Higher Regional Court of Frankfurt finds Coty’s prohibition on sales via amazon.de to be justified for luxury products
According to a press release of 12 July 2018, the Higher Regional Court of Frankfurt has handed down its judgment in a dispute between Coty Germany GmbH (“Coty”), a supplier of luxury cosmetics, and Parfümerie Akzente, a member of its selective distribution system. The Higher Regional Court of Frankfurt found that Coty did not violate competition law by prohibiting Parfümerie Akzente from advertising and distributing its products via the third-party platform amazon.de.
Parfümerie Akzente distributed the products in its brick-and-motor stores, on its own online shop and via the third party platform amazon.de. Following the entry into force of the 2010 Vertical Agreements Block Exemption Regulation (“VABER”), Coty revised its contracts to stipulate that ‘the authorised retailer is entitled to offer and sell the products on the internet, provided, however, that that internet sales activity is conducted through an “electronic shop window” of the authorised store and the luxury character of the products is preserved’. The recognisable engagement of a third party undertaking other than an authorised retailer in making such sales was prohibited, but authorised retailers were permitted to advertise their online shops on platforms.
After Parfümerie Akzente refused to sign the amendments to the selective distribution contract, Coty Germany brought an action before the Regional Court of Frankfurt, seeking an order prohibiting, in accordance with the amended clause on online sales, Parfümerie Akzente from distributing certain branded products via the platform ‘amazon.de’.
The Regional Court of Frankfurt dismissed the claim in 2014 finding that: (i) Coty’s selective distribution system, of which the amended online sales clause formed part, restricted competition and could not be justified by the goal of maintaining the prestigious image of the mark; and (ii) the amended online sales clause constituted a hardcore restriction under Article 4(c) of the VABER.
Coty appealed to the Higher Regional Court of Frankfurt, which, in the course of the appeal, referred three questions to the Court of Justice of the European Union (“ECJ”) for a preliminary ruling, which handed down its judgment in case C-230/16 on 6 December 2017 (see VBB on Competition Law, Volume 2017, No. 12). The key findings of the ECJ were that: (i) the nature of luxury products justifies the use of selective distribution under Article 101(1) to preserve their luxury image (provided that the system itself meets the remaining established conditions of the case law); (ii) a prohibition on selling those goods on third-party online platforms in a manner discernible to consumers is in principle compatible with Article 101(1) where it is intended to ensure the luxury image of those goods; and (iii) a prohibition on selling those goods on third-party platforms in this manner is, in any event, exempted by the VABER.
The present judgment applies the criteria set out in the ECJ’s judgment to the facts of the case, and finds that Coty was entitled to prohibit the defendant from distributing its branded products via amazon.de.
The Higher Regional Court of Frankfurt considered Coty’s amended online sales clause as part of its qualitative selective distribution system. It noted that, as held by the ECJ, a selective distribution system can be justified to ensure the high quality presentation and luxury image of the products, which would be jeopardized if third-party undertakings, such as amazon.de, were involved in their sale. It found that the quality criteria used by Coty were applied uniformly and in a non-discriminatory manner.
The Court therefore considered that there were good reasons to consider that the clause at issue is compatible with Article 101(1) TFEU. Ultimately, however, it did not need to decide this, since it considered that the agreement in any event fell within the scope of the exemption under Article 101(3) provided by the VABER (which applies provided that the market shares of each of the contracting parties do not exceed 30% and that the agreement contains no hardcore restrictions).
In the present case, the market shares of each party were found not to exceed the 30% threshold, and the agreement was not found to contain any hardcore restrictions. In particular, the restrictions relating to the use of third party platforms were not found to amount to hardcore customer or passive sales restrictions. The restriction did not amount to a customer restriction because customers of third-party platforms were not considered to form a distinguishable group to whom sales were restricted, but instead to be online purchasers (to whom sales were not prohibited). Furthermore, the Higher Regional Court of Frankfurt held that there was no restriction on passive sales to end consumers within the meaning of Article 4 (c) of the VABER.
The judgment is not yet final as it can be challenged before the Federal Court of Justice.