the Regulation of Luxury Consumer Goods and E-Commerce within the European Union
Ryan Yevcak
LLM I, McGill University
May 15, 2018
In the transition from the regime of industrial capitalism of the nineteenth century to the consumer capitalism of the late twentieth and twenty-first century, there has been a shift in focus from disciplining the senses of the worker to engaging the senses of the consumer. Whereas the former regime is properly spoken of as a “mode of production,” in the latter the “mode of presentation” of the commodity becomes all important. This is reflected in the increased attention paid to augmenting the “sense appeal” of commodities, above and beyond whatever functionality or utility they may possess, as discussed by David Howes in “How Capitalism Came to Its Senses – And Yours”.[1] In the case of luxury consumer goods, added value accrues from projecting an aura of sensorial exclusivity. In instances where manufacturers cannot directly sell their goods to the consumer, they will opt for a system of selective distribution to retain control over the manner in which the branded good is presented to the consumer. The selection of distributors permits the supplier to mandate requirements that fulfil their brand image.
With an increase in demand for consumer goods, particularly branded merchandise, the law has had to concern itself with the defence of the restriction of trade based on the justification of brand image and exclusivity, over arguments for the free movement of goods within a free market economic model. The nexus between luxury and the law is rapidly evolving and tribunals are increasingly being called to make decisions requiring creative interpretations of legislation and jurisprudence.
Recent case law in the domain of competition law concerning selective distribution systems of luxury goods has tended to follow the increased protections afforded to rights holders (manufacturers) within intellectual property law. In what follows, I explore the idea of the law luxuriating itself in response to the demands of industry. I argue that the legal reasoning of Advocate General Wahl’s Opinion in Case C-230/16 Coty Germany GmbH v Parfümerie Akzente demonstrates the luxuriation of law through the influence of intellectual property on competition law.
Euro-Vision: Competition Law, the Single Market and Selective Distribution Systems
European competition law is the legal framework in use within the European Union, and in essence, it has been developed as a regulatory function of the free market. On the one hand, it encourages manufacturers to produce goods and services at favourable terms for the consumer, while on the other, its regulatory functions serve to check companies from creating cartels, monopolies or other forms of market dominance that would damage the interests of society.[2] Competition law and policy is detailed in Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU).
The Single Market, also known as the common or internal market, is a single economic market based on the “four freedoms” promoted within the European Union: the free movement of goods, capital, services and labour. The larger economic project of the European Union requires methodological co-ordination, harmonisation and regulation to incentivise the free-market as well as protect the interests of consumers.
Advocate General Wahl defines selective distribution systems as “distribution systems in which (i) the supplier undertakes to sell the contract goods or services only to selected distributors on the basis of defined criteria and (ii) those distributors undertake not to sell those goods or services to non-authorised distributors in the territory reserved by the supplier.”[3] The Court of Justice of the European Union (“CJEU”) ruled in Pierre Fabre Dermo-Cosmétique that selective distribution systems are not prohibited by Article 101 TFEU to the extent that they uphold the principles set out in the 1976 case of Metro SB-Großmärkte GmbH v Commission, namely: “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, that the characteristics of the product in question necessitate such a network in order to preserve its quality and ensure its proper use and, finally, that the criteria laid down do not go beyond what is necessary.”[4]
Selective Distribution Systems of Luxury Branded Goods: Coty Germany and EU Competition Law
The dispute that arose in Coty Germany v Parfümerie Akzente concerns Coty’s prohibition of its distributors from using third-party undertakings for the internet sale of the contracted goods. As part of its e-commerce strategy, the distributor Parfümerie Akzente began to sell Coty fragrances on the Amazon.de marketplace platform. Coty justified its contractual restriction as follows: “the character of Coty Prestige’s brands requires selective distribution in order to support the luxury image of these brands.”[5] The contract also provided that each distributor’s sales location must be approved by Coty leading to a justification of prohibiting sales via third-party platforms – in the instant case, Amazon.de.[6]
The trial at the Court of First Instance found that “the objective of maintaining a prestigious image of the mark could not justify the introduction of a selective distribution system which, by definition, restricted competition.”[7] The Higher Regional Court in Frankfurt am Main questioned the contractual agreements under EU competition law and referred the case to the CJEU for a preliminary ruling.[8]
The first point referred to the CJEU questions whether selective distributions systems negatively affect competition within the single market. The judgment contextualised the facts in Pierre Fabre and the case at bar (Coty) by contrasting the cosmetic and body hygiene products in the former with the luxury goods in the latter.[9] The emphasis on the luxury nature of the consumer goods is repeatedly underscored throughout the judgment. The Court upheld Pierre Fabre and found that a selective distribution for luxury goods that complies with qualitative criteria is compatible with Article 101(1)TFEU.[10]
