EU & Antitrust Highlight - AG Wahl in Coty: Restriction to sell products over the Internet may be justified
07/08/2017

Advocate General (AG) Wahl invites the European Court of Justice (ECJ) to rule that a clause prohibiting selective distributors from selling contract products on online discernable third-party platforms does not fall within the scope of Article 101 (1) of the Treaty on the Functioning of the European Union (TFEU) and should thus be authorized.

The relevance of the case

In a long-awaited Opinion, AG Wahl brings clarification on the ECJ’s case-law regarding the assessment of selective distribution networks in light of antitrust rules.

Albeit established for years, the ECJ case-law on selective distribution networks, i.e. Metro/Commission (26/76), is currently questioned by the increasing emergence of e-commerce. Operators frequently ask whether selective distribution networks may justify restrictions for resellers to use the Internet to distribute the contract products or services and, if so, under what conditions.

The case relates to legal dispute arisen between Coty Germany GmbH (“Coty”), a leading supplier of luxury cosmetics in Germany and Parfümerie Akzente GmbH (the “reseller”), an authorized distributor of those products, about a prohibition imposed by Coty to use discernable third-party Internet platform, i.e. amazon.de. However, the reseller is entitled to sell the contract products over the Internet, through “electronic shop window” of the authorized store provided that the luxury character of the product is preserved.

The ECJ is requested to analyze whether this kind of restrictions falls within the scope of Article 101 (1) TFEU and, if so, it could be justified under Article 101 (3) TFEU.

Selective distribution networks based on qualitative criteria are not caught by Article 101 (1) TFEU

In compliance with Consten and Grundig (56/64) and Metro cases, contractual clauses contained in selective distribution networks could entail restrictions of competition and thus be caught by the prohibition laid down in Article 101 (1) TFEU.

But, in some circumstances, selective distribution networks escape Article 101 (1) TFEU from the outset. That would be the case provided that three requirements are met (altogether: the “Metro criteria”):

  • Properties of the product necessitate a selective distribution system due to the nature of the products concerned, in particular their high quality or high technical nature. According to AG Wahl, not only the physical qualities of the contract goods but also their luxury image should be able to justify the selective distribution network in light of antitrust rules.  In that regard, AG Wahl proposed the ECJ to rely on its case-law relating to trade mark law where it has expressly ruled that luxury and prestige goods are defined not only by reference to their material characteristics, but also on the basis of the specific perception of the consumers (“luxury aura”);

  • Resellers must be chosen on basis of objective criteria of a qualitative nature which are determined uniformly for all potential resellers and applied in a non-discriminatory manner; and

  • The criteria must not go beyond what is necessary to attain the objective pursued (proportionality principle).

In light of those criteria, AG Wahl considers that Coty’s selective distribution network may be justified by the characteristics and nature of the products concerned, i.e. their luxury nature.

According to AG Wahl, such reasoning is not jeopardized by Pierre Fabre (C-439/09). In this case, the ECJ ruled that the aim of maintaining a prestige image could not justify an absolute ban to sell products over the Internet:

  • In Pierre Fabre, the ECJ was requested to assess whether an absolute ban to sell the products over the Internet infringes Article 101 (1) TFEU. Coty does not impose a general and absolute prohibition to sell the products concerned over the Internet;

  • In Pierre Fabre, the ECJ only analyzed the legality of the clause relating to the absolute ban to sell the products over the Internet. According to the ECJ, the need to protect the prestige image of the products concerned could not justify such a clause. AG Wahl considers that this reasoning could not be stretched to conclude that every selective distribution network designed to protect the brand image of products automatically falls within the prohibition of Article 101 (1) TFEU. On the contrary, it would be caught by Article 101 (1) TFEU depending on the nature of the products concerned or in case of “particularly serious restrictions”, like an absolute prohibition to sell products over the Internet.

    Coty’s selective distribution network meets the Metro criteria, so that it could be justified by the need to protect the brand image. Accordingly, it could escape the application of Article 101 (1) TFEU.   

