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Coty: Keeping up appearances (Brands & IP Newsnotes - issue 6)

13 October 2017

Can a prestigious brand prevent its resellers from selling online? The question was answered firmly in the negative by the European Court of Justice in 2011. In that case, the court said that the French pharmaceutical and cosmetic brand Pierre Fabre could not impose an outright ban on their resellers from selling online.

The German competition authorities then took this a step further and said that Coty’s restriction on their authorised resellers from selling on third party platforms (such as eBay and Amazon) was similarly unlawful. This decision took a number of brands by surprise. Brands have long felt the need to prevent their products appearing on websites that do not have a look and feel that is appropriate for their brand. Indeed, the EU Commission’s guidelines that apply to distribution agreements state that brands can require that customers do not visit the distributor's website through a site carrying third party logos.

The Advocate General in the Coty case (who is responsible for delivering an opinion to guide the court’s decision) has come down firmly on the side of the brands. Importantly, he considers that a restriction on resellers from selling via third party platforms does not automatically mean that the agreement is anti-competitive and therefore unlawful. If his decision is followed, it will mean that brands can still benefit from the EU’s vertical agreements block exemption even though they have such restriction in their agreements.

This is important; few brands would consider that their brand image is not worth protecting. However, to be able to restrict what resellers do without having to go into a detailed analysis of potential competition concerns, brands must fit their agreements into the block exemption. If the ECJ follows the Advocate General’s opinion, brands using selective distribution models will be able to stop resellers using third party platforms.

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