Background

Economic theory of vertical restraints

Economic theory and competition law

Should distributors have more protection?

Vertical restraints put to the test of economic analysis

Structure of distribution law - Book plan

General bibliography

Introduction

Localizing the anticompetitive effects

Effect on trade between Member States

Scope ratione loci

Concept of an undertaking

Intra-group agreements

Scope ratione personae

Applicability of competition law to vertical agreements

Definition of the relevant market

Anticompetitive object or effect

Appreciability threshold

Concept of agreement and concerted practice

Prohibition of vertical restraints

Block exemptions

Individual exemptions and rule of reason

Exemption of vertical restraints

Control of vertical restraints

Prohibition

Exoneration

Restrictive agreements

Principle

Applications

Abuse of dominant position

Exclusive purchase/Exclusive supply

Resale outside network

International agreement

Exclusive distribution agreements

Manufacturer's guarantee

Protection of the brand

Protecting the network against third parties

Relations between the parties

Selective distribution

Hardcore restrictions

Individual exemptions

Rule of reason

Prohibition of restrictive agreements and individual exemptions

Distribution of new motor vehicles : Regulation No 330/2010

After-sales : Regulation No 461/2010

Block exemption

Motor vehicle distribution agreements

Merger control

Franchising

Commercial agency and competition

EU harmonization

International agency

Commercial agents

This book provides a wide-ranging review of the European rules relating to distribution: exclusive purchase and exclusive supply, exclusive and selective distribution, motor vehicle distribution, franchises, commercial agents.

European Distribution Law

Traditionally, an all-powerful industry would be faced with a fractured commercial structure. However, since the 1960s the nature of this relationship has been progressively moving in favor of traders, as a result of striking changes in the structure of distribution, namely the growth of mass retailing networks, the growth of specialized integrated distribution outlets, and the disappearance of sm …

Supplier networks and distributor networks

At first sight the question posed may seem surprising. The law of distribution has been the subject of various teachings and a number of textbooks, and professional lawyers practice it on a daily basis. The existence of such a law should therefore be indisputable. However, the field is a tricky one to define. Taking a broad view, the law of distribution could bring together all the legal rules governing activities relating to the provision of goods and services to end-users between the production and the consumption stage. Such a wide view would have to include all employment law rules pertaining to sales staff, consumer law, the rules on urban commercial planning and commercial centers and many more. This wide-reaching concept does have definite drawbacks; all those areas are individual disciplines in their own right and have their own specialists and specific issues which are not necessarily specific to distribution. The risk in bringing them together under one umbrella leads to a list that lacks coherence and is difficult to manage. There is thus not one, but several distribution laws depending on how the boundaries are defined. We favor the aspect of distribution law that is central and strategic, i.e. the distribution networks and will not therefore be discussing major retail outlet contracts which tend to fall more within the ambit of competition law  than within distribution law. Such contracts, in their various forms, often in practice show how major distributors are able to exert buyer power over dependent suppliers .

A distribution network is defined as the organization by the company heading the network - usually a supplier - of a set of undertakings linked by strong, coherent and stable contractual relations, from supplier to distributor, with a view to ensuring a growth in sales in an efficient and lasting manner. In respect thereof, distribution law constitutes an eminently practical science. Its purpose is to ensure that the undertaking at the head of the network can choose the system of distribution that is best adapted for the marketing of its products or services, that it can organize and manage relations with its network, ensuring its proper functioning and development, and handle in the best way possible any disputes and the ending of business relations with distributors that may occur or the reorganization of the whole of a network. Even by restricting ourselves to the core of the subject - the distribution networks - the discipline remains rich and complex since it borrows from various branches of the law to ensure a synthesis in the service of the efficient functioning of those networks. Distribution law requires that commercial contract law and national and/or EU competition law be simultaneously applied at all times, while taking into account the constraints of employment law, tax law, the rules pertaining to bankruptcy proceedings, criminal law and the rules of procedure. Practicing the law of distribution is a dangerous game both for undertakings and their legal departments and for their legal counsel. The purpose of this work is to prepare them as comprehensively as possible in their decision making and to guide them in their actions, by removing, as far as possible, the legal risks. To bring clarity to company directors and their advisors, both in-house and external, in the choices they must make, we have focused our analysis on the main type of distribution networks that undertakings resort to in practice. 

