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EU Court: Coty Verdict Strengthens Brands’ Position Against Online Platforms

Laws & Regulations 2791

LUXEMBOURG – Bike Europe asked Dr. Jochen M. Schaefer, an attorney specialising in (among other legal issues) international distribution topics, to explain the relevance for the bicycle sector of the ‘Coty’ case. Last December the European Court of Justice published its verdict in this case of authorised distributors selling premium branded products to Internet platforms like Amazon.

EU Court: Coty Verdict Strengthens Brands’ Position Against Online Platforms
ECJ verdict is strengthening EU sales policies of branded (bicycle) products against Internet platforms like Amazon. Relevance goes beyond luxury products. – Photo Amazon

On 6 December, 2017 the European Court of Justice (ECJ) published its long-awaited judgment in the Coty cosmetics case (read the full text).

The Court held that a supplier of luxury goods can lawfully prevent its authorized distributors (including retailers) from selling those products on third-party Internet platforms such as Amazon.

No competition law violation

The verdict made clear that such restriction does in general not constitute a hard-core competition law violation under EU laws, always provided that the following conditions are met:
(1) the resellers are chosen on the basis of objective criteria of a qualitative nature laid down uniformly for all potential resellers and are not applied in a discriminatory fashion; and
(2) the criteria laid down must not go beyond what is necessary.
It goes without saying that the above prerequisites and criteria provide ample space for interpretation. Yet it is a fact that the ECJ does not view third-party platform bans in selective distribution agreements per se as a hard-core competition law infringement, which otherwise could e.g. trigger fines amounting to up to 10% of the worldwide turnover of the brand owner.

Diverse interpretations

As soon such judgment became public, industry and retail federations, cartel offices and other stakeholders and lobbyists popped up with most diverse statements how they interpret it. Definitely, it came as no surprise that e.g. the aggressive German Federation of online traders – BVOH – indicated that for them it’s clear that all contractual bans of third-party platforms are illegal now save for the sellers of luxury goods under certain restricted circumstances.
The President of the German Cartel Office, Alexander Mundt (who is in Europe to my best knowledge the most rigid authority when it comes to their review of selective distribution arrangements) quickly stated that one has still to review and analyze the contents of the Coty judgment, but that his authority sees little reason to change its practice, since the ECJ has in his opinion made substantial efforts to limit its deliberations and findings to the luxury products sector.
Contrary hereto, e.g. quite a number of leading newspapers and trade magazines same as legal experts stressed that this verdict is strengthening the European sales policies of branded products and that it is of relevance beyond the category of luxury products.

Judgment analysis

In my own opinion and after personal analysis of the judgment, I came to the following conclusions:

  • It’s very natural that the judges put such a strong focus on the luxury product segment ‘only’, since this was what the case was all about (Coty Germany GmbH is among others distributor for top cosmetics such as Davidoff, Calvin Klein and Joop);
  • Furthermore, it’s well-established that not only luxury products are eligible for selective distribution systems in Europe, but also other branded product categories. It is only required that the specific character of the respective goods justify such distribution mode. In recent court cases and investigations of the German Cartel Office e.g., neither the judges nor antitrust authorities argued that high-quality product categories such as suitcases, backpacks, athletic footwear and textiles qualified for implementing a selective distribution scheme at retail level.
  • There is in general no reason for the bicycle sector to make the attempt to be viewed as luxury product, since there are other very valid and justifying causes entitling the suppliers of high-quality branded bicycle products and components to operate in Europe on the basis of such system. Safety issues, the protection of European consumers health, the high complexity of bicycles and components are some of the arguments, which count and are of substantial relevance in this context.
  • And regardless of some ambiguity and room left for different interpretation by national courts and antitrust authorities, the Coty judgment should have at least one major benefit already now. This is a brand, which opts for third-party platform restrictions to be imposed on their retail customers, should under normal circumstances no more need to be afraid that such sales policy could trigger high fines levied by the cartel offices or the EU Commission. In particular since the current legal situation is too complex to justify to be fined by the respective authorities. This has by the way already been confirmed by the different antitrust investigations of the past, where Adidas and ASICS were involved and where by the German cartel office only asked them to modify to some extent their existing contractual arrangements under review, but did not impose any fines on them.

Strengthening position of brand owners

One certainly has to wait and see now, how national courts and antitrust authorities in the EU member states will deal with this ECJ judgment in the near future. I do join however those, who are welcoming this verdict as a strengthening of the position of brand owners doing business in Europe.

About the author:

Dr. Jochen M. Schaefer is a German practicing attorney with based in the Munich area. Since numerous years he represents both the World Federation of the Sporting Goods Industry (WFSGI) and the European Federation of the Sporting Goods Industry (FESI) as their Legal Counsel while he is also chairing the WFSGI’s Legal Committee. In court he represents brands within and beyond the sporting goods sector, including the bicycle industry. He is a specialist in national and international distribution topics, intellectual property (IP) and risk management issues and in the drafting and negotiation of comprehensive contracts at operational level. In case of any questions about this report (and in general) he can be reached at sj@sjlegal.de and +49-151-(0)16407932.

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