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

Under Regulation No 1400/2002, in order to qualify for the block exemption, motor vehicle distribution agreements had to meet the conditions laid down in its Article 3. If the conditions were satisfied, the parties qualified for the exemption but non-compliance did not affect the validity of their contracts in respect of Article 101 TFEU . In effect, the sole purpose of block exemption is to exemp …

End of former general conditions of exemption

Under Regulation No 1400/2002, in order to qualify for the block exemption, motor vehicle distribution agreements had to meet the conditions laid down in its Article 3. If the conditions were satisfied, the parties qualified for the exemption but non-compliance did not affect the validity of their contracts in respect of Article 101 TFEU . In effect, the sole purpose of block exemption is to exempt certain contractual terms from being voided under the prohibitions of Article 101(1) and (2). Therefore, where a contract does not comply with the block exemption regulation, it may still be lawful as long as it does not contain clauses having as their object or effect the restriction of competition. Most of the conditions set out in Article 3, which are contractual in nature, had no place in an exemption regulation. The general regulation on vertical restraints does not include them and limits itself to setting a market share threshold.

The conditions for exemption now removed were:

The former regulation set out market share thresholds below which the agreement qualified for the exemption. Under Article 3(1), where the market share of the supplier did not exceed 30%, three systems of distribution were possible: exclusive distribution; qualitative selective distribution; or qualitative and quantitative selective distribution. Where the supplier had a market share of between 30% and 40%, the choice was limited to qualitative selective distribution or qualitative and quantitative selective distribution systems . For a market share of over 40%, the supplier's network had to adopt a system of qualitative selective distribution or meet all the requisite conditions to qualify for an individual exemption . Generally, both the Commission and the national courts relied on the supplier's position on the general market of passenger car registrations of all brands on each national market to assess whether the thresholds set out in the regulation or the de minimis notice had been met . 

The vertical restraints regulation upholds the “safe harbor” principle arising from the market share threshold albeit in a different form. The exemption applies on condition that the market share held by the supplier does not exceed 30% of the relevant market on which it sells the contract goods or services and the market share held by the buyer does not exceed 30% of the relevant market on which it purchases the contract goods or services (Art. 3(1)). The modification of the thresholds has not created any change in distribution models: a number of manufacturers have chosen to retain a quantitative selective system of distribution despite the new possibilities available to them under the vertical restraints regulation. Due to the difficult economic situation, manufacturers prefer to favor the stability of their networks. They have also adapted to the constraints of quantitative selection which affords a certain flexibility in the organization of network by allowing suppliers to define their catchment areas. The European court has now put this form of distribution on a secure footing by making exemption subject to the condition that the criteria for authorization within the network 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” .

2) Freedom to transfer within the network

To qualify for an exemption, the agreement had to provide a clause for the transfer of the rights and obligations permitting the distributor to transfer his agreement within the network, irrespective of the distribution system being used (Article 3(3)). The freedom to transfer contract rights and obligations had to meet three cumulative conditions: the transfer had to be reserved for undertakings of the same type , take place within the same brand and cover all the rights and obligations arising out of the agreement . The freedom to transfer within the network was intended to allow cross-border acquisitions and to encourage trade between Member States. In fact, such acquisitions have virtually never been made. On the other hand, the rule has encouraged the concentration of distributors at the local and regional level thus reducing competition between distributors.

The general regulation does not contain any comparable provisions. Carmakers have in the main taken account of the withdrawal of the freedom to transfer within the network and now require that such transfers be subject to their consent.  

3) Recourse to an independent expert or an arbitrator

Under Regulation No 1400/2002 each party had the right to refer disputes concerning the fulfillment of their contractual obligations to an independent expert or arbitrator (Article 3(6)). The provision stated that the rule was without prejudice to the parties' right to make an application to a national court. Nevertheless the referral of a dispute to an expert third party or an arbitrator in case of termination of the agreement was not a prerequisite to the notification of the termination .

Although the general regulation contains no such requirement, the possibility to refer to an independent expert or arbitrator in the event of a dispute has generally been maintained in new contracts in a simplified form.