When faced with the issue of setting up or developing a distribution network, businesses and their legal advisors have a number of possibilities they can choose going from the most flexible (exclusive purchase, exclusive distribution, selective distribution) to more integrated forms of distribution such as franchises, agents, lease management etc.

European competition law generally deals with this type of contract through the vertical effects that may accompany a horizontal merger between large distributors. When the distribution and supply markets are closely interdependent, a spiral effect may occur, whereby the existence of a dominant position in one market may lead to the creation or strengthening of a dominant position in the other. This is the case when the merger limits the sources of supply or when the presumption of dominance weighing on the new entity is characterized by the strengthening of its purchasing power . In French competition law, such vertical restrictive effects are also addressed in the context of merger control in the event of the elimination of an outlet or the creation of a state of dependence. More specifically, French law contains provisions allowing for the sanctioning of abuse of dependence or abuse of economic dependence. The guidelines on vertical restraints (OJEU C 248 of 30 June 2022) assess the anti-competitive effects of two practices of large retailers: access fees payable in advance (pts 379 et seq.) and category management agreements (pts 385 et seq.). It should be noted that the concerns of the French legislator enshrined in numerous provisions have led to initiatives at the European level, such as Directive No 2019/633 of 17 April 2019 on unfair commercial practices in business-to-business relations within the agricultural and food supply chain (OJEU L 111 of 25 April 2019). 

Is there a law of distribution?

Traditionally, an all-powerful industry would be faced with a fractured commercial structure. However, since the 1960s the nature of this relationship has been progressively moving in favor of traders, as a result of striking changes in the structure of distribution, namely the growth of mass retailing networks, the growth of specialized integrated distribution outlets, and the disappearance of smaller downtown outlets. Industries have found themselves in a position of economic weakness and dependency vis-à-vis certain of their distributors, particularly the hypermarkets of which they have mainly become mere subcontractors as a result of the increasing prominence of own-label products. Large retailers have set up distributor networks of central purchasing/listing services, which centralize the purchases for all their outlets or list their suppliers, who must become members in order to have their products referenced.

Unlike supplier networks, which are based on the direct relationship between supplier and distributor, distributor networks place a legal structure - the central purchasing facility - between distributor network members and third parties.

Central purchasing services, which are the intermediaries for large retail distributors, may be limited to bringing together suppliers and network members after negotiating and obtaining a good price for the distributor. In that sense, they operate as a listing service, i.e. a brokerage service. The central agency may also be called upon to act for the account of its members in its own name. 

Given the rather limited legal protection that they have in relation to the large retail distributors' buyer power, suppliers may sometimes try to loosen their grip by developing their own distribution system, in particular by setting-up selective distribution networks for middle-range/top-range products.

Distribution law is “doubly dual” insofar as national and EU rules cohabit and so do the civil law and the competition law rules. 

At the moment, distribution law for the most part comes from the law of obligation. Within the Member States, a specific law of distribution has developed and is itself sub-divided into various categories of agreement subject to increasingly specific rules (exclusive distribution, selective distribution, franchises, agency, etc.).

Early on, EU law was forced to look at distribution agreements as they are an essential instrument of the free movement of goods within the internal market. Such agreements were assessed from two angles: firstly from the point of view of competition law and secondly in respect of the rules of the internal market.

Distribution contracts have been the main subject matter of the block exemption regulations which enabled the Commission to force economic operators to insert terms that it held to be lawful in respect of the rules pertaining to restrictive practices and to exclude those terms it considered overly harmful to competition. Going beyond competition law, the block exemption regulations sometimes went as far as defining the civil law rules to be applied to those contracts, which they imposed on undertakings seeking to benefit from the block exemption. Successive motor vehicle regulations constitute the best illustration of that method, since they resulted in the actual formatting of agreements in the sector, the fixing of the duration of agreements and notice periods, the imposing of the provision of reasons for terminations, the regulation of transferability and a reworking of their conflict resolution clauses. The Commission was not satisfied with this indirect method of harmonizing agreements through the competition laws and consequently turned to the techniques of the internal market in order to achieve a real rapprochement between the national legal systems. The Directive on Commercial Agents  constituted the first manifestation of this new policy. More generally, the Commission set up a task force, headed by Professor von Bar, to establish propositions inter alia for the adoption of a new set of rules to be applied to distribution agreements .

