News Update Competition

30 September 2020

The Amsterdam Court of Appeal has confirmed – in the Nike case on 14 July 2020 – that distribution agreements for non-luxury goods that prohibit selling those goods on online platforms are not necessarily incompatible with European competition law.

This judgment of the Amsterdam Court of Appeal represents the first decision by a Dutch appellate court on this issue since the landmark judgment on preliminary questions in Coty in 2017. In that judgment, the European Court of Justice (“CJEU”) explained where competition law permits prohibitions on specific marketplaces (specifically online) selling luxury goods (cosmetics and body hygiene products). Another interesting detail in this judgment is that the district court of Amsterdam in the same proceedings worked on the assumption that goods of well-known brands such as Nike should be qualified as 'luxury goods', while in Germany, similar products, for example sports shoes produced by Nike’s competitors Adidas and Asics, have consistently been qualified as non-luxury goods.

Nike V Action Sport: the facts

The Nike case revolves around a dispute between NEON, which is responsible for selling Nike products in Europe, and Action Sport, an Italian retailer that, when the dispute first began, was selling Nike products both from a bricks-and-mortar shop in Sicily and online.

NEON’s distribution terms contained a clause that stated that Nike products could only be retailed online using platforms or websites of authorised sellers. NEON’s authorised platform operators included Zalando, La Redoute and Otto. Accordingly, NEON’s authorised retailers were only permitted to offer Nike products for sale on their own websites, or through those authorised e-tailers. Despite this restriction, Action Sport sold Nike products via the Amazon webshop, which was unauthorised. NEON then terminated its agreement with Action Sport and made it impossible for Action Sport to place any further online procurement orders with NEON. In response, Action Sport initiated proceedings against NEON.

District Court

The District Court of Amsterdam (“District Court”) – drawing on AG Wahl’s opinion in Coty – found that the prohibition on sales through unauthorised webshops in NEON’s distribution terms was compatible with competition law, as the clause in question satisfied the criteria of objectivity, uniformity and proportionality as defined by the CJEU in Metro.

The District Court found that it was established that the uniformity criterion was satisfied: NEON’s distribution terms contained objective qualitative criteria and were applied uniformly without discrimination. The District Court also held that the necessity criterion was fulfilled, as the purpose of NEON’s distribution terms is to maintain the brand image of Nike products (luxury goods in the form of sports shoes and clothing of a well-known brand), for which a selective distribution system is necessary, given their characteristics and nature. Lastly, the District Court held that the clause satisfied the proportionality criterion: NEON was not preventing its distributors from selling contractual goods on their own websites, nor was it fully excluding the possibility of sales on third-party platforms.

Court of appeal

The analysis of the competition law issues by the Amsterdam Court of Appeal (“Court of Appeal”) was shorter than the District Court’s. The Court of Appeal recognised the validity of NEON’s argument that the block exemption for vertical agreements (“Block Exemption”) under Regulation (EU) No 330/2010 (“Regulation”) applied. As the Court of Appeal highlighted, selective distribution is exempt under the Block Exemption, as long as it satisfies the conditions described in the Regulation – regardless of the nature of the product in question and the nature of the selection criteria. This means that the exemption applies even if Nike products are not luxury goods. The Court of Appeal did not answer whether Nike products are in fact luxury goods, explaining that the only reason why the luxury nature of the products in Coty was mentioned in connection with establishing whether the Block Exemption applied was that the matter there concerned luxury goods.

The CJEU had found previously, in Pierre Fabre, that a comprehensive prohibition (imposed on retailers by their suppliers) on online sales constitutes a hardcore restriction of competition: a prohibition on passive sales within the meaning of Article 4(c) of the Regulation. The Court of Appeal, addressing whether NEON’s platform prohibition constitutes a similar hardcore restriction that prevents application of the Block Exemption, answered that question in the negative. NEON’s distribution terms do not prohibit using the internet in general, and ensure that the end customer also has online access to the products sold by authorised distributors (on Action Sport’s platform, on the platforms of other authorised retailers and e-tailers and using online search engines). According to the Court of Appeal, it does not matter for these purposes whether the products are luxury goods.

Conclusion

The Court of Appeal’s judgment in Nike of 14 July 2020 followed Coty and confirmed that a prohibition on sales through online platforms (specifically of unauthorised parties) within a selective distribution system is not necessarily incompatible with European competition law, nor does it necessarily constitute a hardcore restriction that prevents application of the Block Exemption. The judgment explicitly notes that a product does not need to be qualified as a “luxury good” to assess whether the Block Exemption applies, or whether a platform prohibition should be regarded as a hardcore restriction under the Regulation.

Conversely, when Coty was published, President Mundt of Germany’s Bundeskartellamt implied that that judgment does in fact apply only to luxury goods, and that platform prohibitions can be justified only for luxury goods. To our mind, the Amsterdam Court of Appeal’s interpretation reflects a more accurate view: the Regulation covers all types of products, and simply does not dictate that selective distribution may be used for luxury goods only. The question of whether a selective system can only profit from an individual exemption if it concerns luxury goods only arises in cases involving a market share in excess of 30%, where the Block Exemption is unavailable. We believe, therefore, that this leaves at least two legal issues to be debated. The first issue is when a product qualifies as a luxury good (since products can in fact become luxury goods because of selective distribution). The second concerns the question of why this aspect of the freedom to conduct business should be restricted, while it remains unrestricted in other areas such as trademark law. AG Wahl’s opinion in Coty also stresses that, similar to trademark law, a vendor’s decision to use a selective distribution system is essentially an expression of the owner’s right to market a product in the manner of the owner’s choosing.