In practice, it often proves challenging to take action against this issue through traditional means. Trademark infringement frequently fails due to the principle of trademark exhaustion. Once a product has been lawfully placed on the market within the European Economic Area, the trademark holder cannot oppose its further resale under trademark law. Contractual sanctions included in selective distribution agreements are, by definition, not enforceable against third parties.
However, this does not mean that action against such third parties is impossible. Under Belgian law, third parties who knowingly contribute to the breach of a selective distribution system can, under certain conditions, be held liable for third-party complicity in another party’s breach of contract.
1. Selective distribution
Selective distribution systems are compatible with competition law, provided that the well-established conditions are met: objective, uniform and proportionate criteria, justified by the nature of the product and/or the preservation of the brand image. It is particularly important to note that such a network is not merely an internal matter. Under certain conditions, it may also have legal consequences for third parties.
2. Third-Party complicity and selective distribution: an unjustified competitive advantage
The French-speaking Business Court in Brussels delivered its judgment on 9 January 2023 in the case of L’Oréal v. Yolo Cosmetic, addressing the possibilities for holding third parties operating outside a selective distribution network liable for third-party complicity in a breach of contract.
The court ruled that a third party who:
- purchases and sells products that are subject to a selective distribution system,
- is aware or ought to be aware of the existence of that selective network and the contractual prohibition within that network against reselling to unauthorised resellers,
- and nevertheless commercialises these products,
is guilty of third-party complicity in a breach of contract and thereby engages in conduct contrary to fair market practices.
The court emphasised that such third parties gain an unjustified competitive advantage. The third party avoids the qualitative criteria and investments imposed by the network, but nonetheless parasitises the brand value and reputation built up by the trademark holder and authorised distributors.
3. Importance for brand owners and distributors
This case law provides brand owners and members of a selective distribution network with the opportunity to take action against parallel and unauthorised sales channels. Thus, brand owners and authorised distributors may:
- obtain injunctions against third-party sellers,
- claim penalty payments,
- and, where appropriate, seek damages.
Importantly, no contractual link is required between the brand owner and the third party. It is sufficient that the third party is aware of the existence of the network and knowingly benefits from the breach of contract by authorised distributors or from parallel channels that undermine the network.
4. Would you like to strengthen your distribution network?
The judgment in L’Oréal v. Yolo Cosmetic confirms that brand owners and distributors are not powerless against third parties who knowingly undermine selective distribution networks. Such parties can be held liable on the basis of third-party complicity. A carefully developed strategy and well-prepared case file enable effective action against these parallel channels.
We have extensive expertise in (selective) distribution, commercial contracts and market practices. We support clients both proactively and in disputes concerning network protection and parallel trade.
If you have any further questions or would like a specific analysis of your distribution structure, we are happy to assist you.
