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ECJ: restriction of online sales of luxury items via Amazon and Ebay

"Marketplaces and platforms represent important components of online commerce," says focus group chair Dr Oliver Bohl (KfW Bankengruppe). The European Court of Justice (ECJ) decided at the beginning of December 2017 how much freedom traders can have in choosing their individual sales channel and what legal principles should apply.

It was decided whether and under which conditions a brand manufacturer may prohibit its customers at the retail level within the framework of a selective distribution system from selling its products online via so-called third-party platforms. The debate was started by the company Coty Germany when its German distribution partner Parfümerie Akzente also sold its products on online marketplaces such as Amazon and Ebay, although it was contractually prohibited from doing so. In order to preserve the luxury image of the brands, Coty Germany then sued this distributor.

Luxury goods on online marketplaces like Amazon

For luxury products, the material properties alone are not enough to grant quality. The prestigious character also plays an important role in creating a luxurious aura and standing out from other products. That is why Coty Germany distributes its brands with the help of a selective distribution network through authorised dealers, whose sales outlets must meet various requirements in terms of environment, equipment and furnishings. The authorised dealers are also allowed to sell the goods on the internet, but only as a separate electronic shop window or via unauthorised third-party platforms that the consumer cannot recognise. The German distribution partner Parfümerie Akzente resisted these contractual conditions and also made the products available for purchase on online marketplaces such as Amazon and Ebay. Coty Germany then filed a lawsuit and demanded that the products be banned from being distributed via these platforms. As the Higher Regional Court of Frankfurt am Main had doubts as to whether the contractual clause was compatible with Union competition law, it referred the matter to the Court of Justice. On 6 December, the judgment (C-230/16) was finally handed down. The Court of Justice held that selective distribution systems for luxury goods, the primary purpose of which is to ensure the luxury image of those goods, do not infringe competition law, subject to the conditions that the selection of resellers is made on the basis of objective considerations of a qualitative nature which are established uniformly for all eligible resellers and applied without discrimination and that the criteria established do not go beyond what is necessary.

Platform bans only permitted in rare exceptional cases

The definition of the term "luxury" remains unclear. If the distribution of mass products were also to be restricted in the future with these arguments, this could have serious consequences. "Especially for smaller traders or those who primarily offer their products in stationary retail shops, the distribution channels via so-called third-party platforms such as Amazon or Ebay are indispensable and usually have no alternative," says Dr Oliver Bohl. However, it is clear from the ECJ's landmark ruling that a blanket restriction to also offer certain goods via marketplaces and platforms is inadmissible and that an exception can only be made for luxury goods with objective and verifiable criteria. "With this ruling, the ECJ is sending an important signal for online trade," says Dr Oliver Bohl.