CJEU addresses restrictions by object under Article 101 TFEU in the context of online sales platforms
On 6 December 2017, the Court of Justice of the European Union (CJEU) revalidated the assertion that the preservation of luxury is an aim capable of shaping the presumption that a practice is outside the scope of Article 101 Treaty on the Functioning of the European Union (TFEU).
The CJEU had appeared to reject this proposition in Pierre Fabre Dermo-Cosmétique, C-439/09 EU:C:2011:649 (Pierre Fabre). Not so, said the CJEU in Coty Germany GmbH v Parfumerie Akzente GmbH, C-230/16, EU:C:2017:941, explaining that the – seemingly unequivocal and independent – assertion at paragraph 46 of Pierre Fabre was actually a function of the specific factual background.
The German court of first instance, Landgericht Frankfurt am Main (Regional Court, Frankfurt am Main, Germany), had been required to assess the legality of a distribution contact, by means of which Coty Germany, a luxury cosmetics supplier, was seeking to prevent its distributor selling via online outlets with any discernible third party presence. This would prevent the distributor, Parfumerie Akzente, from using its preferred online outlet, Amazon.de.
Litigation ensued when Parfumerie Akzente refused to agree to the supplementary terms (an agreement regarding physical sale locations was already in place). The court of first instance applied Pierre Fabre, judging the agreement to be in violation of Article 101 and hence unenforceable.
The matter was brought, on appeal by Coty Germany, before the referring court, the Oberlandesgericht Frankfurt am Main (Higher regional court, Frankfurt am Main, Germany). This court asked the CJEU to delineate Article 101 in relation to agreements designed to preserve the luxury aura of products, and also with regard to the specific agreement under dispute. The first question asked which principles are engaged when determining a restriction by object for the purposes of Article 101(1) TFEU. The second asked it to weigh these principles against the factual matrix outlined by the referring court, a proportionality enquiry. The CJEU was also asked to advise on the application of Regulation (EU) No 330/2010 (The Block Exemption Regulation). Coty Germany did not exceed the market power threshold so, even if the agreement did invoke Article 101, it could be presumed exempt if not deemed to be a ‘hardcore restriction’.
The CJEU, having dealt with Pierre Fabre, referred to a trade mark case, Copad v Dior, C- 59/08, EU:C:2009:260, in which it had expounded the link between a product’s luxury aura, its quality and its value to consumers. Unfortunately, the CJEU’s reasoning begs the question of how a normative assertion grounded in trade mark law retains its validity in the markedly different legal context of competition, especially given that commentators remain equivocal about such extension of a trade mark’s origin function.
On the proportionality of the measures, the CJEU’s view was that, unlike the blanket internet ban in Pierre Fabre, the agreement in question was allowable because internet customers could still purchase the goods, albeit via the distributor’s own website. It relied on a Commission report which showed that 90% of consumers used this purchase method. Significantly - as is habitually the case in the internet age - the value of this aspect of the judgment is transient, rooted as it is in current consumer behaviour.
Less easily expunged and all the more deserving of critical attention is the CJEU’s conclusion regarding luxury auras. It must be hoped that a future case will give the CJEU the chance to clothe the essentially subjectivist stance it took in Coty with an adequate rational framework. In the meantime, the matter returns to the referring court for adjudication, with Coty Germany – and the luxury cosmetics industry in toto - expected to be vindicated.
[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).]