Written commercial agreement

Significant imbalance

Sudden termination of established relationships

Competition investigation – French law

Civil competition action

French competition law

Competition investigation – European law

European competition law

Vertical restraints

Distribution law

Liability for defective products

Consumer law

Prohibition of measures having equivalent effect

European business law

Corruption

Compliance

Economic law

Shareholders' agreements

Removal of company directors

Abuse of voting rights

Companies

Action for infringement (counterfeiting)

Rights conferred by the trademark

Patentability

Industrial property

Commercial rent review

Renewal of the commercial lease

Despecialization (change of use)

Commercial leases

Reform of contract law

Reform of the law of special contracts

Preliminary sales agreement

Obligation to deliver goods in conformity

Classification of the contract for services (contrat d'entreprise)

Effects of the agency agreement with respect to third parties

Business contracts

Ongoing contracts

Recovery claims

Court-approved transfer plan

Bankruptcy proceedings

Personal data breaches

White collar crime

Commercial law

500 Questions - Business Law

The exemption may be granted, by regulation, on the basis of Article 101(3) TFEU, which provides that Article 101(1) may be declared inapplicable to “categories” of agreements.

The Commission has made extensive use of this possibility of block exemption. Authorized by the Council, it has thus adopted several regulations in the field of distribution. All these regulations had common characteristic …

What were the characteristics of the first regulations?

The exemption may be granted, by regulation, on the basis of Article 101(3) TFEU, which provides that Article 101(1) may be declared inapplicable to “categories” of agreements.

The Commission has made extensive use of this possibility of block exemption. Authorized by the Council, it has thus adopted several regulations in the field of distribution. All these regulations had common characteristics. First, they often conditioned the exemption on the requirement that the undertakings participating in the agreement do not exceed certain thresholds of economic power. Then, they generally distinguished three types of contractual clauses: so-called “black” (hardcore restrictions), “white”, and “gray” clauses. The first did not benefit from the block exemption (exclusive purchasing agreements, exclusive distribution or franchise agreements concluded between competing manufacturers, absolute territorial protection clauses that prohibit parallel imports from territory to territory, clauses limiting the freedom of the franchisee or licensee to set prices...). White clauses were considered not to harm competition (e.g., stipulations aimed at maintaining the identity and reputation of the network within a franchise). Gray clauses represented all clauses that, like the exclusivity clause or the prohibition of active competition outside the granted area, were restrictive of competition but benefited from the block exemption. These regulations were gradually deemed too cumbersome, too directive, and ultimately too “legalalistic”

Aware of the difficulties raised by the application of traditional regulations, the European authorities decided to develop more economically based exemption rules (i.e., essentially based on economic power thresholds calculated in market shares) and more flexible from a legal standpoint. Henceforth, the regulations no longer list exempted clauses but merely identify clauses that, even if the market share thresholds are not exceeded, prevent the exemption: hardcore restrictions (black clauses) deprive the agreement as a whole of the benefit of the exemption; red clauses prevent the exemption of a specific obligation without challenging the exemption of the contract as a whole.

What are "new generation" regulations?

Adopted on 22 December 1999, Regulation No 2790/1999, which established a presumption of legality in favor of agreements below the 30% market share threshold that contained neither hardcore restrictions nor red clauses, constituted a first achievement of the reform of competition rules undertaken by the Commission to improve the legal certainty for undertakings, reduce the costs related to notifications, and lighten the workload of European authorities.

The scope of the regulation was very broad as it virtually covered all vertical agreements, meaning all agreements between undertakings located at different levels of the production and distribution chain aimed at the purchase, sale, or resale of certain goods and services. Only automobile distribution was excluded, as the specificities of the sector justified, according to the Commission, the maintenance of a particular regime.

The scope of application of the provision demonstrated a concern for simplifying and standardizing the rules governing different distribution systems. The Commission aimed to allow undertakings to freely choose their mode of marketing, based solely on their strategic interests and not on the Commission's policy regarding any particular distribution system.

What were the conditions for exemption in Regulation No 2790/1999 (01/06/2000-31/05/2010)?

Regulation No 2790/1999 was replaced by Regulation No 330/2010 of 20 April 2010 concerning the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices. The text, accompanied by guidelines, retains a very broad scope as it covers all vertical agreements, as well as agreements containing ancillary provisions on the assignment or use of intellectual property rights directly related to the use, sale, or resale of goods or services.

Regulation No 330/2010 must, according to the Commission, allow distributors to meet consumer demand, who, wherever they are in the Union, must have the opportunity to purchase goods or services at the most advantageous price.

It establishes a presumption of legality for agreements that do not contain restrictions with serious anticompetitive effects when both the supplier and the buyer each hold a market share not exceeding 30%. Regarding the supplier, the market share is assessed on the market where it sells the contractual goods or services; regarding the distributor, it is assessed on the upstream market where it purchases the contractual goods or services, which is generally a broad market, and not on the downstream market, which is often a narrow market because it is local: this method of calculation favors the granting of the block exemption. The guidelines on vertical restraints specify the rules for calculating the market share.

Only agreements that are contrary to the provisions of Article 101(1), but that sufficiently meet the conditions for the application of Article 101(3), are included in the category. Beyond that, the parties must assess their agreement using the Guidelines on Vertical Restraints. The exemption is now retroactive and applies from the conclusion of the agreement.

The Commission's position is becoming more flexible regarding hardcore restrictions. If the presence of such restrictions within an agreement may suggest its anticompetitive nature, this presumption is now rebuttable (Guidelines, para. 47). The exemption will be granted if it is established that the introduction of a black clause in the agreement results in efficiency gains and that the other conditions set out in Article 101, paragraph 3, TFEU are met.

The prohibition of imposed minimum prices is no longer absolute. An imposed sale price may, according to the guidelines, not have the effect of restricting competition and may produce efficiency gains (pts 223 and 225 et seq.).

