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European Competition Law

The Motor Vehicle Regulation made the lawfulness of standard contract terminations subject to compliance with a two-year notice period and the obligation to provide reasons for the termination. In order for the block exemption to apply, open-ended vertical agreements  between supplier and distributor therefore had to provide that a supplier wishing to give notice of termination of an agreement had …

Disputes relating to contract terminations under Regulation No 1400/2002

Motor vehicle distribution law is heavily marked by the sector-specific block exemption regulations that were successively adopted to define the conditions of exemption of distribution agreements in this sector. In principle, the sole purpose of the regulations is to lay down the conditions to qualify for a block exemption  but in practice they lay down the contractual structure of networks in the sector and even the content of contracts. This situation is due both to the desire of economic operators to be able to enjoy the benefit of the legal certainty afforded by the block exemption at all costs and to the extremely directive nature of the various motor vehicle regulations that have governed the sector to date.

The Commission acknowledged the specificity of the automobile sector by adopting Regulation No 123/85 . Ten years later it revised the law with Regulation No 1475/95 . Its attitude vis-à-vis this mode of distribution has remained unchanged since then and it went on to adopt a third sector-specific exemption regulation, No 1400/2002, instead of including motor vehicle distribution within the single block exemption regulation on vertical agreements . This distinguishing of the sector was justified by the peculiarities relative to industry products and services and the need to guarantee the customer's safety. Regulation No 1400/2002 remained influenced by the premise that competition could be improved by the strengthening of the autonomy of distributors and by multi-branding. Certain principles were affirmed: no combined exclusive/selective distribution, the establishment of wholly multi-brand sales, separation of the link between sales and after-sales, the strengthening of the protection of distributors and the faculty to create spin-off companies in the whole of the internal market, the imposition of a purely qualitative selective distribution for after-sale. The regulation defined a number of prohibited clauses, qualifying them either as hardcore restrictions (or black clauses) or red clauses. Motor Vehicle distribution was ultimately subject to a much more stringent set of rules than sectors governed by the general regulation on vertical restraints.

Since the regulation expired on 31 May 2010, the Commission adopted a new Motor Vehicle Regulation No 461/2010 on 27 May 2010 , which came into force on 1 June 2010 and will expire on 31 May 2023. However, the new text provides two different systems for sale and after-sale services. Agreements providing for repair and maintenance services and distribution of spare parts must fulfill both the requirements for exemption under the general system and the more specific requirements laid down in the motor vehicle regulation (Article 4). In effect, the aim is to free after-sale services and allow repairers to have access to spare parts bearing other brands while maintaining the possibility for manufacturers to require that repairs be made within their network where they are covered by the guarantee of which they bear the cost. From 1 June 2010 to 1 June 2013, the sale or resale of new motor vehicles has been subject to Regulation No 1400/2002. From 1 June 2013, Regulation No 330/2010 has exclusively applied to them. Manufacturers thus have more freedom in the organization of the network and distribution costs should be lower.

Many lawsuits based on the provisions of Regulation No 1400/2002 are however still pending before the national courts. We will therefore go over the main aspects of the law under that regulation before going on to assess the changes resulting from the application of the general rules on vertical restraints to automobile distribution.

Case 10/86 VAG France v Magne [1986] ECR 4071, LawLex200500004435JBJ.

Regulation No 123/85 of 12 December 1984, OJ L 15 of 18 January 1985, 16.

Regulation No 1475/95 of 28 June 1995, OJEC L 145 of 29 June 1995

Regulation No 330/2010 of 20 April 2010, OJEC L 102 of 23 April 2010, 1.

Specificity of motor vehicle distribution

In order to qualify for the block exemption, motor vehicle distribution agreements previously had to meet the conditions laid down in Articles 3, 4 and 5 of Regulation No 1400/2002 of 31 July 2002.

