The General Court of the EU rules that selective distribution of luxury goods is caught by Article 101(1) TFEU

16 November 2017

José Rivas

On 23 October 2017, the General Court (GC) ruled on Confédération européenne des associations d'horlogers-réparateurs (CEAHR) v European Commission - the watch repairers' case -, this ruling is in contradiction with the opinion of Advocate General (AG) Wahl in Coty (Case C-230/16).

The ruling considered whether a supplier of luxury products can prevent resellers from selling its products because they do not meet the supplier's requirements for the distribution of its luxury products.  Whilst AG Wahl had taken the view that there is no infringement of Article 101(1) TFEU), the General Court has held in its recent judgment that there is an infringement of Article 101(1) TFEU.

The Opinion of AG Wahl in Coty.

AG Wahl in his Opinion stated that:

"the specific characteristics or properties of the products concerned may be capable of rendering a selective distribution system compatible with Article 101(1) TFEU and that those properties may lie not only in the physical qualities of the products concerned (e.g. high-technology quality products) but also in the "luxury" image of the products." (paragraph 70). 

Wahl also held that:

"selective distribution networks relating to the distribution of luxury and prestige goods and seeking mainly to preserve the brand image of those goods are not caught by the prohibition laid down in Article 101(1) TFEU " (paragraph 74).

Furthermore, AG Wahl held that the above conclusions were not put into question by the judgment of the Court of Justice in Pierre Fabre (C-439/09) in general, and its paragraph 46, in particular. 

Paragraph 46 states: "the aim of maintaining a [prestige] image is not a legitimate aim for restricting competition and cannot therefore justify a finding that a contractual clause pursuing such an aim does not fall within Article 101(1) TFEU".  

AG Wahl, advised the Court to consider the factual context and the reasoning applied by the Court in paragraph 46 of Pierre Fabre to conclude that this paragraph did not contradict his conclusion that luxury image reasons in a selective distribution network do not necessarily infringe Article 101(1) TFEU

According to AG Wahl, paragraph 46 of Pierre Fabre had to do more with the prevention of sales on the internet than with distribution systems designed to preserve the brand image of the products concerned. (paragraphs 79 and 80)

The judgment of the GC in watch repairers.

Clearly departing from the above reasoning by AG Wahl, the GC has decided in the watch repairers case that:

" as regards the justification of selective repair systems by the objective of preserving the brand image of prestige watches (…) the aim of maintaining a prestigious image is not a legitimate aim for restricting competition and cannot therefore justify a finding that a contractual clause pursuing such an aim does not fall within Article 101(1) TFEU (Pierre Fabre, C-439/09, paragraph 46) (paragraph 65)… although preserving a brand image cannot justify a restriction of competition by the establishment of a selective repair system, the objective of preserving the quality of products and ensuring their proper use may, in itself, justify such a restriction (paragraph 66) (our underlined)."

For the final answer to the question whether selective distribution is legitimate in order to preserve the brand image of goods we need to wait for the judgment of the Court in Coty (6 December 2017).

Authors

Jose rivas

José Rivas

Partner
Belgium

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