Müəllif: Azad Məmmədli. Azad hazırda Lund Universitetində Avropa biznes hüququ üzrə magistr təhsili alır. O, 2015-ci ildə Bakı Dövlət Universiteti Hüquq fakültəsindən məzun olmuş, 2016-2018-ci illərdə Ekvita hüquq şirkətində Hüquqşünas kimi çalışmışdır.
Təhlil: Onlayn satışın məhdudlaşdırılması Avropa rəqabət qaydalarını pozurmu?
Yazının Azərbaycan dilində xülasəsi: Topdansatışla məşğul olan sahibkarlar öz mallarının internet üzərindən pərakəndə satılmasını tam qadağan edə bilərlərmi? Bəs bu cür satışın tam olmasa da, hansısa səviyyədə qadağa olunması necə, qanunidir? Sahibkarlar, əgər mənafelərinə ziddirsə, mallarının öz ticarət partnyorları tərəfindən onlayn platformalarda (məsələn, Amazon) satılmasının qarşısını necəsə ala bilərlər? Ümumiyyətlə, bu kimi hallar rəqabəti pozurmu və ya ona hansısa başqa şəkildə mənfi təsir göstərirmi? Bu yazı Avropa Ədalət Məhkəməsinin 2017-ci ildəki məşhur Coty Germany qərarında bu kimi suallara necə yanaşdığını aydınlaşdırır.
Article 101(1) of the Treaty on the Functioning of the European Union (TFEU) prohibits certain practices, namely (a) the agreements between undertakings; (b) decisions by associations of undertakings; and (c) concerted practices, that may (i) affect trade between the Member States of the European Union (EU) and (ii) have as their object or effect the prevention, restriction or distortion of competition. Article 101(3) TFEU, on the other hand, lists the cases in which the previous provision is inapplicable and thus, the said practices are allowed.
The Court of Justice of the European Union (Court) has interpreted the EU competition rules, which include the mentioned ones as well as other Treaty or secondary legislation provisions, in numerous cases throughout the decades. But there are still plenty of unanswered questions in line. The number of these questions doubles almost day by day thanks to newly emerging online and digital concerns.
Now, can a wholesale business ban online sales of its goods carried out by its affiliated resellers completely? What about restricting those sales only to some extent? Should a company be able to preclude its business partners from reselling products via, say, Amazon? Would any of these distort competition or affect it in any other negative way?
This article examines the argumentative approach of the Court to these questions in its seminal Coty Germany judgment (Case C-230/16 ECLI:EU:C:2017:941) of 2017. Briefly on the outline:
- Background of the proceedings is given before shortly analyzing the Court’s view on the general conformity of SDS with EU competition rules.
- Then the main part of the article inspects the Court’s approach to the prohibition of online sales via TPP with the EU primary and secondary laws in mind, where both the appropriateness and necessity of that prohibition are examined.
- Finally, the conditions needed for justifying the prohibition of internet sales of goods is summarized before going over the general significance the judgment has brought to the EU competition law.
Background of the dispute
Coty Germany GmbH (‘Coty’), who initiated the case in Germany, was in the business of luxury cosmetics trade. It used a selective distribution system (SDS) to market some of its brands. Parfümerie Akzente GmbH (‘PA’), on the other hand, distributed Coty’s goods as a member to the SDS, namely as an authorized distributor (AD). To this end, PA used not only physical stores (brick and mortar locations), but also the internet, where the sales were carried out via both (i) PA’s own online store and (ii) a third-party platform (TPP).
Following the entry into force of the European Commission’s (Commission) Regulation No 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices (Vertical Block Exemption Regulation or VBER), Coty intended to revise the agreement with PA to have the latter entitled to carrying out online sales only with the conditions of (a) doing it through “electronic shop window” and (b) preserving the luxury character of the products. The said revision, with inspiration from paragraph 54 of the Commission Guidelines on Vertical Restraints, also included the prohibition of using (a) a different business name and (b) recognizable engagement of an unauthorized TPP for online sales of goods.
