October 28, 2021

Volume XI, Number 301

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Protecting Prestige: EU Decision Safeguards Sale of Luxury Brands From Online Marketplaces

In a major victory for luxury brands in Europe that could have far-reaching effects on e-commerce sales of luxury products in the future, the European Court of Justice (COJ) recently held that a luxury goods supplier can stop authorized distributors from selling those products through third-party online marketplaces such as Amazon and eBay.

The decision by the EU's highest court resolves a dispute between Coty Germany GmbH and Parfümerie Akzente GmbH. Coty is one of Germany's leading luxury cosmetics suppliers, and it sells those products through select authorized distributors, including Parfümerie Akzente. Coty requires its distributors to comply with requirements designed to preserve the "luxury image" of Coty's goods, including meeting "look-and-feel" standards in brick-and-mortar stores and internet sales restrictions.

While authorized distributors were allowed to sell Coty's luxury goods through their own websites, they could not sell via third-party platforms. Parfümerie was subject to such restrictions, but began selling Coty products through amazon.de. Coty brought proceedings before the German courts to prohibit Parfümerie from distributing its products through online marketplaces.

EU law was not clear on whether Coty's online restrictions were valid or invalid as inconsistent with EU competition law, which protects the free trade of goods through the internet. The German courts sought guidance from the COJ. On December 6, 2017, the COJ ruled that selective distribution systems—such as the one Coty implemented for the sale of its luxury products—do not run afoul of EU competition laws, provided that the following conditions are met: resellers are chosen on the basis of objective criteria, which must be laid down uniformly for all potential resellers and not applied in a discriminatory fashion; and the criteria must not go beyond what is necessary—for example, prohibiting all online sales.

The COJ also found that agreements prohibiting luxury goods authorized distributors from selling via third-party online platforms are lawful provided that such a clause or agreement: (1) has the objective of preserving the luxury image of the goods in questions; (2) is laid down uniformly and not applied in a discriminatory fashion; and (3) is proportionate in light on the objective pursued.

Although the Coty ruling is limited to the sale of luxury goods in Europe (said to account for 70 percent of all luxury sales), this is an important decision for brand owners—and, in particular, luxury brand owners—who must be continually vigilant in protecting the image and exclusivity of their brands, including through distribution-channel control. Distribution-channel restrictions can be an important tool for reducing the likelihood that counterfeit sellers will benefit from unauthorized sales and erode the "aura of luxury" of these brands.

Copyright © by Ballard Spahr LLPNational Law Review, Volume VII, Number 347
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About this Author

Jenna Loadman, Ballard Spahr Law Firm, Philadelphia, Media and Intellectual Property Attorney
Associate

Jenna M. Loadman concentrates her practice on trademark and copyright matters, including counseling, prosecution, enforcement, and portfolio management. Prior to joining Ballard, Ms. Loadman was a Trademark Fellow at General Electric Company (GE) where she assisted on all aspects of U.S. and international clearance, prosecution, and enforcement for all GE business divisions. She previously interned in the trademark department for a major athletic apparel company. Ms. Loadman is also an accomplished musician and is a magna cum laude graduate of the Bandier...

215-864-8302
Lynn Rzonca, Ballard Spahr Law Firm, Philadelphia, Intellectual Property Litigation Attorney
Partner

Lynn E. Rzonca is the Practice Leader of Ballard Spahr's Intellectual Property Litigation Group. Ms. Rzonca has 25 years of experience litigating trademark, advertising, copyright, and patent cases. She counsels clients on how to best protect and increase the value of their intellectual property and protect their key brands. On any given day, she may be enforcing trademark rights in federal court or before the U.S. Patent and Trademark Office, addressing infringement on social media, registering marks, or responding to a threat of patent infringement.

...
215-864-8109
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