Luxe Brands Win Internet Ruling -- WSJ
December 07 2017 - 3:02AM
Dow Jones News
European court rules luxury brands may protect image by
restricting web sales
By Natalia Drozdiak in Brussels and Matthew Dalton in Paris
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (December 7, 2017).
Luxury brands can restrict retailers from selling their products
on web platforms like Amazon.com Inc. and eBay Inc. to protect
their image, the European Union's top court ruled Wednesday.
The decision gives luxury companies a powerful tool in Europe to
safeguard their exclusivity, which has become a key concern as the
sector expands online sales.
In its judgment, the European Court of Justice said companies
are allowed to impose certain conditions in their contracts with
retailers if the goal is to preserve a brand's luxury image and as
long as the company doesn't discriminate among retailers.
The case stems from a dispute between U.S.-based cosmetics
manufacturer Coty Inc. and German retailer Parfümerie Akzente GmbH,
which sells Coty's products on Amazon. Coty, whose brands include
the cosmetics lines of Calvin Klein, Marc Jacobs and Chloe,
objected to the practice, citing contractual clauses that prevented
the sale of its goods through third parties.
A German court referred the case to the ECJ.
"The quality of luxury goods is not simply the result of their
material characteristics, but also of the allure and prestigious
image which bestows on them an aura of luxury," the ECJ said. "That
aura is an essential aspect of those goods in that it thus enables
consumers to distinguish them from other similar goods."
Coty welcomed the ruling. "After years of uncertainty, this
means luxury brands can determine how they are placed on digital
platforms," it said.
Oliver Spieker, a partner at law firm GÖRG, who represents
Parfümerie Akzente, said: "This decision will have an impact on
selective distribution systems for a variety of brand-name products
as the manufacturers of such goods might argue they are also
protecting a luxury image."
Parfümerie Akzente welcomed the clarity provided by the ruling,
Mr. Spieker added, however.
In the U.S., third-party retailers frequently use Amazon to sell
luxury merchandise online, to the chagrin of many brands.
However, U.S. law gives little leverage to luxury brands over
e-commerce companies. The so-called first-sale doctrine limits the
ability of brands to control how their brands are sold once they
are distributed to wholesalers.
The ruling comes as the EU is pushing to eliminate online
obstacles to the sale of goods and services across borders in
Europe, known as the digital single market. Internet advocates say
restrictions like Coty's deprive consumers of choice and lower
prices.
"Today's verdict does nothing to help foster the digital single
market... this judgment is bad news for consumers who will face
less choice and also less competition when they want to shop
online," said Jakob Kucharczyk, vice president for competition and
EU regulatory policy at the U.S.-based Computer &
Communications Industry Association, a lobby group that represents
Amazon and eBay.
Luxury conglomerates such as LVMH Möet Hennessy Louis Vuitton,
Kering Co. and Cie. Financière Richemont SA are opening their own
e-commerce sites or working with specialized luxury internet
retailers, such as Yoox Net-a-Porter. This week, Céline, the French
fashion house owned by LVMH, opened its own e-commerce
operation.
The luxury industry worries that these efforts could be
undermined by unauthorized sales over the internet. Luxury goods
displayed on websites run by Amazon or other independent e-commerce
sites are often sold at discounted prices and displayed next to
mass-market brands. Luxury companies say that undermines the aura
of exclusivity they strive to build around their merchandise.
Companies like Swiss watchmaker Swatch Group have shunned
mass-market platforms on concerns they don't proactively police
their sites for counterfeits and unauthorized retailers.
The court's decision appears narrowly tailored to the demands of
marketing luxury goods online while most marketplace bans relate to
mass-market products that can be found in most physical stores,
according to Mr. Kucharczyk.
Those types of restrictions are still the focus of some
competition regulators.
"Our preliminary view is that such manufacturers [outside the
luxury industries] have not received carte blanche to impose
blanket bans on selling via platforms," said Andreas Mundt, head of
Germany's Federal Cartel Office, which has scrutinized similar
restrictions by Adidas AG and Asics Corp.
Write to Natalia Drozdiak at natalia.drozdiak@wsj.com and
Matthew Dalton at Matthew.Dalton@wsj.com
(END) Dow Jones Newswires
December 07, 2017 02:47 ET (07:47 GMT)
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