Competition News June 2016

Author:Ms Emmanuelle van den Broucke and Sara Pomar

The Paris Court of Appeal compromises the lawfulness of selective distribution networks

Only a few months after its decision rendered in the Caudalie case (see our April Newsletter), the Paris Court of Appeal adopts, in a decision dated May 25, 2016, an interpretation which is, to say the least, questionable of the notion of hardcore restrictions, rendering unlawful Coty's selective distribution network in the cosmetics and luxury perfumes sector.

Coty had brought proceedings before the Paris Commercial Court against a site selling online certain of its perfumes under license which had not been approved by the brand. Quite classically, the Commercial Court ordered the site to cease all sales of Coty perfumes.

Against all expectations, the Court of Appeal overturned the Commercial Court's judgment on the grounds that the approved distributorship agreement entered into between Coty and its distributors is unlawful because it contains provisions which constitute "black clauses" (or hardcore) within the meaning of the block exemption regulation on vertical agreements (Regulation 2790/1999).

Thus, according to the Court, a clause which expressly provides the possibility to sell to members of works councils or communities, provided they go individually as direct consumers to the stores to make the purchases, is unlawful. For the Court of Appeal, this clause is hardcore in that it excludes sales to purchasing agents (i.e. works councils and communities) acting on behalf of final users. This interpretation by the Court is surprising in that it disregards the main objective of this clause, i.e. the fight against the risk of parallel sales in the case of grouped or large purchases. Moreover, this clause does not in any way prevent sales to final users.

Furthermore, the clause which provides for the prohibition of reselling to non-approved retailers is considered unlawful because Coty does not demonstrate that it has a selective distribution system covering all the territories of the European Union. This reasoning seems to be in contradiction with the guidelines on vertical restraints which provide on this precise issue that the supplier is entitled to prevent an approved distributor from selling to a non-approved distributor established in a territory where this supplier does not yet sell the contractual products. Indeed, there is no obligation for a supplier to cover the entire Union territory through a selective distribution network for it to be...

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