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Luxury brand owners not automatically barred from stopping distribution of their products on online platforms, says EU court advisor

EU law does not automatically prevent brand owners that wish to preserve a luxury image from stopping retailers from selling their goods on online marketplaces, according to an EU court advisor.31 Jul 2017

However, advocate general Nils Wahl said that the operation of selective distribution systems for that purpose can only be justified under EU competition laws in certain circumstances.

Specifically, Wahl said luxury brand owners must select resellers "on the basis of objective criteria of a qualitative nature which are determined uniformly for all and applied in a non-discriminatory manner for all potential resellers".

In addition, he said "the nature of the product in question, including the prestige image" must require selective distribution "to preserve the quality of the product". Wahl said that criteria applied to selective distribution must also "not go beyond what is necessary".

The opinion issued by Wahl is non-binding. A formal ruling on the matter is expected to be issued by the Court of Justice of the EU (CJEU) in a few months.

Businesses are generally prohibited, under EU competition law, from putting in place agreements which have as their object or effect the restriction of competition. However, selective distribution systems are permitted, under an exemption to those laws, provided the systems fulfil certain criteria. The relevant exemption is the Vertical Agreements Block Exemption (the VABE).

A regional court in Frankfurt asked the CJEU whether the law permits brand owners to restrict the distribution channels retailers use to market their goods to ensure their products are seen as luxury items.

The case before the CJEU concerns a dispute between US beauty products manufacturer Coty and German business Parfümerie Akzente, which sells perfumes and other toiletries over the internet. Coty has objected to Parfümerie Akzente selling its cosmetics via Amazon's marketplace.

Specifically, the Frankfurt court has asked the CJEU to confirm whether luxury goods manufacturers can bar retailers that are part of their selective distribution system from using third-party online marketplaces to sell their goods to the public if that does not contravene "the manufacturer’s legitimate quality standards".

In addition, the German court has asked the CJEU to rule on whether agreements that prohibit retailers from using third party distributors to sell goods online either "constitutes a restriction of the retailer’s customer group ‘by object’" or "constitutes a restriction of passive sales to end users ‘by object’".

According to Wahl, the answer to those two questions is no.

If the CJEU rules that either restriction applies in that context then those types of vertical agreements would not benefit from the VABE.

In May, the European Commission said it was its view that it is not an automatic breach of EU competition rules for manufacturers to prevent retailers from selling their goods on online marketplaces. However, it admitted that the position could change depending on the CJEU's ruling in the Coty case.

The significance of the case has been noted by the UK's competition authority.