In a recent decision, the Court of Justice of the European Union (CJEU) has ruled that brand owners can prevent sales of luxury goods through online marketplaces, such as Amazon and eBay, in order to protect the image and “aura of luxury” of such goods.
Leading luxury cosmetic company, Coty Germany (“Coty”), owner of several luxury brands including Calvin Klein, Marc Jacobs and Chloé, retails its products through a selective distribution network comprising a number of authorised distributors, all of whom must comply with strict qualitative requirements (relating to the environment, décor and furnishing of their sales outlets) intended to preserve and protect the luxurious image of Coty’s cosmetic brands.
As well as permitting sales of its cosmetics in traditional “brick and mortar” locations, Coty authorises sales over the internet, provided the products are sold via the distributor’s own “electronic shop window” or through a non-discernible third party platform. Furthermore, the presentation of Coty’s brands and products online must be in keeping with their luxurious image.
In the present case, Coty brought an action before the German national courts against its authorised distributor, Parfümerie Akzente, with a view to preventing Parfümerie Akzente from distributing products bearing Coty’s brands via the platform amazon.de in contravention of the terms of its distribution agreement. Uncertain as to whether the relevant contractual clause was contrary to EU competition law, the German national court referred several questions to the CJEU.
In response to these questions, the CJEU noted that, in relation to luxury products, the quality “is not just the result of their material characteristics, but also of the allure and prestigious image which bestow on them an aura of luxury”, and that selective distribution networks, designed primarily to protect this luxurious image, are compatible with EU competition law.
Furthermore, the Court ruled that prohibiting the sale of luxury products via online marketplaces does not go beyond what is necessary to protect “the aura of luxury” of the goods. On the contrary, in view of the lack of any contractual relationship between the supplier (in this case, Coty) and the online marketplace, the latter is under no obligation to ensure compliance with the supplier’s various quality controls. As a result, damage to, or deterioration of, the luxurious image of the brand could follow which, in turn, could harm the very character of the products bearing that particular brand.
Whilst this decision has certainly been welcomed by the owners of luxury brands, it does raise the question as to what, exactly, constitutes a “luxury” product. This question was not considered in the present judgment and, for now, remains a question for the national courts to ponder on a case by case basis.
The Luxembourg court’s decision will set a precedent meaning that makers of high end goods across the EU, including Britain, will be able to prevent them being sold on third party websites by their authorised distributors.