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European Court Judgment Impacts Luxury Goods Selling Online

To preserve its products’ image, a luxury goods supplier can forbid authorized distributors from selling goods on third-party Internet platforms according to criteria, the court said.

PARIS — A judgment handed down by the European Union’s Court of Justice on Wednesday sets the stage for how luxury goods can be sold online.

The Brussels-based CJEU said in order to preserve its products’ image, a luxury goods supplier can forbid authorized distributors from selling goods on a third-party Internet platform, such as Amazon, according to certain criteria.

The court had reviewed proceedings begun in 2012 in Germany by Coty Germany against an authorized distributor, Parfümerie Akzente, with the aim of prohibiting it from distributing Coty’s products on, in accordance with a contractual clause.

While Coty Germany sells on Akzente’s own e-tail platform, some of the beauty firm’s products are also sold through via, and it’s the latter trade the company was looking to stop.

“Coty welcomes [the CJEU’s] decision, which confirms that the character of luxury brands necessitates and justifies selective distribution, whatever the channel,” said the company. “After years of uncertainty, this means luxury brands can determine how they are placed on digital platforms, and it is a clear ruling for the protection of luxury brands’ image, the defense of our teams’ work and the protection of consumers’ rights and information.”

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Coty continued: “As a consumer-led company, we want to make our brands and products accessible for our consumers. It means that these can be accessed through our authorized retailers who will offer and promote our brands within the right environment and in the appropriate way. For online trade, the decision of the [European Court of Justice] will result in an enhanced distinctiveness and visibility of our authorized retailers as a trust mark for the purchase of genuine quality goods.”

Coty said it looks forward to the judgment being upheld throughout the European Union.

The first step, however, is that Coty Germany’s legal case is transferred back to the higher regional court in Frankfurt am Main, Germany, which was not certain that Coty’s contractual clause is legal under EU competition law. The court had asked the CJEU to inform on the subject and now will rule on the legal case with its judgment taken into account.

Parfümerie Akzente had a positive response to the EU court’s decision, as well.

“Putting a stop to general platform bands, the judgment of the European Court of Justice is a partial success for us and online trade,” said chief executive officer Kai Renchen. “Authorized merchants such as us may sell brand-name products that are necessary and reasonable for preserving the luxury image.”

The court judged that selective distribution systems are legal under EU law as long as “resellers are chosen on the basis of objective criteria of a qualitative nature, laid down uniformly for all potential resellers and not applied in a discriminatory fashion.” It also said that the criteria outlined must not go beyond what is necessary.

The court said the quality of luxury goods includes not only their material characteristics, but also their allure and prestigious image.

Further, the court judged that contractual clauses are not prohibited under EU law if “the clause has the objective of preserving the luxury image of the goods in question; it is laid down uniformly and not applied in a discriminatory fashion, and it is proportionate in the light of the objective pursued.

“The court observes in this respect that, subject to the [higher regional court in Frankfurt’s] inquiries, the clause at issue appears to be lawful,” the ECJ wrote.

Nanette Heide, a partner with Duane Morris focused on business transactions and the fashion and retail industry, said the ruling certainly qualifies as a “landmark victory” that reinforces a “concept of protecting luxury” that’s difficult to find outside of Europe.

“In the U.S., I don’t think we’d be able to obtain this type of a ruling,” Heide said.

But for brands operating in Europe, the the ruling is a clear coup, while marketplaces will suffer without a vast selection of products.

“It’s detrimental to the business of Amazon and eBay, since such a significant amount of their business is derived from these types of goods being offered and sold on their website,” Heide said. “It could impact revenues and even their business model. They’re now on notice that some luxury products may not be allowed on their site and they may have to incorporate more due diligence to comply.”

Looking at the ruling more broadly, Heide found it interesting that during a time when retail is all about going omnichannel, “a court would pull back from the way the whole retail economy has been moving.”

“[The ruling] put a little cog in the wheel by essentially saying ‘we’re not going to allow you just takeover take these luxury brands.’”

Selective distribution under EU law has long obliged authorized brick-and-mortar retailers to uphold numerous requirements in regard to their environment, décor and furnishings. Along with the rise of e-commerce, however, rose uncertainty about how luxury goods must be sold online.