The Aura of Luxury in Online Sales

On 5th November 2013, the economic newspaper ‘Expansión’ published a piece that sparked panic among online vendos and distribuíos of luxury products (principally perfumes): “La Justicia impide la reventa de marcas de lujo en Internet” (“The law prevents the resale of luxury brands online”). After reading this headline, specialist law firms received a barrage of enquiries that could be summarized by a single, agonizing question: “Is it illegal to sell luxury products online that I purchased from an authorized distributor?

The answer is not simple, and like many other legal responses, begins with “it depends”. In this case it depends on the respect that the vendor pays to the “aura of luxury”.

Luxury products are conceived of as goods of exclusive consumption, therefore their presentation should communicate that exclusivity to potential customers. Brands allocate large sums of money to maintaining an aura of prestige, quality, and high standards that covers the product in question like an invisible halo. These values attract consumers who are primarily looking for exclusivity in their purchases. This necessarily requires paying attention to details such as packaging, the positioning of the product in the establishment, and the staff who sell it. These details constitute what is often called an “aura of luxury”, and major brands ensure that the establishments that sell their products respect them by choosing them with great care and binding them with the formalization of selective distribution contracts.

In these contracts, brands agree to sell their products only to distributors selected based on specific criteria, while distributors agree not to sell such goods to unauthorized agents.

However, the brand cannot control the distribution of their products forever since, once commercialized, it is generally not possible for the brand itself or a third party with their consent to oppose their resale. The free circulation of goods and services is at the core of the Founding Treaties of the EU. This freedom allows for the existence of parallel distributions, the natural enemy of luxury brands that want their products to be sold only through their official distribution channel in order to preserve the “aura of luxury” to which we refer. A case such as that faced by MAKRO and Calvin Klein in the courts can serve to illustrate this friction between Community freedom and the marketing of major luxury brands.

In 2009, MAKRO was ordered to pay the brand Calvin Klein 400,000 euros for having discredited their luxury brand image by having sold their products in their large stores. The characteristics of MAKRO, a warehouse club, prevented the respect of the “aura of luxury” which we referred to above.

If the situation was already difficult when discussing sales in establishments, the proliferation of internet sales has made it untenable.

At first, brands tried to reserve the online market for themselves by prohibiting or restricting their distributors from marketing their products online. To do this they alleged, in some cases, that online commerce could dilute the aura of luxury or impede proper customer service from the distributor, both of which are criteria included in the selective distribution contracts we referred to earlier. However, preventing or limiting the access of online distributors directly conflicts with the constitutional principle of freedom of enterprise or the free economic initiative of distributors (Art. 38 EC) and with the basic freedoms advocated by the European Community which we have already referred to.

Is it possible to find a balance between Community freedoms and the interest of luxury brands to respect the added value that the “aura of luxury” represents?

To answer this question we must first delve into the complex Community regulation with particular reference to two Regulations, 2790/1999 (supply and distribution agreements) and 330/2010 (known as the Block Exemption Regulation). We must start from the basis that considers deterring authorized distributors from using the internet in order to reach a larger and more diverse customer base to be a hardcore restriction of free competition. The rules imposed by the brands on online sales must be broadly equivalent to those imposed on sales in physical stores.

The freedom of distributors to make online sales is therefore secured, although nuanced by the brand’s opportunity to establish restrictions through the selective distribution systems.

However, is it possible to respect the “aura of luxury” in online sales? It must be acknowledged that sales from a website could dilute the prestige of a brand if details are not given proper attention, which brings us back to the news that we began this article with. Websales Ibérica and Vicinanza Trading were sued by the LVMH group (Louis Vuitton Moët Hennessy, a French multinational conglomerate that owns over 60 renowned brands around the world), among other reasons, which are beyond the scope of this article, for infringement of the selective distribution criteria by violating the terms regarding image and prestige. The judgments (both at first instance and on appeal) that have been issued up to now have not considered it to be controversial that the defendants can sell luxury products online without the consent of the brand. That said, it must be done while respecting the terms reflected in the selective distribution contracts. Such contracts may not have been signed by Websales Ibérica and Vicinanza Trading, but they are bound by them because they are acquiring the products from an authorized distributor.

To conclude: what is being decided is whether Websales Ibérica and Vicinanza Trading respect the “aura of luxury” in the sale of the products. Presenting items mixed without rhyme or reason or without being separated by sectors or qualities, in which lines are incomplete and lack the novelties of the brand, which don’t offer advertizing, etc., contributes to creating an image of bargains, outlets, or bazaars that clashes with the prestige that luxury brands try to safeguard as their greatest asset.

Any company that intends to distribute luxury products online would do well to consult with a professional regarding these issues, or risk receiving, at best, a polite cease and desist letter, or at worst, an immediate lawsuit from a “luxury giant”.