In its hotly anticipated ruling in the Coty case, the Court of Justice of the EU (CJEU) has held that, in the context of a selective distribution system, a restriction imposed on an authorised retailer not to sell the goods through online third-party platforms does not infringe Article 101(1) TFEU provided that the following conditions are met:
- the objective of the restriction is to preserve the luxury image of the goods concerned,
- it is applied objectively and in a non-discriminatory manner, and
- the restriction is proportionate and does not go further than necessary.
The ruling will be welcomed by suppliers of branded and luxury goods who have increasingly expressed concerns over the potential erosion of the image of their products as a result of the recent growth in online sales, in particular on third-party online platforms such as Amazon and eBay.
In order to maintain a level of quality control over online sales of their products, suppliers of luxury goods are more frequently resorting to vertical integration and handle the distribution in-house. The Coty ruling now confirms that sales through third party distributors will allow suppliers the same level of quality control. Suppliers will still, however, need to show that their distribution system either meets the thresholds of the VABER or otherwise that their product is indeed a “luxury” or complex product which requires such a restriction to protect its image.
The CJEU decision treats the ban on third-party online platforms as a qualitative restriction that is necessary to protect the image of the goods concerned, rather than as a restriction of the customers to whom authorised distributors can sell the luxury goods at issue or as a ban of passive sales to end users, which would be in breach of Article 101(1) TFEU and amount to a restriction of competition by object.
According to the CJEU such a restriction is also not considered a “hardcore” restriction under the Vertical Block Exemption Regulation (VABER) and hence an agreement including such a restriction can benefit from the VABER if all other conditions are also met.
For the full ebulletin on this development see here.
See our previous commentary on the AG’s opinion in this case here.