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Update: Luxury brands can block 3rd-party online sales — EU court

Luxury goods companies can prevent their distributors from selling their products on third-party websites in the European Union, a European court ruled.

The decision is a victory for luxury goods companies that have campaigned for years to protect their intellectual property. It also has implications for sellers that offer luxury products for sale in online marketplaces in the EU such as those operated by Amazon.com Inc. and eBay Inc.

In a closely watched case brought by the German unit of Coty Inc., the Court of Justice of the European Union, the highest court in the EU, ruled that preventing the sale of luxury goods by distributors on third-party sites was appropriate and does not, in principle, go beyond what is necessary to preserve the luxury image of the goods.

A summary of the judgment was posted on the website of the Luxembourg court on Dec. 6.

Coty welcomed the verdict, which, it said, meant that luxury brands could determine how their products were placed on digital platforms. "It means that these can be accessed through our authorized retailers who will offer and promote our brands within the right environment and in the appropriate way," a spokesperson said in a statement emailed to S&P Global Market Intelligence. "For online trade, the decision of the [Court of Justice of the European Union] will result in an enhanced distinctiveness and visibility of our authorized retailers as a trust mark for the purchase of genuine quality goods."

Luxury goods companies including LVMH Moët Hennessy Louis Vuitton SE, whose portfolio includes Christian Dior and Givenchy; Kering SA, owner of fashion house Gucci; and Compagnie Financière Richemont SA, owner of Cartier, were slow to embrace online sales for fear that doing so might in some way diminish the value of their labels. Their approaches involved attracting consumers to their stores to be able to touch, feel and experience their luxury products to fully appreciate them.

The companies have begun to adapt to the digital world, but they have been keen to maintain tight control over distribution channels and sales. LVMH, for example, in 2017 launched an online multibrand platform to offer its high-end goods as part of its digital strategy. It has also opened online outlets for some of its individual brands.

Coty, which makes fragrances and cosmetics under brands such as Calvin Klein, Chloé and Clairol, brought a case to a regional court in Germany to prevent one of its authorized distributors, Parfümerie Akzente, from distributing its products via the German website of Amazon. The German court asked the European Court of Justice to adjudicate in the case.

The European court, in its judgment, concluded that a selective distribution system for luxury goods, designed primarily to preserve the luxury image of those goods, does not breach EU law provided that certain conditions are met, including that resellers are chosen on the basis of objective criteria of a qualitative nature, laid down uniformly for all potential resellers and not applied in a discriminatory fashion.

"The court notes in this context that 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," it said in the summary. "That aura is an essential aspect of those goods in that it thus enables consumers to distinguish them from other similar goods. Therefore, any impairment to that aura of luxury is likely to affect the actual quality of those goods."

The Computer and Communications Industry Association, which counts Amazon and eBay among its members, said the judgment did nothing to foster a digital single market.

"This judgment is bad news for consumers, who will face fewer choices and also less competition when they want to shop online," the association's vice president for competition and EU regulatory policy, Jakob Kucharczyk, was quoted as saying in a statement. "It's also a major setback for small firms across Europe that are trying to develop their online business while protecting major mass-market brands."