Following PA’s refusal to sign the proposed amendment, Coty sought to prohibit PA to sell its goods via TPP, in particular via Amazon platform, in the national court of the first instance, which dismissed the action as contrary to, among others, Article 101(1) TFEU. Coty appealed against this judgment before a higher court, which referred to the Court for a preliminary ruling under Article 267 TFEU.
Briefly: SDSs and Article 101(1) TFEU
Before analyzing the issue of prohibition of online sales, the Court found the SDSs for luxury goods, which were designed to preserve those goods’ luxury image, complying with Article 101(1) TFEU.
The case-law of the Court finds the SDS agreements, in general, not contrary to Article 101(1) TFEU, if purely qualitative criteria are maintained (which have also been recognized by paragraph 175 of the Commission Guidelines on Vertical Restraints), that is, (a) resellers are chosen on the basis of objective criteria of a qualitative nature, laid down uniformly for all potential resellers and not applied in a discriminatory fashion;1 (b) the characteristics of the product in question necessitate such a network in order to preserve its quality and ensure its proper use; and (c) the criteria laid down do not go beyond what is necessary, 2 although they “necessarily affect competition”.3
In respect of luxury goods, in particular, the Court found the SDS agreements also complying with Article 101(1) TFEU requirements by borrowing the notion of “aura of luxury”4 to justify its position.
Circumstances for the prohibition of online sales via TPP
After finding the objective (preserving the image of luxury and prestige) justifying the establishment of an SDS having regard to the nature and specific characteristics of luxury goods, the Court went on to examine the proportionality of prohibition of using TPPs for online sales of luxury goods in the light of that very objective. To this end, the Court analyzed whether this prohibition (a) is appropriate for, and (b) goes beyond what is necessary to achieve, the objective mentioned above.
With regard the appropriateness of Coty’s intent, the Court, firstly, observed that this prohibition, by obliging ADs to use only their own online shops to sell the goods, and not TPPs, provides Coty with a guarantee that those goods will be exclusively associated with ADs,5 because when using TPPs, ADs can lose the control of how the products are presented and how their image is preserved.6 Since this constitutes one of the aims of SDSs, the Court found that the limitation brought by this prohibition is, to quote the Court, “coherent in the light of the specific characteristics of the selective distribution systems.” As the Court had found that the characteristics of SDSs can preserve the quality and ensure the proper use of luxury goods,7 the prohibition above also preserved the quality and luxury image of those goods.
The second point that the Court took into consideration while assessing the appropriateness was that the prohibition allowed Coty to control the sales environment, in which its goods were sold by ADs and the details of which were set out in Article 2 of the selective distribution contract between the parties. This contractual framework enabled Coty to make ADs comply with the environmental quality requirements, while the lack of it between Coty and TPPs precluded the former to require the latter to be in conformity with those requirements. And this, according to the Court, is “a risk of deterioration of the online presentation” of luxury goods, which, in return, can be “liable to harm their luxury image and thus their very character”.
The Court’s final point on appropriateness is a logical continuation of the preceding ones. Here the Court, although recognizes a TPP as “a sales channel for goods of all kinds”, by distinguishing luxury goods from the others in ‘goods of all kinds’, held that the fact that luxury goods are sold online solely in the online shops of ADs and not via TPPs contributes to the luxury image of those goods among consumers.
When it comes to the necessity of the prohibition, the Court began with distinguishing the present case from Pierre Fabre Dermo-Cosmétique (C-439/09 ECLI:EU:C:2011:649), where the online trade prohibition on AD was “absolute”. But in Coty, the prohibition was only being applied against online sales of goods through TPPs which operated in a discernible manner towards consumers. In other words, in Coty, ADs could sell the goods online via their own websites and even via unauthorized TPPs, which are not discernible to the consumer. By distinguishing these two cases, the Court explained that while an absolute prohibition of online sales can be seen as going beyond what is necessary to achieve a specific objective, prohibition of using, in a discernible manner, TPPs for that purpose cannot – it excludes only a ‘specific kind of Internet sale’8.
