Member News

Restrictions to Online Luxury Sales in Europe

By AEM Carnelutti

Big luxury brands have ignored e-commerce sales strategies for many years, while other commercial industries have commonly resorted to e-commerce stores as sale channels. The luxury brands’ view of e-commerce has radically changed in the last two years.[1] Some luxury companies launched their own online platforms to sell their products directly to customers.

A recent EU Supreme Court decision may however stall the involvement of mass e-commerce giants, such as Amazon, in the European online luxury shopping.

On December 6, 2017, the European Court of Justice (the “ECJ”) issued a judgment on online platform sales bans for luxury goods in selective distribution systems in the case no. C-230/16 (“Coty case”). The ECJ held luxury goods companies can prohibit their authorized distributors from selling those goods on a third-party online platforms which may harm the online luxury image of their brands.[2]

Coty Germany used a “selective distribution networks” to sell its luxury cosmetics goods in Germany. Coty’s retailers were authorized through a distribution agreement which set several quality requirements they must comply with (as to sale locations, manner to present the products, etc.).

With regard to the online sales of Coty’s goods, authorized distributors were allowed to sell online as long as they used their own online website or independent platforms which the customer cannot however identify as third-party. To preserve the luxury image of its products, however, the agreement expressly banned the sale via third-party online platforms which operate in a discernible manner towards consumers. Coty’s retailers could not therefore sell through platforms such as Amazon where customers might perceive that the products were being sold on a third party website.

A Coty’s distributor regularly resorted to to sell its products despite the contractual ban. As a consequence, Coty sued the distributor. While the trial court dismissed the case, Coty appealed to the Oberlandesgericht Frankfurt am Main(Higher Regional Court, Frankfurt am Main, Germany) which requested the ECJ to rule on whether the contractual prohibition was lawful under EU competition law.

In Coty case, the ECJ generally held a contractual clause prohibiting online sale on third-party platforms which operates in a discernible manner towards consumers is valid under the EU competition law provided that the following conditions are met: i) “that clause has the objective of preserving the luxury image of the goods in question(ii) “it is laid down uniformly for all potential distributors and not applied in a discriminatory fashionand (iii) “it is proportionate in the light of the objective pursued”.[3]

The Coty distribution agreement’s ban was deemed in compliance with the foregoing requirements. The ECJ first observed that it was not preventing the online sale per se. Rather, to preserve the “aura” of luxury of Coty distributed products, distributors were allowed to use owned online shops as well as independent platforms which the customer cannot identify as third-party website. Only platforms identifiable as third-party websites were banned as noted by the ECJ.[4]

The ECJ also observed a sale through Internet websites which do not belong to the selective distribution system, such as online mass platforms, would prevent Coty from checking the sale’s compliance with the quality-based criteria set forth in the distribution agreement and aimed at maintaining the products’ luxury image. Indeed, the absence of a contractual relationship between a supplier and a third-party platform would prevent the enforcement of these quality criteria. Furthermore, the sale of luxury goods through platforms open to the sale of any kind of product is highly likely to undermine their luxury image.[5]

As ruled in Coty case, a selective distribution system can be valid under the EU competition law. A valid contractual prohibition of internet sales must uniformly apply to all distributors of the distribution network and be designed to protect the luxury image of goods on sale. To that end, any ban could not exclude the use of all online platforms, but only those operating in a discernible manner toward customers as Amazon and other similar online shopping platforms do.

The ECJ judgment will apply to all member nations. This decision will therefore be crucial for the current contractual relationships between luxury brands and their retailers. It might pressure luxury brands into changing to selective distribution practices or introducing contractual bans on the access to Amazon and all similar web platforms.[6]

[1] According to Digital Luxury Experience 2015 survey, 12% in 2020 and 18% in 2025 of the personal luxury goods shopping will be made through online websites.
[2] See, Court of Justice of the European Union, Coty Germany GmbH / Parfümerie Akzente GmbH, Judgement in case C-230/16, EU:C:2017:941,;jsessionid=9ea7d0f130d50621911fc7e14d0996c1ebd853fbbf74.e34KaxiLc3eQc40LaxqMbN4PaNmOe0?text=&docid=197487&pageIndex=0&doclang=en&mode=lst&dir=&occ=first&part=1&cid=366632. The judgment follows its 2011 judgment in Pierre Fabre (C-439/09). In that case, the ECJ ruled that a blanket ban on Internet sales in a selective distribution system for cosmetics and personal care products amounted to a by object restriction of competition. By object restrictions by their very nature have such a high potential for negative effects on competition that it is unnecessary to demonstrate any actual or likely anti-competitive effects on the market.
[3] Supra 2, par. 36-40. Also note that the Court ruled that a selective distribution network, designed primarily to preserve the luxury image of those goods, does not breach the prohibition of agreements, decisions and concerted practices laid down in EU law as long as the tow following conditions are met (i) “resellers are chosen on the basis of objective criteria of a qualitative nature, laid down uniformly for all potential resellers and not applied in a discriminatory fashion”; and (ii) “the criteria laid down must not go beyond what is necessary” cfr. par. 24. This ruling confirms a 2009 judgment on luxury goods, Copad (C-59/08). In that case the ECJ found that the setting up of a selective distribution system which aims to ensure that the contract goods are presented in a manner that enhances their value, contributes to the reputation of the goods and sustains the aura of luxury surrounding them.
[4] Id, par. 40-43.
[5] Id, par. 47-50.
[6] For instance, the ECJ has not defined “luxury goods”, leaving open the possibility of further debate on this issue. Also note that the judgment could affect the Commission’s ongoing investigations into potential online sales restrictions by certain brands (e.g., Nike’s Barcelona football club merchandise).

Compliments of AEM Carnelutti, a member of the EACCNY