Apart from the market share condition, Article 3 set out five general conditions intended to foster contractual stability. Provisions relative to the transfer of rights and obligations were thus required within a distribution agreement enabling the distributor to assign the agreement to another party within the network , as were: clauses providing for recourse to an arbitrator , minimum duration for agreements concluded for a limited duration , notice of non-renewal of agreements  and finally, notice of termination in writing for contracts of indefinite duration stating objective and transparent reasons for the termination .

The inclusion of those clauses in distribution agreements was the condition for obtaining the exemption but not of the validity of the contract in the light of the provisions of Article 101 TFEU. According to the Court of Justice, the motor vehicle regulations do not lay down any mandatory provisions directly affecting the validity or the content of contractual provisions but merely lay down conditions which, if they are satisfied, exclude certain contractual provisions from the prohibition  and consequently from the automatic nullity provided for in Article 101(1) and (2) of the Treaty. As a result, a contract may not be in compliance with the block exemption regulation but may nevertheless be lawful provided that it contains no provisions whose object or effect is to restrict competition . 

To benefit from the exemption, the contract not only had to meet the general conditions set out in Article 3 of the regulation, it also had to be free of any hardcore restrictions, i.e. none of the thirteen “black clauses” listed in Article 4 . The Commission has declared it highly unlikely that an agreement containing such a clause would be able to subsequently benefit from any individual exemption . The thirteen clauses could be divided into three categories corresponding to the three strands of Commission policy in matters of motor vehicle distribution: the fight against the fixing of prices and discounts , the fight against buying and selling restrictions  and the freedom of access to technical information . Regulation No 1400/2002 also completely re-organized the sales/after-sales relationship, with the supplier no longer able to demand that the distributor carry out all repairs and maintenance work himself without losing the benefit of the exemption. 

Article 5 of the regulation listed seven “red” clauses to which the exemption could not apply , e.g. non-compete clauses.

The right to transfer all rights and obligations was recognized both for the authorized distributor in a selective distribution network and the distributor bound by an exclusive distribution agreement. There were three conditions for this: the assignment was reserved for enterprises of the same type; transfers were possible between dealers or between authorized repairers but car manufacturers could prohibit transfers between distributor and repairer: Case 10/86 VAG France v Magne [1986] ECR 4071, LawLex200500004435JBJ; differences as to selection or sales criteria between network members in other Member States couldnot be used to prevent transfers of rights and obligations (Explanatory Brochure, questions 10, 27); transfers also hade to take place within the same brand and must include all the rights and obligations provided in the contract, which would exclude all partial transfers: EC Regulation No 1400/2002 of 31 July 2002, OJ L 203, 1.08.2002, recital 10.

Although the motor vehicle regulation provided that each party should have a right of recourse to an independent expert or arbitrator where notice was given to terminate an agreement, it did not state that this option should be exercised by the parties prior to the notification of the intention to terminate: Case C-421/05 City Motors Groep [2007] ECR I-653, LawLex200700000269JBJ, LD, February 2007, 3.

Article 4 of Regulation No 1400/2002: "The exemption shall not apply to vertical agreements which, directly or indirectly, in isolation or in combination with other factors under the control of the parties, have as their object: b) the restriction of the territory into which, or of the customers to whom, the distributor or repairer may sell the contract goods or services […]; c) the restriction of cross-supplies between distributors or repairers within a selective distribution system, including between distributors or repairers operating at different levels of trade; d) the restriction of active or passive sales of new passenger cars or light commercial vehicles, spare parts for any motor vehicle or repair and maintenance services for any motor vehicle to end users by members of a selective distribution system operating at the retail level of trade in markets where selective distribution is used […]; f) the restriction of the distributor's ability to sell any new motor vehicle which corresponds to a model within its contract range […]".

Article 4 of Regulation No 1400/2002: "2 The exemption shall not apply where the supplier of motor vehicles refuses to give independent operators access to any technical information, diagnostic and other equipment, tools, including any relevant software, or training required for the repair and maintenance of these motor vehicles or for the implementation of environmental protection measures ".

