COTY vs. AKZENTE Perfume Shops (parfumdreams.de ™) Do manufacturers have the right to prohibit sales through online market-places like AMAZON and eBay?
[Berlin, ] On 30 March 2017, the European Court will hear oral arguments in connection with a request for a preliminary ruling submitted by the Frankfurt am Main Higher Regional Court. At issue is whether producers may prohibit retailers from selling their wares through online marketplaces under European and German cartel law. This case addresses a common practice of manufacturers of name-brand products that pursue a policy of selective distribution and seek to restrict online sales by prohibiting the use of eBay and AMAZON to market their products.
The parties to the original action before the Frankfurt am Main Higher Regional Court were Coty Deutschland GmbH and Parfümerie Akzente GmbH, which was represented by GÖRG Partnerschaft von Rechtsanwälten (team headed by Dr Oliver Spieker / Partner and Michael Alber / Associated Partner). Coty Deutschland GmbH belongs to the international Coty cosmetics group and distributes many name-brand Coty products in Germany, especially perfumes. Coty Deutschland GmbH markets a significant percentage of Coty’s internationally known name-brand products – e.g., "Davidoff, Jil Sander, Calvin Klein" … – exclusively through a ‘selective’ distribution system that requires participating retailers and wholesalers to comply with an exhaustive catalogue of conditions and instructions, in particular as regards their sales and marketing practices. This catalogue of requirements includes a clause that prohibits online sales of the various name-brand products through e-commerce marketplaces that are recognisable as such by the consuming public. As a result, this covers all major online marketplaces – in particular eBay and Amazon. According to Coty Deutschland GmbH, this measure is intended primarily to protect the prestige of the various name-brand products from the supposedly harmful effect of association with the major online marketplaces. However, it would seem more likely that Coty Deutschland GmbH is concerned with avoiding the intense price competition for which the Internet and especially eBay and AMAZON are known, which can be at least partially explained by the fact that they enable retailers to avoid the expense of developing their own Internet sites and the concomitant advertising.
With its 26 bricks-and-mortar locations, Parfümerie Akzente GmbH operates one of Germany’s largest chains of perfume shops. The company also markets its products – including the Coty products – online through its parfumdreams.de webshop. In addition to the company’s own webshop, it also sells its wares through its own AMAZON webstore.
Coty Deutschland GmbH brought an action against Parfümerie Akzente GmbH before the Frankfurt am Main Regional Court (file ref. 2-03 O 128/13) to have Parfümerie Akzente GmbH enjoined from selling the Coty name-brand products through its AMAZON webstore. In its judgment of 31 July 2014, the Frankfurt am Main Regional Court dismissed the action brought by Coty Deutschland GmbH, reasoning that the clause prohibiting the sale of Coty name-brand products through online marketplaces operated by third parties was in violation of § 1 of the Act against Restraints on Competition (Kartellgesetz – GWB) and Art. 101 of the Treaty on the Functioning of the European Union (TFEU) and therefore void. In particular, the court clearly rejected the attempt to justify the restrictive clause on the grounds that it served to avoid the loss of prestige, adding that the clause is a ‘hardcore restriction’ within the meaning of the Block Exemption Regulation 2010, which means this restriction of competition cannot qualify for a 'block exemption’.
Coty Deutschland GmbH appealed the decision, and the Frankfurt am Main Higher Regional Court then requested a preliminary ruling from the European Court (ECJ) since the critical legal issues at hand related to European law. The Frankfurt am Main Higher Regional Court asked the ECJ to address in particular the question as to whether general clauses that prohibit the use of online marketplaces can – for the purposes of cartel law – even be “indispensable” in the first place or whether they must always be considered to constitute restrictions of competition within the meaning of Art. 101 of the Treaty on the Functioning of the European Union. The question as to whether the prohibition of the use of online marketplaces of third parties restricts the options of customers of the vendors involved and thus constitutes an anticompetitive practice that cannot be accepted as an exception is also at issue.
"If the ECJ should conclude that such prohibition of the use of online marketplaces is inconsistent with the provisions of European cartel law, this would have serious repercussions for the sale of consumer products in many different segments. Precisely in the areas of perfumes and cosmetics, consumer electronics, jewellery or clothing, a significant number of manufacturers still employ similar restrictions on sales, and it would no longer be possible to retain these restrictions in the wake of such a decision by the highest European court, at least not in their current form", says Dr Oliver Spieker, the lead attorney of the GÖRG team involved in the proceedings. According to Kai Renchen, managing director of Parfümerie Akzente GmbH and founder of parfumdreams.de, the pending decision of the ECJ cannot only result in significant benefits for consumers, but would also support the definition of clear-cut rules for e-commerce: "We don’t tell consumers where to go to find products – they should be able to find them wherever they look for them. The time has also come to make clear what options are available to online retailers in this context."
Over the years, many clients – retailers as well as manufacturers – have regularly turned to GÖRG for advice and legal representation before the courts in connection with disputes involving selective distribution agreements and distribution systems. Dr Oliver Spieker and Michael Alber are two GÖRG lawyers also specialised in advising companies on the legal fine points involved in the design of selective distribution systems.
Counsel for Parfümerie Akzente GmbH
GÖRG Partnerschaft von Rechtsanwälten mbB, Berlin
Dr Oliver Spieker, partner
Michael Alber, associated partner
Counsel for Coty Deutschland GmbH
Lubberger Lehment Gesellschaft bürgerlichen Rechts
Dr Andreas Lubberger, partner