Platform distribution: final say or final showdown?

Written on 5 May 2016

Can a manufacturer prevent its distributors from selling on eBay or Amazon? The European Court of Justice (CJEU) will soon provide the answer – and could end up in a power struggle with the German Federal Supreme Court.

The European Commission and national competition authorities – notably in Germany – are determined to protect the ability of retailers to sell online, offering consumers greater choice at lower prices. At the same time, manufacturers of branded goods look to protect their brand image and reputation, both at shop and online level, and see them at stake when their products are sold through online platforms or online marketplaces.

Europe’s highest court has now been asked to decide the case of perfume manufacturer Coty, which operates a selective distribution system. Coty obliged its distributors to refrain from selling on third-party platforms, arguing that platform sales impede the luxury image of its branded goods. The Higher Regional Court of Frankfurt has now asked the CJEU for guidance. The latter has to decide where the protection of a luxury image can justify a general ban of platform sales – irrespective of whether the platform fulfils the manufacturer’s qualitative criteria.

In December 2015, the same Frankfurt Court decided that backpack manufacturer Deuter could prohibit sales on Amazon Marketplace. The Court acknowledged the manufacturer’s legitimate interest in ensuring that its branded products are perceived as high-quality products sold with the requisite level of sales service. This case has been appealed to the German Federal Supreme Court. While Deuter’s distribution system and the corresponding
restrictions related only to the German market, Coty operates a pan-European distribution system, qualifying the case for review by the CJEU. The German Federal Supreme Court might stay proceedings until the CJEU has ruled on the Coty case. In the alternative, it could create a German precedent, further fuelling the debate on online restrictions and challenging the EU’s highest court about who will have the final say.

The outcome might also influence the European Commission’s assessment of online platforms and internet market places. As part of its on-going e-commerce sector enquiry, the Commission is expected to provide further guidance around online sale restrictions. In its preliminary
findings on geoblocking (read more here), the Commission noted that retailers using platforms and online marketplaces are often among the first to offer products internationally, to the benefit of cross-border commerce within the EU’s internal market.

The issue of platforms also came up in the German investigation of sporting goods manufacturer ASICS. While the authority found a number of restrictions on online distribution imposed by ASICS to infringe competition law, it did not draw a final conclusion on the prohibition to sell through online platforms.

While the Commission or Germany’s Bundeskartellamt may favour the Single Market and intra-brand competition over brand image, the courts now have the opportunity to provide certainty for manufacturers and distributors alike.