If the restriction of internet sales remains prohibited, the promoters of selective distribution networks may, however, impose quality standards for the use of the website as for in-store sales or advertising. The supplier may thus require that the distributor have a traditional store or showroom before proceeding with internet sales, provided that this requirement does not imply a de facto prohibition of online sales.

Finally, the initial access fees paid by suppliers that allow entry into the network and compensate the services rendered by the distributor for a certain period are exempt below the 30% threshold. Beyond this, they are likely to lead to anticompetitive foreclosure because they encourage the supplier to sell its products only through a single distributor and constitute a barrier to entry for other suppliers (paras. 203 et seq.). The same applies to category management agreements (paras. 209 et seq.).

What were the conditions for exemption in Regulation No 330/2010 (01/08/2010-31/05/2022)?

The Commission decided not to simply replace the old block exemption regulation with the new general regulation for the Motor Vehicle BER No 1400/2002, which expired on 31 May 2010. Instead, it chose to apply different legal regimes to distribution (extension of the automotive regulation for three years, then application of the general regulation) and to after-sales services. Thus, in new Motor Vehicle Regulation No 461/2010 of 27 May 2010, it adopted an original solution that essentially subjects after-sales services to the conditions of the general regulation 330/2010 and to specific provisions for the automotive sector.

In other words, agreements concerning after-sales must, to benefit from the block exemption, satisfy the conditions set out by Regulation No 330/2010 and not contain the hardcore restrictions listed in Article 5 of Regulation No 461/2010.

According to the Commission, the existence of a distinct automotive aftermarket, where effective competition depends on the degree of interaction between authorized repairers within a network and independent authorized operators, requires the provision of specific conditions for exemption, particularly to ensure the safety of end users and guarantee repairers access to essential inputs, such as spare parts and technical information (para. 13).

These specificities make it necessary to impose “stricter requirements concerning certain types of severe restrictions of competition that may limit the supply and use of spare parts in the motor vehicle aftermarket” (para. 15).

What were the conditions for exemption in Regulation No 461/2010 (01 June 2010-31 May 2023)?

Regulation No 330/2010 expiring, the Commission adopted Regulation No 2022/720 on 10 May 2022, which extends the exemption for vertical agreements and takes into account the latest market developments, particularly the significance of online sales and the emergence of operators such as internet platforms, as revealed by its May 2017 e-commerce report and the case law of the Court of Justice. The new regulation does not introduce major changes to the previous regime.

New rules are nevertheless introduced regarding dual distribution, more precisely defined, internet distribution, with a slight attenuation of the preference given to this sales channel, the regime of hybrid platforms, exclusive distribution, and the definition of active and passive sales. Like its predecessors, the regulation is supplemented by guidelines.

What are the conditions for exemption in Regulation No 2022/720 (01 June 2022-31 May 2034)?

New Regulation No 2022/720 and its guidelines detail more precisely than in the past the conditions for withdrawing a block exemption as well as the distribution of powers between the Commission and the national competition authorities (NCAs).

According to Article 6 of the Regulation, the Commission may withdraw the benefit of the exemption when it considers, in a specific case, that a vertical agreement to which it applies nevertheless produces effects incompatible with Article 101(3) TFEU.

Point 257 of the guidelines states that the exemption may be withdrawn in two scenarios:

The first is where a vertical agreement falling under Article 101(1) TFEU produces separately effects on the relevant market that are incompatible with Article 101(3) TFEU.

The second is where the vertical agreement produces these effects in combination with similar agreements concluded by competing suppliers or buyers. The guidelines themselves provide the example of a highly concentrated online intermediation services market, where competition among providers would be limited by the cumulative effect of parallel networks of similar agreements that restrict the ability of buyers of these services to offer, sell, or resell goods or services to end users on more favorable terms through their direct sales channels (the hypothesis of restricted parity obligations). The guidelines add the example of a market where some suppliers use purely qualitative selective distribution while others apply quantitative selective distribution, with similar effects on the market, or a market where parallel networks of selective distribution use qualitative criteria that lead to the exclusion of distributors (Guidelines, para. 260). In these scenarios, the Commission specifies that the assessment must consider the anticompetitive effects attributable to each network of agreements considered separately and that the withdrawal of the benefit of the exemption may be limited to certain qualitative or quantitative criteria.

The power of withdrawal is also granted to the authorities of the Member States in their own territory as long as the latter presents all the characteristics of a distinct geographical market and the exempted agreement has effects incompatible with the conditions provided for by Article 101, paragraph 3 (Guidelines, pt 256 and Reg. No 2022/720, Art. 6). National courts, on the other hand, do not benefit from this power unless they combine this status with that of national authorities. According to point 264 of the guidelines, the power of withdrawal of an NCA concerns cases in which the market in question covers a single Member State, or a region located exclusively in a Member State, or a part thereof.

In the context of the exemption withdrawal procedure, the Commission or the NCA must establish that the agreement falls under Article 101, para. 1, and does not meet the conditions set out in Article 101, para. 3 (Guidelines, pt 266). The decision to withdraw the exemption is not retroactive, so situations arising from the exemption are not affected for the period prior to the effective date of the withdrawal (Guidelines, pt 268).

Who can withdraw the block exemption?

Under Regulation No 1/2003, when the competition authorities of the Member States apply national competition law to practices prohibited by Articles 101 and 102 TFEU, they must also apply European law concurrently. The principle of the primacy of European law, as reiterated in Article 3(2) of Regulation No 1/2003, entails the obligation for national competition authorities to apply domestic law in conformity with the relevant European provisions.

Thus, practices that are likely to affect trade between Member States, but do not have the effect of restricting competition within the meaning of Article 101(1) TFEU or that meet the conditions set out in Article 101(3) TFEU or that are covered by a regulation aimed at the application of Article 101(3) TFEU of the Treaty cannot be prohibited under national law.

