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

In order to benefit from the exemption, motor vehicle distribution agreements must not contain any hardcore restrictions, corresponding to the “black clauses” listed in Article 4 of the Vertical Restraints Regulation.  The inclusion of such clauses leads to the loss of the benefit of the exemption in respect of the whole of the agreement in question , unlike restrictions also called “red” clauses, which are prohibited by Article 5, and held null and void without leading to the whole agreement being invalidated . 

The exemption does not apply to agreements which restrict the distributor's freedom to determine its sale price, “without prejudice to the supplier's possibility 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” (Article 4(a)). The article covers practices of minimum and fixed prices . Evidence of the infringement implies that the manufacturer's policy has been communicated without ambiguity to members of the network  and has  been implemented in practice by those members. On the other hand, suppliers are not sanctioned for adjusting distributors' remuneration, modifying prices or granting rebates depending on market conditions .

In the Guidelines on Vertical Restraints, the Commission has adopted a more understanding attitude towards retail price maintenance since, although the regulation  maintains the per se prohibition, the guidelines now provide for the possibility of individual exemption where efficiency gains are established .

Article 4 of Regulation No 2022/720 lays down the principle of the freedom for any buyer to resell the contract goods or services without restriction of territory or customers. However, the regulation provides for exceptions to the per se prohibition of sales restrictions which differ according to the distribution system: exclusive distribution (Art. 4(b)), selective distribution (Art. 4(c)) or free distribution (Art. 4(d)). 

Restrictions on cross-selling within selective networks, whether direct or indirect, also constitute hardcore restrictions that justify the loss of the exemption of the agreement in its entirety. Article 4(c)(ii) of the Regulation refers to sales between distributors or operators who may or may not operate at the same level on the market. The prohibition includes measures imposed by a manufacturer on its dealers to restrict and prohibit parallel exports, such as prohibiting cross-supplies between dealers from several Member States, organizing controls on orders and providing for penalties in the event of non-compliance . Finally, the members of a selective distribution network may not prohibit active or passive sales to end users .

Under Regulation No 1400/2002, European end purchasers were free to choose a distributor in another Member State and the supplier was required to supply its distributors with new motor vehicles which complied with the characteristics applicable in other Member States where the dealer sold them in their local version. In the past, this rule had led to a manufacturer being penalized because it refused to supply its German dealers with new motor vehicles complying with British standards, as in fact it undermined any cross-resale between dealers or direct resale to British final consumers, and breached the availability obligation imposed on manufacturers by the regulation . The general regulation on vertical restraints does not specifically cover that restriction. Having restated that the restrictions on parallel trade may take many forms , the motor vehicle guidelines  nevertheless state that where a distributor is unable to obtain new motor vehicles with the appropriate specifications needed for cross-border sales, this will amount to an indirect restriction on parallel trade .

Finally, Regulation No 2022/720 has made obstacles to the effective use of the internet by the reseller a hardcore restriction in its own right, under the same conditions for all networks . The text does, however, allow for the possibility of imposing restrictions on online sales and online advertising, provided that they are not intended to prevent the use of this sales channel or advertising entirely.

Several exceptions to the prohibition of sales restrictions are listed in Article 4 of Regulation No 2022/720, which are intended to protect the exclusivity granted to distributors or the watertightness of the network in selective distribution and apply regardless of the type of distribution chosen. The head of the network may:

- prohibit active sales by the reseller and its direct customers into a territory or to a group of customers that the supplier has reserved for itself or that it has allocated on an exclusive basis to no more than five exclusive distributors.  Passive sales into the contract territory or to the contract customer base should not be restricted. On the other hand, passive sales in the allocated territory or to the contracted customer base should not be restricted: the distributor should remain free to respond to solicitations from end-users that are not within its contracted territory or from the customer base allocated to it.  This prohibition is intended to encourage the use of the distributor's own resources. The purpose of this prohibition is to encourage parallel imports, to reduce price differences between contract territories and to protect customers' freedom of choice.

