Court of first instance in the Netherlands follows A-G’s opinion on selective distribution, before CJEU decision is given

Written on 27 Nov 2017

In previous updates we have mentioned the important judgment that the European Court of Justice (CJEU) is expected to give on 6 December in the case of Coty v Parfumerie Akzente on the permissibility of prohibiting sales via third-party platforms such as Amazon or eBay as part of a selective distribution system.

Anticipating this decision, the Amsterdam District Court delivered a judgment on 4 October 2017 on the lawfulness of Nike’s European selective distribution policy. The court decided that Nike’s selective distribution policy was not caught by the prohibition of anti-competitive agreements under article 101(1) of the Treaty on the Functioning of the European Union (TFEU).  The court explicitly stated in its judgment that it deemed the considerations of Advocate General Wahl in his opinion in the Coty case convincing. The court therefore did not see any cause to stay the proceedings until the CJEU has provided its decision on the Coty case.

On this basis, the Court found that Nike was a luxury brand and that the exclusion of Amazon from its selective distribution network was justified by the need to protect its image.  Importantly, and in contrast to Coty, Nike had also allowed a number of other platforms to be part of its selective distribution system, so that distributors did have a choice of platforms for making web sales.

Facts of the case

In the case before the Amsterdam District Court, Nike European Operations Netherlands B.V. ("Nike"), responsible for the distribution of Nike products in Europe, requested that the court established whether it had rightfully terminated the agreement with one of its distributors. The reason for the termination was the non-compliance of the distributor with Nike’s selective distribution policy. In breach of a clause which provided that only Nike-authorised retailers could sell Nike products online, the distributor had offered Nike products for sale via Amazon, which was not listed as an authorised retailer.

As a defence, the distributor claimed, amongst other things, that Nike’s selective distribution policy was contrary to rules of European competition law, and therefore legally void.

Judgment of the court

In order to determine whether Nike’s selective distribution policy was caught by article 101(1), the court tested the permissibility of the selective distribution policy against the criteria A-G Wahl set out in his opinion with reference to the Metro SB-Großmärkte v Commission case. These criteria are as follows:

  1. resellers are chosen on the basis of objective criteria of a qualitative nature which are determined uniformly for all and applied in a non-discriminatory manner for all potential resellers;

  2. the nature of the product in question, including the prestige image, require selective distribution in order to preserve the quality of the product and to ensure that it is correctly used; and

  3. the established policy does not go beyond what is necessary.

The Amsterdam District Court ruled that the terms set out in Nike’s policy complied with the requirement that objective quality criteria apply to the distributor’s professional competence, staff and organization of its company and that they are applied uniformly and without discrimination. Additionally it determined that Nike products are luxury goods and that the policy was aimed at maintaining brand image. Finally it concluded that the restriction contained in Nike’s policy, which prohibits the distributors from offering the goods via unauthorised web shops, was justified by the need to maintain the luxury image of the products.

The court furthermore determined that the Nike case could be distinguished from the Coty case on several points. Nike had allowed a number of platforms to be part of its selective distribution system and its policy had allowed distributors to realise web sales through these platforms, whereas in the Coty case, Coty Germany prohibited its authorised distributors from making use of third-party platforms in a discernible manner. The court accordingly considered Nike’s selective distribution policy to be compatible with Article 101(1) TFEU.

Points of reference for the implementation of selective distribution systems

Certainty on the permissibility of prohibiting sales via third-party platforms such as Amazon or eBay as part of a selective distribution system will be provided with the judgement of the CJEU in the Coty case. In the meantime, however, the judgement of the Court of Amsterdam could give businesses an indication of the set of requirements selective distribution systems will need to comply with in order to be permissible under European competition law.