EU High Court Rules Luxury Brands Can Limit Online Resale

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The European Commission then claimed that manufacturers should be able to decide, in order to protect their brand's image. It subsequently upheld Coty's contractual clause which seeks to stop distributors forwarding luxury goods to third parties for onward sale without prior brandowner permission.

The European Court of Justice (ECJ) ruled on December 6 that such a ban did not go beyond what is necessary "to preserve the luxury image of the goods" and did not break EU competition rules by restricting customer choice. Only recently have some companies buckled and accepted online sales, but these companies usually still only sell on their own online platform.

Coty argued that online platforms selling its high-end products damaged the image of its luxury brands.

European Union competition law generally prevents companies from using agreements which have as their object or effect the restriction of competition. It is left to the national court to apply this criterion, but the CJEU suggests that it is fulfilled, notably because Coty's clause aims to ascertain that consumers associate the relevant products only with the authorised (luxury) distributors - which is the very aim of a selective distribution system.

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It said: "A supplier of luxury goods can prohibit its authorised distributors from selling those goods on a third-party internet platform such as Amazon".

Coty allows its products to be sold by authorized dealers but puts a number of restrictions on how such sales are carried out, finding such terms necessary to preserve its branding image.

It will ultimately be up to the Frankfurt court to resolve the dispute between Coty and Parfümerie Akzente based on the CJEU's interpretations. "This judgment may require the German authorities and courts to reassess their approach so as to allow genuinely prestigious luxury brands to restrict online sales via third party platforms by their authorised distributors".

The president of the German Federal Cartel Office Mr. Mundt, as well as the industry lobby group CCIA which includes Amazon and eBay, have already issued statements claiming that the scope of the CJEU's judgment is strictly limited to the distribution of luxury products.