- prohibit both active and passive sales by its resellers and their direct customers to unauthorized distributors located in a territory in which the supplier operates a selective distribution system for the contract goods or services.  The constraints on authorized distributors in a selective distribution system justify protecting them from competition from out-of-network distributors, who would be more competitive if they were not subject to the system.  The constraints on authorized distributors in a selective distribution system justify protecting them from competition from out-of-network distributors, who, to the extent that they are not subject to the system, would be more competitive.  The resale of new vehicles outside the network is not only a matter for the supplier, but also for the distributor. The resale of new vehicles outside the network may constitute a breach of contract leading to extraordinary termination of the contract and authorize the supplier to check stocks and invoices . On the other hand, an exemption regulation only concerns the relationship between suppliers and distributors and cannot be used against out-of-network resellers to limit their activity . They are subject to national rules that prohibit, if necessary, their unfair behavior . 

- impose a place of business on the reseller. 

- prohibit wholesalers from supplying end-users . Inspired by the Metro  case law, this prohibition prevents wholesalers from taking advantage of the benefits granted to them to remunerate their function and offset its cost. 

- impose restrictions on the sales of components to the supplier's competitors. This restriction, which allows the supplier to prevent direct resale to competitors, is only effective to a limited extent insofar as it does not protect from the resale to its competitors by purchasing third parties.

Vertical Restraints Guidelines of 2022, pt 177.

See, for example, Commission decision No 2001/146 of 20 September 2000, Opel, LawLex200200003574JBJ, refusal to pay bonuses; No 2002/758 of 10 October 2001, Mercedes-Benz, LawLex200200003465JBJ, instructions from the manufacturer to its agents and dealers “to stick to their contractual territory” accompanied by threats of reductions in the quotas of vehicles allocated and the requirement of payment of a deposit of 15% of the purchase price for final consumers established in other Member States.

See previous case law, cases 25/84 and 26/84 Ford, Judgment of 17 September 1985, LawLex200200004063JBJ.

Regulation No 2022/720 of 10 May 2022, Art. 4(e).

Regulation No 2022/720, Art. 4(b)(i) for exclusive distribution; Art. 4(c)(i)(1) for selective distribution; and Art. 4(d)(i) for free distribution. 

Regulation No 2022/720 defines active selling as “the active targeting of customers by visits, letters, emails, calls or other means of direct communication or through targeted advertising and promotion, offline or online, for instance by means of print or digital media, including price comparison services or advertising on search engines targeting customers in particular territories or customer groups, operating a website with a top-level domain corresponding to particular territories, or offering on a website languages that are commonly used in particular territories, where such languages are different from the ones commonly used in the territory in which the buyer is established” (Art. 1(1)(l). Passive sales are those “made in response to unsolicited requests from individual customers, including delivery of goods or services to the customer, without the sale having been initiated by actively targeting the particular customer, customer group or territory, and including sales resulting from participating in public procurement or responding to private invitations to tender” (Art. 1(1)(m)).

Reg. No 2022/720, At. 4(b)(ii) for exclusive distribution; Art. 4(c)(i)(2) for selective distribution; and Art. 4(d)(ii) for free distribution. 

For an application of this principle, see Case T-531/18 LL-Carpenter s. r. o. v Commission, Judgment of 12 March 2020, LawLex202000002124JBJ, rejecting a complaint denouncing prohibitions of sales to unauthorized resellers, as they  are lawful under the Vertical Restraints Regulation.

Case 26-76 Metro v Saba, Judgment of 25 October 1977, LawLex200004119JBJ; Case 75-84 Metro v Saba, Judgment of 22 October 1986, LawLex200004052JBJ; Commission decision No 92/33 of 16 December 1991, Yves Saint Laurent Parfums, LawLex200003968JBJ.

See, under the empire of Regulation No 1475/95, Case C-226-94 Grand Garage Albigeois SA, Judgment of 15 February 1996, LawLex200005535JBJ ;  Case C-309-94 Nissan France SA v Dupasquier, Judgment of 15 February 1996, LawLex200005536JBJ, Case C-128-95, Fontaine SA v Aqueducs automobiles SARL, Judgment of 20 February 1997, LawLex200200005645JBJ.

