The Authors' Take - Coty Germany v Parfümerie Akzente

AG WAHL interprets competition provisions in relation to selective distribution agreements for luxury cosmetics

by Stephen Barratt

University of Southampton, School of Law

In his Opinion of 26^th July 2017 in Coty Germany GmbH v Parfümerie Akzente GmbH, C‑230/16, Advocate General (AG) Wahl provided his interpretation of Article 101 TFEU and Regulation (EU) No 330/2010 (the Regulation). The request for a preliminary ruling came from the German Higher Regional Court (Oberlandesgericht Frankfurt am Main), and was made in the context of a dispute between cosmetics giant Coty Germany and one of its distributors, Akzente.

The question is whether Coty’s new selective distribution agreement, which prohibited the discernible use of third party websites, is precluded by EU antitrust provisions. Azkente wanted to use Amazon.de to market the goods, thereby gaining access to Amazon’s enormous active user base as well as lower marketing costs and the option to have orders fulfilled by Amazon itself.

Article 101(1) of the Treaty on the Functioning of the European Union (TFEU) prohibits agreements which distort competition, either by object or effect. Under the Regulation, vertical agreements are presumed to be exempted from Article 101(1)  TFEU via Article 101(3) TFEU, provided that neither the supplier’s nor buyer’s market share exceeds 30%.

Does the agreement distort competition?

According to the AG, the agreement falls outside Article 101(1) TFEU. This is because, when factors other than price are taken into account, Coty’s requirement does not cause appreciable anti-competitive effects.  In reaching this conclusion the AG adopted the view – extant in both competition and trade mark decisions – that a luxury product loses its value to the consumer if it becomes commonplace. The preservation of this ‘aura’ is therefore capable of offsetting anti-competitive effects. This qualitative assessment, or ‘appreciability’ test, is a source of uncertainty for parties when drafting agreements. The Opinion, if followed by the Court, should be welcomed by the Luxury Cosmetics industry, worth €203b in 2016. Its effect is to create a presumption that an agreement aiming to preserve prestige is not caught out, provided it is non-discriminatory and proportionate.

Clarifying Pierre Fabre

However, if the ‘object’ of an agreement is deemed to be anti-competitive, Article 101(1) applies and no qualitative analysis occurs. This, the AG explained, was what led the court in Pierre Fabre Dermo-Cosmétique , C-439/09, EU:C:2011:649 (Pierre Fabre), to declare ‘the aim of maintaining a prestigious image is not a legitimate aim for restricting competition’.  In that case an absolute ban on internet sales was classified as restriction by object. A full and much needed delineation of the ‘object’ category will have to wait for a future reference but a comparison between Pierre Fabre and the instant case indicates that proportionality is a key factor whether a ‘sufficient degree of harm’ has occurred.

The AG went on to confirm that, even if Article 101(1) did apply, the agreement would qualify for the Block Exemption under the Regulation. An agreement cannot benefit from the exemption if it is deemed to be a ‘hardcore restriction’. This is along the same lines as a restriction by object under Article 101(1), but more user-friendly because it sets out prohibited restrictions. The AG concluded that a restriction on discernible third party platforms constitutes neither a territorial limitation nor a restriction of passive sales.

So, a probable reprieve for luxury cosmetics suppliers, but the rapid evolution of the e-commerce sector means the proportionality assessment could soon favour distributors. Nor is the debate settled about law’s role in protecting prestige, although the interdependent evolution of trade mark law means the concept is fairly entrenched. 

[This is an Authors' Take post, which provides readers with an insight into current IP scholarship, featuring preliminary comments and thoughts from authors of articles accepted for publication in forthcoming issues of the Journal of Intellectual Property Law & Practice (OUP).]