4) Notice of termination in writing and obligation to state reasons for the termination

To reinforce the protection of network members and particularly to avoid terminations for anticompetitive reasons, Article 3(4) of Regulation No 1400/2002 made the benefit of exemption for vertical agreements of indeterminate duration subject to the obligation to give notice in writing and to state the objective and transparent reasons for the termination. For fixed-term contracts, notice of non-renewal had to be given at least six months before the contract expired. This was narrowly interpreted and did not oblige suppliers to justify the termination by claiming a breach by the other party. Suppliers only had to state the reasons for the decision but such reasons could be the result of circumstances that did not concern the contracting party and did not involve any breach. Control by the court was therefore limited to the competitive character of the grounds for termination of the decision, and could not relate to the appropriateness or wisdom behind the decision to terminate. The obligation to state reasons only applied to contracts of indefinite duration and did not extend to the non-renewal of fixed-term contracts . 

The obligation to state reasons, which is a derogation from the general law on the termination of contracts, is not included in the Vertical Restraints Regulation and is therefore no longer required.

Article 3(5)(a) of Regulation No 1400/2002 set the minimum duration of fixed-term contracts at five years. In consideration of the protection given to the distributor by the fixed-term contract, the supplier could refuse to renew the contract without being liable to pay damages. Despite those advantages, contracts of indefinite duration were still favored by traders and this remains in place under general regulation which does not contain any provision relative to the duration of contracts themselves.

Article 3(5)(b) of Regulation No 1400/2002 fixed a period of notice for regular termination of two years . It was reduced to one year where, at the end of the contract of indefinite period, the supplier was obliged by law or by special agreement to pay appropriate compensation  or had to reorganize the network . The reorganization had to cover all or a substantial part of the network, i.e. it had to be significant, both substantively and geographically . The reorganization had to be necessary, i.e. be justified on grounds of effectiveness based on objective circumstances internal or external to the undertaking, which, failing any reorganization, would be liable to prejudice the existing structures of the network. Although the entry into force of Regulation No 1400/2002 did not in itself require that networks be reorganized, it could have the effect of making such reorganization necessary because of the specific organization of the networks, in particular in case of switches from an exclusive selective system to a selective system . It was for the supplier to bring evidence that the reorganization of the network was lawful .

Most new contracts now provide for a notice period of two years for contract terminations whereas this is not a requirement under general regulation. This can be explained due to the fact that certain codes of conduct refer to a two-year period, that it is common practice in the automobile sector and that it is in line with the rules of many national laws which impose relative lengthy notice periods .

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

Regarding sale of new motor vehicles, manufacturers have massively chosen qualitative and quantitative selective distribution.

In France, there is no rule relating to distributors' automatic compensation and the exception for compensation can only be provided for by contract. Part of the European doctrine, above all from Germany and Austria, considers that providing for compensation of end of contract would not be sufficient to reduce the period of notice to one year. According to those authors, the compensation for the harm resulting from the end of the contract for the dealer is not appropriate since the compensation should offset the reduction in the writing-off duration.

According to the Commission, a reduction in the period of notice was required "In order to avoid obstructing the development of flexible and efficient distribution structures": Regulation No 1475/95, at pt 19.

"Such a reorganisation 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": Case C-125/05 Vulcan Silkeborg [2006] ECR I-7637, LawLex200700000322JBJ.

See, inter alia, Case C-376/05 and C-377/05 Brünsteiner [2006] ECR I-11383, LawLex200700000323JBJ; Case C-273/06 Auto Peter Petschenig GmbH v Toyota Frey Austria GmbH, LawLex202000002085JBJ, particularly in cases of switches from systems combining exclusivity and selectivity to selective systems with no restriction of the distributors' territory.

Case C-125/05 Vulcan Silkeborg [2006] ECR I-7637, LawLex200700000322JBJ.

E.g. under French law, Art. L. 442-6, I, 5° of the Commercial Code.

Since 1 June 2013, when the sale of new vehicles started to fall under the Vertical Restraints Regulation No 330/2010 of 20 April 2010, now replaced by Regulation No 2022/720 of 10 May 2022, the market share threshold is reduced to 30%, including for quantitative selective distribution systems, and applies to both supplier and distributor.

Press release from the Commission IP/04/585 of 3 May 2004, “Commission clears new Porsche distribution and after-sales service arrangements”.

Case C-158/11 Auto 24 v Jaguar Land Rover, Judgment of 14 June 2012, LawLex201200000961JBJ.

Regulation (EC) No 1400/2002 of 31 July 2002, at pt 10.

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

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).

Regulation No 123/85 already provided for a notice period of at least one year, which was increased to two years by Regulation No 1475/95. Regulation No 1400/2002 included an obligation to state reasons for the termination decision.

European Distribution Law

86. End of former general conditions of exemption

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

86. End of former general conditions of exemption

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

Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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au contenu exclusif Livv – juristes d’entreprise