Selective Distribution Contracts: A Way To Preserve The Prestige Of Luxury Goods?

On December 6, 2017, the European Court of Justice (ECJ) finally issued a decision on the compatibility of article 101 of the Treaty on the Functioning of the European Union (TFEU) with restrictions contained in selective distribution contracts that have the preservation of the image and prestige of luxury brands as their main purpose. At first glance, the decision is a clear victory for the owners of luxury brands.

Although the ECJ confirmed the principles developed in the earlier case Pierre Fabre, the court made it a point to note that the mentioned case only dealt with cosmetics and hygiene products, which the court found to be fundamentally different from luxury goods. Moreover, the court determined that, in the case at hand, the clause in the contract only referred to a specific distribution system and not to an absolute prohibition of sales as was considered in the case of Pierre Fabre.

Coty is a global company based in New York that sells luxury goods in Germany, and which entered into selective distribution agreements with perfumery "Akzente." The main purpose of the agreements was to preserve the luxury image and prestige of Coty goods by approving the distribution sales locations and allowing sales on the internet, but only through an "electronic shop window" of the authorized store and only if the luxury character of the products would be preserved. Also, in such agreements, the use of a different business name, as well as the recognizable engagement of a third party not authorized by Coty, was prohibited.

Considering the refusal of "Akzente" to sign the contract, Coty brought an action before the national court, seeking an order prohibiting them from distributing products bearing the trademarks at issue via the platform "amazon.de." The action was dismissed based on the argument that the objective of maintaining a prestigious image of the mark could not, in accordance with Pierre Fabre, justify the introduction of the selective distribution system. Which by definition, restricted competition, and that this clause also constituted a hardcore restriction under article 4 (c) of Regulation No. 330/2010.

Coty's successful appeal was based on the argument that, according to article 101, section 1 TFEU, selective distribution systems are designed to preserve the luxury image of goods, and that resellers are chosen based on objective criteria of a qualitative nature that are laid down...