Council Directive 86/653 of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents.

Green paper on unfair trading practices on the business-to-business food and non-food supply chain in Europe (COM/2013/037 final). 

The double duality of distribution law

In 2003, the European Commission launched a vast action plan for the harmonization of European contract law. It gave rise to two sub-projects; the first one, known as “Acquis” classifies all existing directives in matter of contract law and the second, aims to establish a Common Frame of Reference (CFR) for contract law that parties are free to consult, following the example of the Unidroit principles of international commercial agreements.

On 20 April 2010, the Commission presented its new action plan prior to publication, on 1 July 2010, of its green paper on “policy options for progress towards a European Contract Law for consumers and businesses” which proposes various options, from the publication of a set of non-binding rules to the adoption of a European Civil Code.

To conduct its work, the Commission now has at its disposal the “Draft Common Frame of Reference” of the study group headed by Professor von Bar. In relation to distribution contracts, the current text is characterized by a highly protectionist approach and shows a clear discrepancy in relation to economic reality which is particularly evident in the definition of the conditions for terminating a contract.

Article 1-306 of the draft introduces the general principle of a right to a goodwill indemnity for the distributor when the contractual relationship comes to an end. The adoption of this principle would be a major break from the rules currently in force in most Member States - except for German and Belgian law - which apply the opposite principle whereby parties are always free to end a distribution contract. A general indemnity of this kind at the end of the contract compromises economic efficiency: the supplier would be reticent to terminate relations with a distributor and this would favor a situation where poorly performing distributors remained in place.

Article 1-302 provides that each party to a contract for an indefinite period may terminate by giving notice of reasonable length. The text then states that there is a presumption according to which reasonable notice is one month for each year that the contract has lasted. This presumption is disputable, not only in that it can lead to extremely long notice periods but also that in combining an end-of-contract indemnity with a long notice period, it upsets the balance of the distribution agreement. The directive on commercial agents which lays down the goodwill indemnity principle is much more measured and provides that where a contract has lasted more than three years, the notice period is fixed at three months - a period that the Member States can increase to six months maximum. 

The principles set out in the von Bar drafts are not very operational - they compromise economic efficiency and run counter to the traditional practices of most Member States.

Towards a common European law of distribution

International distribution law provides for separate instruments according to type of contract: the Hague Convention of 1978 deals with contracts for intermediaries or representatives, in particular commercial agency agreements ; the other types of international agreement are governed by the Rome I Regulation , which communitizes the Rome Convention of 19 June 1980 . Jurisdiction and the recognition and enforcement of judgments in civil and commercial matters are governed by Regulation No 1215/2012 of 12 December 2012 ("Brussels I bis") which replaced Regulation No 44/2001 of 22 December 2000 ("Brussels I"), as of 10 January 2015 .

Article 3 of Rome I, like Article 5 of the Hague Convention, lays down the principle of the freedom of the parties to choose the law that shall govern their agreement . That choice may be express and take the form of an electio juris clause, or may be tacit and arise from the provisions of the agreement or the circumstances. 

Where the parties have not selected the applicable law, the Rome I Regulation clearly defines which law is applicable according to the type of contract (Article 4(1)): - law of the country where the seller has his habitual residence for a contract for the sale of goods ; law of the country where the service provider has his habitual residence for contracts for the provision of services; law of the country where the franchisee has his habitual residence for franchise agreements; law of the country where the distributor has his habitual residence for distribution contracts. Other types of agreement are governed by the law of the country where the party required to effect the characteristic performance of the contract has his habitual residence (Article 4(2)). Obligations arising out of dealings prior to the conclusion of a contract are governed by Article 12 of the Rome II Regulation , entitled “Culpa in contrahendo”, which sets forth the application either of the law that applies to the contract or that would have been applicable to it had it been entered into.

