Amsterdam Court of Appeal: Coty not confined to luxury products

On 14 July 2020, the Amsterdam Court of Appeal (the Court of Appeal) issued a judgment by which it confirmed that Nike European Operations Netherlands (NEON), Nike´s European distribution company, had rightfully terminated its distribution agreement with one of its authorized distributors, Action Sport. Action Sport had persistently sold Nike products through an unauthorized third-party platform (Amazon), despite several warnings from NEON that sales through unauthorized platforms are not allowed under NEON’s Selective Retailer Distribution Policy (the Distribution Policy).

Like the Amsterdam District Court (the District Court) in first instance, the Court of Appeal rejected the argument put forward by Action Sport that the Distribution Policy infringes EU competition law and therefore provides no valid ground for termination of the NEON distribution agreement. To reach this conclusion the Court of Appeal applied, for the first time in (civil) proceedings in the Netherlands, the considerations of the European Court of Justice (ECJ) in its preliminary ruling in Coty. In this ruling the ECJ held inter alia that marketplace bans (i.e. the use of third-party platforms by distributors) in distribution agreements do not constitute hardcore restrictions within the meaning of Articles 4 (b) and (c) of the VBER.

Interestingly, in its judgment the Court of Appeal makes an effort to clarify that, for the application of the ECJ´s above-mentioned considerations on marketplace bans in Coty, it considers it irrelevant whether the Nike products concerned qualify as luxury products. By doing so, the Court of Appeal clearly chooses sides in an ongoing EU-wide discussion regarding the scope of the Coty ruling, more specifically whether the ECJ´s considerations on marketplace bans in Coty only apply to distribution agreements concerning luxury products or to all distribution agreements, regardless of the products concerned.

District Court: Distribution Policy meets Metro-criteria

As mentioned above, in first instance the District Court had already ruled that the Distribution Policy (including the restrictions on sales through unauthorized platforms) complied with the rules of EU competition law. Since the District Court´s judgment was issued two months before the ECJ´s ruling in Coty, the District Court could not base its conclusions on the findings of the ECJ. Instead the District Court relied heavily on AG Nils Wahl´s opinion in Coty, which it considered sufficiently convincing to not await the ECJ´s ruling or to raise questions to the ECJ itself.

The District Court took as the starting point for its assessment the fact that the Distribution Policy aims to implement a selective distribution system for NEON and the criteria for determining the compatibility of selective distribution systems with Article 101 TFEU, as established by the ECJ in the Metro-case. These so-called Metro-criteria entail that selective distribution systems are compatible with Article 101 TFEU, provided that: (i) resellers are chosen on the basis of objective criteria of a qualitative nature, laid down uniformly for all potential resellers and not applied in a discriminatory fashion, (ii) the characteristics of the product in question necessitate such a network in order to preserve its quality and ensure its proper use and, (iii) that the criteria laid down do not go beyond what is necessary.

After establishing that the Distribution Policy satisfied the first criterion, the District Court considered (by referring to the conclusions of AG Wahl in Coty) that the Distribution Policy serves to preserve Nike´s brand image and that the Nike products qualify as luxury products which necessitate the use of a selective distribution system. Finally, the District Court held that the restrictions on the use of unauthorized platforms by distributors in the Distribution Policy were justified by the aim of preserving the luxury image of the Nike products (again, referring to AG Wahl´s opinion in Coty).

The District Court therefore concluded that the Distribution Policy was compatible with Article 101 TFEU and that, consequently, NEON was entitled to enforce it vis-à-vis Action Sports.

Court of Appeal: application of Coty ruling

Action Sports appealed the District Court´s judgment before the Court of Appeal, arguing inter alia that the restrictions on sales through unauthorized platforms in the Distribution Policy constituted an illegal ban on internet sales.

The Court of Appeal first recalled that selective distribution systems are exempted from the scope of Article 101 TFEU by the VBER, provided that they meet the relevant criteria. Furthermore, the Court of Appeal found that the applicability of the VBER to the Distribution Policy does not depend on whether Nike products qualify as luxury products, rejecting Action Sport´s arguments to the contrary. Such restrictive interpretation does not follow from the wording of the VBER, considered the Court of Appeal.