Any direct and indirect non-compete obligation; any direct or indirect obligation limiting the ability of an authorized repairer to provide repair and maintenance services for vehicles from competing suppliers; any direct or indirect obligation causing the members of a distribution system not to sell motor vehicles or spare parts of particular competing suppliers or not to provide repair and maintenance services for motor vehicles of particular competing suppliers; any direct or indirect obligation causing the distributor or authorized repairer, after termination of the agreement, not to manufacture, purchase, sell or resell motor vehicles or not to provide repair or maintenance services; obligation causing the retailer not to sell leasing services, or which limits its ability to establish additional sales or delivery outlets or which restricts the freedom of establishment of an authorized repairer where selective distribution is applied.

EC Regulation No 1400/2002 retained the five year duration and broadened the scope of this condition of exemption by extending it to agreements between authorized repairers. However, the condition remained limited to agreements binding suppliers to their authorized distributors and repairers and did not apply to spare parts wholesalers or to quick repair franchisors.

Regulation No 1400/2002 of 31 July 2002 stipulated that the standard notice period for termination within the primary network was two years. The notice period, for standard terminations of agreements of indefinite duration was limited to one year when, at the end of the contract, the supplier, by virtue of a law or special agreement, was required to pay appropriate compensation. It was also the case when where it was necessary for the supplier to re-organize the network.

At the drafting stage of Regulation No 1400/2002 of 31 July 2002, the Commission sought to reinforce the protection of network members and particularly to avoid terminations on anticompetitive grounds. Thus, in order to benefit from the exemption, vertical agreements of indeterminate duration concluded between a supplier and distributor had to provide that if the supplier wished to give notice of the termination of the agreement, this had to be in writing and state the objective and transparent reasons for the decision to terminate. For fixed term contracts, notice had to be given at least 6 months before the contract expired. 

The inclusion of such clauses lead to the loss of the benefit of the exemption in respect of the whole of the agreement in question: Explanatory brochure of EC Regulation No 1400/2002 of 31 July 2002, OJ L 203, 1.08.2002, question 10.

Guidelines on vertical restraints, at pt 46.

Article 4 of Regulation No 1400/2002: "The exemption shall not apply to vertical agreements which, directly or indirectly, in isolation or in combination with other factors under the control of the parties, have as their object: a) the restriction of the distributor's or repairer's ability to determine its sale price, without prejudice to the supplier's ability to impose a maximum sale price or to recommend a sale price, provided that this does not amount to a fixed or minimum sale price as a result of pressure from, or incentives offered by, any of the parties".

Conditions of applicability of Regulation No 1400/2002

Regulation No 1400/2002 in principle authorized the recourse to a system of qualitative and quantitative selective distribution for the sale of new vehicles with a market share threshold of 40%. Almost all distribution networks became selective, with selection being based on both qualitative and quantitative criteria; the repair networks have become purely qualitative.

The definition adopted was the same as in the regulation on vertical restraints. The validity of the selective systems was dependent on two conditions being fulfilled: selection on the basis of defined criteria and mutual prohibition on sales outside the network. The motor vehicle regulation in addition provided that purely qualitative criteria were those required by the nature of the contract goods or services, laid down uniformly, and not applied in a discriminatory manner (Art. 1 (f)). When assessing the lawfulness of qualitative selection criteria, the supervisory authorities must evaluate their “precise and objective” character. 

Regulation No 1400/2002 reflected the peculiarities of the automobile distribution sector. The ban on resale outside the selective distribution network was not laid down as an absolute principle because in terms of spare parts, the regulation retained the possibility for members of the network to sell on to independent repairers and also expressly laid down an obligation to provide independent repairers with the technical information they needed for their activity. The solution is maintained by Regulation No 461/2010, which moreover defines as hardcore restriction the limiting of the sale of spare parts outside the network.

 Regulation No 1400/2002 expressly allowed automakers to apply quantitative selection criteria and defined the quantitative selective distribution as a system of selective distribution where the supplier uses criteria for the selection of distributors or repairers which directly limit their number (Art. 1 (g)). In doing so it finalized the Commission's policy change in respect of the quantitative selection criteria which started by their incorporation in the Guidelines on vertical restraints .