Next, the Court came to the same conclusion on the necessity of the prohibition in the second point it examined, where it referred to the Commission’s Preliminary Report on the E-commerce Sector Inquiry (2016). The report observed, as the judgment says, “the increasing importance of third-party platforms in the marketing of distributors’ goods”, but since own online shops are used by over 90% of the respondents, they constituted the main online distribution channel and the Court found that this fact supports the view that the prohibition, in this case, does not go beyond what is necessary to preserve the luxury image of goods.
Finally, the Court held that, since there is not any contractual relationship between Coty and TPPs enabling the former to require those platforms to comply with any quality criteria, the authorization given to ADs to use those platforms subject to their compliance with quality conditions is not as effective as the prohibition in this case, which justifies the necessity of the prohibition imposed by Coty as it does not go beyond what is necessary to achieve the preservation of the luxury image of those goods.
Prohibition and VBER
The Court also examined the prohibition in the light of Article 4 VBER, which excludes hardcore restrictions from the benefit of block exemption of vertical agreements from falling into the scope of Article 101(1) TFEU, as provided in Article 2 of the same act. Referring court’s question was about, in particular, points (b) and (c) of that Article, which, respectively, find the agreements with an object of a restriction of consumers and a restriction of passive sales to end-users as hardcore restrictions.
Here, the Court recalled one of the main differences of this case from Pierre Fabre Dermo-Cosmétique, which is the fact that Coty’s prohibition did not ban the use of the internet in an absolute manner. The Court accepted Advocate-General Nils Wahl’s view on point 147 of his Opinion: “… in reality that prohibition does not prevent authorized distributors from working with third parties for advertising purposes on the internet. As that prohibition did not prevent those online distributors from being referenced on the internet, their potential customers were still able to access, via the internet, the offer of the authorized distributors, for example by using search engines.” Considering these points, the Court found the prohibition not amounting to Article 4 (b) and (c) hardcore restrictions.
Summary of conditions for the prohibition of internet sales via TPPs
Considering all the points discussed above, the conditions (rules) established by the Court for the conformity of SDS agreements between undertakings restricting the internet sales of goods with Article 101(1) TFEU and Article 4(b) and (c) VBER can be summarized as follows:
A. For compliance with Article 101(1) TFEU
1. For an SDS to be in conformity with Article 101(1) TFEU, (a) resellers must be chosen on the basis of objective criteria of a qualitative nature, laid down uniformly for all potential resellers and not applied in a discriminatory fashion; (b) product characteristics must necessitate that system to preserve the quality and ensure the proper use of that product; and (c) the objective criteria must not go beyond what is necessary.
2. For the prohibition on using, in a discernible manner, TPPs for online sales of luxury goods to be in conformity with Article 101(1) TFEU, it must be proportionate with the objective it pursued, which is preserving the luxury image of luxury goods. For this, in return, that prohibition (a) must be appropriate and (b) must not go beyond what is necessary to achieve that objective.
2(a). The said prohibition can be seen as appropriate, if it (a) ensures the supplier that its goods will be exclusively associated with ADs and not with unauthorized distributors; (b) allows the supplier to control the quality of the environment in which its goods are sold by ADs; and (c) contributes to luxury image of the goods among consumers.
2(b). The said prohibition can be seen as not going beyond what is necessary to achieve its objective, if it (a) does not ban the use of the internet for sales in an absolute manner; and (b) is applied in the absence of a contractual relationship between the supplier and TPPs.
B. For compliance with Article 4 VBER
The prohibition on using, in a discernible manner, TPP for online sales of luxury goods can be seen in conformity with Article 4 VBER, or in other words, falling outside of the criteria for hardcore restrictions and thus, Article 101(1) TFEU, if it does not (a) ban the use of the internet for sales in an absolute manner; and (b) prevent ADs from working with TPPs for advertising purposes on the internet and being referenced on the internet.
Why Coty is a significant piece of case-law?
As noted above, the Court, in paragraph 47 of its judgment in Pierre Fabre Dermo-Cosmétique, held that Article 101(1) TFEU must be interpreted as meaning that, in the context of SDS, a contractual clause requiring sales to be made in a physical space, which results in a ban on the use of the internet for those sales, amounts to a restriction by object within the meaning of Article 101(1) TFEU. In Coty, however, the Court distinguished the actions brought in two cases and dispelled the uncertainties created by Pierre Fabre Dermo-Cosmétique,9 which is still good law.
