EU’s highest court decided that prestigious brands like Calvin Klein can refuse to have their products sold on online platforms like Amazon in order to preserve their ‘aura of luxury’.
COTY, the company behind reputable brands like Chloé, Calvin Klein and Marc Jacobs, distributes its beauty products in Europe through regional distributors. One of its distributors in Germany – Parfümerie Akzente (‘Akzente’) – decided to sell COTY’s products through the German Amazon site (amazon.de). This was not permitted under the contract that COTY signed with Akzente. Their contract allowed Akzente to sell only on websites that preserved the luxury character of COTY’s products. Essentially, what companies like COTY are trying to do with such contracts, is to make sure that online shoppers still get the ‘luxury aura’ that their brands are known for when customers shop through an online shop. The presentation of a brand’s logo, font and colours are some of the details that these brands look out for on websites that sell their products. The effect of this provision in the contract meant that Akzente couldn’t sell COTY’s products on Amazon. This was because the Amazon website could not – according to COTY – preserve the luxury image of their brands.
The legal issue:
The question for the Court was whether contracts like the one signed by COTY and Akzente violated competition law. Contracts that restrict the freedom of a party can be very problematic for competition. Imagine a situation where a very successful company agrees with shops to sell only their product. If most of your country’s shops sold exclusively Microsoft tablets because of such agreements, competitors like Apple would find it very hard to reach customers and persuade them to buy their iPads. The contract between COTY and Akzente can be bad for competition in a similar way. By requiring that their products are sold on specific websites, COTY can tightly control competition online by refusing to sell to giants like Amazon and Ebay. This can result to high prices and lack of choice for consumers.
The Court of Justice decided that contracts like the one signed between COTY and Akzente can be allowed when they are intended to preserve the luxury image of a brand. According to the court, luxury brands are special because their quality is not only measured according to their material characteristics. Their ‘aura of luxury’ additionally ads to their quality. Consequently, agreements that are made to preserve this quality do not violate the rules of competition. So, in a situation where a luxury company makes agreements that dictate who qualifies to be their seller, if these agreements are designed to preserve its image and as long as these agreements are proportionate, uniformly laid down and non-discriminatorily applied; they are good to go.
How this impacts you:
The decision means that luxury brands can pull out their products from third-party online sellers like Amazon and Ebay. So, if you’re trying to treat yourself with a Marc Jacobs perfume for the holidays, you might need to rush for that ‘Proceed to Checkout’ button. Otherwise you might have to do your holiday shopping on the brand’s official website.
Note: The effect of the case might be obvious on brands that unmistakably have an ‘aura of luxury’. But it might be difficult to draw the boundaries of the luxury category in the future. Is NIKE a luxury brand?