Member Article

Coty Germany sells luxury cosmetics in Germany. It markets certain brands via a selective distribution network, i.e. through authorized distributors. Coty brought proceedings before the German courts against one of its authorized distributors, Pafümerie Akzente, in order to prohibit it from distributing Coty products via Amazon.

According to the selective distribution contract in question, authorized distributors are allowed to offer and sell products online, provided, however, that they use their own 'electronic shop window' and that the luxury character of the products is preserved. The use of a different business name is expressly prohibited, and non-authorized third-party platforms may only be used if such an engagement is not discernable to the customer.

The Oberlandesgericht Frankfurt am Main requested the Court of Justice to give a preliminary ruling on the lawfulness of the contractual arrangement under EU competition law.

The Court of Justice first concludes, with reference to its settled case law, that a selective distribution system for luxury goods, designed primarily to preserve the luxury image of those goods, does not breach Article 101(1) TFEU, provided that the following conditions are met:

• resellers are chosen on the basis of objective criteria of a qualitative nature that are laid down uniformly for all potential resellers and applied in a non-discriminatory fashion, and
• the criteria laid down do not go beyond what is necessary.

Regarding the question whether selective distribution may be considered necessary, the court in particular notes that the quality of luxury products is not just the result of their material characteristics, but also of the allure and prestigious image which bestow on them an aura of luxury. That aura is essential in that it enables consumers to distinguish them from similar goods. Consequently, an impairment to that aura of luxury is likely to affect the actual quality of those goods.

Secondly, the Court finds that Article 101(1) TFEU does not preclude a contractual clause which prohibits authorized distributors from using, in a discernible manner, third-party platforms for internet sales of the goods, provided that the following conditions are met:

• the clause has the objective of preserving the luxury image of the goods in question
• the clause is laid down uniformly and not applied in a discriminatory fashion
• the clause is proportionate in the light of the objective pursued.

It will be for the Oberlandesgericht to consider whether those conditions are met in the present case. Notably, however, the court observes that the clause at issue appears to be lawful. Should the German court conclude otherwise, the Court of Justice points out that the clause might benefit from a block exemption under Commision Regulation (EU) No 330/2010 on the application of Article 101(3) TFEU.

Norway has implemented provisions that correspond to TFEU 101 through the EEA Agreement Article 53 and the Competition Act Section 10.