It’s no surprise that companies behind luxury brands try to direct and control their sales channels. Think for example of huge flagship stores, in-stores in department stores and stylish web shops. But what if those luxury products are offered by drugstores, self-service wholesalers and cheap web shops? Can a brand owner do anything to stop this?
That is not an easy thing. When a product is placed on the European market, with or without permission of the brand owner, he cannot really stop the reselling of said product. The trademark is then exhausted. However, there is an exception to this rule made by the European Court of Justice in 1997, especially for luxury brands. During that time, Kruidvat (a Dutch drugstore) placed a Dior perfume ad in their flyer. Dior was not pleased and saw it as a threat to their luxury position. The ECJ ruled that a reseller like Kruidvat is allowed to promote their Dior products, even when the rest of their assortment is of lesser quality. Though, when a brand owner can prove that their reputation is being severely damaged by the reseller, the brand owner can forbid the use of their brand. Subsequently, placing a Hermès ad in the same Kruidvat flyer could be a step too far.
The Dior-arrest was mainly about the subsequent intervention of a brand owner. In a new arrest the Court of Justice discusses the possibility of making agreements with distributors before the reselling of luxury brand products. The German cosmetic brand Coty Germany has created a selective distribution network for its products, in order to maintain their luxury image. The selling of Coty products online is allowed by Coty, but only when this is done via the web shops of their selected distributors. Internet sales via web shops by third parties is forbidden by Coty. One of their distributors, however, sold their products via Amazon, which led to Coty going to Court.
According to the ECJ, selective distribution for luxury products is allowed and not in conflict with competition law, if:
The German national court rules whether a prohibition by Coty on the reselling of their products (via web sites that differ from the web sites of their distributors) passes these criteria, which would allow Coty to stand up against the reselling of its products on web sites such as Amazon.
Brand owners of luxury brands are only allowed to limit the reselling of their products by making arrangements with distributors, if this is done honestly and if the agreements are absolutely necessary in order to maintain the luxury image of the brand. Please note, if luxury products still end up at a discount store, conflicting with the agreements, then the brand owner can only stand up to the distributor on the basis of breach of contract. The discount store itself is not bound to this. The brand owner can also stand up to the discounter, only if the resales damage the image of the brand.