Judgement of the ECJ: Prohibition of distribution via online platforms in selective distribution systems for luxury goods lawful

In its judgement of December 6, 2017 concerning a preliminary ruling, the European Court of Justice confirmed that a contract clause in a selective distribution system for luxury goods, with which the authorized retailers are prohibited from distributing contract goods online via third party platforms which are discernible to the public as such is lawful. (ECJ judgement of December 6, 2017, ref.: C-230/16 “Coty”)

Facts of the case

The plaintiff (Coty Germany GmbH) sells luxury cosmetics in Germany in a selective distribution system on the basis of a selective distribution contract. The defendant is an authorized distributor for the products from Coty, which sells these products both at its brick-and-mortar locations and over the internet. Internet sales are carried out partly through its own online store and partly via the platform “amazon.de”. In the selective distribution contract, the selective distribution is justified by the necessity to support the luxury image of the brands. The selective distribution contract therefore stipulates that each physical point of sale of the distributor must satisfy particular requirements and must be authorized by Coty. Furthermore, the selective distribution contract expressly stipulates that a third-party undertaking which is not an authorized distributor of Coty is not to be recognizably engaged. In the first instance, Coty sued for the distribution of sales via the platform “amazon.de” to be stopped. The district court [“Landgericht”] held the action to be unfounded, however, because the disputed prohibition represented an unlawful core restriction within the meaning of Art. 4 (C) Reg. 330/2010 and is therefore also not subject to an individual exception. The upper regional court [“Oberlandesgericht”] which dealt with the appeal submitted the issue of the lawfulness of such a prohibition clause to the ECJ.

Reasons for the decision

The ECJ established that a selective distribution system for luxury goods, which serves primarily to ensure the luxury image of these goods, is to be made compatible with Art. 101 (1) TFEU, provided that the choice of retailer is made on the basis of objective qualitative factors, which are determined as standard for all retailers coming into consideration and are applied without discrimination, and do not go beyond the extent necessary. It further established that Art. 101 (1) TFEU does not prevent a clause in such a system which prohibits authorized retailers, when selling the contract goods on the internet, to engage third-party platforms which are discernible to the public. The ECJ therefore now expressly recognizes the interests of a manufacturer of luxury goods to be entitled to protect the prestige character of these goods and to prohibit their sale via internet platforms like “amazon.de”.

Notes for practice

The discussion about the lawfulness of platform prohibitions regarding the distribution of luxury goods can therefore be continued on a basis which has a great deal more legal certainty and which, in the individual case, must focus on the issue of which products are to be valued as luxury goods with a prestige character which is worth protecting.