Luxury brands are celebrating a landmark judgment of the European Court given yesterday.

In a case concerning Coty, the European Court ruled that a clause in Coty’s selective distribution agreement prohibiting authorised distributors from using Amazon to sell Coty cosmetics was lawful in principle.

At the heart of the Court’s decision was the principle that discernible third party platforms (such as Amazon and eBay) detract from the luxury image of luxury goods. In contrast, non-discernible third party platforms do not.

The Court pointed out that luxury brands have no contractual relationship with, for example, Amazon. As such, Amazon is not required to comply with Coty’s quality criteria which it has imposed on all its authorised distributors under the terms of its selective distribution agreement.

In view of the Court’s decision, a luxury brand will be able to enforce a provision in its selective distribution agreement restricting the use by authorised distributors of discernible third party platforms for the resale of its luxury goods where:

  • the provision has the objective of preserving the luxury image of the goods in question;
  • the provision is laid down uniformly and not applied in a discriminatory fashion; and
  • the provision is proportionate in the light of the objective pursued.

The Court’s decision can be expected to result in:

  1. luxury brands which have suitable provisions in their selective distribution agreement enforcing those provisions in order to clamp down on authorised distributors using Amazon, eBay, and other discernible third party platforms.
  2. Luxury brands which do not have such provisions in their selective distribution agreements looking to include such provisions as soon as possible!
  3. Amazon, eBay, and other discernible third party platforms looking to have direct contractual relationships with luxury brands in order to be able to continue to offer such brands on their platforms.
  4. In the near future, an increase in the price of grey market products of luxury brands as grey marketers look to fill the void which has been left on discernible third party platforms.

Stephen Sidkin was quoted in Drapers on this topic. If you are a registered user of Drapers online, please click here to read the article.

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