On the other hand, regarding unilateral conduct by undertakings, Member States are given full latitude to adopt and enforce stricter national laws prohibiting or sanctioning such behavior.

The question arose as to the extent to which the provisions of Article L. 442-1, II of the Commercial Code, relating to the notice period applicable to the termination of established commercial relationships, applied when the relationships between the parties are governed by a block exemption regulation that sets a notice period in the event of ordinary termination. The case law initially rightly considered that a distributor terminated for network reorganization with a one-year notice period, in compliance with the then-applicable automotive regulation, could not rely on the provisions of Article L. 442-1, II to contest the notice period, as this text must be interpreted in light of European law, which takes precedence over national law . Then, various decisions affirmed the compatibility of Article L. 442-1, II with European competition law, based on contradictory reasoning: i) because European block exemption regulations would only set minimum notice periods ; ii) because the block exemption regulations would not contain binding requirements since the automotive regulation 1400/2002 only provided for a minimum notice period and regulation 1/2003 allows Member States to adopt stricter rules than European law to sanction unilateral conduct ; or iii) because Articles 101 and 102 TFEU would pursue different objectives than those targeted by Article L. 442-1, II .

In reality, the case law sanctioning contracts exempted under European law on the grounds that the contractual notice period compliant with European competition law is too short compared to the requirements of Article L. 442-1, II of the Commercial Code appears questionable and seems to reflect a desire to preserve the application of French law on restrictive practices at all costs. If both European and French texts aim to protect the market and competition, once European competition law is applicable and allows for the exemption of a contract that provides for a contractual notice period in accordance with the provisions of the regulation, challenging the exemption based on Article L. 442-1, II should be excluded. It indeed seems perfectly contradictory to assert that the latter text is a mandatory public policy provision and protects the functioning of the market and competition while refusing to draw the consequences regarding the primacy of Article 101 TFEU over Article L. 442-1, II. Relying on the fact that Regulation No 1/2003 allows the adoption of stricter rules regarding unilateral conduct to enforce the provisions of Article L. 442-1, II seems unconvincing. Such an interpretation amounts to condemning the use by a party of any contract clause exempted under Union law (assimilated to unilateral conduct). The Court of Justice should be referred a preliminary question to resolve the interpretative difficulties arising from the coexistence of the rules, or the French court should find another basis for the minister's powers to rationalize the application of Article L. 442-1, II of the Commercial Code. One can understand the necessity to preserve the application of Article L. 442-1, II of the Commercial Code, but in this case, the reasoning for compatibility with European law should be justified more coherently.

The question is renewed today with the conflict between the vertical restraints regulation, which exempts exclusive distribution contracts except for hardcore restrictions, and the provisions of the Lurel Law, integrated into Article L. 420-2-1 of the Commercial Code, which per se prohibit import exclusivities in the overseas departments. In a very debatable decision, the Paris Court of Appeal held that the question of conflict with European law regarding the prohibition referred to in Article L. 420-2-1 did not arise, in the absence of trade flows between Member States involving products destined for these territories . Additionally, the Paris Court of Appeal considers that Article L. 420-2-1 of the Commercial Code pursues a social pacification objective that would be different from a competition objective, even though it is clear that it is a competition law provision included within the competition rules of the Commercial Code, whose application is entrusted to the Competition Authority, which by definition is tasked with implementing competition law.

In the context of the reorganization of a network, Article L. 442-1, II of the Commercial Code cannot be invoked to contest the brevity of the notice given, as the requirements resulting from competition rules under Union law themselves constitute an independent justification regardless of the duration of previous relations between the parties.

CA Paris, 11 May 2011, LawLex201100000935JBJ.

Article L. 442-1, II of the Commercial Code, which allows for a notice period longer than that provided by Regulation No 1400/2002, is not contrary to the latter, as European law only sets a minimum.

CA Limoges, 18 February 2015, LawLex201500000227JBJ.

French law, which allows for the sanctioning of the abrupt termination of an established commercial relationship in the automotive sector by imposing a notice period longer than that provided by Regulation No 1400-2002, is not contrary to Union law as long as Regulation No 1-2003 allows Member States to adopt or maintain stricter provisions that prohibit or sanction the unilateral behavior of an undertaking. Cass. com., 5 July 2016, LawLex201600001293JBJ.

The objectives of Articles 101 TFEU and L. 442-1, II of the Commercial Code being different, the notice given by a network head, even if compliant with the block exemption regulation, can be assessed in light of the law on restrictive practices.

CA Paris, 20 February 2019, LawLex201900000230JBJ.

In the absence of trade flows between Member States concerning the sale of products to an overseas territory during the period covered by an exclusivity clause or thereafter, no violation of European competition law can be noted, as the effect on trade between Member States, a prerequisite for the application of this law, is lacking.

CA Paris, 9 June 2022, LawLex202200003117JBJ.

Can a distribution agreement exempted by European law be prohibited by national competition law?

Dual distribution corresponds to a system of dual distribution to final customers, on the one hand by the supplier's distributors, and on the other hand by the supplier itself in the form of direct sales (through its branches or subsidiaries, or direct sales to major accounts or via the internet).

Until now, dual distribution had never caused significant difficulties . It was categorically exempt by right in the case of a non-reciprocal vertical agreement between competing undertakings when the supplier was a producer and distributor of goods while the buyer was a distributor and not an undertaking that manufactured competing goods, with a similar exemption provided for services (Regulation No 330/2010, Art. 2(4)).

According to the Commission, dual distribution did not present a difficulty as it was considered relatively marginal. However, due to the rise of online commerce, dual distribution is now considered much more widespread than before. The Commission highlighted the significant risk that vertical agreements could raise horizontal issues due to information exchanges between competitors linked by a vertical relationship. Consequently, the new regulation more strictly regulates the traditional principle of exemption for dual distribution. The Commission's initial draft, very strict but impractical as it imposed a double threshold of 10 and 30% market share, conditioned the exemption on the absence of any restriction by object and caused the parties to lose the benefit of the exemption in the event of recourse to a hybrid platform.

