Selective distribution under Dutch Law: what is permitted?
Online sales continue to grow exponentially across Europe. Increasingly, producers and suppliers include provisions in their distribution agreements restricting distributors to selling products only through pre-approved channels. This practice is known as selective distribution. Suppliers implement these restrictions to safeguard product quality and brand image. While selective distribution is permitted under certain conditions, producers and suppliers must always comply with competition law, specifically the prohibition on anti-competitive agreements (cartel prohibition). This requirement frequently leads to litigation between suppliers and distributors.
Selective Distribution
Selective distribution is particularly common among luxury brand producers, such as watches, fashion, and cosmetics. Producers can impose requirements on distributors wishing to sell their products, with brand reputation and image being paramount concerns.
These requirements must be uniform and objective for all distributors. Examples include requirements regarding quality standards for store interiors, store location or staff qualifications and training.
Luxury brands impose these standards to ensure their product sellers meet certain benchmarks. This explains why the most expensive products in the Netherlands are typically found in Amsterdam’s prestigious P.C. Hooftstraat.
The cartel prohibition
Any selective distribution system must comply with European and Dutch competition law. Artikel 6 of the Dutch Competition Act and article 101 Treaty on the Functioning of the European Union (“TFEU”) prohibit agreements between undertakings that prevent, restrict, or distort competition. A selective distribution system may fall under this prohibition unless specific conditions are met.
According to established European case law (the so-called Metro criteria), selective distribution is permitted in principle if:
- The selective distribution system is necessary due to the characteristics of the products concerned
- Distributors are selected based on objective criteria that are uniformly established and applied without discrimination to all potential reseller
- The established criteria do not go beyond what is necessary to protect product quality or proper use
Selective distribution and online platforms
But what about webshops? A distributor’s own webshop typically meets the requirements, but what about online platforms like Amazon or the popular Dutch platform Bol.com? Distributors selling exclusively via online platforms often lack physical locations and therefore cannot meet physical location requirements. Can producers prevent sales of their products via online platforms in such cases?
The Coty judgment
The Court of Justice of the European Union delivered a landmark ruling on this question in 2017 in the Coty case. This case involved a luxury perfume producer and one of its distributors. The distribution agreement stipulated that the distributor could not use third-party, non-authorized undertakings for online sales of the products. The distributor challenged this before the German courts, which referred a preliminary question to the European Court.
The central question was whether this controversial provision violated the European cartel prohibition.
The court ruled that a selective distribution agreement restricting the choice of webshops in this manner is in line with the Metro criteria. In Coty’s case, the court found that a luxury product represents a certain quality standard, thus satisfying the first condition. The court also approved the two remaining conditions. The court therefore ruled in favor of the producer.
Implications for luxury producers and distributors
The Coty judgment confirmed that luxury producers may prohibit their distributors from selling products via third-party webshops. Naturally, this does not constitute a complete ban on webshop sales, which would violate European or Dutch competition law.
Luxury products are readily available in webshops. However, third-party platforms like Amazon feature proportionally fewer luxury products, as they sell many other product types alongside luxury items. When an online marketplace sells both shoes and baby products, luxury brand producers fear brand dilution and image damage. Does their product remain exclusive under such circumstances?
Selective distribution for non-luxury products under Dutch law
An important question is whether the Coty principles also apply to non-luxury products. In the Action Sport/Nike case of 2020, the Amsterdam Court of Appeal ruled that internet platform restrictions can also be permitted for non-luxury products, provided the conditions of the Group Exemption are met. The court noted that Action Sport was not necessarily required to sell via Amazon and could use webshops that were permitted under the distribution agreement, such as the Dutch webshop Zalando. The court therefore found the distribution agreement valid and consistent with the Coty judgment.
Similarly, in the Trek bicycles case, the Amsterdam District Court ruled that a selective distribution system with quality requirements such as assembly obligations and personal delivery does not violate competition law, provided these requirements are applied objectively and uniformly.
Recent developments in Dutch case law: The HP judgment
In a recent December 2024 ruling in the 123inkt/HP case, the Amsterdam District Court ruled that HP’s selective distribution system for printers and cartridges did not satisfy the Metro criteria and therefore violated article 6 of the Dutch Compoetition Act and article 101 TFEU. The court concluded that HP’s market share likely exceeded 30%, making the Group Exemption inapplicable.
This judgment demonstrates that selective distribution systems are critically reviewed by Dutch courts, particularly when the producer holds a significant market share.
Need to revise the Coty criteria?
The number of people regularly purchasing products online has been increasing for years. As times change and sales likely shift away from physical formats, the Coty judgment must be viewed in a contemporary light. Are restrictive distribution agreements still appropriate for our times?
Increasing online sales could lead to situations where courts require producers to moderate their distribution agreements. Conversely, producers’ interests remain relevant, regardless of whether luxury products are involved. A marketplace ban can strengthen the producer’s position.
Moreover, these distribution agreements do not involve a complete ban on online sales. Luxury producers can still distribute their products through selective distributors who meet the distribution agreement conditions and often operate their own (luxury) webshops.
Questions?
Are you considering working as a distributor and do you have questions about your distribution agreement and its restrictions? Feel free to contact Van Till at info@vantill.nl.