Selective distribution and intellectual property

Selective distribution is the system by which a supplier undertakes to sell its goods or services only to distributors selected on the basis of defined criteria, and by which those distributors undertake not to resell to unauthorised resellers. It is governed by Regulation (EU) 2022/720 on vertical agreements. It concerns intellectual property because it serves to preserve the image of a trade mark, particularly a luxury brand, and because it comes up against the rule of trade mark exhaustion.

Conditions for a lawful network

A selective distribution network escapes the prohibition of anticompetitive agreements where the nature of the product justifies selection, resellers are chosen on the basis of objective qualitative criteria laid down uniformly and applied without discrimination, and those criteria do not go beyond what is necessary. Below the thirty per cent market share thresholds, Regulation (EU) 2022/720 exempts the network, including where it relies on quantitative criteria, provided there are no hardcore restrictions. The supplier may prohibit sales to unauthorised resellers, but not cross-supplies between network members or sales to end users. The Court of Justice of the European Union holds that a supplier of luxury goods may, to preserve their prestige image, prohibit its authorised distributors from selling through third-party platforms in a discernible manner.

Interaction with trade mark exhaustion

Once the product has been put on the market in the European Economic Area by the owner or with its consent, the trade mark right is exhausted and the owner cannot oppose resale, in accordance with the exhaustion doctrine. Sales outside the network by an unauthorised reseller that has obtained genuine goods are therefore not, in principle, infringement. The owner nonetheless retains a legitimate reason to oppose further commercialisation where the resale conditions seriously damage the reputation of the trade mark, which the CJEU accepts for prestige goods sold in degrading conditions. Parallel imports from third countries, without consent to their being placed on the market in the European Economic Area, remain prohibited.

Actions against sales outside the network

Against an unauthorised reseller, the supplier may bring an unfair competition action where the reseller took part in breaching the network, the Commercial Code penalising participation in a breach of the ban on resale outside the network, and an action for parasitism. It must then prove that its network is lawful and watertight. Against an authorised distributor that resells to an unauthorised third party, the action lies in contract. Evidence is gathered through test purchases.

Key points

Selective distribution is lawful where it rests on qualitative, objective and non-discriminatory criteria, or where it benefits from the exemption under Regulation (EU) 2022/720. It does not prevent trade mark exhaustion, save for serious damage to reputation. Against sales outside the network, act on the basis of unfair competition after checking that the network is watertight and documenting the origin of the goods.

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This glossary entry is general in scope and does not constitute legal advice.

Dhenne Avocats is a patent litigation firm. Matters outside that field, such as trade marks, designs, copyright and IT contracts, are handled by practitioners the firm works with regularly, and by the firm itself when they arise in a patent dispute.

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