Selective Distribution in Luxury: Why Brands Can Choose Who Sells Them

Luxury houses decide which retailers may stock their products, ban those retailers from supplying discounters, and in Europe can stop them selling on Amazon. An agreement between companies about who may sell what would normally raise competition law alarms. Selective distribution is the legal route that allows it. This guide explains how it works in the EU, the UK and the US, where its limits lie, and what it means for resellers and grey market sellers.

Short answer: Selective distribution is a system where a brand sells only to retailers it chooses against set criteria, and those retailers agree not to sell to unauthorised dealers. EU and UK competition law allow it if the criteria are qualitative, applied uniformly and proportionate, and the block exemptions cover it up to a 30% market share. Outright online sales bans are not allowed.

Key takeaways

• The EU’s Vertical Block Exemption Regulation, Regulation (EU) 2022/720, applies from 1 June 2022 to 31 May 2034 and covers selective distribution where supplier and buyer each hold no more than 30% of their markets.
• In Coty Germany v Parfümerie Akzente (C-230/16, 6 December 2017), the Court of Justice allowed a luxury brand to bar authorised retailers from selling through visible third-party platforms.
• In Pierre Fabre (C-439/09, 13 October 2011), the Court held that a de facto ban on all internet sales was a restriction by object and could not be block exempted.
• In the US, non-price restraints have been judged under the rule of reason since GTE Sylvania (1977), and minimum resale price agreements since Leegin (2007).

What is selective distribution?

EU law has a formal definition. Article 1(1)(g) of the Vertical Block Exemption Regulation describes a selective distribution system as one where the supplier sells the goods only to distributors selected on the basis of specified criteria, and where those distributors undertake not to sell the goods to unauthorised distributors within the territory the supplier has reserved for the system. The UK’s equivalent order uses almost identical wording.

Two features matter. First, selection: the brand sets criteria such as location, fit-out, trained staff, after-sales service or website quality, and appoints only those who meet them. Second, the closed circuit: authorised retailers may sell to consumers and to each other, but not to traders outside the network. Fragrance, watches, jewellery and designer fashion all use it. FLJ looks at the wider economics of scarcity in The Law Against Scarcity.

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Why does EU competition law allow it?

Article 101(1) of the Treaty on the Functioning of the European Union prohibits agreements that restrict competition, and a network that keeps products from discounters limits price competition. The Court of Justice accepted, however, that some products need a particular retail setting, and that competition on service and quality can justify less competition on price.

The starting point is Metro SB-Großmärkte v Commission (Case 26/76), decided on 25 October 1977 and involving SABA’s consumer electronics. The Court held that selective distribution is compatible with the competition rules where resellers are chosen on the basis of “objective criteria of a qualitative nature” relating to the reseller’s technical qualifications, its staff and the suitability of its premises, and where those conditions are “laid down uniformly for all potential resellers and are not applied in a discriminatory fashion”. Later case law added that the nature of the product must call for such a system and that the criteria must not go beyond what is necessary. A network meeting these conditions falls outside Article 101(1) altogether.

Qualitative criteria are different from quantitative ones, such as capping the number of stores in a city. Quantitative selection is not automatically unlawful, but it does not pass the Metro test and has to rely on the block exemption or an individual assessment.

What does the Vertical Block Exemption Regulation allow?

Most brands do not rely on Metro alone. Commission Regulation (EU) 2022/720 of 10 May 2022 provides a safe harbour for vertical agreements, including selective distribution, whether the criteria are qualitative or quantitative. It entered into force on 1 June 2022 and expires on 31 May 2034.

The safe harbour has two main conditions. Under Article 3, the supplier’s share of the market where it sells and the buyer’s share of the market where it buys must each not exceed 30%. And under Article 4, the agreement must contain no hardcore restrictions. For selective distribution those include restricting the customers to whom, or territory into which, members may sell (subject to limited exceptions, such as banning sales to unauthorised distributors in the territory where the system operates), restricting cross-supplies between authorised members, and restricting active or passive sales to end users by members at retail level. Article 4(e) adds a hardcore restriction for anything that prevents “the effective use of the internet” by the buyer or its customers to sell the goods.

