Luxury Brands Get EU Court Boost in Fight of Internet Sales

  • Brand curbs that seek to preserve image may not breach rules
  • EU court aide’s opinion may hamper antitrust action on sales

Luxury-brand owners including cosmetic giant Coty Inc. should be able to block retailers from reselling their products on platforms such as EBay Inc. and Amazon.com Inc., an adviser to the bloc’s top court said.

Brands aren’t breaking antitrust rules if the prestige image of their products require them to be sold in selected stores and if those retailers are chosen in a fair way, Advocate General Nils Wahl of the EU Court of Justice said in a non-binding opinion Wednesday. The Luxembourg-based court follows such advice, at least in part, in most cases.

The case may hamper dozens of antitrust investigations across Europe as regulators target what they see as unjustified contracts manufacturers strike with retailers to set limits on the geographic extent of sales and the pricing of goods. The final judgment could potentially be precedent-setting and settle years of sparring over what online retailers call blanket bans or unjustified selective distribution agreements in violation of EU competition rules.

“The opinion seems to be a clear blow” to Germany’s cartel office, which has held that preserving a brand image may no longer be a legitimate reason for applying such restrictions, said Silke Heinz, a lawyer at Heinz & Zagrosek Partner in Cologne, Germany. A ruling along those lines could force the regulator “to change its currently very strict approach to assessing selective distribution systems in the online sales environment.”

New York-based Coty is at the heart of a fight that a German court referred to the top EU judges last year. A German perfume retailer attacked the refusal by Coty’s local unit to let it resell its products online. Coty argued to the court that lifting the restrictions would lead to an increasing lack of transparency for brand owners online.

Coty Germany didn’t break EU competition law when it tried to stop a perfume store from reselling its products on Amazon.com’s German website, Wahl said. Its ban "seeks to preserve the luxury image of the products concerned" and "is likely to improve competition based on qualitative criteria."

At issue is a question that’s caused headaches for years -- how far can luxury brand owners go to stop retailers from reselling their products on platforms. The case is so important that it drew lawyers from as many as seven EU nations to a court hearing in March.

Restrictions on where online retailers can sell also prevent them from reaching those customers who increasingly shop on mobile devices, according to the Computer & Communications Industry Association, a group that speaks for technology companies including EBay and Amazon.

“We don’t see how a blanket marketplace ban can be a proportionate measure if sellers can fulfill legitimate distribution criteria,” said Jakob Kucharczyk, Europe director at CCIA. “Consumers will remain deprived of greater choice and price competition while for many sellers an important online distribution channel will remain effectively closed.”

Intense lobbying campaigns almost a decade ago by luxury-goods makers such as LVMH and Chanel convinced the EU to give brand owners more power over how Internet retailers sell their products. Cosmetics and perfume makers have been part of the fight to prevent their products being sold on EBay or Amazon, arguing this could degrade product image.

The case is: C- 230/16, Coty Germany.

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