Given the avalanche of criticism sparked by this project, the Commission has significantly moderated its stance and agreed to exempt dual distribution in a more flexible and reasonable manner:

dual distribution is exempted up to 30% market share (Regulation No 2022/720, Art. 3);

the exemption is extended to importers and wholesalers (Regulation No 2022/720, Art. 2(4)(a));

The exchange of information between the parties benefits from the exemption, except for those that are either not directly related to the implementation of the vertical agreement, or not necessary for the improvement of the production or distribution of the contractual products or services between the parties, or do not meet either of these two conditions (Reg. No 2022/720, Art. 2(5)). The reading of the text supports the alternative nature of these conditions, but in its guidelines, the Commission considers them cumulative. According to the Commission, to benefit from the exemption, the exchange of information must be both directly related to the implementation of the vertical agreement and necessary for the improvement of the production or distribution of the contractual products or services (GL, para. 98). The guidelines establish a whitelist and blacklist of information that a priori meets or does not meet these conditions.

On the other hand, the benefit of the exemption does not apply to vertical agreements related to the provision of online intermediation services when the provider is an undertaking competing in the relevant market for the sale of goods or services subject to intermediation (Reg. No 2022/720, Art. 2(6)). The Commission has been alerted to the adverse effects of this exclusion, which risks extending to suppliers who, while selling directly, offer their distributors the ability to make sales on a website they provide, while also providing support services to their distributors. The Commission has taken these criticisms into account, but in a very unsatisfactory manner. The new vertical guidelines state in point 109 that the Commission does not prioritize the examination under competition rules of vertical agreements concluded by hybrid platforms, when the agreement does not contain restrictions by object and the platform does not have significant market power. This statement does not solve the problem. Many selective networks risk being deprived of the benefit of the block exemption due to the continued exclusion of all hybrid platforms. It matters little that the Commission does not make it a focus of its competition policy. To act against out-of-network resellers, a network leader must prove the legality of its network. The burden of proof rests on it. In principle, the regulation is supposed to facilitate this task. Due to the absence of the benefit of the block exemption, it will be more difficult for network leaders to defend selective networks in court, which is paradoxical to say the least.

The upsetting of the economic balance of the distributorship that may be caused by direct sales from the manufacturer to certain end consumers does not fall under European competition rules.

CFI, Case T-185/96 Riviera Auto Service Etablissements Dalmasso (SA), Judgment of 21 January 1999, LawLex200500005251JBJ.

Under what conditions can dual distribution benefit from the block exemption?

While being aware that the operation of a distribution contract and a network requires continuous information flows, the Commission restricts the benefit of the exemption, in the case of dual distribution, to exchanges of information directly related to the implementation of the agreement or necessary for the improvement of the production or distribution of the contractual products or services by the parties (Reg. No 2022/720, Art. 2(5)). Even if the text of the regulation seems to make them alternative conditions, the Commission considers that these two conditions are cumulative (Guidelines, para. 98).

To assist undertakings in conducting their self-assessment, they establish a non-exhaustive whitelist and blacklist of information that a priori meets or does not meet these conditions.

In the whitelist of permitted exchanges are:

technical information related to the contractual goods or services, including information on registration, certification, handling, use, maintenance, repair, upgrading, or recycling of the contractual goods or services, particularly when this information is necessary to comply with regulatory measures, and information that allows the supplier or buyer to adapt the contractual goods or services to the customer's requirements;

logistical information related to the production and distribution of contractual goods or services upstream or downstream, including information related to production processes, inventory and stock, sales volumes, and returns, when such information is necessary, particularly to implement or monitor compliance with a selective distribution agreement or an exclusive distribution agreement;

information relating to purchases by customers of contractual goods or services, customer preferences, and customer feedback, provided that the exchange of this information is not used to restrict the territory in which, or the customers to whom, the buyer may sell the contractual goods or services;

information relating to the prices at which the contractual goods or services are sold by the supplier to the buyer;

information relating to the supplier's recommended retail prices or the maximum retail prices of the contractual goods or services and the information relating to the prices at which the buyer resells the goods or services, provided that they are not used to restrict the buyer's ability to determine its selling price or to impose a fixed or minimum selling price;

information relating to the marketing of the contractual goods or services, including information on promotional campaigns and information on new goods or services to be provided under the vertical agreement;

information related to the performance of the contract, including the aggregated information communicated by the supplier to the buyer regarding the marketing and sales activities of other buyers of the contractual goods or services, provided that it does not allow the buyer to identify the activities of certain competing buyers, as well as the information related to the volume or value of sales of the contractual goods or services made by the buyer compared to its sales of competing goods or services.

The blacklist of prohibited exchanges includes:

information relating to the future prices at which the supplier or the buyer intends to sell the downstream contractual goods or services;

information relating to identified end users of the contractual goods or services, unless the exchange of this information is necessary: (1) to enable the supplier or the buyer to meet the requirements of a particular end user, for example, to adapt the contractual goods or services to the end user's requirements, to grant the end user special conditions, including as part of a customer loyalty program, or to provide pre-sale or after-sale services, including warranty services, (2) to implement or monitor compliance with a selective distribution agreement or an exclusive distribution agreement under which particular end users are allocated to the supplier or the buyer;

information relating to goods sold by a buyer under their own brand, exchanged between the buyer and a manufacturer of competing branded products, unless the manufacturer is also the producer of these own-brand products.

The Commission emphasizes, however, that the inclusion of a particular type of information in the whitelist it has established does not imply that the exchange of this information will in all cases meet the two conditions set out in Article 2(5). Conversely, the inclusion of a particular type of information in the blacklist does not imply that the exchange of such information will never meet these two conditions.

