This paper – which can be found here – looks at the Coty decision, and it structured as follows:
- Section 2 provides an overview of how EU competition law dealt with selective distribution systems pre-Coty.
It begins by looking at the Metro decisions. In Metro I, the CJEU decided that the maintenance of a certain price level for specialist retailers and wholesalers was a legitimate goal. In this decision, the CJEU recognised that that selective distribution agreements are compatible with competition rules if they fulfil three cumulative conditions: (i) the characteristics of the product in question necessitate such a distribution scheme in order to preserve its quality or to ensure its proper use; (ii) resellers are chosen on the basis of objective criteria of a qualitative nature relating to the technical qualifications of the reseller and his staff and the suitability of his trading premises, laid down uniformly for all potential resellers and not applied in a discriminatory fashion; (iii) the selection criteria do not go beyond what is necessary, in accordance with the principle of proportionality. In Metro II, the court added an additional condition: (iv) the number of similar distribution systems in the market must not preclude the possibility of other forms of distribution or result in a rigid price structure.
While subject to criticisms, the principles outlined in these decisions were incorporated into the Vertical Block Exemption Regulation (VBER).
The question of how to apply these rules to online sales was raised in Pierre Fabre. In this case, a French manufacturer of non-medicinal cosmetics and personal care products included a clause in its distribution agreements preventing distributors from selling the contract goods online. The CJEU ruled that a general and absolute ban on online sales in the context of a selective distribution system constitutes a restriction of competition by object, which in this case was not justified by any legitimate objectives.
At the same time, the case law and EU legislation did not provide additional guidance regarding how to evaluate the lawfulness of non-absolute restrictions of online sales in the context of selective distribution schemes. This matter was the subject of attention in the Commission’s E-commerce Sector Inquiry. This Inquiry concluded that: (i) marketplace bans affecting retailers do not generally amount to a de facto prohibition on selling online and do not generally restrict the effective use of the Internet as a sales channel; (ii) marketplace restrictions should be evaluated by reference to the relevance of the distribution channel to which the restriction applies, the relevant product and geographic markets, the type of restrictions applied (e.g. absolute ban or qualitative criteria), as well as by reference to the credibility of brand protection considerations and the need for pre- and post-sale advice.
- Section 3 discusses the Coty Prestige decision.
The request for a preliminary ruling in this case was submitted in the context of a dispute between a supplier of luxury cosmetics (Coty Germany) and its authorized distributor (Parfümerie Akzente), concerning the prohibition, under the selective distribution agreement, of the use of third-party undertakings for Internet sales. Coty argued that, in order to support the luxury image of its brands, it was justified in not allowing its distributor to use a different name or to engage a third-party undertaking to sell Coty’s products online.
The CJEU started by pointing out that it has, since Metro, recognized the legality of selective distribution networks based on qualitative criteria. These criteria extend to luxury goods – but not to general cosmetics and body hygiene products, such as the ones in Pierre Fabre. Luxury goods, due to their characteristics and nature, may require the implementation of a selective distribution system in order to preserve their quality and to ensure that they are used properly. As regards the appropriateness of a ban on internet sales on third party platforms, the CJEU considered that it justified in this case by the need to preserve the luxury image of the products. In particular, a third-party platforms ban is coherent with the aim of: (i) guaranteeing that the contract goods will be exclusively associated with authorized distributors; (ii) monitoring the qualitative criteria according to which the products are sold; (iii) contributing to the high-end image of the products among consumers.
In short: the CJEU held that, where the conditions of Metro are fulfilled, an absolute marketplace ban is not a hard-core restriction, since it does not preclude all online sales, but only one of a number of ways of reaching customers via the Internet. Pierre Fabre is thus confined to absolute ban on online sales.
- While the authors think that the judgment is fairly clear, there is an area of ambiguity which is likely to give rise to disputes down the line: what is a luxury product?
In Coty, the CJEU does not define the notion of luxury, but relies instead on a previous case (Copad) which stated that the quality of luxury goods 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. The problems this creates are already apparent: ‘Few days after the Coty judgment, the German Federal Court of Justice, evaluating ASICS’s online restrictions, stated that sports and running shoes are not luxury goods. Previously, on 4 October 2017 the District Court of Amsterdam, referring to the Opinion of Advocate General Wahl in Coty, reached a different conclusion about Nike shoes and ruled in favour of Nike in an action against a distributor (Action Sport), which had not complied with the selective distribution policy.’
The authors argue that Coty should be read expansively. Irrespective of whether the products concerned are luxury products, a selective distribution system may be necessary in order to preserve the quality of a product. It is the properties of the products concerned, whether they lie in the physical characteristics of the products (such as high-quality products or technologically advanced products) or in their luxury or prestige image, that must be preserved. This is also in line with trade mark law, which protects all producers and brand holders benefitting from a trademark, not only manufacturers of luxury goods.
A further concern is related to the antitrust assessment of other online restrictions that are not directly affected by the Coty judgment. A good example of this is the German case against ASICS for prohibiting authorised online dealers from using ASICS brand names on the websites of third parties to guide customers to their own online shops and from using price comparison engines for their online presence. Price comparison tools are not a distinct online sales channel, hence they generally do not affect selective distribution systems: interested customers are redirected to the website of the authorized distributor from which the product can be purchased and which fulfils the criteria set out by the manufacturer as to how its product should be sold. Therefore, the Commission had previously concluded that absolute price comparison tool bans which are not linked to quality criteria.
- Section 4 concludes. The authors find the Coty ruling to be reasonable and convincing, since it is in line with both settled case law and the position expressed by the Commission in the Vertical Agreement Guidelines and in the Sector Inquiry.
Comment: This paper provides a good overview of EU competition rules on selective distribution schemes and how they apply to online sales. The first sections, which deal with older case law and Commission activities in this field, are extremely dense and I’m not sure they add much to the analysis of Coty and its effects – but if one is looking for a detailed discussion of selective distribution or e-commerce, this may be a good resource.