Where the parties have not chosen, the Hague Convention of 14 March 1978 makes agents' or intermediaries' contracts subject to the applicable internal law of the State the agent is primarily to act if the principal has his business establishment or, if he has none, his habitual residence in that State, where, at the time of formation of the agency relationship, the agent has his business establishment or, if he has none, his habitual residence (Article 6). However, the internal law of the State in which the agent is primarily to act must apply if the principal has his business establishment or, if he has none, his habitual residence in that State. Where the principal or the agent has more than one business establishment, the internal law of the State of the establishment with which the agency relationship is most closely connected is applicable. 

The existence of overriding mandatory rules, the immediate application of which is regarded as necessary for the safeguarding of interests considered to be of major importance by Member States or the international community may prevent the application of the law chosen by the parties. Adopting Francescakis' definition, the Rome I Regulation defines the lois de police as “provisions the respect for which is regarded as crucial by a country for safeguarding its public interests, such as its political, social or economic organization, to such an extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable to the contract under this Regulation” (Article 9). Although nothing can restrict those mandatory provisions (Article 9(2)), foreign overriding mandatory rules are subject to a special provision; the only lois de police applicable are those “of the country where the obligations arising out of the contract have to be or have been performed” provided that those provisions “render the performance of the contract unlawful” (Article 9(3)). 

Only the rules governing public policy in respect of the supervision and organization of the market - such as the competition rules - can overturn the will of the parties in such matters. Legislation concerning public protection of purely private interests is only regarded as matter of policy under internal law. The ECJ  thus held that Articles 17 and 18 of Directive 86/653 of 18 December 1986 on the coordination of the laws of the Member States, which guarantees certain rights to commercial agents when the agency agreement comes to an end, constitute international overriding mandatory rules, where the agent has carried on his activity in the territory of a Member State, even where the principal is established in a third country and by virtue of its terms, the contract is governed by the laws of that country. 

Finally, according to the public policy exception set out in Article 21 of the regulation, “The application of a provision of the law of any country specified by this Regulation may be refused only if such application is manifestly incompatible with the public policy (ordre public) of the forum.” 

Where a dispute contains foreign elements, it may be necessary to determine which court has jurisdiction to decide on it. To address conflicts of jurisdiction, the EU has over time adopted a body of rules designed to clarify jurisdiction and the conditions of execution of judicial decisions: the Brussels Convention of 27 September 1968 , replaced by Regulation No 44/2001 or “Brussels I” of 22 December 2000  and most recently by Regulation No 1215/2012 of 12 December 2012, or “Brussels I bis” which replaced Regulation No 44/2001 since January 2015.

By virtue of the principle of freedom of choice, the parties may insert a jurisdiction clause in their agreement which allows them to “confer jurisdiction on courts which would not have jurisdiction under the general or special provisions of the convention or exclude the jurisdiction of courts which would normally have jurisdiction under those rules” . The principle is established by Article 25 of Regulation No 1215/2012 according to which, “If the parties, one or more of whom is domiciled in a Member State, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction [...]”. The parties can designate a court or courts of a Member State, without having to cite them by name, provided that the jurisdiction clause clearly identifies the objective factors on the basis of which the parties have agreed to choose a court or the courts to which they wish to submit disputes which have arisen or which may arise between them . Furthermore, in a case concerning a franchise agreement containing a jurisdiction clause, the Court of Justice held that the prorogation of jurisdiction is not subject to showing an objective connection between the relationship in dispute and the court designated . The parties are therefore free to agree on a place of performance for contractual obligations having no actual connection with the reality of the contract or the obligation arising from it, as long as the requirements as to form stipulated for forum selection clauses are complied with.

The clause conferring jurisdiction must be the expression of clear and precise consent. It may be in writing or verbal and evidenced in writing and concluded in a form which accords with practices which the parties have established between themselves or, “in international trade or commerce, in a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade or commerce concerned” (Article 25).

