The European Court of Justice (ECJ) ruled [judgment] Wednesday that luxury brands can prohibit their distributors from selling products on third-party Internet sites like Amazon.

The ruling came from a decision referred to the court by the Higher Regional Court, Frankfurt am Main of Germany from a dispute between luxury beauty company, Coty Germany, and their distributor, Parfümerie Akzente, about sales on Amazon. Coty Germany sought to prohibit the distributor from sales on the platform as not meeting their standard of providing a luxury image for their products.

In analysis of this issue, four questions were referred to the ECJ and were analyzed through interpretation of Article 101 of the Treaty for the Functioning of the European Union (TFEU) [text] and Article 4 of the Commission Regulation (EU) No 330/2010 of 20 April 2010 [text] :

‘(1) Do selective distribution systems that have as their aim the distribution of luxury goods and primarily serve to ensure a “luxury image” for the goods constitute an aspect of competition that is compatible with Article 101(1) TFEU?

(2) Does it constitute an aspect of competition that is compatible with Article 101(1) TFEU if the members of a selective distribution system operating at the retail level of trade are prohibited generally from engaging third-party undertakings discernible to the public to handle internet sales, irrespective of whether the manufacturer’s legitimate quality standards are contravened in the specific case?

(3) Is Article 4(b) of Regulation No 330/2010 to be interpreted as meaning that a prohibition of engaging third-party undertakings discernible to the public to handle internet sales that is imposed on the members of a selective distribution system operating at the retail level of trade constitutes a restriction of the retailer’s customer group “by object”?

(4) Is Article 4(c) of Regulation No 330/2010 to be interpreted as meaning that a prohibition of engaging third-party undertakings discernible to the public to handle internet sales that is imposed on the members of a selective distribution system operating at the retail level of trade constitutes a restriction of passive sales to end users “by object”?’

Answering the first question, the court held that Article 101(1) of the TFEU does not prohibit a selective distribution network as long as the criteria for for choosing the sellers of the product is applied the same throughout, in a way that is not discriminatory, but is appropriate with maintaining the luxury image of the goods of the company

In response to the next question, the court interpreted that Article 101(1) of the TFEU does not bar the use of a contractual clause that contains this prohibition imposed on authorized dealers in using third-party online retailers. The prohibition can be appropriate for maintaining that luxury image of the products and “does not go beyond what is necessary” in accomplishing that aim. The third-party platforms in question are used for sale of goods of varying categories and making these luxury items unavailable on that platform and only in specified areas adds to the luxury image of the products.

The court interpreted Article 4 of Regulation No 330/2010 for the last two questions as not placing restrictions on consumers and on passive sales by authorized distributors to consumers. The contract had allowed for advertisement on third-party platforms and the ability to use search engines which would allow customers to find the authorized distributor of the products. The restriction of a type of sale on the internet was not seen as an Article 4(b) restriction on customers of distributors or on passive sales under Article 4(c).

The court’s ruling allows luxury brand companies to create a selective distribution network in the interest of maintaining their luxury image as long as objective criteria is applied in a non-discriminatory, qualitative fashion in choosing third-party retailers of their products.