International US-based luxury cosmetics supplier Coty might have strengthened the rights of brands to control how third-party retailers sell and portray their products in a precedent-setting case at the European Court of Justice (ECJ).
An Advocate General of the European Union’s (EU) top court has argued in a formal opinion that EU law allows brands authority over these sales, even being able to prevent purchases, if they dislike how online and traditional bricks-and- mortar stores present their image.
Under ECJ procedures, such formal opinions are often adopted by the full court as a formal judgement, so the words of Advocate General Nils Wahl count.
Advising on a German case, he said that a supplier of luxury goods may prohibit its authorised retailers from selling its products on third-party platforms such as Amazon or eBay.
This has sparked a vigorous debate over the potential impact of this opinion should it become a precedent.
“Wahl’s statements are a blow for fair free trade and are effectively a death sentence for many thousands of small and medium-sized retailers in Europe. If the ECJ were to follow the Advocate General’s path, we would soon have an even worse situation in e-commerce than we already suffer in bricks-and-mortar retail,” said Oliver Prothmann, President of the Federal Association of eCommerce in Germany (Bundesverband Onlinehandel – BVOH).
EU personal care product industry association Cosmetics Europe, to the contrary, told Cosmetics Business that it was satisfied with the advocate’s interpretation of the case, which Senior Communications Manager Malgorzata Miazek said is “in line with the current jurisprudence of the Court of Justice”.
She added: “When products are being sold through third-party platforms that are not part of the authorised distribution network, these platforms do not provide the same product environment to the consumer.” The scope of the issue is large, as over 17,000 luxury outlets are today selling personal care products in the EU, said Miazek.
Such commercial rights outlined in the opinion could be a problem for e-tailers. In May, a European Commission final report on a sectoral inquiry into e-commerce concluded that nearly 50% of manufacturers admitted they “did not allow pure online players to join their selective distribution network”.
Amazon’s comments to this investigation claimed that some manufacturers “persist in discriminating against online retail as a sales method, without objective justification”.
Nevertheless, the Commission decided there was currently no need to reform EU retail rules, announcing its conclusions “do not appear to question the current rules for vertical agreements between companies operating at a different level of the distribution chain”.
As for this case, the dispute dates back to 2012 when Coty felt anxious that the luxury image of its brands might be harmed.
It claimed that one of its pre-selected and authorised retailers, Parfümerie Akzente, had disregarded Coty’s amendments to a distribution contract restricting its partner from facilitating sales of Coty’s perfumes and cosmetics via Amazon.
The disagreement resulted with Coty bringing an action before the Oberlandesgericht Frankfurt am Main (supreme regional court) seeking an order prohibiting the trading of its products trading on amazon.de.
The German court wanted to check with the ECJ whether such prohibition is compatible with EU competition law, referring the case.
In his resulting opinion Wahl said on 26 July that selection distribution systems, such as Coty’s, “are not necessarily caught by the prohibition of agreements” that unfairly restrict trade, if objective criteria are in place for the selection of resellers; if a brand requires luxury sale presentation; and if the standard for selection of resellers is reasonable.
However, in this case, “it is still not clear to us what exactly the requirements of Coty are”, said Michael Alber, Associated Partner at law company GЕRG RechtsanwКlte, one of the lawyers of Parfümerie Akzente.
Razvan Antemir, Director of Government Affairs at the European eCommerce and Omni- Channel Trade Association (EMOTA), also opposed allowing brands to ban their products from certain sales channels.
“It is a developing market and multi-channel retail will certainly evolve further. A few years ago, some companies thought that consumers could get a certain type of experience only in offline stores and this has changed,” he said.