Some national courts  had caused confusion by requiring that quantitative selection criteria be both precise and objective. The Commission intervened to clarify the proper interpretation to be given to Article 1(g) of Regulation No 1400/2002 and stated that the regulation defines quantitative selection on the basis of only one additional condition, i.e. the determining of criteria which directly limit the number of distributors, and does not mention anywhere that the supplier must give criteria that are objective in nature, i.e. within the very precise meaning of the term “objective”, as used in EU law, required by the nature of the contract goods and services. Quantitative selection criteria therefore need only to be defined, i.e. precise. This is besides the position adopted by the Court of Justice which considers that, in motor vehicle distribution networks based on quantitative selection, the criteria must only be defined, i.e. verifiable but do not have to be objectively justified or applied in a uniform and non-differentiated manner in respect of all applicants for authorization .

Commission Notice No 2000/C 291/01 of 13 October 2000, Guidelines on vertical restraints.

See for example French Court of Cassation, commercial division, 28 June 2005, No 04-15.279.

Case C-158/11 Auto 24, LawLex201200000961JBJ.

Selection criteria under Regulation No 1400/2002

Motor vehicle distribution agreements had to be performed in compliance with Regulation No 1400/2002, which set the conditions of lawfulness for contractual terms which, by restricting the freedom of distributors, were likely to distort the free play of the competition.

According to Article 5(1) of Regulation No 1400/2002, exemption did not apply to any direct or indirect non-compete obligations contained in vertical agreements . The rule was stricter for motor vehicle distribution than for other vertical restraints subject to Regulation No 330/2010 which only withdraws the exemption from direct or indirect non-compete obligations that are either of indeterminate or more than five years duration. The manufacturer was allowed merely to require the distributor sell motor vehicles from other suppliers in separate areas of the showroom in order to avoid confusion and if the supplier wanted the distributor to have brand-specific sales personnel for different brands of motor vehicles, he had to pay all the additional costs involved (Article 1(1)(b)).

Non-compete obligations after expiry of the contract could not benefit from the exemption either . Unlike the regulation on vertical restraints - which allows for non-compete obligations after termination of the agreement provided they are limited to one year or without limit in time and indispensable to protect know-how transferred by the supplier to the buyer  - the motor vehicle regulation provided no exceptions to the rule.

An exception to the hardcore restrictions ban under Article 4 of the Motor vehicle Regulation was the prohibition for members of a selective distribution network from selling outside the network. Like the current vertical restraints regulation, the motor vehicle regulation in effect allowed the limiting of the freedom to resell outside of the network uniquely within selective distribution networks . This prohibition only applies in the context of the contractual relations between the suppliers and the distributors and is not binding on non-network resellers .

In any event, resale outside the network remains sanctionable where prohibited under national law .

Techniques used by car manufacturers to attempt to partition markets fall under the provisions of Article 101 TFEU and cannot obtain the benefit of the exemption granted by the motor vehicle regulation . Measures such as the allocation of delivery quotas to the dealer's territory, a bonus policy excluding export sales to end users or to dealers located abroad and the exerting of pressure on dealers to restrict or stop exportation are all serious infringements of competition law .

Regulation No 1400/2002 saw new advances towards the de-partitioning of markets. Where selective distribution was chosen, the exemption was only granted if both passive and active sales were allowed (Article 4(1)(d)). For an exclusive distribution system, where territorial exclusivity constitutes one of the essential characteristics of the dealer agreement, the dealer must remain free to carry out passive sales (see Regulation No 1400/2002, Article 4(1)(b)(i)) and cross-supplies. The same rules apply under the current vertical restraints regulation . According to the Court of Justice, any policy whose object is to provide dealers with a territorial exclusivity by partitioning markets constitutes and unlawful agreement and is excluded from exemption .

Thus, indirect anticompetitive restrictions include the excluding of export sales from the system of calculating dealers' bonuses , quota systems combined with a bonus system  designed to induce authorized dealers to sell at least 85% of available vehicles within their contract territory , or clauses according to which the dealer's remuneration is based on the vehicle's geographic destination .