Although in principle, only the contracting parties are bound by the jurisdiction clause, it may be asserted against or by the transferee in the case of the transfer of a distribution contract, where the rights and obligations of the transferor have been assigned by virtue of the national law applicable to the assignment . Where this is not the case, the court must verify whether he/she has consented to the clause with regard to the requirements of Article 25 . 

Where the parties have not made any stipulation in respect of jurisdiction, Article 7 of Regulation 1215/2012 governs the matters relating to the contract, i.e. all situations in which there is an obligation freely assumed by one party towards another . Thus, an action claiming pre-contractual liability due to the unjustified breaking-off of negotiations falls within the scope of matters relating to tort, delict or quasi-delict . 

Article 7(1)(a) of Regulation No 1215/2012 states that a person domiciled in a Member State may, in another Member State, be sued: “in matters relating to a contract, in the courts for the place of performance of the obligation in question”. As the place is determined depending on the conflict of jurisdiction rules of the court before which the matter is brought , the jurisdictions competent may be split . To avoid this division, the ECJ applied the accessorium sequitur principale maxim according to which where various obligations are at issue, the principal obligation will determine jurisdiction , except in cases of disputes which contain equivalent obligations arising out of the same contract . Now, Article 7(1)(b) stipulates that “unless otherwise agreed, the place of performance of the obligation in question shall be: - in the case of the sale of goods, the place in a Member State where, under the contract, the goods were delivered or should have been delivered; - in the case of the provision of services, the place in a Member State where, under the contract, the services were provided or should have been provided”. Article 7(1)(c) states that “if subparagraph (b) does not apply then subparagraph (a) applies” . Thus, where the dispute is in relation to the framework agreement, the competent jurisdiction will be determined by the law applicable to the framework agreement under Article 7(1)(a). Where the dispute only relates to one of the sales contracts taken in application of the framework agreement, the competent jurisdiction will automatically be the place in a Member State where, under the contract, the goods were delivered or should have been delivered, under the first indent of Article 7(1)(b).

As an exclusive distribution agreement is neither a sales agreement nor a provision of services agreement, the place of performance of the contractual obligation in question when determining jurisdiction must be fixed in compliance with the law governing the disputed obligation according to the conflict rules of the court before which the matter is brought. Furthermore, the provisions of Article 7(5) of Regulation No 1215/2012, which allow a defendant domiciled on the territory of one Member State, to be brought before the court in the place of performance of another Member State in the event of a dispute arising out of the operations of a branch, agency or other establishment, is not applicable to exclusive distribution agreements insofar as, “when the grantee of an exclusive sales concession is subject neither to the control nor to the direction of the grantor, he cannot be regarded as being at the head of a branch, agency or other establishment” . This is also the case for independent commercial agents (intermediaries) who are free to organize their own work and hours of work and to represent at the same time several rival firms, and who do not effectively participate in the completion and execution of transactions but are restricted in principle to transmitting orders to the undertaking they represent .

The Hague Convention, which came into force on 1 May 1992, was only signed by four States: France, Argentina, Portugal and the Netherlands. The Hague Convention applies within the three Member States which ratified it, pursuant to the adage lex specialis generalibus derogant, in lieu of the Rome I Regulation whose Article 25 reserves that application. On the other hand, the Rome I Regulation is applicable to all issues not settled by the Hague Convention, such as incapacity, form of contract or proof.

Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) OJ of 4 July 2008 No L177; the Commission acknowledged the application of the Rome I Regulation to the United Kingdom as of 17 December 2009, with the exception of Article 26 which was to apply from 17 June 2008: EC Commission Decision No 2009/26 of 22 December 2008, OJ No L10, 15 January 2009.

For an example of a jurisdiction clause derogating from the special jurisdiction in matters relating to a contract set out in Article 5(1) [now 7(1)], see Case 56/79 Siegfried Zelger v Sebastiano Salinitri [1980] ECR 89, LawLex200900002029JBJ.

Case C-387/98 Coreck Maritime GmbH v Handelsveem BV and others [2000] ECR I-9337, LawLex200700001643JBJ, bills of lading.

Case C-269/95 Francesco Benincasa v Dentalkit Srl [1997] ECR I-3767, LawLex200900001340JBJ.

