Products being sold through third-party platforms such as Amazon is an evil for a large number of manufacturers. Litigation is presently pending at the European Court of Justice (ECJ), relating to the decision whether manufacturers of luxury items can prohibit distributors from selling their products on third-party platforms such as Amazon. The ECJ Advocate General believes so. (ECJ Advocate General 26.7.2017, Rs C-230/16 (Coty Germany).
Coty Germany, a manufacturer of luxury cosmetics, sells its products using a selective distribution system. It is a system in which manufacturers of (luxury) articles only sell their products to certain distribution partners, who themselves are selected objectively according to certain criteria. The approved distributors are not permitted to sell the articles to distributors outside the system.
A selective distribution system is often used to protect the image of luxury articles. This is made possible because the distributors have to fulfil certain quality criteria. Technically complex products are are often sold using approved distributors because of the sales assistance and support that are necessary.
Coty Germany contractually prohibited their authorised distributors for selling their articles on the internet through third-party platforms. Despite this, one of the distributors sold their products both on his own internet site as well as through Amazon. Coty Germany filed charges.
Hence the ECJ has to decide whether, in a selective distribution system, a ban on the sale of products through third-party platforms is permissible or not. To date, precedent decisions by the ECJ (in particular Pierre Fabre) would indicate that such a ban would tend not to be permissible.
The ECJ has yet to rule in the Coty case. However, the Advocate General has submitted his conclusions. The ECJ is not bound to follow his recommendations, however in 80% of cases it does so. In the Coty case the Advocate General concluded that a ban on sale through third-party platforms may be permissible.
However, it would only be the case under certain conditions:
- Objective selection of distributors according to specific quality criteria: The selection of distributors according to specific quality aspects is uniform and indiscriminate. No distributors are excluded arbitrarily.
- Luxury image: The purpose of the system is to safeguard the luxury image of goods. A “sophisticated” presentation of products may be necessary to preserve their luxury image or guarantee the correct use of a product.
- No complete internet ban: A complete ban on online sale is not to be envisaged. The distributors in the Coty case can, for example, offer the products on their own online shops or through third party-platforms that are not recognisable for the user.
- Within reasonable limits: The contract clause that prohibits online sale using third-party platforms may not be more extensive than what is absolutely necessary.
It remains to be seen if the ECJ follows the Advocate General’s recommendation. A decision can be expected during the course of the year.
Dr. Georg Huber, LL.M.