Regulation No 1400/2002, like the other block exemption regulations and the case law  prohibited minimum and fixed resale prices. The practice of imposing prices was a hardcore restriction within the meaning of Article 4(1)(a) of the Regulation and led to loss of the benefit of the exemption, regardless of the market share of the parties. Retail price maintenance also exposes the undertakings concerned to the imposition of fines as well as the criminal and civil penalties provided by the national laws of the Member States . Proof of the concertation requires the unequivocal communication by the manufacturer to its network members  and the implementation of the policy on the ground by them.

Under Article 4 of the Regulation, the supplier could impose a maximum resale price, or provide a recommended sale price, as long as this did not amount to a fixed or minimum resale price as a result of pressure from or incentives offered by any of the parties .

For the application under previous motor vehicle regulations, allowing under certain conditions the use of non-compete clauses, see: Case C-230/96 Cabour and Nord Distribution Automobile v Arnor "SOCO" [1998] ECR I-2055, LawLex200500005084JBJ.

Regulation No 1400/2002 of 31 July 2002, OJ L 203, 1.08.2002, Article 5(1)(d).

Case C-551/03 P General Motors [2006] ECR I-3173, LawLex200600001229JBJ.

On bonuses, see Explanatory Brochure of Regulation No 1400/2002 of 31 July 2002, OJ L 203, 1.08.2002, at pt 8.

Case T-62/98 Volkswagen v Commission [2000] ECR II-2707, LawLex200400003580JBJ; Case C-338/00 P Volkswagen v Commission [2003] ECR I-9189, LawLex200500003861JBJ. See also Commission Decision No 98/273/EEC of 28 January 1998, VW, LawLex200500004750JBJ; No 2001/146/EC of 20 September 2000, Opel, LawLex200500004721JBJ: the refusal to pay bonuses in cases of export sales to final consumers or to dealers located abroad, as well as pressure on dealers to cease exporting, are practices of market-sharing and cannot be exempted; No 2006/431/EC of 5 October 2005, SEP et autres / Peugeot SA, LawLex200700000252JBJ: a system of bonuses allocated depending on the place of registration of vehicles sold, together with pressure going from limiting supplies and inducing the fear of termination of the dealership, within a general context of supply shortages, shows a national market-sharing strategy, the object of which is anticompetitive. Case T-368/00 General Motors Nederland and Opel Nederland v Commission [2003] ECR II-4491, LawLex200500004833JBJ: the implementation of a system of bonuses and the applying of pressure to prevent export sales, including to final consumers, constitute behavior that is contrary to Article 101 TFEU.

Commission Decision No 2006/431/EC of 5 October 2005, SEP et autres / Peugeot SA, LawLex200700000252JBJ.

Commission Decision No 2002/190/EC of 21 December 2000, JCB, LawLex200500004731JBJ: any agreement which has the object of fixing resale prices and artificially harmonizing selling prices and discounts between territories is restrictive of competition; No 2002/758/EC of 10 October 2001, Mercedes-Benz, LawLex200400003553JBJ.

With regard to modern economic analysis, however, it seems that the per se prohibition of retail price maintenance is outdated nowadays as it akin to outright condemnation for behavior that can, in certain circumstances, be justified. EU law, like French competition law, appears in that respect to be lagging behind compared to other more modern laws having adopted the lack of a per se prohibition on retail price maintenance, analyzing the practice with regard to a rule of reason or an exemption mechanism.

E.g. warning letters and circulars: Commission Decision No 2001/711/EC of 29 June 2001, Volkswagen: Contrats Conc. Consom., 2001, No 10, obs. POILLOT-PERUZZETTO; exerting pressure: Case T-368/00 General Motors Nederland and Opel Nederland v Commission [2003] ECR II-4491, LawLex200500004833JBJ.

Case 161/84 Pronuptia [1986] ECR 353, LawLex200500004110JBJ.

Regulation No 330/2010 of 20 April 2010 OJ L 102/1, 23.04.2010, Article 5(3)(d).

