Let's talk antitrust - Views on AG Wahl’s opinion in ‘Coty’ selective distribution

Ian Giles: We are talking today about what I think is hugely important decision, which we are expecting, at the time of filming, next week from the Court of Justice in the Coty case. This case is all about the manner in which companies can control their distribution channels. In particular, about their ability to control online sales of their products. Richard, this has been very controversial and there has been a lot of attention on this case and that follows on from some other cases in this area which have led to divergent interpretations by courts across the EU. What’s your thinking on what this is about and where it is heading?

Richard Whish: Well, I think this Coty case is extremely interesting, as you say we should get the judgment of the Court of Justice on Wednesday of the next week, the 6^th of December. Maybe it’s sensible to put this case in the broader context of the Commission’s recent investigation of e-commerce generally. Of course the Commission published its report on 10^th of May. Very interesting, very helpful report, I think, in which they reviewed e-commerce generally, investigated numerous distribution contracts and in the course of it they discovered lots of contractual restrictions. And the question that we now have to work out is – to what extent of those contractual restrictions ones which infringe Article 101?  Now the Coty case, of course, does not arise out of a Commission investigation, its litigation in Germany between Coty and one of its distributors and there’s a contractual dispute which is that Coty says that the distributor in question is not allowed to sell Coty’s products through third party merchant platforms. The question that arises is – is that kind of contractual restriction contrary to Article 101? German Court has referred the matter to the Court of Justice and, so far, we have the opinion of Advocate General Wahl on 26 July. I think it is a very coherent, very interesting opinion, but as you say there are some points in it which are arguably controversial.

Ian Giles: The crux of this - Coty is a luxury good manufacture and so they are saying for us to be able to protect the value of our product we need to be able to insure that its positioned in the right way in the market and the distributors who we’ve selected to be able to sell our products, we have control over the way that they position but if they then resell through third party online platforms, we lose that control. The counterargument is once that good is out there, why should consumers be denied the ability to show around and third party platforms, as we all know, give access to a much broader range of products than we used to get in the brick-and-mortar world. So, how does Advocate General Wahl look at that? Do you think the Court is going to follow him?

Richard Whish: Well, I think, myself, that the Court will follow the Advocate General in this case.  It is very interesting because of course we went through the law of selective distribution more than thirty years ago, in particular, in a case called Metro against the Commission, from which we get the name the Metro Doctrine and, in the brick-and-mortar world, the conclusion of the Court was that there are certain goods that do justify selective distribution and if one sets down objective criteria as to the choice of retailers, and as long as they are applied in an objective and transparent and non-discriminatory manner than the whole system falls outside Article 101. The question now is, to what extent can you map the Metro Doctrine onto the modern online environment? Advocate General answers this question in three stages. First question he asks is, is luxury something which in and of itself justifies or can justify selective distribution and therefore the application of Metro Doctrine? And he is very clear actually, it’s in paragraphs 59 to 93 of his opinion. He reviews the case law to date and says luxury is something which in itself is capable of being defended through selective distribution. So I think that is a very clear statement and a very interesting one in itself that hadn’t always been totally clear, we wait to see if the Court can follow it. But I suspect it will. We then get to the real nub of this case, which is: whether it is legitimate within selective distribution system to impose on a retailer a restriction on the use of third party merchant platforms?

Ian Giles: We have the contrast with the Pierre Fabre case.

Richard Whish: Well indeed, I think this is what this case is really about. In Pierre Farber, there was a selective distribution system in which Pierre Fabre had said to its dealers you cannot sell online at all and the Court of Justice gave a very clear view of that. That was a restriction by object and it did not satisfy the block exemption, this case of course is significantly different because, here, Coty did allow the retailers to sell both through their brick-and-mortar outlet and also online. So, this is not Pierre Farber. What’s different here is that the restriction is on the use of third party platforms. And what Wahl says in relation to that basically is in principle he doesn’t he see a difficult with that kind of restriction what you do is simply apply the Metro Doctrine. Is it the kind of product that justifies selective distribution? Are the criteria qualitative? Are they no more restrictive than is necessary to achieve a legitimate purpose? What he does do is basically therefore is to graft the old Metro Doctrine onto this different factual matrix.

Ian Giles: I think that is hugely interesting because businesses, clients of ours when thinking about this they now have a framework which, assuming the Court follows this, makes clear how you can, through use of objectively justified criteria control the way that your brand is sold online through the network , but also, stop that being resold by these third party websites.

Richard Whish: I see that in The Netherlands a couple of weeks ago, there is already been a case in which a Dutch Court has applied Wahl’s opinion in deciding in favour of the producer in that particular case, so yes it is a very important judgment. A third he discusses is whether this kind of restriction is it something that is blacklisted under Article 4(c) of the Block Exemption or not and he says very clearly, no he does not think it is.

Ian Giles: And that is on the basis that you can still reach the same audience through the website of the selection distribution system rather than having to use the third party website which is really interesting. So, as we said at the beginning, we are looking forward to the judgment next week, we’ll have a small supplement to this to see whether our predictions that the court follow the Advocate General are correct. Thank you very much Richard, that’s been very interesting.