ECJ “Coty Germany” judgment: Platform bans are permissible! Manufacturers of luxury goods may prohibit their authorized dealers from selling their products via third-party platforms online.

As of now, manufacturers in the premium segment – for example in the area of cosmetics, cars, and luxury goods – can prohibit their selective sales partners from reselling goods via platforms such as Amazon, eBay, etc. to maintain the luxury image of the contractual goods. The December 6, 2017 judgement by the Court of Justice of the European Union strengthens manufacturers’ positions with regard to selective sales and now creates legal certainty on an issue that has been subject to extensive discussion. A turning point in online sales.

There is no alternative to internet sales for manufacturers and traders wishing to distribute luxury products successfully, for example in the area of clothing or cosmetics. Even authorized sales partners of luxury manufacturers often rely on third-party platforms such as eBay, Amazon, and the like. The problem for the manufacturers’ sales policy is that while store sales are strictly bound to selected retailers, online customers get the impression that the goods are also easily available through third parties.

The CJEU is setting the course

The decision of the Court of Justice of the European Union of December 6, 2017 was very brief and concise. Yes, banning selective retailers from involving third parties in internet sales in this way is permissible in principle: platform bans to protect a luxury image do not fall under the antitrust prohibition under certain circumstances. In addition, “platform customers” can also not be distinguished from other internet customers as a group, which would be specially protected under antitrust law. A more detailed representation of the background and the Court’s decision can be found in our current update.

End of a long dispute

The decisive impetus for the clarification by supreme courts across Europe of a topic that has been extensively discussed by antitrust authorities, courts, and in legal literature was provided by the complaint by Coty Germany GmbH when one of the market leaders in the luxury and prestige cosmetics segment filed a lawsuit against one of its selective sales partners of many years. The latter refused to agree to a contractual change under which the sale of Coty products via third-party platforms would have been prohibited if they appeared noticeably to consumers. Coty Germany justified its contractual change with the fact that sales by the selective retailer through third-party platforms such as Amazon can damage the company trademark and its product image because using Amazon and the like means that it is no longer possible to guarantee the valuable appearance of the products, the quality standard of the trademark, and adequate customer service. The question is: taking this into account, is a platform ban permitted, irrespective of whether the platform meets the manufacturer’s legitimate quality criteria or not? The Court of Justice of the European Union has now clearly answered this question in the affirmative.

Altered sales strategies

The decision applies immediately. Sales strategies working on the continual optimization of sales structures should perform a clear analysis of the advantages and disadvantages of a platform ban. In particular, however, in cases where the focus is on the protection of the luxury image of the contractual products, a ban on involving third-party platforms that are visible to consumers can provide the decisive impetus to the value of the sales experience.

For manufacturers that are already selling their products within a selective sales system, this therefore opens up new options for the drafting of contracts. For corresponding contractual changes, the approval of the selective retailers is admittedly necessary. It is possible that manufacturers may be surprised to learn that the majority of their selective retailers are not at all averse to a platform ban.

We will have to wait and see whether the Coty decision by the Court of Justice of the European Union will lead to a renaissance in selective sales, which have been vilified. The forecast should not be exaggerated, however, even the option of a third-party platform ban will have a crucial effect on whether manufacturers are inclined to set up more selective sales systems. Beyond such excessive expectations, the Coty decision by the Court of Justice of the European Union will still have a noticeable effect on the sales environment in 2018 throughout the entire European Economic Area and beyond.

We will help clients to develop the right sales system for their goods or to optimize their existing sales structure based on the Court’s decision.

Your contacts are the experts from the Practice Groups Antitrust and Distribution. Dr. Reinhard Siegert and his team specialize in distribution law and the drafting of distribution agreements that are compliant with antitrust regulations.