The second question interrogates the lawfulness of the contractual clause in the selective distribution agreement; specifically, whether the prohibition imposed on the distributor of using third-party platforms for the internet sale of the supplier’s goods is appropriate for preserving Coty Germany’s luxury image and if the measure goes beyond what is necessary.[11] The CJEU deduced three conclusions from the contractual clause in favour of supporting the selective distribution system. First, the CJEU recognises that in the context of online sales, the prohibition is appropriate as it provides the supplier with a guarantee that their goods will be exclusively associated with the authorised distributors.[12] Furthermore, it is acknowledged that such an association is precisely one of the objectives sought and that such a limitation must be regarded as preserving the quality and luxury image of the supplier’s goods.[13] (Coty paras 45-46) Second, in relation to the guarantee mentioned, the agreement ensures that the luxury goods will be sold in “an environment that corresponds to the qualitative conditions that it has agreed with its authorised distributors.”[14] (ibid, para 47) Lastly, the third conclusion highlights the heterogeneous nature of ‘Amazon’ and other online marketplaces and acknowledges that these platforms sell goods of all kinds, meanwhile restricting the sale of luxury goods to the online platforms of authorised distributors preserves their luxury image: a characteristic sought by the consumer and an objective of the manufacturer.[15]
An aura of luxury: Advocate General Wahl’s Opinion of Coty Germany
At the base of AG Wahl’s opinion is the luxury nature of the goods produced by Coty Germany and the interaction that occurs between a consumer’s perception of a brand’s luxury image and how important this exclusive perception is to distinguishing those very goods from others on the marketplace. In agreement with the European Commission and Coty Germany, AG Wahl highlights that “high-quality goods, whose luxury image is appreciated by consumers, may require a selective distribution network, in order to ensure that the goods are presented in an ‘appealing manner’ and to preserve their ‘luxury image.’”[16]
AG Wahl considers the observations submitted and discusses the similarities between the reasoning set out in the case law concerning trade mark law and the competitive function of selective distribution systems.[17] Of note, AG Wahl states, “in the context of trade mark law, the Court has emphasized that luxury and prestige goods are defined not only by reference to their material characteristics, but also on the basis of the specific perceptions which consumers have of them, and more particularly of the ‘aura of luxury’ which they enjoy with consumers.”[18] Specifically, the trade mark identifies all the products or services of an undertaking responsible for the control and quality of said products or services; that is, the mark assures consumers that all the products or services which bear the mark were manufactured or supplied from the originating source; for the supplier, the mark facilitates the retention of consumers by upholding the integrity and quality of its products and services. Furthermore, selective distribution systems of luxury goods can “contribute to the reputation of the goods at issue and to sustaining the aura of luxury surrounding them.”[19] I underscore the similarities that arise between the assurances offered by trade marks for both the supplier and consumer, and the commercial purpose of selective distribution systems regarding brand image and reputation. As such, AG Wahl determines that selective distribution systems which seek to preserve the luxury image of the product constitute aspects of competition which are compatible with Article 101(1) TFEU and are not disproportionately restrictive of the “free” circulation of goods.[20]
The law’s ‘aura of luxury’: concluding remarks regarding the complexities of luxury consumer goods and the law
As globalisation and consumerism carry on, the exchanges between the fields of competition law and intellectual property law will continue to develop as the internal limits of each field become less rigid as part of the European Union’s harmonisation project. Nonetheless, Gustavo Ghidini recognises the difficulty in reconciling intellectual property rights with competition law and states that the problems “are basically rooted in the apparent antinomy of the respective (direct) goals: fostering innovation through the attribution of exclusive/excluding rights on one hand, and preserving freedom of access to the market on the other.”[21] It is important to identify the differences between the two fields of law and how the legal responses – as demonstrated in Coty – can be incongruent at times. In the context of selective distribution systems of luxury goods, the CJEU’s decision is in favour of upholding exclusive rights over the freedom of access to the market.
In their approach to understanding the added-value of luxury goods, the courts have referred to the sensorial projection of the goods to consumers. In this respect, the CJEU fails to define which features are fundamental to obtaining a ‘status’ of luxury. Similarly, the courts are quick to transpose the characteristics commonly associated with brick-and-mortar locales to e-commerce platforms. However, I question how effective references to tangible traits being mirrored onto electronic spaces are. In short, what makes a website luxury? I contend that the courts are utilising the goodwill, or reputation, of an undertaking to assert its ‘luxury status’ on the internet. While this association is cogent with stores that have physical locations, how the court responds to those undertakings with only an electronic presence, such as Amazon, is slightly more dubious. In conclusion, while I recognise that AG Wahl has constructively incorporated the rationale associated with trade mark law to come to a conclusion that associates an e-commerce platform’s “aura of luxury” to the traits of identifiably-marked consumer goods, it nonetheless is less concrete in justifying the demarcation between the seemingly-strict categorisation of luxury and non-luxury, specifically in the context of e-commerce platforms.
