Pest control: the use of selective distribution agreements to curb internet vendors
What is a Selective Distribution Agreement?
A Selective Distribution Agreement (SDA) is a distribution agreement made between a supplier and a distributor of goods. The supplier is typically a manufacturer, or may itself be a distributor of another’s goods. An SDA can enable a manufacturer to refuse to sell to those dealers that do not comply with the set criteria. SDAs are permitted provided three conditions are met:
- nature of goods;
- necessity/proportionality; and
In what sectors are SDAs typically used?
Although no set category of goods has been fixed, “luxury goods” are acknowledged as being appropriate for SDAs. Jewellery is recognised by the European Commission as luxury goods that SDAs might require in order to ensure proper distribution. We don’t have a definition for ‘luxury goods’, so arguably any high end/ high market goods would qualify?
Proportionality and objectivity
There must be a proportionate necessity for the SDA. The manufacturer may set certain qualitative criteria, without which the distributor wouldn't be permitted to sell the manufacturer's goods, such as after sale services or technically trained staff and premises suitable for the display of the goods.
These criteria set by the manufacturer must be applied objectively.
Recent case: Coty Germany GmbH v Parfümerie Akzente GmbH, C-230/16
COTY, the German beauty brands company operates a Selective Distribution system. One of its authorised distributors objected when COTY sought to extend its control over online sales. Following a referral by the German Court, the dispute ended up in the Court of Justice of the European Union (CJEU). The Advocate General (A-G), who assists the CJEU by giving submissions to the Court in every case that raises a new point of law, issued his Opinion last week (w/c 24.07.17).
The A-G upheld the existing understanding that SDAs were permitted. Indeed, he considered that a selective distribution system may even have positive effects on competition. He emphasised their appropriateness to luxury brands that “derive their added value from a stable consumer perception of their high quality and their exclusivity in their presentation and their marketing”. A clear link was expressed with the exclusive nature of Trade Mark Rights, where any unauthorised use of a Registered Trade Mark might be an infringement.
If the CJEU adopts the Opinion of the A-G, then COTY will have succeeded in its case.
This paves the way for manufacturers to continue using SDAs to control the pest of low quality online vendors demeaning brands and lowering standards.