Regulation No 1400/2002 of 31 July 2002, Article 4(1) at pt b): the resale outside the network prohibition cannot be imposed in the context of an exclusive distribution network.

See under Regulation No 1475/95, Case C-226/94 Grand garage albigeois and others [1996] ECR I-651, LawLex200500005121JBJ; Case C-309/94 Nissan France and others [1996] ECR I-677, LawLex200500005128JBJ; Case C-128/95 Fontaine and others [1997] ECR I-967, LawLex200500005092JBJ.

Case C-41/96 VAG-Händlerbeirat eV v SYD-Consult [1997] ECR I-3123, LawLex200500005108JBJ.

Commission Decision No 75/73/EEC of 13 December 1974, Bayerische Motoren Werke AG, LawLex200700001839JBJ: this is the case where retailers are prohibited from advertising outside their exclusive area.

Commission Decision No 2001/146/EC of 20 September 2000, Opel, LawLex200500004721JBJ.

Regulation No 330/2010, Articles 4(b)( i) and 4(c).

Case C-338/00 P Volkswagen v Commission [2003] ECR I-9189, LawLex200500003861JBJ: restrictions on parallel imports and exports are excluded from exemption regardless of whether they are direct or indirect. See Case 25/75 Van Vliet Kwastenfabriek v Dalle Grode [1975] ECR 1103, LawLex200400002773JBJ; Commission Decision No 78/155/EEC of 23 December 1977, BMW Belgium NV and Belgian BMW dealers, LawLex200400002396JBJ; No 80/1333/EEC of 11 December 1980, Hennessy-Henkell, LawLex200500004077JBJ.

Disputes relating to performance under Regulation No 1400/2002 

The Motor Vehicle Regulation made the lawfulness of standard contract terminations subject to compliance with a two-year notice period and the obligation to provide reasons for the termination. In order for the block exemption to apply, open-ended vertical agreements  between supplier and distributor therefore had to provide that a supplier wishing to give notice of termination of an agreement had to do so in writing and include detailed, objective and transparent reasons for the measure (Article 3(4)) . With regard to fixed-term contracts, notice of non-renewal had to be given at least six months before the contract expired (Article 3(5)(a)). A contract could also be terminated with immediate effect and without notice by means of a termination for cause  for non-performance of the obligations of the contract or, more generally, in the case of a breach.

In the event of network reorganization, Article 3(5) of the regulation provided that the notice period for termination could be reduced to one year. The termination was only valid however if the reorganization was necessary for the whole or a substantial part of the network (Article 3(5)(b)(i)). According to the Court of Justice, “Such a reorganization necessarily implies a change to that supplier's distribution structure, which may relate, inter alia, to the nature or form of those structures, their subject-matter, the allocation of internal duties within those structures, the manner in which the goods and services in question are supplied, the number or quality of the participants in those structures, or their geographical coverage” . Reorganization also had to be necessary. Necessity, according to the Court of Justice , must be “…capable of being convincingly justified on grounds of economic effectiveness based on objective circumstances internal or external to the supplier's undertaking which, failing a swift reorganization of the distribution network, would be liable, having regard to the competitive environment in which the supplier carries on business, to prejudice the effectiveness of the existing structures of the network […]. By contrast, any adverse economic consequences which would be liable to affect a supplier in the event that it were to terminate the distribution agreement with a two years' notice period are relevant in that regard”. The entry into force of Regulation No 1400/2002 did not necessarily imply the reorganization of networks but could have the effect of making reorganization necessary given the particular structure of certain networks . In such cases, it was for the supplier to show how the coming into force of the regulation necessitated a reorganization of his network .

According to Article 3(6) of Regulation No 1400/2002, the exemption applied on condition that the vertical agreement gave each of the parties the right to refer disputes concerning the fulfillment of their contractual obligations to an independent expert or arbitrator. This obligation was met when three conditions were fulfilled. Firstly, the distribution agreement had to contain a clause providing that the parties could refer to an independent expert or arbitrator. Secondly, the clause could only be implemented if the manufacturer had complied with the obligation set out in Article 3(4) of the block exemption regulation to state in writing the reasons for the decision to terminate the agreement. And finally, the expert, arbitrator or judge had to be able to exercise an effective review of the reasons in order to verify that the measure did not sanction pro-competitive behavior by the distributor. Although the motor vehicle regulation required that parties have the ability to refer to an independent expert or arbitrator in cases of contract terminations, it did not require recourse to that option prior to the notification of termination .

