Brands seeking to protect the reputation of their luxury goods have been given the green light by the European Court of Justice to restrict distributors within a selective distribution network from selling their goods through third party online marketplaces and platforms. The court case, which pitted Coty, one of the biggest cosmetic manufacturers in the world, against its distributor Parfümerie Akzente, marks a significant development for online retail and brand owners’ rights in Europe.
Coty sells its goods via a selective distribution network in order to protect its brand image and the image of its products. In 2012, Coty inserted a provision in its distribution contracts with all distributors prohibiting them from using third party branded online platforms for the retailing of its products and a dispute arose after one of Coty’s authorised distributors, Parfümerie Akzente, refused to agree the restriction and sold Coty’s products via a well-known online platform. Coty brought an action against Parfümerie Akzente as a result, seeking an order prohibiting it from being able to sell in this way.
The long-awaited decision (handed down in early December 2017) is welcome news to luxury brand owners who are now better placed to control their online presence. However, the ruling is not a ‘carte blanche’ for any brand owner to impose restrictions or bans in relation to any variety of goods. There are certain conditions that need to be met in order to stay on the right side of the law.
Firstly, the product must be a ‘luxury’ product. Unhelpfully, the court did not define what exactly is meant by ‘luxury’ but interestingly, it did say that more than just the material characteristics came into play – the ‘allure and prestigious image’ of the product create an ‘aura of luxury’ and this ‘aura’ enables consumers to distinguish that product from similar goods. Consequently, any damage to this ‘aura’ is likely to affect the actual quality of the product.
Secondly, brand owners seeking to impose restrictions on their distributors must ensure that the restrictions meet certain criteria. Restrictions must have the objective of preserving the image of the luxury product only, they must be laid down uniformly with each and every distributor and not applied in a discriminatory fashion, and they have to be proportionate.
In practice, this means that brand owners need to make sure that their contracts, which restrict third party online platform sales, apply without discrimination to all authorised distributors and that they maintain consistent approaches. In theory, this is achievable over time with careful contract management, rigid processes and a consistent story with regards to the ‘aura of luxury’ of the product or products involved. The bigger hurdle is likely to be whether the product is capable of qualifying as ‘luxury’ in the first place given the subjectivity of this criterion.
Whilst this judgement will only have a direct impact on ‘luxury’ goods, it does leave the door open to new questions. For example, to what extent can a non-luxury product owner also argue that a particular ‘aura’ associated with its product does in fact affect the inherent quality of that product which could be damaged by the sale of that product on such a platform. This begs the question as to whether other categories of products should also be entitled to restrict distribution in a similar way.
Looking ahead, we are now likely to see discrepancies at a national level in the interpretation of ‘luxury’ and how the proportionality test is applied. Coty v Parfümerie Akzente has reinforced the rights of luxury brand owners, but more developments might well follow. Watch this space.
By Alan Hunt, senior associate, and Alicia Mietus, trainee solicitor, at law firm Lewis Silkin