V. VAN DEN BERGH, Modern Industrial Organisation Versus Old-fashioned European Competition Law, 1996 ; HUGUES, FOSS, ROSS, The Economic Assessment of Vertical Restraints under UK and EC Competition Law 2001; GOGESHVILI, Resale Price Maintenance - a Dilemma in EU Competition Law, Georgian Law Review 5, 2002-2:3; ALESE, Unmasking the Masquerade of Vertical Price Fixing, ECLR, 2007, 514; KOKKORIS, Purchase Price Fixing: a per se Infringement?, ECLR, 2007, 473; KNEEPKENS, Resale Price Maintenance Economics Call for a more Balanced Approach, ECLR, 2007, 656; SPECTOR, Minimum resale prices: is a ban justified?, Concurrences, 3/2007, 28; ALLAIN and  CHAMBOLLE, The recent economic debate on the welfare effects of resale price maintenance, Concurrences, 3/2008; CARNEY and McAHREN, Resale price maintenance agreements after Leegin, Concurrences, 3/2008; PEEPERKORN, Resale Price Maintenance and its Alleged Efficiences, ECJ, 2008, Vol. 4-1, 201; BOTTEMAN and KUILWISK, (Minimum) Resale Price Maintenance Under the New Guidelines: A Critique and a Suggestion, The CPI Antitrust Journal, June 2010; SUBIOTTO and DAUTRICOURT, The Reform of European Distribution Law, World Comp., 2011, 11, 29; NIHOUL and LÜBBIG, Competition Policy: Going International?, JECLAP, 2010 ; CALLERY, Should the European Union embrace or exorcise Leegin's “rule of reason”?, ECLR, 2011, 42; BUTTIGIEG, Vertical conduct: Resale price maintenance, in Comparative competition law, Edward Elgar,  2015, 245.

Case C-41-96 VAG-Händlerbeirat (eV) v Syd-Consult, Judgment of 5 June 1997, LawLex200200005676JBJ. In French law, resale outside the network is punishable on the basis of third party complicity in the violation of the obligations of a member of the network (Commercial Code, Art. L. 442-2) or of unfair competition, in the case of fault detachable from the resale activity (Civil Code, Art. 1240).

Regulation No 2022/720, Art. 4(b)(iii) for exclusive distribution; Art. 4(c)(i)(3) for selective distribution; and Art. 4(d)(iii) for free distribution.

Regulation No 2022/720, Art. 4(b)(iv) for exclusive distribution; Art. 4(c)(i)(iv) for selective distribution; and Art. 4(d)(iv) for free distribution.

Case C-26-76 Metro v Saba, Judgment of 25 October 1977, LawLex200200004119JBJ: restriction on sales by wholesalers to end-users does not fall under Article 101 TFEU(1).

Reg. No 2022/720, Art. 4(b)(v) for exclusive distribution; Art. 4(c)(i)(5) for selective distribution; and Art. 4(d)(v) for free distribution.

For an example see Commission Decision No 2002/758 of 10 October 2001, Mercedes-Benz, LawLex200400003553JBJ.

Such as warning letters or circulars: Commission Decision No 2001/711 of 29 June 2001, Volkswagen, LawLex200400002643JBJ; Case T-368/00 General Motors Nederland BV [2003] ECR II-4491, LawLex200500004833JBJ.

Cases T-185/96, T-189/96, T-190/96 Riviera Auto Service [1999] ECR II-93, LawLex200200003672JBJ.

Guidelines on Vertical Restraints, pt 197.

Commission decision No 98/273 of 28 January 1998, VW, LawLex200200003727JBJ.

Commission decision No 83/560 of 16 November 1983, Ford, LawLex200004079JBJ; No 86/506 of 25 September 1986, Peugeot, LawLex200004053JBJ; Case 25/84 and 26/84 Ford, Judgment of 17 September 1985, LawLex200004063JBJ; See also Commission decision No 2001/711 of 29 June 2001, Volkswagen, LawLex200003539JBJ, pt 86.

87. Hardcore restrictions ("black clauses")