The Commission confirmed this interpretation of the provision in its response to question 3 of the European Association of Citroën Dealers (Association européenne des concessionnaires Citroën).

This obligation was narrowly interpreted and did not oblige suppliers to justify the termination by establishing that the other party has breached the contract.

Case C-421/05 City Motors Groep [2007] ECR I-653, LawLex200700000269JBJ.

Case C-125/05 Vulcan Silkeborg (VW-Audi Forhandlerforeningen) [2006] ECR I-7637, LawLex200700000322JBJ.

Case C-125/05 Vulcan Silkeborg [2006] ECR I-7637, LawLex200700000322JBJ; Cass. Com., 6 March 2007 No 05-13.991: a network reorganization may result in the termination of dealer agreements with the notice period reduced to one year when justified by economic reasons (the need to concentrate distribution structures in order to respond to competition) and legal reasons (compliance of the contracts with the provisions of the new block exemption regulation).

Case C-125/05 Vulcan Silkeborg [2006] ECR I-7637, LawLex200700000322JBJ: "there is nothing to impose, as there is nothing to exclude that a network reorganization within the meaning of [Article 5(3) of Regulation No 1475/95] can be the result of the amendment of contractual clauses in a distribution agreement brought about by the entry into force of a new block exemption regulation"; Cases C-376/05 and C-377/05 Brünsteiner [2006] ECR I-11383, LawLex200700000323JBJ; Case C-273/06 AutoPeter Petschenig GmbH v. Toyota Frey Austria GmbH [2007] ECR I-26 [Summ. Publ.]: although the intervention of the new motor vehicle regulation does not by itself make a reorganization of the network necessary, it can produce such effect given the specific organization of some networks, particularly in cases of switches from of systems combining exclusivity and selectivity to selective systems with no restriction of the distributor's territory.

Case C-125/05 Vulcan Silkeborg [2006] ECR I-7637, LawLex200700000322JBJ: the burden of proof of the lawfulness of the reorganization lies with the supplier.

Regulation No 461/2010  has, since 1 June 2010, made the motor vehicle aftermarket subject to a specific set of legal rules. Pursuant to Article 4, Article 101 TFEU does not apply to agreements relating to the sale or resale of spare parts or the provision of repair and maintenance services, which fulfill the requirements for an exemption under Regulation No 330/2010 and do not contain any of the hardcore restrictions listed in Article 5 of Regulation No 461/2010. Agreements, either directly or indirectly, in isolation or in combination, must not restrict the sales of spare parts by members of a selective distribution system to independent repairers which use those parts for the repair and maintenance of a motor vehicle , restrict the supplier's ability to sell spare parts, repair tools or diagnostic or other equipment to authorized or independent operators (distributors or repairers) or end users , or to place its trade mark or logo effectively and in an easily visible manner on the components supplied or on the spare parts (Article 5) . The aim of those provisions is to ensure effective competition on the repair and maintenance markets and to allow repairers to offer end users competing spare parts. They do not exclude the ability for vehicle manufacturers to require the authorized repairers within their network to only use spares parts that match the quality of the components used for the assembly of a certain motor vehicle. According to the Guidelines, matching quality parts must be of a sufficiently high quality that their use does not endanger the reputation of the authorized network in question (at pt 20). Likewise, for repairs made under warranty of the manufacturer, the exemption applies to agreements which require repairers to use only spare parts supplied by the vehicle manufacturer for those repairs (at pt 17). The Commission has neverthelless stated that it will be particularly vigilant with regard to practices whereby the manufacturer's warranty vis-à-vis the buyer, whether legal or extended, is made conditional on the end user having all repair and maintenance work, including work not covered by warranty, carried out only within the authorized repair networks (Guidelines, pt 69) . It also considers it important that access to the authorized repair networks should generally remain open to all firms that meet defined quality criteria under qualitative selective distribution (Guidelines, pt 70) and should not be subject to the sale of new vehicles (Guidelines, pt 71).

