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Luxury and online marketplaces - the next chapter (Coty v Amazon)

01 June 2020. Published by Ciara Cullen, Partner and Sarah Mountain, Senior Associate

On 2 April 2020, the CJEU ruled that storing infringing goods on behalf of a third-party seller, without knowing that those goods infringe trade mark rights does not constitute infringement, provided that the storing party does not pursue the aim of offering the goods for sale or putting them on the market.

At first glance, this decision may seem fair and unremarkable: why should an innocent third party be penalised for handling goods that it does not know infringe? The decision may seem less fair and more remarkable however, when the identity of the storing party is revealed. We are of course talking about ecommerce giant, Amazon and its recent dispute with Coty regarding bottles of 'Davidoff Hot Water' perfume (Coty Germany GmbH v Amazon (C-567/18)).

Background 

Coty is a global beauty company. Its impressive portfolio of luxury skincare and fragrance brands includes Marc Jacobs, Chloé, Gucci, Balenciaga, Bottega Veneta, Alexander McQueen, Davidoff, Burberry, Miu Miu and Lancaster. Through its German distribution company (the claimant in this case), Coty distributes perfumes, including under the 'Davidoff' brand and holds an EU trade mark (EUTM) licence for the sign DAVIDOFF. 

Coty claimed that two Amazon companies had infringed its rights in the EUTM by storing and dispatching bottles of 'Davidoff Hot Water', that were offered for sale by third-party sellers via Amazon-Marketplace. As Coty had not consented to the bottles being put on the EU market, their sale constituted an infringing act. Coty wrote to the third-party seller in question and obtained a cease-and-desist declaration. Coty then wrote to Amazon, to request the return of all bottles offered by the seller. Amazon sent a package containing 30 bottles to Coty. When Coty learned that some of these were offered for sale by a different third-party seller, it asked Amazon to disclose their contact details. Amazon however declined. 

Although contracts for the sale of goods via Amazon-Marketplace are concluded between third-party sellers and end-purchasers, Coty believed that Amazon's actions infringed the EUTM and that Amazon should be ordered to cease and desist from storing and dispatching bottles via its "Fulfilled by Amazon" (FBA) service.   

The litigation

Coty's claim began life in the German national courts but failed at first instance and on appeal. Coty subsequently appealed to Germany's highest court (the Federal Court) on a point of law. The Federal Court stated that it agreed with the previous decisions (i.e. that Amazon had not infringed) but sought input from the CJEU on the interpretation of EU trade mark law.

Specifically, it asked:

"Does a person who, on behalf of a third party, stores goods which infringe trade mark rights, without having knowledge of that infringement, stock those goods for the purpose of offering them or putting them on the market, if it is not that person himself but rather the third party alone which intends to offer the goods or put them on the market?"

In plain language: does someone who stores infringing goods for a third party, without knowing about the infringement, store the goods for the purpose of selling them (which is itself an infringing act) if only the third party intends to sell them?

The CJEU held that the answer was no: the provision of storage alone was not enough. For infringement to arise, the storage company must also pursue the aim of offering the goods for sale or putting them on the market. Amazon's lack of intent to offer the goods for sale meant that it had not used (and had therefore not infringed) the EUTM. 

The decision

The decision (whilst consistent with previous case law) will raise eyebrows. EU trade mark law does not define 'use' but in reaching its decision, the CJEU surmised that some form of "active behaviour" was required, along with the ability to control the act which constitutes the use (in this case, the selling of goods). As many will be quick to point out, it is arguable that Amazon plays far more than a passive role when goods are offered and ultimately sold via its Marketplace and that Amazon effectively steps into the shoes of the third-party seller. This is particularly persuasive in the case of FBA, which Amazon promotes under the strapline: 

"Simply send us your products, and we take care of storage, delivery to customers, customer service and returns handling".

The position is further clouded by the fact that Amazon provides the platform (and therefore the means) from which goods are sold and that a chunk of its considerable revenues is derived from cuts of seller sale proceeds. 

The "without having knowledge" element is also interesting. Many businesses that trade in third party goods routinely undertake supply chain due diligence to ensure that infringing and/or so-called grey goods are not inadvertently offered for sale. Whilst Amazon presumably does likewise, the platform has famously struggled to control the sale of counterfeit, grey and mislabelled products on its site. 

What this means for brands  

The decision, which is the latest in a long line of disputes that have seen brand owners (unsuccessfully) attempt to challenge Amazon's business practices, will not have been well received by the luxury market. 

It may not be the end of the story however. In its decision, the CJEU (although only asked to opine on a particular question) referred to other provisions of EU law, which allow proceedings to be brought against intermediaries who have enabled economic operators to use trade marks unlawfully. The mixing of products belonging to different third-party sellers could also prove problematic for Amazon: The CJEU accepted that if someone is unable to identify the third party on whose behalf goods are stored, the storing party itself would be offering the goods for sale (and therefore infringing). 

It seems likely, therefore, that this case does not mark the end of litigation involving online marketplaces. Whilst the law can be slow to adapt, particularly in response to advances in technology, it will be interesting to see whether the current law (or how it is interpreted) changes over time. 

Looking to the future

The fractious relationship between Amazon and certain luxury brands is well-documented. The position is not universal though and some brands see real benefit in selling via the platform. For some, it may be the ability to more effectively remove counterfeit goods (a "keep your friends close and your enemies closer" approach). For others, it may be Amazon's sheer popularity amongst consumers: ft.com recently reported that Amazon's sales have surged to $11,000 a second. 

That said, joining forces with Amazon will not be for everyone and whilst some luxury brands may be prepared to sell only limited items via the platform, it seems unlikely that we will see entire product lines and/or collections appearing. For many brands, the understandable desire to retain cachet and exclusivity and to therefore limit distribution channels will prevail over pure financial considerations. 

As well as creating an extremely testing environment for much of the luxury retail sector, the COVID-19 outbreak has shone a light on what has been known for some time: consumer habits have shifted. Whilst we do not know how or when some form of normality will be restored, spending habits indicate that for those understandably wishing to retain a physical store presence (and consumer experience), a clicks and mortar business model will likely be more futureproof. This presents an opportunity for greater collaboration between luxury brands and online marketplaces (whether through the release of more extensive collections or new partnerships) and undoubtedly acts as an incentive for brands to develop and extend their digital presence. 

Whilst the current climate is unprecedented and riddled with uncertainty, one thing is certain - the ability of luxury brands to flex and innovate will be key to their continued success as we journey forward to more prosperous times.

(This article was first published in Luxury Law Alliance