Subsequently, the Court of Appeal also rejected Action Sport´s contention that the ban on sales through unauthorized platforms in the Distribution Policy constituted a hardcore restriction within the meaning of Articles 4 (b) and (c) of the VBER. The Court of Appeal considered that the Distribution Policy did not contain a general prohibition of the use of the internet by distributors. Rather, it restricted their use of marketplaces to a limited number of authorized platforms. The Court of Appeal continued its assessment with a brief outline of the ECJ´s considerations with respect to marketplace bans in Coty, which it summarized as follows:

• A marketplace ban differs from a prohibition of the use of internet sales;
• It is not possible to circumscribe third party platform customers within the group of online purchasers;
• Distributors were allowed to advertise the products via the internet on third party platforms (e.g. price comparison websites) and use online search engines with the result that customers are usually able to find the online offer of authorized distributors.

The Court of Appeal noted that the ECJ did not mention the luxury nature of the products at issue in the context of these considerations and that the nature of the products concerned does not affect their application. Therefore, the Court of Appeal concluded that the ECJ apparently did not consider the luxury nature of the products in Coty relevant to its assessment of whether marketplace bans constitute a hardcore restriction within the meaning of Articles 4 (b) and (c) of the VBER.

The Court of Appeal therefore concluded that the ECJ´s findings with respect to marketplace bans in Coty applied to the case at hand, irrespective of whether the Nike products qualified as luxury products.

The Court of Appeal concluded that under the Distribution Policy, Action Sport´s online offer was freely available to customers and rejected Action Sport´s arguments regarding the illegality of the restrictions on the use of unauthorized platforms contained in the Distribution Policy. As an additional remark, the Court of Appeal noted that the Distribution Policy did not completely ban the use of marketplaces, but restricted it to a limited number of platforms that NEON had direct contractual relationships with.

European context: debate about the scope of the Coty ruling

While the ECJ´s ruling in Coty has provided clarity on a number of matters relating to selective distribution and restrictions on the use of the internet by distributors, it has also triggered an EU-wide debate on its scope. More specifically, this debate revolves around the question whether the ECJ´s conclusion that marketplace bans do not amount to a hardcore restriction under the VBER are only valid where the distribution agreements concerned relates to luxury products (as was the case in Coty).

Most notably the German Bundeskartellamt (BKa) has actively advocated a restrictive approach, seeking to limit the impact of the judgment to the distribution of luxury goods. Prior to the Coty-ruling, the BKa had already concluded in its decision in the ASICS-case that marketplace bans constitute a hardcore restriction under the VBER. In response to the Coty-ruling the BKa made it clear that in its view ´the ECJ’s statements in this regard are limited to luxury goods. One cannot simply transfer them to other (high-quality) brand products.´ Interestingly, the Higher Regional Court of Hamburg reached the opposite conclusion in a judgment of March 2018.

On the other hand, the French Competition Authority and the European Commission (EC) have adopted a less restrictive approach, making it clear that in their view the ECJ´s considerations on marketplace bans can be extended to non-luxury goods. In its Policy Brief on Coty of April 2018, the EC has made some particularly convincing arguments in this respect. The EC pointed out that ´whether a platform ban has the object of restricting the territory into which, or the customers to whom the distributor can sell the products or whether it limits the distributor’s passive sales can logically not depend on the nature of the product concerned.´ Another argument raised by the EC is that the legal certainty that the VBER aims to provide would be harmed if the assessment of hardcore restrictions would depend on the nature of the products concerned.

Clearly, in its judgment in the NEON-case the Court of Appeal has adopted the broader interpretation of the Coty-ruling, using arguments similar to those of the EC in its Policy Brief. The BKa therefore finds itself increasingly isolated in its views. The EC is currently working to update the VBER and the accompanying Vertical Guidelines, which will expire at the end of May 2022. It is expected that the updated VBER and Vertical Guidelines will provide more guidance on online distribution practices, including marketplace bans. However, companies that operate cross-border distribution systems in the EU will have to take the diverging opinions on marketplace bans into account, in any event until the current VBER expires.

For more information about online distribution or other inquiries in relation to competition law, please get in touch with Ruben Elkerbout, Mattijs Baneke or Linde Bremmer of Stek’s Competition and Regulated Market team.