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Home > News > Keeping your wares luxurious – or away from Amazon?

Keeping your wares luxurious – or away from Amazon?

10 August 2017 |

Mr Shipley, a senior manager of the First Defendant, accepted that some consumers would regard Amazon’s attitude to, for example, UK taxation as repugnant – Cosmetic Warriors Ltd & Anor v Ltd & Anor [2014]

There have been quite a few high profile trade mark cases involving brands who want nothing to do with the world’s largest retailer or other value-focused platforms like eBay. At the time of writing, the European Court of Justice is dealing with a referral from the German courts asking whether Coty’s ban on distributors selling their cosmetics through third party platforms (such as Amazon) is legal (C-230/16 Coty Germany).

Why would anyone avoid access to such a massive marketplace? How do they do it? Will it still be legal after Coty? Our thoughts follow…

Why restrict your market?

Every brand has its own mission and target market, and it may be a simple question of aligning your distribution network with these aims. More seriously though, it is also a question of avoiding measurable damage to your brand. In legal terms we would call this kind of activity the avoidance of ‘tarnishment’.

Tarnishment is the process by which measurable economic or reputational harm is caused to a trade mark through a conflicting association. A popular example of this kind of association can be seen in a Benelux case brought by Dutch company Bols in respect of their popular genever, Claeryn. The defendant in that case was the maker of Klarein which, among other things, was used to clean toilets.

Although not quite as colourful, the quote at the top of the page is an example of another kind of negative association. Amazon has a well-documented history of creative tax allocation, and Lush (a trading name of Cosmetic Warriors) felt that being seen as in some way supporting it would be damaging to their reputation for being an ethical company.

Defending your brand from noxious associations can be just as important as attacking similar trade marks with unfortunate applications. This is why many companies choose to limit their distribution networks through the use of commercial agreements.

Controlling your distributors

At the time of writing it is common practice for luxury brands to restrict the sale of their products to suitably fancy retailers in selective distribution agreements. These agreements normally require distributors to only sell a brand’s goods through certain outlets in certain territories in order to maintain an air of quality. Occasionally these agreements will expressly forbid the sale of items through outlets such as eBay or Amazon for the reasons set out above. More normally they will require retailers to meet certain qualitative criteria.

As a guarantee of quality, rather than price, a selective distribution system is currently a good way of ensuring that a brand’s cachet is protected from cut-price fire sales and tarnishment without offending competition law. Supporters of systems like this include the French government, which wrote to the court in Coty in support of the ability for brands to maintain an air of exclusivity.

Even so, this approach come at a price. Agreements need to be painstakingly drafted, and legal advice is essential to avoid unwanted legal consequences creeping in from unforeseen anti-competitive effects. If it appears that the objective is to artificially inflate prices, partition markets, or introduce competitive disadvantages to certain distributors – fines may ensue.

Coty and the future

We will be advising our clients who are keen to protect their interests to keep an eye on the European Court of Justice’s upcoming decision in Coty.

There is a risk that selective distribution agreements will be hit by the decision. So far, we only have an indicative opinion from the ECJ’s attorney general to go on. He suggests that agreements focused on quality and objectivity, and that do not go beyond what is strictly necessary to maintain a brand’s prestige, should be fine. He also suggests that in some circumstances even a ban on third party platforms such as Amazon would be fine – as long as they met the same criteria.

This is broadly in line with guidance issued by the European Commission and current case law, but it is just an opinion. The final decision is the ECJ’s, and there is no guarantee that the ruling will follow the AG.

Tentatively promising news for brands looking to steer clear of mass consumption for the time being, but you can keep an eye out for the final decision here. We’ll be sure to discuss how it could affect your business.

Are you wondering about your trade marks? Are you considering limiting your market, but unsure how to go about it? Get in touch with our expert Chris Haywood.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

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