Finally, when the exchange of information does not meet the conditions of Article 2(5), the parties may still benefit from an individual exemption, as long as it does not necessarily infringe Article 101 TFEU. Furthermore, the other provisions of the vertical agreement may still benefit from the exemption provided for in Article 2(1) of the regulation, as long as the agreement otherwise complies with the conditions set out in the regulation (Guidelines, pt 102).

The attention paid by the Commission to information exchanges in the case of dual distribution appears to be very excessive and discourages the use of this distribution method, even though it represents an appropriate response to the diversity of customer needs, which will, depending on the case, be better satisfied by the distributor or by the supplier.

Carefully verify the flows of information exchanged between upstream and downstream, and vice versa, by means of a comprehensive audit and an assessment of their actual usefulness and justification in light of the implementation of the distribution agreement and the improvement of the production or distribution of the contractual products or services.

Exclude certain information from exchanges, such as information on the future actual retail resale prices charged by the buyer or the supplier.

Restrict certain information for certain types of users: information relating to a specific end customer of a distributor may be made accessible without restriction to the person responsible for the contractual warranty or recall actions, but not to the salesperson in charge of promotional campaigns for the brand's direct sales.

Implement differentiated access to digital tools, combined with confidentiality commitments.

What exchanges of information are possible between a supplier and a distributor both selling to end customers?

Non-compete obligations, as defined in Article 1(1)(f) of Regulation No 2022/720, are agreements that require the buyer to make more than 80% of the total of its purchases of contractual goods and services and their substitutes during the previous calendar year from the supplier or another undertaking designated by the supplier. These obligations thus prevent the buyer from acquiring competing goods or services, or limit their volume to less than 20% of the total of its purchases.

The new regulation facilitates the brand or supply exclusivity policy of networks. Indeed, under Regulation No 330/2010, to benefit from the block exemption, non-compete obligations could not be of indefinite duration, exceed five years, or be tacitly renewable beyond five years (2010 Guidelines, pt 66). Such a regime led to significant difficulties in the practical management of networks. In the case of an indefinite-term contract, to benefit from the block exemption, it was necessary to provide for a non-compete obligation limited to five years and not forget to renew it by mutual agreement at that term, which was not always the case. The parties were forced to renegotiate the renewal of the non-compete obligation every five years, which could, in some cases, lead to bidding wars.

From now on, even though the text of the regulation still states that the duration of the obligation must not be indefinite or exceed five years (Reg. No 2022/720, Art. 5(1)(a)), the new guidelines provide for the possibility of agreeing to a five-year tacitly renewable contractual non-compete obligation, provided that the distributor retains the freedom to exit, either through renegotiation or by a termination option that effectively allows them to change suppliers at the end of the five years (2022 Guidelines, para. 248).

However, Article 5(2) of the new regulation provides, like the previous one, that this limitation of the duration of non-compete obligations to five years is not applicable when the contractual goods or services are resold by the buyer from premises and land owned by the supplier or rented by the supplier from third parties not related to the buyer . In this case, the non-compete obligation may be imposed for a longer duration, provided that it does not exceed the duration of the buyer's occupation of the point of sale.

The benefit of the exemption of the service station agreements for the  whole period of occupancy of the premises is not subject to the  detention by the supplier of ownership of the land on which the station  is built under Regulation 1984/83 (Article 12(2)), where the supplier  has leased the service station to the reseller or has granted the  enjoyment thereof, but is subject to that condition under Article 5  Regulation 2790/1999 (which replaces Regulation 1984/83), where the  supplier is not the owner, on condition that he/she leases the premises  from third parties not connected to the reseller

ECJ, Case C-260/07 Pedro IV Servicios SL, Judgment of 2 April 2009, LawLex200900001662JBJ.

What are the conditions for the exemption of contractual non-compete clauses?

In accordance with Article 5(1)(b), in conjunction with Article 5(3), of Regulation No 2022/720, which does not amend the previous regime, non-compete obligations imposed on the buyer that continue to apply after the expiration of the agreement are excluded from the benefit of the block exemption, unless all the following conditions are met:

the obligation concerns goods or services in competition with the contractual goods or services;

the obligation is limited to the premises and land from which the buyer has conducted its activities during the term of the contract ;

the obligation is essential for the protection of know-how transferred by the supplier to the buyer ;

the duration of the obligation is limited to one year from the expiration of the agreement.

To be protectable, the know-how concerned must be secret, substantial, and identified within the meaning of Article 1(1)(j) of the regulation. It must notably include significant and useful information for the buyer for the use, sale, or resale of the contractual goods or services (LD 2022, pt 251).

The post-contractual non-compete clause imposed on a franchisee complies with the vertical restraints regulation only if its scope is limited to the locations from which the contractual services were offered to customers and does not extend to the entire territory granted to the distributor.

ECJ, Case C-117/12 La Retoucherie de Manuela, S.L.,  Judgment of 7 February 2013, LawLex200800000269JBJ.

A post-contractual non-compete clause is not justified when the know-how transmitted includes a significant element of general commercial techniques and when the franchise system is aimed at merchants who already possess a certain level of know-how in the field.

Commission decision No 89/94, Charles Jourdan, of 2 December 1988,  LawLex200500004474JBJ.

What are the conditions for exemption of post-contractual non-compete clauses?

If many suppliers adopt a uniform distribution system for the whole of Europe, some choose different systems depending on the states and juxtapose selective, exclusive, or free distribution. This strategy, accepted by the competition authorities , is explained by multiple reasons. In particular, the market share of each supplier can vary greatly from one state to another.

Below a 30% market share, the supplier will often opt for qualitative and quantitative selective distribution or exclusive distribution; beyond that, for purely qualitative selective distribution. Regardless of market share constraints, the differences in choice are explained by commercial reasons. In the most mature markets, the supplier will prefer selective distribution, whereas in new markets, they will opt for exclusive distribution. Finally, a supplier may sometimes succeed in concluding structured contracts in one country without managing to organize its distribution in others.

