News / 06.12.2017

Brand owners are free to prohibit sales through online platforms

Author(s) Simen Klevstrand & Hedda Bjøralt Roald

The EUCJ ruled today that brand owners may restrict their authorised resellers’ online sales through third-party platforms, such as Amazon and eBay.

While competition rules generally force brand owners to permit their authorised resellers to sell products online, the conditions under which such online sales may be regulated remains a controversial issue. A key question is whether brand owners are free to keep their products off online third-party platforms. In certain German cases involving sports brands, the brand owners’ platform bans imposed on their resellers have been held to infringe competition rules.

Today’s ruling by the EUCJ, the EU’s top court, implies that a brand owner who sells its products through authorised resellers may generally apply platform bans prohibiting them from selling its products through Amazon, eBay and similar platforms.

The ruling has its background in a platform ban applied by Coty, the owner of several luxury beauty brands, in its agreements with resellers. One of its resellers had started selling Coty products on the German Amazon site in breach of the clause. Coty brought proceedings before German courts, but the reseller argued that the clause was in breach of competition rules. An appeals court in Frankfurt requested the EUCJ to rule on the interpretation of competition rules in this context.

According to the EUCJ’s judgment, a platform ban is permitted under competition rules as long as certain criteria are met. The ruling applies to sales through authorised resellers, which under EU competition rules are referred to selective distribution networks. This form of distribution is commonly used for luxury and prestige products. In selective distribution networks, resellers must meet specific qualitative criteria to become a part of the network.

The criteria will typically preserve the luxury character of the products, and may for example ensure a certain standard of the store, service level, etc.

Today’s ruling confirms that brand owners are free to impose such a restriction on their resellers’ online sales, provided that certain conditions are met. The platform ban is permitted where (i) it has the objective of preserving the luxury image of the goods in question; (ii) it is laid down uniformly and applied without discrimination; and (iii) it is proportionate in the light of the objective pursued. Although it is up to German courts to make the final assessment, the EUCJ makes clear that the three requirements appear to be met in the case of Coty’s platform ban.

Further, the EUCJ confirms that platform bans are also accepted under the general block exemption for vertical agreements. The block exemption applies to businesses with a market share below 30 percent, which makes it an important exemption for distribution agreements. Provided that the remaining criteria in the block exemption are fulfilled, the regulation offers brand owners with a market share below 30 percent a wide opportunity to prohibit their authorised dealers from selling the products through online third-party platforms.

The EUCJ’s ruling is final as far as the interpretation of the competition rules is concerned.

Norway’s competition rules are in substance identical to EU competition rules. As long as brand owners satisfy the requirements set out in the judgment, they will be free to impose platform bans also in the Norwegian market.