A luxury handbag sells best when it sits in a boutique, next to a trained sales associate and a carefully lit display. Brands have long wanted that controlled environment, and they have built selective distribution networks to protect it. Online marketplaces have made the controlled environment harder to keep. A product can leave an authorised boutique and reappear on a platform within days, and the brand may have no contract with the seller at all. The law on whether a brand can stop that movement depends heavily on where it sells.
What Selective Distribution Means
A selective distribution system limits who may sell a brand’s products. The supplier chooses retailers against defined criteria, usually the store’s premises, its staff training and its brand presentation, and it signs contracts with each authorised seller. Those contracts can restrict how the seller advertises, where it sells and how it presents the goods. The system differs from exclusive distribution, which limits sales to a single retailer in a territory, and from open distribution, which places no limit on who may sell.
The model has always raised competition questions, because it restricts who may compete for a brand’s goods. Competition law therefore asks whether the restriction has a legitimate purpose and whether it goes further than that purpose requires.
The EU Position: Coty and the Luxury Image
The Court of Justice of the European Union answered the online question for luxury goods in Coty Germany v Parfümerie Akzente (C-230/16), decided on 6 December 2017. Coty sold luxury cosmetics through a selective network and banned its retailers from selling on third-party platforms such as Amazon in a discernible manner. The German courts asked whether that ban restricted competition unlawfully.
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The Court held that a selective distribution system for luxury goods, designed primarily to preserve the luxury image of those goods, falls outside the prohibition on restrictive agreements, provided three conditions are met. The criteria must be laid down uniformly, applied without discrimination and proportionate to the objective pursued. The Court also held that the platform ban did not count as a hardcore restriction under the Vertical Block Exemption Regulation, so the ban could benefit from the block exemption. Latham & Watkins’ analysis notes that the exemption applies where the supplier’s and the distributor’s market shares remain below 30 percent.
Coty did not give luxury brands unlimited power. The Court had already limited a blanket online ban in Pierre Fabre (2011), which concerned non-luxury cosmetics. Dentons explains that Coty confined Pierre Fabre to its own facts, and that the image of a luxury product can justify restrictions that the image of a non-luxury product cannot. A brand that wants to restrict online sales must show a link between the restriction and the luxury character of the product.
The Court’s reasoning also deals with the problem of control. A luxury brand has no direct contract with a third-party platform, which makes it hard to enforce standards on that platform. A prohibition on discernible platform sales lets the brand keep control over its distributors, which is what the selective network is designed to achieve.
The US Position: Rule of Reason and Contract
United States antitrust law reaches the same practical result through a different route. In Leegin Creative Leather Products v. PSKS (2007), the Supreme Court abandoned the per se rule against minimum resale price agreements and adopted a rule of reason for vertical restraints. Under that approach, a court weighs the restraint’s procompetitive benefits against its anticompetitive harms, rather than treating the restraint as unlawful in every case.
The rule of reason gives brands room to design selective networks, but it does not give them power over independent buyers. A contract binds the authorised retailer, and the retailer’s obligations can include limits on online channels, advertising and trade names. Once a customer buys an authorised product, the brand’s contract rights generally do not follow the product to the next owner. The first sale doctrine supports that result for copyrighted and patented goods, so a reseller who sells a genuine product can usually do so without infringing the brand’s rights.
Where the Brand Still Has Tools
A brand that wants to stop online resellers has several legal levers, and each one works on a different target. The contract with an authorised retailer is the first. It can prohibit sales on specified platforms and require the retailer to keep the brand’s presentation intact. A breach gives the brand a claim against that retailer, and the remedies depend on the contract’s terms.
The second lever is trademark law. A reseller may sell genuine goods, but it cannot use the brand’s marks in a way that suggests an affiliation, and it cannot sell goods that have been materially altered. The Second Circuit’s decision in Zino Davidoff v. CVS shows how removed identifying codes can defeat the first sale defence, so product codes and serial numbers give a brand evidence when it needs to show alteration.
The third lever is counterfeit enforcement. A brand has no right to stop a genuine product from being resold, but it can act against goods that are fake, and it can use customs recordation and platform notice procedures to remove them. FLJ’s explainer on dupes and counterfeits sets out the line between lawful copies and infringing goods, which decides which listings a brand can challenge. Where a reseller misrepresents the origin or condition of a product, false advertising claims may also apply.
What Brands Should Do
Brands that run selective distribution should write their criteria in the contract and apply them consistently across the network. The Coty test rewards uniformity, so a brand that enforces its platform ban against one retailer and ignores another weakens its position. Brands should also document how each restriction protects the product’s luxury character, since the reason for the restriction is part of the legal test.
Product marking helps as well. Codes and serial numbers let a brand trace goods, show when they have been altered and support its claims against counterfeit or misrepresented stock. Those tools also give the brand evidence in a contract dispute, because they link a product to the network that sold it.
A brand cannot stop every online reseller, and the law does not ask it to. What the law allows is a controlled network, enforceable contracts with authorised partners, and rights against goods that are fake or misrepresented. A brand that designs its distribution with those limits in view can protect its image without claiming control over every product it has sold.
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