Case 71/83, Partenreederei MS. Tilly Russ v NV Haven- & Vervoerbedrijf Nova [1984] ECR 2417, LawLex200900002207JBJ.

See Case C-387/98 Coreck Maritime GmbH v Handelsveem BV and others [2000] ECR I-9337, LawLex200700001643JBJ, matters relating to bills of lading. 

Case C-26/91 Jakob Handte v Traitements mécano-chimiques des surfaces [1992] ECR I-3967, LawLex200900002082JBJ.

Case C-334/00 Fonderie Officine Meccaniche Tacconi v Heinrich Wagner Sinto Maschinenfabrik [2002] ECR I-7357, LawLex200900000373JBJ.

Case 14/76 De Bloos v Bouyer [1976] ECR 1497, LawLex200900001547JBJ: the word "obligation" in Article 5(1) of Regulation No 44/2001 refers to the contractual obligation forming the basis of the legal proceedings; Case 12/76 Tessili v Dunlop [1976] ECR 1473, LawLex200900001509JBJ.

Case 14/76 De Bloos v Bouyer [1976] ECR 1497, LawLex200900001547JBJ: in litigation concerning the consequences of an infringement by the grantor of an exclusive sales concession, such as the payment of damages or the dissolution of the contract, "the obligation to which reference must be made for the purposes of applying Article 5(1) [now 7(1)] of the convention is that which the contract imposes on the grantor and the non-performance of which is relied upon by the grantee in support of the application for damages or for the dissolution of the contract" whereas, "In the case of actions for the payment of compensation by way of damages, it is for the national court to ascertain whether, under the law applicable to the contract, an independent contractual obligation or an obligation replacing the unperformed contractual obligation is involved".

Convention on the law applicable to contractual obligations opened for signature in Rome on 19 June 1980, OJ C 27 of 26 January 1998.

Case 266/85 Shenavai v Kreischer [1987] ECR 239, LawLex200900001792JBJ.

Case C-420/97 Leathertex Divisione Sintetici v Bodetex [1999], LawLex200900000774JBJ.

For an example in matters relating to commercial agency agreements, see Case C-19/09 Wood Floor Solutions Andreas Domberger GmbH v Silva Trade SA [2010] ECR I-2121, LawLex201000000966JBJ, which holds that a commercial agency contract constitutes a contract for the provision of services within the meaning of the second indent of Article 7(1) (b) of the regulation and that, where services are provided in several Member States, the court having jurisdiction to hear and determine all the claims based on the commercial agency contract is the court within whose jurisdiction the place of the main provision of services is situated i.e. the place of the main provision of services by the agent, as it appears from the provisions of the contract or, in the absence of such provisions, the actual performance of that contract or, where it cannot be determined on that basis, the place where the agent is domiciled.

Case 14/76 De Bloos v Bouyer [1976] ECR 1497, LawLex200900001547JBJ.

Case 139/80 Blanckaert & Willems PVBA v Luise Trost [1981] ECR 819, LawLex200900001546JBJ.

Regulation No 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast) OJEU L 351 of 20 December 2012.

The parties can select the law applicable to the whole or to part only of the contract and can elect several applicable laws.

Article 25 of Rome I Regulation gives precedence to the Hague Convention of 1955 for the governance of all sales of goods.

EC Regulation No 864/2007 of 11 July 2007 on the law applicable to non-contractual obligations.

Case C-381/98 Ingmar GB (Ltd) v Eaton Leonard Technologies Inc. [2000] ECR I-9305, LawLex200900000602JBJ. 

Likewise, Article 16 of the Hague Convention of 14 March 1978 on the Law Applicable to Agency provides, "effect may be given to the mandatory rules of any State with which the situation has a significant connection, if and in so far as, under the law of that State, those rules must be applied whatever the law specified by its choice of law rules" and in Article 21 lays down a public policy exception.

European Distribution Law

3. Supplier networks and distributor networks

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Les notions juridiques connexes

3. Supplier networks and distributor networks

Demandez un accès gratuit au contenu exclusif Livv – juristes d’entreprise

Les notions juridiques connexes

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au contenu exclusif Livv – juristes d’entreprise