A hardcore restriction removes the block exemption for the whole agreement. Above 30%, there is no presumption either way and the agreement is assessed on its merits.

Can luxury brands stop retailers selling online or on marketplaces?

Not entirely, but they can control how. Two Court of Justice rulings draw the line.

Pierre Fabre (C-439/09). Pierre Fabre required its cosmetics to be sold in a physical space with a qualified pharmacist present, which in practice banned online sales. In its judgment of 13 October 2011, the Court held that such a clause was a restriction of competition by object unless objectively justified, that “the aim of maintaining a prestigious image is not a legitimate aim for restricting competition”, and that the block exemption did not apply. An individual exemption under Article 101(3) remained possible in theory.

Coty Germany v Parfümerie Akzente (C-230/16). Coty let authorised retailers sell online but not through third-party platforms visible to consumers, such as Amazon. In its judgment of 6 December 2017, the Court held that a selective distribution system for luxury goods designed primarily to preserve their luxury image can comply with Article 101(1), and that the platform ban was lawful if it pursued that aim, was applied uniformly and without discrimination, and was proportionate. It distinguished Pierre Fabre as a case about an outright ban and found the Coty clause was not a hardcore restriction. The 2022 regulation keeps that approach: platform bans and online quality standards are possible, as long as retailers can still use the internet effectively.

Enforcement shows where the limits are. In December 2018 the European Commission fined the clothing company Guess €39,821,000 for agreements that restricted authorised retailers’ online advertising and stopped them selling to consumers in other member states.

How does the UK treat selective distribution after Brexit?

The UK replaced the retained EU block exemption with its own. The Competition Act 1998 (Vertical Agreements Block Exemption) Order 2022, SI 2022/516, was made on 4 May 2022, came into force on 1 June 2022 and ceases to have effect on 1 June 2028, so it currently runs until 31 May 2028, six years earlier than the EU regulation. It uses the same 30% market share thresholds for supplier and buyer, and its Article 8 lists the same core hardcore restrictions for selective distribution and for preventing the effective use of the internet.

The UK has its own leading case on online bans. The Competition and Markets Authority fined golf club maker Ping for stopping two retailers selling its clubs on their websites. The Competition Appeal Tribunal upheld the infringement in September 2018 and cut the fine to £1.25 million, as the CMA announced, and the Court of Appeal dismissed Ping’s further appeal in January 2020 in Ping Europe Ltd v CMA [2020] EWCA Civ 13. Ping’s aim of protecting in-store custom fitting could have been met in less restrictive ways.

What is the position in the United States?

US antitrust law is more relaxed about distribution choices. There is no block exemption; vertical restraints under Section 1 of the Sherman Act are usually judged under the rule of reason, weighing harm to competition against benefits.

• Continental T.V. v GTE Sylvania, 433 U.S. 36 (1977). The Supreme Court held that non-price vertical restraints, in that case limits on where retailers could sell, are judged under the rule of reason.
• Leegin Creative Leather Products v PSKS, 551 U.S. 877 (2007). Decided on 28 June 2007 by five votes to four, Leegin overruled the 1911 Dr. Miles decision and held that “vertical price restraints are to be judged by the rule of reason”.
• United States v Colgate & Co., 250 U.S. 300 (1919). A manufacturer acting alone may choose the parties it deals with and “announce in advance the circumstances under which he will refuse to sell”. This is why US brands often use unilateral policies rather than signed agreements to stop discounting or unauthorised resale.

The practical difference is large: a US brand can usually refuse to supply a retailer that sells on marketplaces, while an EU brand can never cut retailers off from the internet altogether. FLJ’s piece on Chanel bag prices explains why luxury price increases themselves are generally lawful, and its analysis of EssilorLuxottica and competition law shows how vertical power is scrutinised in eyewear.

