17 October 2017

Will Luxury Goods Manufacturers Impose Restrictions on Authorised Distributors?

Advocate General Wahl has issued his preliminary ruling on the interpretation of competition law in selective distribution agreements. 

A luxury perfume manufacturer, Coty Germany, is in dispute with one of its authorised distributors regarding the sale of its products on Amazon.de. The terms and conditions of its distribution agreement prevent the sale of its products on online platforms.

The German Regional Court dismissed the claim in 2014 on the basis that the term was unenforceable as it infringed antitrust laws. The Appeal Court has now asked the Court of Justice of the European Union for guidance on whether an online sales ban infringes European competition laws.

In its referral to the ECJ, the German Court explains that distributors want to make use of the increasing growth in online sales and there is uncertainty as to whether manufacturers can legitimately restrict or ban online sales.  In particular, there is uncertainty as to whether the protection of a brand’s luxury image is a valid reason for restricting the sale of goods via online platforms.

AG Wahl has disagreed with the German Regional Court and confirmed that a seller of luxury goods can lawfully restrict the sale of its products through conditions imposed on authorised retailers, including prohibiting the sale of products on online marketplaces.

He explained that in his view, selective distribution arrangements positively affect competition. Luxury brands use distribution systems to extend the geographic sale of goods and the restrictions they are able to put in place helps to maintain brand image. He went on to say that, if such restrictions were unlawful, brands would not risk the sale of goods through uncontrolled distribution agreements and competition would be diminished.

However, for selective agreements to be lawful the product must necessitate selective distribution, for example, due to its high quality or technical nature. Any restrictions must be objective and have criteria which are uniformly applied to all distributors.

We now await the Court of Justice’s judgment on the issue and whether they will follow AG Wahl’s common sense approach. 

For more information, please contact the litigation team here.