Since the prohibition in Coty was not an absolute one, which means that ADs could still use both their own websites and even unauthorized TPPs, if the use of such platforms is not discernible to consumers. The Court, coming to the conclusion that these prohibitions have different scopes of application, decided that the contractual clause between the undertakings is not anti-competitive, and thus, developed its way of approach to this kind of actions.
The decision came at an important moment of the evolution of European trade – around 68% of the internet users made online purchases in 2017.10 Although the Coty judgment does not remove debates over the legitimacy of TPP bans and of SDS for goods “outside the luxury area”, and on the relevance of the “nature of the goods”,11 it surely provides more clarity and legal certainty to market participants12 and in particular, for luxury brands on their ability to restrict ADs’ sales on TPPs within an SDS.13 It introduced, as listed above, a number of conditions required to ensure that the prohibition at hand does not breach the EU competition rules, or to put it in another way, with the absence of which that prohibition can amount to an anti-competitive restriction according to Article 101(1) TFEU or a hardcore restriction according to Article 4 VBER. This provides legal certainty for the work of businesses which may impose or be subject to this kind of bans, and also of both practicing and academic lawyers – the immediate significance of Coty is that it ends an ongoing debate between the Commission, and national courts and competition authorities on how to treat the TPP bans.14
- Case 26-76 Metro SB-Großmärkte GmbH & Co. KG v. Commission ECLI:EU:C:1977:167, para. 20.
- Case C 324/09 L’Oréal SA and Others v eBay International AG and Others ECLI:EU:C:2011:474, para. 16.
- Case 107/82 AEG-Telefunken AG v Commission ECLI:EU:C:1983:293, para. 33
- Case C-337/95 Parfums Christian Dior SA and Parfums Christian Dior BV v Evora BV ECLI:EU:C:1997:517, various paragraphs.
- Yves Botteman, Daniel Barrio Barrio, The Coty Exception: A Luxury for a Selected Few?, Kluwer Competition Law Blog (2017) http://competitionlawblog.kluwercompetitionlaw.com/2017/12/15/coty-exception-luxury-selected/
- Dimitris Vallindas, Selective Distribution Systems Relating to Luxury and Prestige Products: Advocate General Wahl’s Opinion in the Coty Case, 1(4) European Competition & Regulatory Law Review 361, 364 (2017).
- Case C-59/08 Copad SA v Christian Dior couture SA, Vincent Gladel and Société industrielle lingerie (SIL) ECLI:EU:C:2009:260, para. 28.
- Patrycja Szot, Ana Amza, Marketplace Restrictions, and Selective Distribution after Coty Germany, 18 Yearbook of Antitrust and Regulatory Studies 241, 247 (2018).
- Roberto Grasso, Georgia Tzifa, The ECJ Ruling in Coty and the Future of Vertical Restrictions in the Internet Space, 41(3) World Competition: Law & Economics Review 367, 393 (2018).
- E-Commerce Statistics For Individuals (2017), https://perma.cc/JPP6-MBCU#General_overview (last visited 1 October 2019).
- Andrea Cicala, Kurt Haegeman, Rachel Cuff, From Metro to Coty: A Story to Be Continued? The CJEU’s Judgment in Coty Germany GmbH v Parfümerie Akzente GmbH, 4(2) Italian Antitrust Review 99, 108 (2017).
- European Commission Competition Directorate-General, EU competition rules and marketplace bans: Where do we stand after the Coty judgment?, Competition Policy Brief 1/2018, 4 (2018)
- The Coty Case – The CJEU rules in favor of selective distribution networks against third-party online platforms (2017) https://www.dentons.com/en/insights/alerts/2017/december/7/the-coty-case (last visited 1 October 2019).
- Frank Wijckmans, Coty Germany GmbH v Parfümerie Akzente GmbH: Possibility in Selective Distribution System to Ban Sales via Third-Party Platforms, 9(6) Journal of European Competition Law & Practice 373, 374 (2018).