Third Party Platform Bans under EU and German Competition Law

Decision of the Higher Regional Court of Frankfurt (Coty).

Brand manufacturers often use authorised dealers to sell their products. In such selective distribution systems it is often agreed that the distributor may not sell the goods online via third-party platforms such as eBay or Amazon. The German Federal Cartel Office and some German courts previously assumed that such a third-party platform ban was generally inadmissible. In the case of perfume manufacturer Coty against the distributor Parfümerie Akzente GmbH, the Higher Regional Court of Frankfurt had to decide on July 12, 2018.

Coty Deutschland GmbH is part of the global cosmetics group, the Coty Group. It organizes distribution in Germany exclusively via a so-called selective distribution system, in which the distributors are, among other things, obliged not to offer the products on the Internet via the trading platforms of third parties. In this way, the ban covers all Internet trading platforms currently relevant to the market, in particular eBay and Amazon. The ban is intended to protect the prestige character of the branded products. Parfümerie Akzente GmbH violated the ban by offering goods of Coty Deutschland GmbH via Amazon.

To prevent this, Coty took the case to the Regional Court Frankfurt am Main, where the case was dismissed. In the context of the appeal filed against this, the Higher Regional Court of Frankfurt had referred to the European Court of Justice for a preliminary ruling regarding the question whether general third-party platform prohibitions are always to be considered as anti-competitive within the meaning of Article 101 TFEU. The ECJ took the chance to further refine its previous guidelines laid down in the judgments to the cases “Metro” in 1977 and “Pierre Fabre” in 2011 and ruled that such a distribution system may be necessary and therefore justified if, for example, it is intended to protect the luxurious image of certain products.

Whether the third-party platform ban was at all anti-competitive or merely sufficiently justified in the present case was left open by the Higher Regional Court in its decision. Nevertheless, the court ruled in favour of the manufacturer. The Higher Regional Court assumed that the selective distribution system was in any case exempted under the so-called vertical block exemption even if it had otherwise violated § 1 GWB, Art. 101 Sec. 1 TFEU. The vertical block exemption is applicable if both companies have a market share of no more than 30%, no discriminatory application of a limitation takes place and no so-called hardcore restrictions exist. The latter was dismissed due to the fact that a prohibition of platforms only specifies the form in which a trader may sell, not to whom he may do so. Therefore, there was no hardcore restriction.

The decision makes it clear that the Higher Regional Court of Frankfurt considers that third-party platform bans are generally permissible if the conditions of the vertical block exemption are fulfilled. However, even in cases where the vertical block exemption does not apply, it may be argued that the ban is necessary, for example to protect the image of a product.

The ruling gives manufacturers greater legal certainty with regard to the application of third-party platform bans. The possibility for manufacturers to keep their products away from Amazon or eBay, especially in the luxury goods sector, could have considerable consequences for both distributors and consumers. However, the judgement also raises the questions how to qualify a product as “luxury” and how to establish, whether a brand bears a prestige in need of protection. Meanwhile, the responsible Advocate General, Nils Wahl, who had prepared the ECJ verdict hinted that the ruling may not only be limited to luxury goods. The Higher Regional Court of Hamburg also already extended the admissibility of third-party platform bans to “high quality products” in a verdict of 22 March 2018, which also referred to the Coty decision by the ECJ. Still, it remains to be seen how other courts, and in particular the Federal Cartel Office, will assess these questions in the future in order to be able to determine the actual effects of the judgement on practice. In the case of the Coty decision an appeal to the Federal Court of Justice was not admitted.

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