On 26 July 2017, the eagerly anticipated Coty case took a further step towards reaching a conclusion, through the publication of the Advocate General's Opinion (AG's Opinion).
The EU Court of Justice (ECJ) is expected to make a final judgment in the next few months. The AG's Opinion is not binding on the Court, but it will heighten suppliers' anticipation that the Court will give them a green light to prohibit resellers from selling their products on third-party internet platforms such as Amazon Marketplace and eBay.
The Coty case itself relates to a dispute between Coty and one of its authorised retailers, a business called Parfurmerie Akzente. Coty is a leading supplier of luxury cosmetics. Its brands include the likes of Calvin Klein, Chloe, Davidoff, Rimmel London and Sally Hansen.
In common with many suppliers of high-end products across a range of industries, Coty operates a selective distribution system that requires retailers to meet certain quality-based requirements, consistent with the luxury character of the products.
It is well-established that, as a matter of competition law, all retailers must be free to sell products online if they want to. Coty permitted its authorised retailers to sell online, provided that they did so through their own website and that the luxury character of the products was preserved. Coty wanted to prevent its authorised retailers from selling online through unauthorised third parties by including a clause in its contracts to this effect. Coty brought an action against Parfurmerie Akzente for selling through Amazon Marketplace, which Coty had not authorised.
The underlying question that the case raises, which the German courts have referred to the ECJ - the highest Court in the EU - is whether competition law permits a supplier to restrict its retailers from using third-party internet sales platforms that operate marketplaces where distributors can sell their goods, such as Amazon (or, for that matter, eBay).
This issue has been something of a hot topic in competition law circles for a number of years. While the European Commission's guidelines appear to say that restrictions on sales through internet sales platforms are permitted on quality-based grounds, the German national competition authority has challenged a series of brand owners (including the likes of Adidas and Asics) for implementing such restrictions. The outcome of the Coty case is therefore keenly anticipated, in the hope that it will offer greater clarity and a uniform approach across the EU as to what suppliers are - and aren't - allowed to do in this respect.
The AG's Opinion is favourable to suppliers and brand owners as it recognises the importance selective distribution plays in protecting the luxury image of goods. In particular, the AG considered that online sales restrictions imposed within a selective distribution context can be lawful as long as they contribute to competition based on factors other than price, such as the quality of customer service. This position indicates that it may be lawful for a supplier of luxury products to prohibit its resellers from selling its products on third-party internet platforms such as Amazon Marketplace and eBay. If this view is upheld by the ECJ, it will offer greater scope for suppliers to control how their products are sold online.
However, the AG's Opinion is not binding on the ECJ. While the Court will often follow the AG's Opinion, there are plenty of cases in which the ECJ has ultimately reached a different view.
And, even if the ECJ does follow the AG's Opinion, this is unlikely to mean carte blanche for third-party platform restrictions. Rather, the lawfulness of any given restriction will depend on the facts of the case, including the nature of the products and the rationale for the restriction. Nevertheless, it would be good news for suppliers if the ECJ does follow the AG's approach.
Assuming that the ECJ does follow the AG's Opinion, this may prompt suppliers (in particular, suppliers of relatively high-end products who operate selective distribution systems) to revisit their supply terms, with a view to prohibiting their resellers from selling their products on third-party internet platforms such as Amazon Marketplace and eBay. Many suppliers would welcome the ability to impose such restrictions to ensure consistency with their brand experience online but, given doubts as to whether such restrictions are lawful, have previously refrained from doing so.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.