Luxury beauty company Coty can stop retailers from selling its products online, Europe's top court has ruled. Without this protection, there is a risk that luxury brands would not have the incentive to make the investments necessary to develop high quality products and create the aura of prestige.
Online platforms such as Amazon and eBay in turn say online sales curbs are anti-competitive and hurt small businesses.
The Court of Justice of the EU (ECJ) ruling came in a case involving US cosmetics maker Coty's COTY.N German subsidiary and German retailer Parfumerie Akzente, which sells Coty's goods on sites including Amazon against the company's wishes.
Do selective distribution systems that have as their aim the distribution of luxury goods and primarily serve to ensure a "luxury image" for the goods constitute an aspect of competition that is compatible with Article 101 (1) TFEU?
After intense lobbying by LVMH LVMH.PA , Richemont CFR.S and other luxury goods companies, European Union antitrust regulators laid down rules in 2010 allowing brand owners with less than a 30 percent market share to block online retailers without a bricks-and-mortar shop from distributing their products.
The European Court of Justice said a supplier could prohibit the selling of its goods on platforms such as Amazon to protect its luxury image. The prohibition can be appropriate for maintaining that luxury image of the products and "does not go beyond what is necessary" in accomplishing that aim. However, exemptions from that position apply under the Vertical Agreements Block Exemption (the VABE), including in respect to selective distribution systems.
"Our preliminary view is that such manufacturers have not received carte blanche to impose blanket bans on selling via platforms", the office's president, Andreas Mundt, said in a statement.
The CJEU noted, however, that Coty allows its authorised distributors under certain conditions to advertise the sale of its luxury goods via the internet on third-party platforms and to use online search engines.
It will ultimately be up to the Frankfurt court to resolve the dispute between Coty and Parfümerie Akzente based on the CJEU's interpretations. That said, the ruling does make clear that third-party platform bans do not amount to a hardcore restriction of competition, and thus it will be open to brand owners to seek to justify their use on a case-by-case basis.
The court interpreted Article 4 of Regulation No 330/2010 for the last two questions as not placing restrictions on consumers and on passive sales by authorized distributors to consumers. The German Competition Authority, the Bundeskartellamt, has already said that it considers the CJEU's decision to be limited to genuinely prestigious products.