The ECJ protects the exclusive allure of luxury goods
The European Court of Justice (ECJ) has ruled that US beauty company Coty’s decision to prevent distributors of its products from selling items online via websites such as Amazon.de does not infringe EU competition law and ultimately does not restrict consumer choice.
So, what was this case all about?
Luxury goods brands are already permitted to limit the sales of their products via selective distribution systems in order to preserve the luxury image of the brand. Selective distribution systems are not prohibited on the basis that resellers are chosen using non discriminatory objective criteria and that such a system is necessary to preserve the quality and proper use of the brand in question. Coty justifies its selective distribution system on the basis that ‘the character of Coty Prestige’s brands requires selective distribution in order to support the luxury image of these brands’.
Coty requires its distributor’s bricks and mortar stores to meet certain criteria in terms of the overall store appearance for example, interior decoration and sale space and lighting. Coty added an additional requirement to its selective distribution network contracts which allowed distributors to sell products provided that sales are conducted ‘through an ‘electronic shop window’ of the authorised store and the luxury character of the products is preserved’.
What did the ECJ decide?
The ECJ agreed that Coty’s approach was necessary and commented that in order to preserve the brand, the quality of luxury goods goes beyond their material characteristics to a consumer’s wider perception of the ‘allure and prestigious image which bestows on them an aura of luxury’. In the interests of preserving the said aura of luxury, the ECJ held that it is appropriate for luxury goods brands to prohibit distributors from selling products via online retailers and it is ultimately a necessary element to the overall selective distribution system.
It is worth noting that the ECJ’s judgment clearly emphasises that this is only applicable to ‘luxury goods’ and distinguished circumstances in previous cases whereby the goods in question were hygiene products.
What does this case really mean for luxury brands?
This case provides welcome confidence for luxury goods brands that the inclusion of clauses in selective distribution contracts which restrict the sale of luxury goods via platforms such as eBay and Amazon are justifiable and proportionate. Ultimately, they do not contravene EU competition law and therefore could bolster brand protection and prevent the dilution of the luxury allure associated with such goods.