What does selective distribution mean for resellers and grey market sellers?

A selective distribution contract binds only the brand and its authorised retailers. A reseller outside the network has signed nothing, so the brand’s tools against it are trade mark law and, sometimes, unfair competition law.

Exhaustion. In the EU, once genuine goods have been put on the market in the European Economic Area by the brand or with its consent, the brand generally cannot use its trade mark to stop further resale, though Article 15 of the EU Trade Mark Regulation allows it to object where there are legitimate reasons, such as changed or damaged goods. Goods first sold outside the EEA are different: in Silhouette (C-355/96, 16 July 1998) the Court ruled out international exhaustion, so grey imports from outside the EEA can infringe. The UK applies a “UK+” regime that treats goods first sold in the EEA as exhausted. FLJ looks at the tension in The Parallel Paradox.

Leaks from the network. In Copad v Christian Dior (C-59/08, 23 April 2009), the Court held that a licensee who sold prestige lingerie to a discount store in breach of its licence could be treated as acting without consent, where the sale damaged the allure and prestigious image of the goods. It shows how distribution rules can be tied to trade mark rights.

United States. The first sale doctrine protects the resale of genuine goods, but sellers can still be liable if they sell materially different products or imply an affiliation with the brand. FLJ explains this in What Is the First Sale Doctrine, and the risks for resale platforms in Chanel’s trade mark victory against a luxury reseller.

What should a selective distribution agreement include?

• Written, objective criteria for store standards, staff training, online presentation and after-sales service, applied the same way to every applicant.
• A clear ban on sales to unauthorised resellers, alongside express freedom for members to sell to consumers anywhere and to each other.
• Online rules, not online bans: quality standards for websites and, where justified, limits on visible third-party marketplaces.
• A market share check against the 30% thresholds in the EU and UK, repeated as the business grows.
• No resale price fixing in the EU or UK, where it remains a hardcore restriction, and care in the US, where price agreements are still open to challenge under the rule of reason.
• Audit and termination rights, because uneven enforcement undermines the case that the criteria are necessary.

This article is general information, not legal advice. Competition law turns on the facts of each market; take advice before drafting or enforcing a distribution agreement.

Frequently asked questions

What is selective distribution in simple terms?

It is a way of selling where the brand chooses its retailers using fixed criteria, such as store quality and trained staff, and those retailers promise not to sell the products to unapproved resellers. Luxury fashion, fragrance, watches and jewellery brands use it to control how and where their products are presented.

Is selective distribution legal in the EU?

Yes, within limits. Under the Metro case law, a system based on qualitative, uniform and proportionate criteria falls outside Article 101(1) TFEU. Otherwise, Regulation (EU) 2022/720 exempts it where supplier and buyer each have no more than 30% market share and there are no hardcore restrictions.

Can a luxury brand ban its retailers from selling on Amazon?

In the EU, generally yes. In Coty (C-230/16), the Court of Justice accepted a ban on using visible third-party platforms to protect a luxury image, provided it is uniform and proportionate. The brand cannot, however, ban online sales altogether, because preventing effective use of the internet is a hardcore restriction.

Does the UK follow the EU rules on selective distribution?

Broadly. The UK’s Vertical Agreements Block Exemption Order 2022 uses the same 30% thresholds and similar hardcore restrictions, but it is a separate law that expires on 31 May 2028. The Ping case confirmed that an online sales ban breaches UK competition law.

Is selective distribution legal in the US?

Yes, and more freely than in Europe. Non-price restrictions on retailers are judged under the rule of reason following GTE Sylvania, and under the Colgate doctrine a manufacturer acting alone can refuse to supply retailers that break its announced policies. Leegin applied the rule of reason to vertical price agreements in 2007.

Can a brand stop a grey market seller reselling its products?

Not through the distribution contract, which binds only authorised retailers. It must rely on trade mark law. In the EU, resale of goods first sold in the EEA with consent is usually allowed, but goods first sold outside the EEA can infringe, and damaged or altered goods can be challenged.