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EU court hears case on rights of luxury brand owners to restrict distribution channels

The EU's highest court is today considering whether or not brand owners which want to ensure their products are seen as luxury items can restrict the distribution channels retailers use to market their goods.30 Mar 2017

The Court of Justice of the EU (CJEU) has been asked by a court in Frankfurt to rule on whether EU competition rules permit "selective distribution systems that have as their aim the distribution of luxury goods and primarily serve to ensure a ‘luxury image’ for the goods". Legal arguments on the issue were due to be heard by the court on Thursday.

The case before the CJEU has come about as a result of 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.

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).

If the CJEU decides that EU competition rules[A1]  do allow for distribution restrictions on luxury brand grounds, the Frankfurt court has asked the Court to clarify when such restrictions can apply.

Specifically, it has asked the CJEU to confirm whether EU competition laws allow luxury goods manufacturers to 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’".

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

It typically takes the CJEU several months to issue a judgment in a case after hearings take place.  The significance of the case has been noted by the UK's competition authority.