The Court of Justice of the European Union (CJEU) rendered a judgement on 6 December 2017 in the Coty case.

As expected by many in the legal field, the CJEU has followed Advocate General Wahl’s opinion of earlier this year (see our previous news item) as regards the imposition of restrictions on resale through third party websites by the selective distributors.

The CJEU confirms that selective distribution systems (i.e. systems which only allow resale by authorised outlets) are not contrary to the prohibition on restrictive agreements in article 101 of the Treaty on the functioning of the European Union, if the following conditions are met:

• Authorised resellers are selected on the basis of objective criteria of a qualitative nature, applied uniformly and without discrimination;
• The products require the sale by authorised resellers only in order to preserve their quality and proper use;
• The restrictions do not go beyond what is necessary to achieve the above aim.

In its judgement the CJEU makes it clear that the preservation of a luxury brand image can in itself be a sufficient justification for the imposition of resale restrictions. Uncertainty on this specific issue has therefore now be taken away and luxury brand owners will certainly welcome this.

Bans on the resale of the products through third party websites (e.g. Amazon, E-Bay etc) are not automatically authorised following the judgement. It is left to the National Courts in the EU Member States to determine whether such bans are necessary to protect the luxury image of a brand. Nevertheless, the CJEU provides the National Courts firm guidance on this issue by making the following considerations:

• A selective distribution system requires that the link between the products and the authorised resellers is not compromised and that sales on third party websites appear to compromise this essential link;
• A third party platform does not have a contractual connection with the owner of the brand and as a result it will be difficult, if not impossible for the brand owner to control whether its requirements regarding the resale of its products are complied with;
• Third party platforms typically sell a wide variety of products and this would endanger that the products are sold in such a way that the luxury image is promoted/safeguarded;
• When not all internet sales are banned but only sales by third parties, such a specific ban is more obvious to justify.

The question is whether the judgement only applies to luxury brands or also to other type of products. Whereas one of the criteria for selective distribution systems to not fall under competition law prohibitions, is that the products require sale by authorised resellers to preserve their quality and proper use, it is rather likely that suppliers of products other than luxury brand can also benefit from the judgement.

For further information on competition law aspects of distribution agreements, please contact Jaap van Till, partner at Loyal.