In a recent decision of July 13, 2018, the Paris Court of Appeal confirmed the lawfulness of the marketplace ban clause in Caudalie’s online selective distribution agreements.
The structure of Caudalie’s selective distribution network
In setting up a selective distribution network for the sale of its cosmetic products by pharmacies, Caudalie put into place two agreements:
- A selective distribution agreement covering authorized resellers at points of sale
- A selective distribution agreement covering authorized resellers on websites (although only authorized resellers that already have a point of sale can be authorized to resell on their own websites)
This combination of agreements prevents all pure players from being part of Caudalie’s distribution network, and prohibits resellers from selling on websites other than their own, such as internet marketplaces.
In April 2013, on becoming aware that its products were being sold on the online platform 1001pharmacies.com, Caudalie brought an action for injunctive relief against eNova, the company operating the platform.
Influence of Coty Germany case on the Caudalie case
In overruling the court of first instance’s judgment, the Paris Court of Appeal considered that the prohibition against reselling products on third-party platforms was likely to constitute a hardcore restriction, unless it could be objectively justified. The court therefore ruled that Caudalie had failed to demonstrate that its distribution network was lawful and that eNova’s disturbance was thus “manifestly unlawful”, which is the threshold that needs to be met to obtain injunctive relief. The court’s reasoning was based on a body of corroborating decisions of the French and German competition authorities in the Samsung, Adidas and Asics cases.
However, this reasoning failed to persuade the French Supreme Court. Guided by the opinion of Advocate General Wahl of the Court of Justice of the European Union in the Coty Germany case, published on July 26, 2017, the French Supreme Court annulled the Court of Appeal’s Caudalie ruling on September 13, 2017 on the ground that it had failed to substantiate why, based on the above considerations, it could rule out the existence of a “manifestly unlawful disturbance” (see our previous alert on the Caudalie case).
The case was referred back to the Paris Court of Appeal.
The Paris Court of Appeal’s decision of July 13, 2018
The Paris Court of Appeal was also guided by the Coty Germany ruling in qualifying Caudalie’s cosmetic products as luxury ones, in light of their allure and prestigious image, which bestowed on them an aura of luxury – a quality essential to enable consumers to distinguish them from similar goods. Therefore, an impairment to that aura of luxury would be likely to affect the actual quality of those goods.
The Paris Court of Appeal even added that the marketplace ban is not necessarily limited to luxury products, in line with the European Commission’s comments on the Coty Germany case.
eNova argued that the application of selection criteria by Caudalie was discriminatory as Caudalie had not initiated proceedings against other pure players; however, this line of argument failed to convince the court as Caudalie demonstrated that it had begun proceedings against Amazon to force it to cease any resale of Caudalie-branded products. Therefore, the court confirmed the lawfulness of Caudalie’s contractual arrangement.
Finally, the Paris Court of Appeal ruled that the marketplace ban was appropriate to preserve the luxury image of Caudalie’s products, and proportionate to achieve such objective. Given (i) the absence of any contractual relationship that would oblige 1001pharmacies.com and eNova to comply with Caudalie’s quality requirements and (ii) the fact that 1001pharmacies.com was displaying Caudalie’s products in close proximity to products that had no connection with the cosmetic sector (e.g., fire alarms and video surveillance cameras), the court held that such ban was necessary and proportionate to preserve the products’ luxury image.
Consequently, the Paris Court of Appeal confirmed the court of first instance’s decision to grant injunctive relief and ordered eNova to cease the commercialization of Caudalie products.
The end of a legal saga?
The whole Caudalie case on marketplace bans was ruled under summary proceedings for injunctive relief. This does not prevent eNova from bringing a separate action before the courts against Caudalie in order to obtain a ruling on the merits, as it was the case in the Coty France proceedings against showroomprivé.com (see our previous alert on the Coty France case).
How Reed Smith can help
Reed Smith’s EU, Competition & Regulatory team can assist you in setting up a distribution network compliant with EU and French law, and defend your interests before French courts and the French competition authorities.
Client Alert 2018-162
