Prestige, trademarks, reputation and online sales – an Advocate General’s opinion

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The Advocate General N. WAHL has given an opinion on case C‑230/16 Coty Germany GmbH v Parfümerie Akzente GmbH. The case concerns the following:

Coty Germany is one of Germany’s leading suppliers of luxury cosmetics. It sells certain luxury cosmetic brands via a selective distribution network, on the basis of a distribution contract employed uniformly throughout Europe by it and the undertakings affiliated to it. That contract is supplemented by various special contracts designed to organise that network.

Parfümerie Akzente has for many years distributed Coty Germany’s products as an authorised retailer, both at brick and mortar locations and over the internet. Internet sales are made partly through its own online store and partly via the platform ‘amazon.de’.

It is apparent from the decision for reference that, in the introduction to the selective distribution contract, Coty Germany justifies its selective distribution system in the following terms: ‘the character of Coty Prestige’s brands requires selective distribution in order to support the luxury image of these brands’.

In that regard, as regards brick and mortar retail, the selective distribution contract provides that each point of sale of the distributor must be authorised by Coty Germany, and must meet certain standards, set out in Article 2 of the contract, in terms of environment, décor and furnishing.

In particular, according to Article 2(1)(3) of the distribution contract, ‘the décor and furnishing of the sales location, the selection of goods, advertising and the sales presentation must highlight and promote the luxury character of Coty Prestige’s brands. Taken into account when evaluating this criterion are, in particular, the façade, interior décor, floor coverings, type of walls, ceilings and furniture, sales space and lighting, as well as an overall clean and orderly appearance’.

Article 2(1)(6) of the distribution contract states that ‘the signage for the sales location, including the name of the undertaking and any add-ons or company slogans, must not give the impression of a limited selection of goods, low-quality outfitting or inferior advice, and it must be mounted in such a way that does not obscure the authorised retailer’s decorations and showrooms’.

Furthermore, the contractual framework linking the parties includes a supplemental agreement on internet sales, which provides, in Article 1(3), that ‘the authorised retailer is not permitted to use a different name or to engage a third-party undertaking which has not been authorised’.

In March 2012, Coty Germany revised the selective distribution network contracts and also that supplemental agreement, and provided in Clause I(1) of that supplemental agreement that ‘the authorised retailer is entitled to offer and sell the products on the internet, provided, however, that that internet sales activity is conducted through an “electronic shop window” of the authorised store and the luxury character of the products is preserved’. In addition, Clause I(1)(3) of that supplemental agreement expressly prohibits the use of a different business name and also the recognisable engagement of a third-party undertaking which is not an authorised retailer of Coty Prestige. A footnote to that clause states that ‘accordingly, the authorised retailer is prohibited from collaborating with third parties if such collaboration is directed at the operation of the website and is effected in a manner that is discernible to the public’.

Parfümerie Akzente refused to approve those amendments to the distribution contract and Coty Germany brought an action before a national court of first instance, seeking an order prohibiting Parfümerie Akzente from distributing products bearing the brand at issue via the platform ‘amazon.de’, in application of Clause I(1)(3).

By judgment of 31 July 2014, the competent national court of first instance, namely the Landgericht Frankfurt am Main (Regional Court, Frankfurt am Main, Germany) dismissed the application, on the ground that the contractual clause in question was contrary to Article 101(1) TFEU and to Paragraph 1 of the Gesetz gegen Wettbewerbsbeschränkungen (Law against restrictions of competition).

That court considered, in particular, that, in accordance with the judgment of 13 October 2011, Pierre Fabre Dermo-Cosmétique (C‑439/09, EU:C:2011:649), the objective of preserving a prestige brand image does not justify the introduction of a selective distribution system which by definition restricts competition. According to the national court of first instance, the contractual clause at issue is also a hardcore restriction, within the meaning of Article 4(c) of Regulation No 330/2010, and cannot therefore benefit from a block exemption on the basis of that regulation.

Nor — still according to the national court of first instance — are the conditions for an individual exemption met, since it has not been shown that the general exclusion of internet sales via third-party platforms entails efficiency gains of such a kind as to offset the disadvantages for competition that result from the clause at issue. That court considers that the general prohibition provided for in that clause is not necessary, since there are other equally appropriate means that are less restrictive of competition, such as the application of specific quality criteria for the third-party platforms.

It was in those circumstances, and in the context of Coty Germany’s appeal against the decision of the national first-instance court, that the Oberlandesgericht Frankfurt am Main (Higher Regional Court, Frankfurt am Main) decided to stay proceedings and to refer the following questions to the Court for a preliminary ruling:

‘(1) 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?

(2) If the first question is answered in the affirmative:

Does it constitute an aspect of competition that is compatible with Article 101(1) TFEU if the members of a selective distribution system operating at the retail level of trade are prohibited generally from engaging third-party undertakings discernible to the public to handle internet sales, irrespective of whether the manufacturer’s legitimate quality standards are contravened in the specific case?

(3) Is Article 4(b) of Regulation [No 330/2010] to be interpreted as meaning that a prohibition of engaging third-party undertakings discernible to the public to handle internet sales that is imposed on the members of a selective distribution system operating at the retail level of trade constitutes a restriction of the retailer’s customer group “by object”?

(4) Is Article 4(c) of Regulation [No 330/2010] to be interpreted as meaning that a prohibition of engaging third-party undertakings discernible to the public to handle internet sales that is imposed on the members of a selective distribution system operating at the retail level of trade constitutes a restriction of passive sales to end users “by object”?’

The Advocate General’s opinion is:

(1) Selective distribution systems relating to the distribution of luxury and prestige products and mainly intended to preserve the ‘luxury image’ of those products are an aspect of competition which is compatible with Article 101(1) TFEU provided that resellers are chosen on the basis of objective criteria of a qualitative nature which are determined uniformly for all and applied in a non-discriminatory manner for all potential resellers, that the nature of the product in question, including the prestige image, requires selective distribution in order to preserve the quality of the product and to ensure that it is correctly used, and that the criteria established do not go beyond what is necessary.

(2) In order to determine whether a contractual clause incorporating a prohibition on authorised distributors of a distribution network making use in a discernible manner of third-party platforms for online sales is compatible with Article 101(1) TFEU, it is for the referring court to examine whether that contractual clause is dependent on the nature of the product, whether it is determined in a uniform fashion and applied without distinction and whether it goes beyond what is necessary.

(3) The prohibition imposed on the members of a selective distribution system who operate as retailers on the market from making use in a discernible manner of third undertakings for internet sales does not constitute a restriction of the retailer’s customers within the meaning of Article 4(b) of Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) on the Treaty of the Functioning of the European Union to categories of vertical agreements and concerted practices.

(4) The prohibition imposed on the members of a selective distribution system, who operate as retailers on the market, from making use in a discernible manner of third undertakings for internet sales does not constitute a restriction of passive sales to end users within the meaning of Article 4(c) of Regulation No 330/2010.

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