Regulation No 461/2010 of 27 May 2010. Its validity was extended to 31 May 2028 by Regulation No 2023/822 of 17 April 2023.

According to point 22 of the Guidelines No 2010/C 138/05 published on 28 May 2010, this restriction concerns a particular category of parts, referred to as captive parts, which may only been obtained from the motor vehicle manufacturer or from members of its authorized networks. 

This provision covers in particular so-called “tooling arrangement” between component suppliers and motor vehicle manufacturers, which are sub-contracting agreements in principle excluded from the scope of Article 101 TFEU, unless the component supplier must transfer its ownership of such a tool, intellectual property rights, or know-how, bears only an insignificant part of the product development costs, or does not contribute any necessary tools, intellectual property rights, or know-how. Guidelines, at pt 23.

This provision should facilitate the identification of compatible replacement parts which can be obtained from original equipment suppliers (OES). Guidelines, at pt 24.

However, the Commission does not consider anticompetitive a clause by which a manufacturer limits its warranty to vehicles sold by authorized distributors, see European Commission Letter of 4 December 2017 to the Fédération nationale de l'artisanat automobile, C(2017)8319 final, not available in English.

Vertical agreements in the aftermarket

Since 1 June 2013, the general law on vertical restraints laid down by Regulation No 330/2010 of 20 April 2010 has governed the sale of new vehicles. Actually, the general regulation contains rules which are better adapted to competition in the automobile distribution sector and addresses the inefficiencies arising from successive motor vehicle regulations. This return to contractual freedom has necessitated a number of contractual modifications but has not led to a disruption in the organization of networks.

Regulation No 1400/2002 had made selective distribution the favored model in automobile distribution and rendered marginal other distribution systems. Many car manufacturers have for various reasons chosen to continue using quantitative selective distribution in spite of the possibilities open to them under the vertical restraints regulation. First of all, due to a difficult economic environment, automakers are preferring to favor the stability of their networks and secondly, suppliers have adapted to the constraints of quantitative selection which offers substantial flexibility in the organization of networks by making it possible for them to define their catchment areas. Finally the EU judicature provided legal security for this form of distribution by making the benefit of the exemption subject to the condition that the authorization criteria be “criteria the precise content of which may be verified” without it being necessary “for such a system to be based on criteria which are objectively justified and applied in a uniform and non-differentiated manner in respect of all candidates for the authorization”.    

The content of contracts has also not undergone the radical changes that might have been expected. Of course, new distribution agreements have in general done away with the requirement relating to the provision of grounds for termination. Likewise, manufacturers have in the main taken advantage of the withdrawal of the right to transfer within the network and now require that such transfers be subject to their approval. However, new contracts are still stipulating a two-year notice period for termination although this is not required by the general regulation. This anomaly can be explained by the inclusion of the two-year period in certain codes of conduct, the fact that its use is common practice in the automobile sector and that it conforms to those national laws which impose long notice periods for contract terminations. The right to appeal to an independent expert or an arbitrator in the event of a dispute remains in place but has now been simplified. In addition, only the biggest  manufacturers have made use of the right to use single branding, allowed under Regulation No 330/2010.  For smaller automakers,  multi-branding is often needed in order to maintain the economic balance of dealerships. Finally the freedom to open new outlets imposed under the former rules, which has not been conserved by most carmakers, may be useful in certain cases especially where it fosters a better adaptation to developments in the market thus making it easier to readjust the coverage of the territory. 

Case C-158/11 Auto 24 SARL, Judgment of 14 June 2012, LawLex201200000961JBJ.

European Competition Law

127. Disputes relating to contract terminations under Regulation No 1400/2002

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127. Disputes relating to contract terminations under Regulation No 1400/2002

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