Selective distribution and luxury brands

Selective distribution is a distribution strategy in which the supplier gives the right to a limited number of “authorized” distributors or resellers to sell its goods or services.

This distribution strategy is often practiced by luxury brands owners who choose their authorized distributors with care and precision in order to preserve the brand’s luxury market and image.

Contrary to what one might think at first glance, selective distribution is not an anti-competitive measure in the sense of competition law. In fact, it is a type of distribution that allows to preserve and even increase the intrinsic qualities of the goods, thus refining the satisfaction of consumers’ needs.

Moreover, on August 30, 2019, the Court of Appeal of Paris recognized the legality of the distribution network set up by the company Coty for the distribution of perfumes of the brand Calvin Klein in particular.

The selection of distributors is therefore based on criteria predetermined by the supplier. However, for this selective distribution circuit to be considered lawful, the Court of Justice of the European Union specified in its Metro ruling that the selection must:

• Be justified by the very nature of the good or service,
• Be based on objective criteria of a qualitative nature, set uniformly for all potential resellers and applied in a non-discriminatory manner, and
• Be proportional to the safeguarding of the nature of the good.

On the other hand, the supplier must ensure the watertightness of the distribution network in order to preserve its nature as well as the brand image. In practice, this watertightness is often the focus of numerous disputes relating to the resale of products within and outside the network, between suppliers and authorized distributors, and even unauthorized distributors.

The unauthorized distributor who sells the products or services for which a selective distribution network has been set up may be held liable in tort on the following grounds:

Third party complicity in the violation of the authorized distributor’s obligation

Unfair competition: The fault can be proven if the third party reseller has obtained supplies from other members of the network in an illicit manner, OR, if the reseller damages the brand or the brand image of the network.

Therefore, there are precautions to take on the potential reseller’s side before purchasing products for resale, including:

• Check on the website of the brand owner whether there is a selective distribution system for the products and services concerned.
• Check with your supplier to see if there is a distribution network for the marked goods or services.
• In case of doubt, contact the trademark owner directly.

– Isabella MOUSTIQUE, Intellectual Property Lawyer at Mark & Law

Sources:

• CJUE C-26/76, October 25, 1977.
• Court of Appeal of Paris, SAS Coty France v/ SA BRANDALLEY, August 30, 2019.
• Distribution sélective, Concurrence Antitrust Publications & Events [online], November 24, 2022. Accessible here.