The so-called Coty ruling is underway at the Court of Justice - and there will be major implications for luxury companies on the controversial topic of distributing products via online marketplaces such as Amazon and eBay.
Background on the Ruling
Initially, litigation arose in Germany between luxury brand Coty and its retail distributor Parfümerie Akzente. Coty wanted to stop the retailer from selling its cosmetics against its wishes through online platforms such as Amazon. Leading on from this, the German Higher Regional Court in Frankfurt asked the Court of Justice of the European Union for guidance and filed a request for a preliminary ruling. The most relevant issues that the German court sought direction on were, in effect:
- Whether, in a selective distribution system, a supplier can prevent its distributors from selling the supplier’s products via third party online platforms, irrespective of whether the online platform fulfils the selective criteria;
- Whether a sales ban on third party online platforms amounts to a restriction of “passive sales”.
Oral arguments on this preliminary ruling commenced before the Court on 30 March 2017. A non-binding recommendation will be given in about five months’ time and then a court judgment a few months after that.
Significance of the Ruling
The clarification sought in this preliminary ruling is key as it will determine, in essence, how much say luxury brands have over the distribution of their goods via major third party marketplaces such as Amazon or eBay. Indeed, it is entirely possible that luxury companies could stop retail distributors from selling their products on these digital platforms altogether. Whether such a ban (or a lesser restriction) is welcome or not depends on the viewpoint with which you find yourself in agreement.
At the heart of the matter is a clash between two views. On the one hand, luxury brands want to choose who distributes their products to preserve their brand image and exclusivity. As Coty itself explains, the issue is about 'preserving the image and quality of its products', not banning online sales point blank. Put simply, if a luxury brand finds that their products are inundating the marketplace, then there is a risk of brand dilution and reduced consumer interest in their goods.
However, online platforms and the German government argue that clamping down on distribution is anti-competitive, harms consumers and hurts small to medium-sized enterprises (SMEs). In a public statement, eBay said that 'platform bans allow brands to keep prices artificially high and restrict consumer choice'. The German government’s lawyer, Thomas Henze, points out that 'restrictions must never be abused in order to close off new innovative formats of distribution'. As for protecting SMEs, both the online platform eBay and the German government are singing from the same hymn sheet. For eBay, limiting restrictions which stifle SME growth and success is pivotal, and the German government maintains that online platforms are vital outlets for SMEs.
As a result, the Court’s guidance on the degree of control held by luxury companies over retail distribution via online platforms will be impactful -- both for brands who prioritise exclusivity and parties who benefit from unfettered distribution policies.
The Coty ruling will affect the pain point of many luxury brand owners -- the preservation of brand exclusivity -- and impact those with a pro-online trade agenda (for instance, the German government) and an interest in making digital marketplaces as freely available for distribution as possible (most noticeably, Amazon and eBay). So, it is certain that the ruling will be monitored closely in the luxury law sphere in the coming months.