It has been suggested that the ECJ’s recent decision in the Coty case gives producers of luxury or premium goods the green light to prohibit their distributors in the EU from selling through online marketplaces such as Amazon, in order to maintain the prestige and value of their brands. Is this something wine & spirits producers should consider including in their UK distribution agreements?
Coty only applies to selective distribution
It’s clear that Coty only applies to selective distribution systems – i.e. where a producer agrees to supply only approved distributors who meet specified criteria, and the distributors agree only to supply end users or other distributors within the approved network. As the only possible buyers are appointed distributors and end users, the supplier can control distribution all the way to the end user. On the face of it, this kind of system is anti-competitive, but it will be allowed under EU competition law rules if it can be justified by the nature of the product and it meets other conditions.
Selective distribution is unusual in the UK wine & spirits trade, where exclusive distribution is the norm – i.e. a producer appoints a single distributor for the whole of the UK or a specified part of it, and/or for a specific sector or sectors, and agrees not to sell the products to any other buyer in the allocated territory/sector(s). So what is the position regarding online sales in that type of arrangement?
Online sales and exclusive distribution
EU competition law rules assume that being able to buy online has substantial potential benefits for consumers: and for distributors too, as it enables them to reach a greater number and variety of customers. So, in general, distributors must be allowed to use the internet to sell products. And because third-party online platforms like Amazon encourage and facilitate online shopping, distributors must be allowed to use those platforms.
On the other hand, EU law permits a producer to require a wholesale distributor not to make retail sales, online or otherwise, and such a restriction may be acceptable to a UK wine &/or spirits distributor who operates wholly or mainly at the wholesale level. But for a restriction on Amazon style sales to be completely effective it would have to be imposed contractually at every stage, and on every participant, in the distribution chain until the ultimate retailer is reached, and then on that retailer as well. Even if lawful, that will usually be very difficult to achieve, and to enforce, in practice.
How can producers keep control of what their distributors do?
Primarily, by having provisions in the distribution agreement that delineate the territories and/or the customer group(s) that the distributor is permitted to target, and spell out exactly what he can and can’t do. These kinds of restrictions can be competition law-compliant if carefully drafted. We’ll look at them in more detail in subsequent News posts.