The prohibition to use discernible third-party platforms may be compatible with Article 101 (1) TFEU

According to AG Wahl, a prohibition for resellers to use discernible third-party platforms may be compatible with Article 101 (1) TFEU provided that it meets the Metro criteria.

  • Such a clause may be justified by the need to preserve the luxury image of the products concerned (first Metro criterion).
    The protection of the brand image of products may justify that resellers are prevented from using discernible third-party platforms. Such platforms frequently displays their own logo and image at all stages of the purchase process. Accordingly, they prevent the head of selective distribution networks from controlling the presentation and image of the products. Consequently, a prohibition to use that type of platforms is likely to protect quality, safety and identification of origin of the products and ensures the protection and positioning of the brand;

 

  • The prohibition to use such platforms is not disproportionate to the objective pursued (third Metro criterion): Firstly, Coty only required its resellers not to sell the contract products via third-party platforms. It did not prohibit those distributors from using third-party platforms in a non-discernible manner or using their own online stores. Secondly, the use of discernible third-party platform would prevent Coty from exercising control over the distribution of its products although the contractual relationship should make Coty able to exercise such monitoring. Thirdly, at this stage of development of e-commerce, the prohibition imposed by Coty could not be assimilated to an outright ban on or a substantial restriction of Internet sales (it follows from the DG COMP’s e-commerce enquiry of 10 May 2017 that distributors’ own online stores are the preferred distribution channel on the Internet).

Accordingly, AG Wahl considers that the clause should be declared compatible with Article 101 (1) TFEU.

In the event that the clause falls within the scope of Article 101 (1) TFEU, AG Wahl notes that it does not contain a restriction by object, given that that concept should be interpreted restrictively. It should also be

assessed whether it could be exempted under Commission Regulation (EU) n° 330/2010 of 20 April 2010 on the application of Article 101 (3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices (O.J. L 102) (“Regulation n° 330/2010”), provided that the market shares do not exceed the threshold laid down in Article 3 of Regulation n° 330/2010 and the prohibition does not constitute a hardcore restriction within the meaning of Article 4 of Regulation n° 330/2010.

The prohibition to use discernible third-party platforms does restrict neither the customers nor the passive sales within the meaning of the regulation n° 330/2010

  • The clause does not amount to a market-sharing or a customer-sharing measure within the meaning of Article 4 (b) of Regulation n° 330/2010. According to AG Wahl, a restriction of customers or of the market can be identified only where it is apparent that the reseller is exposed to a loss of market or customers. Regarding discernable third-party platforms, it is not possible to identify a customer group or a particular market corresponding to these platforms;

  • The clause does not amount to a restriction of passive sales to end users within the meaning of Article 4 (c) of Regulation n° 330/2010. The clause does not prohibit all online sales but only those make though third-party platforms in a discernable manner. Accordingly, it does not prevent passive sales within the meaning of Article 4 (c) of Regulation n° 330/2010.

 

Conclusion

AG Wahl brings some common sense clarification on the interactions between selective distribution networks and sales over the Internet.

Although it is clear the selective distribution networks may give rise to pro-competitive effects, the emergence of e-commerce creates concerns among operators and practitioners.

The emergence of platforms, such as amazon, may run counter the very essence of selectivity in distribution networks. Actually, heads of selective distribution networks should be authorized to limit the sales over the Internet in the same manner as in the offline world.

In this regard, AG Wahl Opinion provides two essential clarifications : (i) the protection of the image of luxury and prestige of products should always be a legitimate objective for the purpose of justifying a selective distribution system; and (ii) the restriction under scrutiny should be assessed under the proportionality principle to determine whether it falls within antitrust rules.

As it is in line with consistent case-law, the ECJ may easily endorse AG Wahl Opinion.

Voir aussi : Buyle Legal ( Mr. Bruno Lebrun ,  Ms. Laure Bersou )

Mr. Bruno Lebrun Mr. Bruno Lebrun
Partner
BLEBRUN@buylelegal.eu
Ms. Laure Bersou Ms. Laure Bersou
Avocat
LBersou@buylelegal.eu

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