Selective distribution and online platforms – Opinion of AG Wahl in Coty-case

On 26 July 2017, Advocate General (“AG”) Wahl delivered to the Court of Justice of European Union (“CJEU”) his Opinion in the Coty-case.(1) The Opinion is significant for luxury and prestige products distributed via selective distribution systems, just as the final judgment of the CJEU will be.

The Higher Regional Court of Frankfurt-am-Main requested that CJEU rule on several questions — in particular, the following:

  1. Whether selective distribution systems, relating to luxury and prestige products and designed mainly to preserve the ‘luxury image’ of those products, are aspects of competition that are compatible with Article 101(1) TFEU; and
  2. If so, whether a ban on members of a selective distribution system, who operate as retailers on the market, making use in a discernible way of third party online platforms (such as Amazon and eBay), is compatible with Article 101(1) TFEU.

Selective distribution

As an introduction to his assessment, AG Wahl notes that, in European competition law, taking into consideration other parameters of competition in addition to price competition is important. Although price competition is important, it does not constitute the only effective form of competition or the form to which absolute priority must in all circumstances be accorded.

According to AG Wahl, selective distribution systems are generally acceptable and thus compatible with the prohibition of agreements and concerted practices laid down in Article 101(1) TFEU. This is because such systems give rise to beneficial or, at least, neutral effects on competition. Selective distribution systems must, however, be purely qualitative, fulfilling the following three conditions (the so-called Metro-criteria):

  1. Necessity – the properties of the product (e.g. high quality or highly technical nature) necessitate a selective distribution system to preserve the product’s quality and to ensure that it is correctly used;
  2. Objectivity – resellers must be chosen on the basis of objective qualitative criteria applied in a non-discriminatory manner; and
  3. Proportionality – the criteria defined must not go beyond what is necessary.(2)

AG Wahl indicates that these conditions may apply also to other quality products and not only to luxury products. It is noteworthy that even irrespective of whether the products concerned are ‘luxury’ products, a selective distribution system may be necessary to preserve the ‘quality’ of the product.

Ban on the use of third party online platforms

European Commission mentioned the online platform restrictions in its report on the E-commerce sector inquiry. The Commission, however, refrained from expressing its views on such restrictions but, instead, signalled that it is waiting for the CJEU’s Coty-decision.(3)

AG Wahl’s view is clear with regard to the restrictions on the use of third party platforms. It must, however, be kept in mind that this case concerns only selective distribution systems. According to AG Wahl, the prohibition on authorised distributors making use of third-party online platforms may be excluded from the scope of Article 101(1) TFEU (i.e. such prohibitions can be acceptable) because it is likely to improve competition based on qualitative criteria. This kind of prohibition is likely to improve the luxury image of the products concerned. Not only does it ensure that those products are sold in an environment that meets the qualitative requirements imposed by the head of the distribution network, but the prohibition also makes guarding against free riding possible, by ensuring that the investments and efforts made by the supplier and by other authorised distributors to improve the quality and image of the products concerned do not benefit other companies.

AG Wahl clearly distinguishes the authorised distributors’ absolute ban on the online sale of products — which was the issue in Pierre Fabre -case(4) and considered to be incompatible with Article 101 (1) TFEU — from the prohibition on the use of third party online platforms in this case. He states that the fact that authorised distributors are prohibited from making use in a discernible manner of those platforms cannot, in the present state of development of E-commerce, be broadened into an outright ban on or a substantial restriction of internet sales.

Comment

The Opinion is likely to increase suppliers’/network heads’ confidence that selective distribution systems will continue to be considered as pro-competitive and acceptable. Also, the principle that the head of a selective distribution network remains generally free to organise that network, if the conditions mentioned above are met, is still valid. Finally, the Opinion contains clear wording that in the selective distribution systems it is possible to prohibit the retailers from selling products subject to contract on unauthorised third party online platforms (in this case on Amazon.de). This is a common-sense extension of the principles that apply to the offline sales restrictions within selective distribution systems.

AG Wahl’s analysis is well-founded and logical. It remains to be seen whether the CJEU will accept his views and conclusions. The CJEU is expected to deliver its decision towards the end of 2017.

 

(1): Opinion of Advocate General Wahl in Case C-230/16, Coty Germany GmbH v. Parfümerie Akzente GmbH.
(2): It is for the referring national court to decide whether the criteria are met in this case.
(3): Final report on E-commerce sector inquiry, published on 10 May 2017.
(4): CJEU’s Judgment in Case C-439/09, Pierre Fabre Dermo-Cosmétique.