Until now, the coexistence of different distribution systems generated significant negative externalities: exclusive or free distributors sold outside the network in selective territories, undermining the profitability of selective distributors due to competition from free riders. These out-of-network sales were often further encouraged by price differentials linked to differences in market conditions. Paradoxically, the former guidelines seemed to allow exclusive distributors to be protected in their territory from active sales by selective distributors (Guidelines 2010, pt 56).

The new regulation addresses these dysfunctions by introducing a coherent regime for the two types of distribution within the text of the regulation itself: it is now possible to protect exclusive distributors against active sales by other free (Reg. No 2022/720, Art. 4(d)(i)) or selective distributors (Art. 4(c)(i)(1)) and their direct clients and, conversely, to restrict active or passive sales by exclusive (Art. 4(b)(ii)) or independent distributors (Art. 4(d)(ii)) and their clients to unauthorized distributors located in a territory where the supplier adopts selective distribution for the contractual goods or services.

The coexistence of a selective distribution network with another parallel network does not constitute an anti-competitive practice when the products do not have the same characteristics, with only those offered by authorized distributors benefiting from an international warranty.

Competition Council, 16 January 2001, LawLex200200002704JBJ.

How can we ensure the coexistence of different distribution systems across EU Member States?

The new regulation significantly strengthens the protection of distribution networks, whether the network head has opted for exclusive, selective, or free distribution.

The new regulation facilitates in every respect the strategy of the network head that chooses an exclusive distribution system. Traditionally, the holder of an exclusive territory or exclusive clientele was prohibited from making active sales outside their territory or clientele but was in return protected against active sales from other exclusive distributors. This relative protection had lost much of its significance with the development of internet sales considered as mere passive sales, except for a few targeted behaviors (2010 Guidelines, pt 51 et seq.).

Regulation No 2022/720 defines the concept of active sales that may be prohibited in both a more precise and broader manner. Indeed, the prohibition now targets the “targeting of customers through visits, letters, emails, calls, or other means of direct communication or through targeted advertising or promotion, offline or online, for example, through paper or digital media, including online media, price comparison services, or search engine advertising targeting customers in specific territories or belonging to specific customer groups, the operation of a website whose top-level domain corresponds to specific territories, or offering on a website languages commonly used in specific territories, when these languages differ from those commonly used in the territory where the buyer is established” (Reg. No 2022/720, Art. 1(1)(l); 2022 Guidelines, pts 213 and 214).

The new regulation also allows, through a pass on clause, the extension of the restriction on active sales beyond the exclusive distributor to its direct professional clients (Regulation No 2022/720, Art. 4(b)). Furthermore, it exempts, below the market share thresholds it defines, shared exclusivity or co-exclusivity, which allows the allocation of a territory or clientele exclusively to a limited number of distributors, up to five, to whom it will be possible to restrict active sales outside their territory or clientele (Regulation No 2022/720, Art. 4(b)(i):  2022 Guidelines, pt 219 et seq.). Revitalized exclusive distribution once again constitutes an interesting strategic option for the heads of exclusive networks.

To what type of clientele can the resale of contractual products be prohibited in the case of exclusive distribution?

Selective distribution is a system in which the supplier undertakes to sell the contract goods or services, directly or indirectly, only to distributors selected based on defined criteria, and in which these distributors undertake not to sell these goods or services to unauthorized distributors in the territory reserved by the supplier for the operation of this system. The weakness of this system lies in the difficulty of preventing out-of-network resales and the activity of out-of-network resellers that undermine its viability. The new regulation allows for an agreement with distributors to restrict active and passive sales by their customers to unauthorized resellers. It seems there is no restriction on extending this prohibition throughout the sales chain, unlike the pass on of exclusive distribution limited to the distributor's direct customers (Reg. No 2022/720, Art. 4(c)(i)).

To what type of clientele can the resale of contractual products be prohibited in the case of selective distribution?

For the first time, the new legislation provide specific rules for independent distribution or “free distribution systems” according to the guidelines, which addresses the case where the supplier distributes its goods or services without resorting to selective or exclusive distribution (2022 Guidelines , pt 116). As in other networks, the supplier cannot impose restrictions on the territory where, or the clientele to whom, the distributor can actively or passively sell the contractual goods or services, under the same exceptions as for exclusive or selective distribution (Reg. No 2022/720, Art. 4(d)).

Take advantage, if necessary, of shared exclusivity with up to five exclusive distributors per territory.

Do not overlook the new possibility of stipulating a pass-on clause to extend the scope of active sales restrictions on exclusive territories to the distributor's direct professional clients.

Benefit, in selective distribution, from the absence of restriction of the pass-on clause to the distributor's direct customers only.

What are the rules with regard to independent distributors?

Until now, the practice of applying a dual pricing system to the same distributor depending on whether the product was intended for resale in a physical store or online was considered a characterized restriction of passive sales (2010 Guidelines, pt 52(d)). Suppliers can now, to encourage or reward an appropriate level of investment in online or offline sales channels, set different wholesale prices, provided that this difference:

does not aim to restrict sales to specific territories or to a specific clientele;

does not aim to prevent the effective use of the internet by the buyer to sell the contractual goods or services in specific territories or to a specific clientele, notably by making online sales unprofitable or financially unviable, or by limiting the quantity of products made available to the buyer for online sales;

whether related to differences in costs or investment between offline and online sales (2022 Guidelines, pt 209).

