While not binding on the European Court of Justice, the opinion of the Advocate General is followed in four out of five cases. If the court in the present Coty case follows the Advocate General’s opinion, the case will constitute a strong endorsement of selective distribution in general, and of the legality of banning third-party platforms in particular, confining the application of the Pierre Fabre case to the situation of a complete ban on internet sales only.

The opinion contains several important statements strongly supporting the position of brand owners who sell through selective distribution systems.

• The Advocate General recalls previous case law of the court to the effect that the imposition of a selective distribution system may not constitute a restriction on competition under Article 101 of the Treaty on the Functioning of the European Union. Obliging resellers to respect qualitative criteria defined by the brand owner tends to enhance the development of the brand, and thus promote competition between different brands. It also promotes a stable perception by consumers of the quality and exclusivity of the brand. Further, because the imposition of qualitative selection criteria will necessarily restrict the choice of distributors and retailers available to the brand owner, there arises a ‘self-regulation’ as the brand owner will not be motivated to impose unnecessarily restrictive criteria. Consequently, the Advocate General concludes that “selective distribution systems may be considered, generally, to have neutral, or indeed beneficial, effects from the aspect of competition”. The Advocate General also endorses views expressed by the Commission (and others) that “contracts that organise a selective distribution system for the sale of luxury and prestige goods, aimed mainly at preserving the luxury image of those goods, may be excluded from the scope of the prohibition laid down in Article 101(1)”.
• Building on this reasoning, and distinguishing the Pierre Fabre case, the Advocate General expresses the view that the specific prohibition on authorised distributors making use of third-party online platforms may be excluded from the scope of Article 101(1), in that it is likely to improve competition based on qualitative criteria. Such a prohibition is likely to improve the luxury image of the products by ensuring they are sold in an environment that meets the qualitative requirements imposed by the brand owner, and makes it possible to guard against parasitism or free riding, by ensuring the investments and efforts made by the brand owner and by other authorised distributors to improve the quality and image of the products concerned do not benefit other undertakings. The Advocate General also highlights in particular that where a reseller uses a third-party platform, the brand owner loses the ability to directly regulate the way the products are sold on that platform, as the third-party platform has no contractual link with the brand owner. This reasoning appears to ignore, firstly, that the reseller who wishes to use and benefit from sales via the third-party site may have made significant investments in the brand (and so is not free riding), and indeed that the brand owner will also benefit from increased sales, and secondly, that it is open to the brand owner to impose restrictions in the agreement with the reseller regarding criteria that must be respected by any third-party site used by the reseller. In this way, the brand owner can indeed, albeit indirectly, regulate the way the goods are sold on the third-party site.
• Then, just to complete the case in favour of the brand owner, the Advocate General expresses the view that even if he is wrong in thinking that the imposition of a third-party website ban in a selective distribution system does not constitute a restriction on competition at all, such a ban could nevertheless benefit from an exemption, and also is generally exempted (where market shares are below 30 per cent) by the Commission’s vertical restraints block exemption. Although clauses which restrict the territory into which, or the customers to whom, the distributor may sell are expressly excluded from the benefit of the vertical restraints block exemption, a clause prohibiting the use of a third-party site would not prevent sales to any specific group of customers, or to any territory. Because Akzente remained free to sell on the internet via its own site, the ban on using third-party sites did not impose on Akzente the loss of any group of customers or market. The aim of the exclusion was to prevent market partitioning according to defined groups or territories, which was not the case or effect here.

This opinion should allow many brand owners to breathe a sigh of relief, but will no doubt be poorly received by the major online marketplaces, who will be frustrated at the lack of willingness the Advocate General has displayed to remove these barriers, which significantly limit access to their platforms in relation to certain goods.

If the opinion is followed by the court, this will not, however, result in an automatic authorisation of third-party platform bans in all cases. It will still be necessary to consider in each case the legitimacy of the requirement to use selective distribution for the products in question, and the objectivity, proportionality and non-discriminatory nature of the application of the ban. These factors will doubtless spur the development, already in progress, of specific areas of third-party sites reserved to particular brands. Third-party platforms and selective distributors may develop online brand shops within third-party platforms that are specifically designed to respect and implement selective criteria of brand owners. Preventing distribution through this kind of third-party channel may still prove challenging to brand owners, even if the European Court does follow its Advocate General’s opinion.

Client Alert 2017-184