The European Court of Justice (ECJ) has confirmed in the Coty judgment that a supplier of luxury goods may prohibit distributors in a selective distribution system from selling via Internet platforms such as Amazon, Bol.com and eBay. The judgment sheds light on the possibilities of restricting online sales in distribution agreements. It points to only one conclusion: a marketplace ban can also be imposed in respect of most non-luxury products and in an open distribution system. The European Commission recently confirmed this, but not all the national competition authorities are willing to take that last step yet.
Summary of the Coty judgment
The question presented to the ECJ in the Coty case was whether producers of luxury goods could prohibit selective distributors from selling those goods on online marketplaces. The ECJ first of all found, in line with established case law, that a selective distribution system is not in breach of the cartel prohibition if the distributors are selected on the basis of objective, qualitative, proportional and non-discriminatory criteria. Selective distribution may be required in the case of luxury goods to protect their prestigious image and, in doing so, the quality of the product.
Secondly, the ECJ found that a marketplace ban is a suitable means of protecting the luxury image of the goods and is proportionate. The prohibition ensures that the goods are sold only via authorised distributors and in an environment that meets the quality standards agreed on with the distributors. Because there is no contractual relationship between the supplier and the third-party platforms, a supplier cannot enforce compliance with those quality standards by those platforms
In the ECJ’s opinion, there can be no question of a comprehensive prohibition of online sales. Authorised distributors may sell goods both via their own websites and via non-authorised third-party platforms, provided that they do not operate in a manner discernible to the public. The ECJ refers in that regard to the outcome of the Commission’s E-commerce Sector Inquiry, from which it is apparent that 90% of the distributors surveyed have their own online shops. This justifies the conclusion that prohibiting the sale of luxury goods via Internet platforms does not go beyond what is necessary.
Finally, the ECJ addressed the question whether the Block Exemption applies to a marketplace ban, since the relevant market share in the Coty case did not exceed the 30% threshold. In the ECJ’s opinion, the marketplace ban does not constitute a restriction of the consumers to whom the authorised distributors may sell the luxury goods, or a restriction of passive sales to consumers. A marketplace ban does not restrict the online sale of goods and therefore does not constitute a hardcore restriction of customers or of passive sales within the meaning of the Block Exemption.
The judgment leaves no doubt as to whether suppliers of luxury goods may prohibit selective distributors from selling goods via online marketplaces. The Amsterdam Court had previously arrived at the same conclusion in an identical dispute between sports company Nike and one of its distributors. The question is whether this judgment also allows a marketplace ban in the case of non-luxury goods and in an open distribution system. Although, strictly speaking, the judgment relates to luxury goods, we believe that the judgment has a broader scope.
Quality standards regarding the environment in which the goods are sold may also be set in the selective distribution of non-luxury goods. But compliance with those standards by third-party platforms cannot be enforced, in the absence of a contractual relationship between the supplier and the platform. A marketplace ban should therefore also be possible in the selective distribution of non-luxury goods
The ECJ furthermore found that prohibiting sales via third-party online platforms does not constitute a restriction of customers or a restriction of passive sales to consumers, and therefore does not constitute a hardcore restriction of competition that is excluded from the benefit of the Block Exemption. In light of the general wording of the Block Exemption, the ECJ’s ruling on this point cannot apply to selective distribution only.
In that light, the only conclusion that can be drawn is that a prohibition of sales via third-party online platforms is possible if the supplier and the distributor have a market share that does not exceed the 30% threshold, regardless of whether luxury goods or selective distribution is involved. If that threshold is exceeded, it must be assessed on a case-by-case basis whether luxury goods or selective distribution is involved, or whether an individual exemption is possible.
The Commission has welcomed the Coty judgment and the clarity and legal certainty that it offers. The judgment allows the harmonised application of competition law in the EU. The Commission sets great store by the ECJ’s finding that a marketplace ban does not constitute a hardcore restriction and can therefore benefit from the Block Exemption, regardless of whether luxury goods or selective distribution is involved. The ACM (the Netherlands Authority for Consumers and Markets) had previously subscribed to that position.
It is remarkable that the German Bundeskartellamt (BKa) has announced that the judgment will have little impact on its decision-making practice since, in its opinion, it relates only to luxury goods. It is more inclined to regard the judgment as confirmation of its position that a marketplace ban would be unlawful, except in the case of selective distribution of luxury goods. In the BKa’s opinion, the term “luxury goods” must be narrowly interpreted; producers do not have carte blanche to prohibit distributors from selling goods via online marketplaces.
In light of the concept of the internal market and the cross-border effect of online sales, this difference of opinion between the Commission and this leading competition authority of the largest economy in the EU is an undesirable situation for trade and industry. The Commission has announced that it will broaden the dialogue with other competition authorities (i.e. the BKa) in order to work out a joint strategy.
The signs do not bode well in Germany. A few days after the Coty judgment, for instance, the Bundesgerichtshof ruled in the Asics case that prohibiting distributors of non-luxury goods from using price comparison engines was considered anticompetitive and therefore unlawful. The Commission presented a more balanced (but tentative) position on this point in its E‑commerce Report, in which it argued that the use of this type of website must in any event be based on objective and qualitative criteria. That debate will undoubtedly continue. German companies in particularly must be on their guard in the meantime.
E-commerce is high on the agenda of both the Commission and the national supervisory authorities. www.ecommercesectorinquiry.com is the leading information portal number if you wish to stay informed of the latest news of the Commission and the national competition authorities in the field of E-commerce. The portal is regularly updated to reflect relevant legal developments and has an FAQ and a Tips & Tricks section.
Detailed information on dawn raids by the ACM and the Commission can be found at www.invalacm.nl.