As the Amsterdam Court of Appeal recently confirmed in Action Sport v Nike (decision of 14 July 2020, ECLI:NL:GHAMS:2020:2004), the prohibition of sales on third-party platforms contained in selective distribution agreements of brand manufacturers in the EU can be in line with EU competition law irrespective of whether or not the relevant products are luxurious.
The Appeal Court’s decision confirmed the judgment of the lower instance court that arose out of a dispute between Nike and Action Sport, a former authorized reseller of Nike. Nike’s terms underlying its selective distribution system prohibited resellers from trading the contractual products via third party marketplaces, i.e. online platforms operated by non-authorized resellers. When Action Sport refused to comply with this restriction, Nike terminated the distribution arrangement and ceased to supply Action Sport.
The decision is of particular relevance as third-party platform bans imposed by brand manufacturers in the context of selective distribution terms have been the subject of heavy controversy in the EU in recent years. In 2017, the European Court of Justice (ECJ) decided in the landmark ruling in Coty v Parfumerie Akzente that a clause in a selective distribution agreement preventing resellers from selling on any third party websites can be in line with EU competition law if the following requirements are met:
- resellers are chosen on the basis of objective criteria of a qualitative nature, applied uniformly and without discrimination;
- the products in question necessitate selective distribution in order to preserve their quality and proper use; and
- the restrictions imposed do not go beyond what is necessary to achieve this.
In Coty, the ECJ considered that the preservation of a luxury image of Coty’s brands can suffice to justify restrictions on resale associated with selective distribution systems. The Court also found that since third party platforms would typically sell all kinds of goods, the sale of Coty’s products on these websites would prejudice the luxury image maintained through selective distribution and the exclusion of non-authorizes resellers.
Since then, there has been a controversy about whether the legality of platform bans should be reserved to luxury products under EU competition rules. National competition authorities in the EU have taken different views in this regard. For example, the French Competition Authority (FCA) has taken a more liberal view when considering a third-party platform ban imposed on resellers by garden equipment manufacturer Stihl in its selective distribution terms to be in line with competition law despite non-luxury goods being concerned (see FCA’s decision of 24 October 2018 confirmed by the Paris Court of Appeal). However, the German Federal Cartel Office (FCO) follows a more restrictive approach and warned companies that the scope of the Coty judgment should be limited to luxury products only, and that it should not be perceived to grant a blanket authorisation for brand owners outside luxury segment to prevent sales on third party sites.
With its decision in the Nike case, the Amsterdam Court of Appeal has made a strong point that not only luxury brand owners may lawfully impose and enforce platform bans vis-à-vis its authorized resellers in selective distribution agreements in the EU. The ECJ only mentioned luxury products in the Coty case because these were the subject of the questions posed to the ECJ for its preliminary judgment, i.e. the facts of the case before it. Following the Amsterdam Court of Appeals, the ECJ’s substantive assessment must not be limited to products of this kind. A justification of third-party platform bans under EU competition law may not generally be excluded for non-luxurious products but it cannot generally be confirmed for luxury products either. Rather, an individual case-by-case assessment is required, taking the distribution terms, the characteristics of the products concerned and the brand image into account.
The decision in the Nike case is a step in the right direction. The FCO, despite not being bound by Dutch jurisprudence, should reconsider its view to the benefit of a consistent interpretation of EU competition law across Member States and to prevent legal uncertainty for brand manufacturers in Germany seeking to self-assess their relevant distribution strategies, models and underlying terms.