However, the question of the practical implementation of this new freedom remains unresolved to date. Differentiation will likely occur more through remuneration than prices, to offset the additional costs of distribution in physical stores. The guidelines allow for the application of an initial calculation based on an average cost with an ex post rebalancing according to actual sales. Furthermore, while the Commission envisions lower dual prices for sales in physical stores, some network leaders may instead want to implement inverted dual prices in favor of internet sales. A supplier may indeed have an interest in promoting internet sales if they believe that their distributors are not sufficiently present on this sales channel and that the efforts made by the distributor to promote internet sales provide significant value to the brand.

Under what conditions is it possible for a supplier to practice dual pricing depending on whether the contractual products are resold online or in-store?

Under the new regulation, resale price maintenance (RPM) constitutes a hardcore restriction that excludes the benefit of the block exemption (Reg. No 2022/720, Art. 4(a)). The guidelines detail the interpretation to be made of this prohibition for its practical application. The adopted position faces two criticisms. The persistent principled distrust towards imposed resale prices does not correspond to the much more nuanced position of the majority of economists. In particular, in cases of strong inter-brand competition, the prohibition should no longer apply. Furthermore, the indications provided by the guidelines do not really address the issues in the decision-making practices of competition authorities in assessing the evidence of RPM.

The guidelines first reiterate the classic distinction between the direct resale price maintenance through contractual provisions or concerted practices and RPM through indirect means (such as the new practice incriminated by point 187(d) of imposing minimum advertised prices (MAPs)). However, the indications provided are somewhat imprecise. Experience shows, first of all, that competition authorities classify certain indirect evidence as “direct” evidence, which would require meeting a higher standard of proof. It would therefore be desirable to adopt a more restrictive interpretation of the concept of direct evidence. Similarly, the guidelines do not apply a sufficiently clear and rigorous evidentiary test when they seek to establish RPM resulting from indirect means. Again, experience shows that the supervisory authorities are satisfied not with a triple test combining a reference to prices, their effective application, and retaliatory measures, but with a dual test simply associating the mention of imposed prices and their acceptance by distributors, with the Authority merely monitoring prices while the Paris Court of Appeal is more demanding . The implementation of this dual test by the Competition Authority does not necessarily involve the requirement of price policing. For the sake of legal certainty, it would be desirable for a rigorous evidentiary test based on strictly defined conditions to be clearly established in the guidelines to avoid an unlimited extension of the concept of imposed prices, whose prohibition in principle is already questionable from an economic standpoint.

The new guidelines provide several exceptions to the prohibition of imposed prices. Some, traditional, were already mentioned in previous texts, while others are new. Unfortunately, for various reasons, they are all difficult to implement. Thus, the guidelines rightly and encouragingly state that “when a manufacturer introduces a new product, RPM can be an effective means of encouraging distributors to better consider the manufacturer's interest in promoting this product.” However, this principle is immediately rendered ineffective by the requirement imposed on suppliers to “demonstrate that they do not have the practical possibility of imposing effective promotion obligations on all buyers contractually,” which constitutes evidence impossible to provide in practice (2022 Guidelines, pt 197(a)).

Similarly, the hope raised by the ability to impose prices in case of a risk of free-riding by distributors not offering pre-sale services compared to those who do is immediately nullified by the requirement imposed on the supplier to “demonstrate that there is a risk of free-riding at the distribution level, that imposed or minimum resale prices sufficiently encourage investment in pre-sale services, and that there are no realistic and less restrictive alternatives to eliminate free-riding” (2022 Guidelines, pt 197(d)). With such a burden of proof, which supplier will attempt to address a risk of free-riding through RPM, especially since the guidelines only guarantee a mere probability of the legality of imposed prices by making it conditional on strong competition between suppliers and limited market power? The other exceptions to the prohibition of imposed prices have a very limited scope: a temporary coordinated low-price campaign of short duration (2 to 6 weeks), particularly in franchising (2022 Guidelines, pt 197(b)), or the use of a minimum price to prevent a proven regular loss-leader pricing practice by a distributor (2022 Guidelines, pt 197(c)).

Undertakings and legal scholars had high hopes for fulfillment contracts. Large clients often wish to negotiate the lowest prices directly with suppliers by putting them in competition, with the supplier's network distributors then tasked with executing the contract within the limits negotiated with the supplier, particularly in terms of conditions and maximum prices. The new guidelines take this market requirement into account by recognizing the concept of a fulfillment contract whereby “the supplier enters into a vertical agreement with a buyer for the  purpose of executing (fulfilling) a supply agreement concluded  previously between the supplier and a specific customer” (2022 Guidelines, pt 193). Unfortunately, they do not fully address the implications, as they limit the absence of imposed prices in the case of a fulfillment contract to the sole scenario where “the supplier selects the undertaking that will provide the fulfillment services,” based on the assumption that “[i]nt hat case, the resale price imposed in the fulfilment contract does not restrict competition for the supply of the goods or services to  the customer or competition for the supply of the fulfilment services.” Paradoxically, the supplier who allows all its distributors to execute the fulfillment contract thereby exposes itself to a risk of RPM, whereas if it assigns such a contract to a specific distributor, it avoids the infringement! The final text of the guidelines no longer includes the reasonable assessment that was in the initial draft, which stated that it would have been entirely possible to recommend a suggested or maximum price in the case of using multiple distributors. This limitation of the exclusion of the prohibition to application contracts with a single distributor per final client deprives the exception of much of its scope, as the clients concerned either do not wish to be dependent on a single distributor or often have numerous agencies or branches, which are difficult to serve by a single distributor.

Under no circumstances should you agree contractually to any imposed resale prices. Such clauses provide immediate evidence of a restrictive agreement, in effect since recent case law has tended to broaden the definition of contractually agreed-upon imposed prices, which should prompt undertakings to exercise even greater caution.

Use only maximum or recommended resale prices. While Regulation No 2022/720 classifies resale price maintenance as a bhardcore restriction, this provision is “without prejudice to the possibility of the supplier to impose a maximum selling price or recommend a sale price” provided that these maximum or recommended prices “do not amount to a fixed or minimum sale price as a result of pressure from, or incentives offered by, any of the parties”. If the supplier holds significant market power, a maximum or recommended selling price may nevertheless lead to anticompetitive effects that the supplier and their counsel will thoroughly analyze before using them.

