The Authors' Take - CJEU addresses restrictions by object under Article 101 TFEU in the context of online sales platforms

CJEU addresses restrictions by object under Article 101 TFEU in the context of online sales platforms

by Stephen Barratt

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).]

Fragrance brands face a pot pourri

Editorial: Jeremy Phillips

Citation: Journal of Intellectual Property Law & Practice 2009 4(10):685; doi:10.1093/jiplp/jpp153

It has been a good summer for the luxury scent industry. The decision of the European Court of Justice in Case C-59/08 Copad v Christian Dior has given owners of famous and expensive brands the encouragement to review their marketing policy in the knowledge that the sale of products, once placed in the safe hands of carefully selected distributors, may still be policed by them when those goods have fallen into the clutches of less prestigious sellers. Then came the bonus of the same court's subsequent ruling in Case C-487/07 L'Oréal v Bellure that the invocation of a well-known trade mark as a means of describing to a consumer the fact that a competing cut-price product resembled it would in most practical instances constitute an infringement of the registered right.

Will the good times last? It is difficult to predict. Copad enables the brand owners to invoke the need to protect the ‘aura of luxury’ that surrounds their expensive products, but the reasoning of the Court appears to be based on the assumption that perfumes are expensive and luxurious items that people purchase for themselves. Is this so? A recent online survey on the IPKat weblog suggests not. Admittedly, the number of respondents was small (134) and there were no means of ascertaining how representative of the relevant consumer this sample was. However, its results were revealing.

Just under one quarter of the respondents indicated that their normal mode of acquiring a perfume was via the chic and glamorous ambience of an up-market parfumerie, the traditional outlet for such products in continental Europe. In contrast, exactly 50% reported a greater degree of interest in competitive pricing than in the glamour of the purchasing experience: this group can be divided into two uneven sectors: the larger group (31%) who restrained their purchase habits until they visited a duty-free shop and the remaining 19% who bought their fancy scents online. The remaining 36% did not purchase perfumes, but rather received them as gifts.

It cannot be denied that some degree of glamour and excitement attaches itself to the purchase of expensive branded goods at a duty-free shop, since many such outlets are pleasantly appointed and share the vicarious frisson of excitement and adventure which many of us still experience when travelling abroad. However, the overall picture is one of a market of which a full 76% of respondents do not seek to acquire their fragrances from a distributor selected by the manufacturer and 50% avoid making their purchases there for reasons that include, but are probably not limited to, price sensitivity. In situations such as this, it is inevitable that the European Commission will be invited to reconsider its position on the desirability of allowing selective distribution agreements that have the effect of maintaining higher prices. It is equally inevitable that the perfume industry will be asked to respond to questions such as ‘are your luxury products less luxurious in markets where selected outlets face greater price competition?’

Regarding the protection given against the use of well-known brands in the marketing of smell-alike products, the perfume industry appears to be better placed. The ruling of the Court is arguably based upon a fudging of the distinction between a competing product being an imitation of (i) the brand owner's product qua product (ie as a genre) and (ii) the brand owner's product qua branded product sourced by that brand owner. In other words, there is a difference between the manufacturer of a smell-alike product saying ‘my product imitates brand X fragrance’ and ‘my product imitates the characteristics and functionality of a product which, when manufactured by the brand owner, is sold under the brand X’.

For as long as it is difficult or impossible for the Court, or indeed the consumer, to appreciate the subtle differences of these messages, the leading brands should feel secure enough. They have a ruling in their favour, they have a war chest that will tolerate protracted large scale litigation, and, most importantly, they have every reason for wishing to preserve the market position that they have worked so long and hard to achieve. While the long term may presage a diminution in their ability to determine how and where their precious goods are sold, and while the protection against free-riders remains—like an umbrella in the rain—capable of offering cover that extends beyond the object of protection, the short term looks rosy.