Further Reading
Court of Justice of the European Union’s Press Release: https://curia.europa.eu/jcms/upload/docs/application/pdf/2017-12/cp170132en.pdf
The IPKat blog post, “Coty, distribution agreement and luxury brands,” available at: http://ipkitten.blogspot.ca/2017/12/coty-distribution-agreements-and-luxury.html
The Fashion Law blog post, “Lessons form Chanel and Coty’s ‘Smell-Alike’ Victory,” available at: http://www.thefashionlaw.com/home/lessons-from-chanel-and-cotys-smell-alike-victory?rq=Coty
Images
Images: Parfümerie Akzente’s Heilbronn Store
Video:
Youtube: Christian Dior’s fragrance advertisement for J’adore
BIBLIOGRAPHY
Consolidated Version of the Treaty on the Functioning of the European Union [2012] OJ C 326/01
AEG-Telefunken v Commission C-107/82 [1982] EU:C:1983:293
Coty Germany GmbH v Parfümerie Akzente GmbH C-230/16 [2016] EU:C:2017:941
Hoffmann-LaRoche & Co v Centrafarm Vertriebsgesellschaft Pharmazeutischer Erzeugnisse mbH 102/77 [1977] EU:C:1978:108
NV L’Oréal and SA L’Oréal v PVBA “De Nieuwe AMCK” 31/80 [1980] EU:C:1980:289
Metro SB-Großmärkte GmbH v Commission 26/76 [1976] EU:C:1977:167
Metro SB-Großmärkte GmbH v Commission 75/84 [1984] EU:C:1986:399
Pierre Fabre Dermo-Cosmétique SAS v Président de l’Autorité de la Concurrence, Ministre de l’Économie, de l’Industrie et de l’Emploi C-439/09 [2009] ECLI:EU:C:2011:649
Opinion of Advocate General Wahl, Coty Germany GmbH v Parfümerie Akzente GmbH C-230/16 [2016] ECLI:EU:C:2017:603
Ben Kleinman, “Luxury Markets, Antitrust, and Intellectual Property: An Introduction” (2008) 90 J. Pat. & Trademark Off. Soc’y 742.
Gustavo Ghidini, Intellectual Property and Competition Law (Cheltenham, UK: Edward Elgar Publishing, 2006).
Lionel Bently & Brad Sherman, Intellectual Property, 4th Edition (Oxford: Oxford University Press, 2014).
Paul Craig & Gráinne de Búrca, EU Law: Text, Cases, and Materials, 6th Edition (Oxford: Oxford University Press, 2015).
Richard Whish & David Bailey, Competition Law, 8th Edition (Oxford: Oxford University Press, 2015).
Footnotes:
[1] http://www.centreforsensorystudies.org/how-capitalism-came-to-its-senses-and-yours-the-invention-of-sensory-marketing/
[3] Opinion of Advocate General Wahl, Coty Germany GmbH v Parfümerie Akzente GmbH C-230/16 [2016] ECLI:EU:C:2017:603 at para 35.
[4] Pierre Fabre Dermo-Cosmétique SAS v Président de l’Autorité de la Concurrence, Ministre de l’Économie, de l’Industrie et de l’Emploi C-439/09 [2009] ECLI:EU:C:2011:649 at para 41 and case law cited.
[5] Coty Germany at para 10.
[6] Ibid. at para 11.
[7] Ibid. at para 17. See also at paras 17-18: “That clause also constituted a hardcore restriction under Art. 4(c) of Regulation No 330/2010. Considered that the clause did not meet the conditions for benefiting from an individual exemption either since the general prohibition did not result in efficiency gains and the court considered that there were other means also appropriate but less restrictive of competition.”
[8] Ibid. at paras 19-20.
[9] Ibid. at para 34.
[10] Ibid. at para 36.
[11] Coty, supra note 11 at para 43.
[12] Ibid at para 44.
[13] Ibid. at paras 45-46.
[14] Ibid. at para 47
[15] Ibid. at para 51.
[16] Opinion of Advocate General Wahl, supra note 30 at para 62.
[17] Ibid. at para 71 where he recognizes that trademark law offers a specific competitive function as it may involve the prohibition of agreements and concerted practices.
[18] Ibid. at para 72.
[19] Ibid. at para 73.
[20] Ibid. at para 84.
[21] Gustavo Ghidini, Intellectual Property and Competition Law (Cheltenham, UK: Edward Elgar Publishing, 2006) at 99.
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