Month: December 2017

Luxury brands are… special

EU’s highest court decided that prestigious brands like Calvin Klein can refuse to have their products sold on online platforms like Amazon in order to preserve their ‘aura of luxury’.

What happened:

COTY, the company behind reputable brands like Chloé, Calvin Klein and Marc Jacobs, distributes its beauty products in Europe through regional distributors. One of its distributors in Germany – Parfümerie Akzente (‘Akzente’) – decided to sell COTY’s products through the German Amazon site (amazon.de). This was not permitted under the contract that COTY signed with Akzente. Their contract allowed Akzente to sell only on websites that preserved the luxury character of COTY’s products. Essentially, what companies like COTY are trying to do with such contracts, is to make sure that online shoppers still get the ‘luxury aura’ that their brands are known for when customers shop through an online shop. The presentation of a brand’s logo, font and colours are some of the details that these brands look out for on websites that sell their products. The effect of this provision in the contract meant that Akzente couldn’t sell COTY’s products on Amazon. This was because the Amazon website could not – according to COTY – preserve the luxury image of their brands.No_Amazon.png

The legal issue:

The question for the Court was whether contracts like the one signed by COTY and Akzente violated competition law. Contracts that restrict the freedom of a party can be very problematic for competition. Imagine a situation where a very successful company agrees with shops to sell only their product. If most of your country’s shops sold exclusively Microsoft tablets because of such agreements, competitors like Apple would find it very hard to reach customers and persuade them to buy their iPads. The contract between COTY and Akzente can be bad for competition in a similar way. By requiring that their products are sold on specific websites, COTY can tightly control competition online by refusing to sell to giants like Amazon and Ebay. This can result to high prices and lack of choice for consumers.

COTY+AkzenteThe decision:


Luxury2.pngThe Court of Justice decided that contracts like the one signed between COTY and 
Akzente can be allowed when they are intended to preserve the luxury image of a brand. According to the court, luxury brands are special because their quality is not only measured according to their material characteristics. Their ‘aura of luxury’ additionally ads to their quality. Consequently, agreements that are made to preserve this quality do not violate the rules of competition. So, in a situation where a luxury company makes agreements that dictate who qualifies to be their seller, if these agreements are designed to preserve its image and as long as these agreements are proportionate, uniformly laid down and non-discriminatorily applied; they are good to go.

 

How this impacts you:

The decision means that luxury brands can pull out their products from third-party online sellers like Amazon and Ebay. So, if you’re trying to treat yourself with a Marc Jacobs perfume for the holidays, you might need to rush for that ‘Proceed to Checkout’ button. Otherwise you might have to do your holiday shopping on the brand’s official website.

 
Note: The effect of the case might be obvious on brands that unmistakably have an ‘aura of luxury’. But it might be difficult to draw the boundaries of the luxury category in the future. Is NIKE a luxury brand? 

Have you been overpaying for beer?

AB-InBev
The European Commission (@EU_Competition) is investigating AB InBev (the company behind Budwiser, Corona and Stella Artois) for a potential abuse of dominance. According to the EU competition enforcer, the beer giant designed a strategy to prevent supermarkets from selling their beers to supermarkets in other EU member states.

 

EU-tradeEuropean competition laws try to make sure companies compete fairly in the European Union. Being one of the main provisions of the ‘constitution’ of the EU, these laws clearly seek to ensure that the Union’s core project – the creation of a single, unified market – is facilitated by these competition provisions. For this reason, EU competition law prohibits practices that can hinder the operation of the European single market. The clearest example of such practice is blocking parallel importing.

The EU single market cannot be magically created. Companies need to expand to neighbouring Member States and trade must freely flow between countries. A common practice by companies that sell in different countries is to make use of domestic distributors. Take AB InBev for example. They export their beer in your country, then a distributor deals with the stock, transports it to supermarkets and there it is sold to you. During this process, the producer (AB InBev in this occasion) sets an export price, the distributor sets a higher price, and the supermarket sets an even higher price. So, for example, the price of a Corona might be €1 when it arrives in your country but €4 when it’s sold in your local shop.

Price

These cost differences create a window of opportunity for distributors and supermarkets. Let’s say that the price of Corona in the Netherlands is €2.50. If Corona is sold in Belgium for €3.50, Dutch supermarkets can just export their excess stock to Belgian supermarkets. This practice is called parallel trading and it can lower the prices of goods for the benefit of European citizens everywhere. What companies, like AB InBev, tend to do to make sure that they are in control of prices in each country, is to design strategies to make it difficult for supermarkets to do parallel trading. According to the Commission, AB InBev did exactly that.

Parallel-trade

The case concerned the trade of beers in France, Belgium and the Netherlands. French and Dutch supermarkets sold their beers to Belgian supermarkets. According to the
press release, AB InBev changed the labels of its beers – removing the Dutch text Translationfrom the beers sold in France and the French text from the beers sold in the Netherlands – to prevent the supermarkets from doing parallel trading. This (cleverly designed) strategy can prevent parallel trading because of the 
product-labelling requirements of Member States (especially in countries with more than one official language like Belgium). AB InBev also, allegedly, stopped selling or limited the quantity of their sales to Dutch retailers to reduce their stock.

The investigation is at the stage of issuing of a ‘statement of objections’. That means that AB InBev has not yet been found to have violated EU competition law. The statement simply notifies the company that some behaviour appears problematic. AB InBev has some time to offer propositions to change its behaviour to comply. If not, official proceedings can be commenced.

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