Exercise great caution regarding the possibilities of exemption for RPM announced by the Commission. In its guidelines, the Commission considers that imposed prices may be exempted based on Article 101(3), TFEU in certain marginal cases. However, the practical effects of these theoretical cases should be put into perspective because resale price maintenance remains a hardcore restriction that is subject to a double negative presumption: as a restriction by object, it is unlikely to be individually exempted.

Note that the Commission and Member States adopt a more rigid position than other legal systems. Importing American solutions without caution is perilous. Resale price maintenance practices are indeed easier to defend under American law due to the Colgate doctrine, which provides a broad interpretation of the concept of unilateral conduct. The Supreme Court's position, as set out in the 2007 Leegin decision, replaced the per se prohibition of resale price maintenance with a rule of reason analysis. Australia granted an exemption for the first time in 2014 for a resale price maintenance practice.

Do not respond to intervention requests from distributors. These requests may come from neighbors of a network member accused of setting prices too low. The supplier will enforce that they cannot intervene.

Gathering evidence. In the event of an investigation, the supplier will gather all evidence of lower prices practiced by distributors compared to the recommended prices in order to counter the samples establishing compliance with imposed prices collected by the Administration. Since the positive law applied in France regarding RPM does not align with the teachings of modern economic analysis, the supplier, always vigilant, will exercise great caution.

While the most common method of proving concurrence of wills in vertical price agreements involves gathering three indicators referred to as a “three-pronged bundle”, proof of concurrence can also result from other indicators, whether documentary or behavioural. This allows the invitation of the manufacturer and the acquiescence of the distributor to the disputed practice to be established.

CA Paris, 6 October 2022, LawLex202200008318JBJ.

Can prices be recommended or minimum, fixed, or maximum prices imposed?

Under the previous regulations, only exclusivity granted to a single distributor for a given territory or clientele was expressly block exempted up to 30% market share. With Regulation No 2022/720, it is now possible to allocate a territory or clientele exclusively to the supplier, a buyer, or a limited number of buyers (Regulation No 2022/270, Art. 1(1)(h)). It will indeed be possible to designate up to five distributors for a territory or clientele and prohibit them from actively selling to other exclusive territories or clienteles.

This was an old claim from the distribution networks of ancillary equipment for tractors. The catchment areas in this sector are quite extensive, and it may be necessary to appoint several distributors of complementary agricultural equipment in a larger catchment area.

The Commission had accepted the idea in its initial drafts by allowing the appointment of a limited number of exclusive distributors for the same exclusive area or the same exclusive clientele. However, it had conditioned shared exclusivity on a pro rata determination of the territory or clientele allocated to ensure a certain volume of activity that preserves the distributors' investment efforts. This condition, a source of legal uncertainty and likely a breeding ground for future litigation, was fortunately abandoned. In the final version of the text, the Commission chose to authorize, to benefit from the exemption, a maximum of five buyers. According to the guidelines, this limit is necessary to preserve the distributors' incentive to invest in the promotion and sale of the supplier's goods or services, while offering the supplier sufficient flexibility to organize its distribution system. For the Commission, beyond this number, there is an increased risk of free-riding among exclusive distributors that could eliminate the efficiency gains that exclusive distribution aims to achieve (2022 Guidelines, pt 121).

This innovation, very positive, takes into account the needs of a sector traditionally attached to exclusive distribution.

Can multiple exclusive distributors be appointed for the same territory or the same clientele?

A distribution network can manage internet sales in a differentiated and evolving manner, by authorizing them without limit, strictly regulating them in compliance with the law, or adopting a multi-channel strategy that encourages the coexistence of both sales channels, with these objectives potentially varying over time and space. The new regulation and its guidelines encourage a more flexible implementation of internet sales management policy. While the previous guidelines had opted for a very marked preference for distributors' internet sales, the new texts mitigate this preferential regime and demonstrate greater neutrality towards them.

The practice of dual pricing for the same distributor, depending on whether the product is intended for resale in a physical store or online, formerly considered a characterized restriction of passive sales, is now permitted under certain conditions (See question 11).

The same flexibility applies to the criteria that online distribution must meet, with the texts ending the principle of equivalence of conditions. Since online and offline channels have different characteristics, a supplier heading a selective distribution system can now impose criteria on its authorized distributors for online sales that are not identical to those applied for sales in physical retail outlets, provided that they do not prevent effective use of the internet.

These new leeways are, however, framed by the introduction of a new characterized, general restriction, consisting of “preventing the effective use of the internet by the buyer or its customers to sell the contractual goods or services” (Reg. No 2022/720, Art. 4(e)). The regulation thus codifies the solutions of the Pierre Fabre ruling and the Guess ruling which analyzed restrictions on online sales as restrictions by object.

Point 203 of the guidelines presents the various forms that the prohibition of online sales can take:

terms that, directly or indirectly, aim to prevent the effective use of the internet by the buyer or its clients;

restrictions on online sales or online advertising that de facto prohibit the buyer from using the internet to sell the contractual goods or services;

clauses that significantly reduce the aggregate volume of online sales of the contractual goods or services or the ability for end users to purchase the contractual goods or services online;

clauses that entirely prevent the use of one or more online advertising channels by the buyer, such as search engines or price comparison tools  or the opening or prohibition imposed on the buyer from creating their own online store.

More specifically, the following constitute hardcore restrictions (2022 Guidelines, pt 206): the requirement that the buyer:

prevents customers located in another territory from accessing its website or online store or redirects customers to the online store of the manufacturer or another seller;

500 Questions - Business Law

204. What were the characteristics of the first regulations?

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204. What were the characteristics of the first regulations?

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