellers are chosen on the basis of objective criteria of a qualitative nature which are determined uniformly for all and applied in a non-discriminatory manner for all potential resellers; (2) the nature of the product in question, including the prestige image, requires selective distribution in order to preserve the quality of the product and to ensure that it is correctly used; and (3) the criteria established do not go beyond what is necessary.

The Advocate General also considered that a restriction on the use of third party platforms should not fall within the prohibition on anticompetitive agreements where: (1) it is dependent on the nature of the product; (2) it is determined in a uniform fashion and applied without distinction; and (3) it does not go beyond what is necessary.

The next stage in the proceedings will be for the European Court of Justice to issue its judgment on the legality of the clause in the upcoming months before the matter is referred back to the German court. The Advocate General’s opinion is not binding on the European Court of Justice but the opinions are often heavily influential and are followed in many cases.

The Coty case follows several cases in the UK in recent years in which the Competition and Markets Authority has investigated online sales restrictions such as Mobility Scooters, Ping golf clubs, Bathroom fittings, Commercial catering and Light fittings. Companies should take care not to include restrictions in their distribution agreements which may be found to breach competition law and lead to potential penalties including significant fines and damages actions.

The Competition team at Walker Morris has specialist experience advising a wide range of companies in relation to distribution agreements and selective distribution networks. If you would like to discuss what this case might mean for your company, or require advice on distribution arrangements generally, please contact any of the members of the team listed below.

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