In a ruling from December 6, 2017, the Court of Justice of European Union (CJEU) held that a selective distribution system for luxury items does not constitute a violation of the prohibition on restrictive practices under EU law if certain conditions are fulfilled.
Suppliers of luxury items can prohibit their authorized dealers from selling items online via third-party platforms such as Amazon or eBay. In a judgment from December 6 of 2017, the Court of Justice of the European Union established that this does not constitute a violation of competition law or the prohibition on restrictive practices under EU law (Az.: C-230/16). The CJEU ruled that a selective distribution system for luxury items that is designed primarily to maintain a luxury image is acceptable as long as certain conditions are fulfilled.
According to the ruling, the prohibition on restrictive practices under EU law is considered not to have been violated if the resellers are selected on the basis of objective criteria of a qualitative nature, and these are applied consistently to all resellers under consideration without discrimination. At the same time, the CJEU ruled that the established criteria cannot extend beyond what is necessary.
The case before the CJEU concerned the sale of luxury items via third-party platforms online. The business sold luxury cosmetics in Germany. To maintain the luxury image of some of its brands, these cosmetics are sold through a selective distribution network. To this end, the authorized dealers must meet certain requirements regarding the environment, facilities and equipment. While they are allowed to sell the luxury items online on their own homepage, they are prohibited, on the other hand, from selling the items online via third-party platforms that are recognizable to consumers. One authorized dealer nevertheless decided to sell the items on Amazon. The company brought a legal action against this citing the contractual prohibition. However, the Oberlandesgericht (OLG) Frankfurt, Frankfurt’s Higher Regional Court, had doubts concerning whether the prohibition clause is valid or whether it violates the prohibition on competition. It therefore referred the matter to the CJEU.
The Court of Justice found the clause to be valid provided the conditions mentioned above are fulfilled. We at the commercial law firm GRP Rainer Rechtsanwälte note that the Court held that the prohibition on restrictive practices under EU law does not preclude the use of a contractual clause if it serves to maintain the luxury image of the goods in question. Notwithstanding this, the ruling likely raises questions. It will need to be clarified on a case-by-case basis where high quality ends and luxury begins. Lawyers who are versed in the fields of competition and antitrust law can offer advice in the event disputes between distributors and companies.