French Competition Law provides a comprehensive review of the French rules relating to competition: restrictive agreements, commercial negotiation, abuses of a dominant position, procedure and merger control.

French Competition Law

An exclusive distribution contract is one in which “a merchant, called the “dealer”, puts a distribution undertaking at the service of another merchant or manufacturer, called the “grantor”, to exclusively provide the distribution of products on a given territory for which a resale monopoly is granted”. This contract is very marked by the intuitus personae (by reason of the person) principle. It i …

Concept

An exclusive distribution contract is one in which “a merchant, called the “dealer”, puts a distribution undertaking at the service of another merchant or manufacturer, called the “grantor”, to exclusively provide the distribution of products on a given territory for which a resale monopoly is granted”. This contract is very marked by the intuitus personae (by reason of the person) principle. It is usually considered that dealers are chosen at the grantor's discretion, thereby distinguishing exclusive dealerships from selective ones, in which dealers are chosen based on objective selection criteria. The Court of Cassation has lessened this contrast: “By making a decision by reference to vague quantitative and qualitative criteria, applied at and according to [the grantor]'s discretion, and that do not allow the court to verify whether dealers are chosen in accordance with the same objective criteria as all other candidates, the Court of Appeal provided no legal basis for its decision” . The exclusive supply obligation that lays on the grantor is an essential element for differentiating exclusive distribution from selective distribution. Unlike an authorized reseller, the dealer benefits from a monopoly on the resale of the products thus supplied on the territory granted. The grantor pledges to refrain from supplying other distributors, with the exception of specific, reserved customers .

From a competitive viewpoint, exclusive dealerships present mixed results; an increase in inter-brand competition is obtained at the expense of a decrease in intra-brand competition. Exclusive dealerships restrict competition all while helping develop it. It is therefore capable of being exempted from the prohibition on anticompetitive agreements, either by recourse to the rule of reason, or on the basis of an individual or collective exemption.

Cass. com., 25 January 2000, LawLex200200005274JBJ.

Cass. com., 1st December 1991, LawLex200200005960JBJ.

The supplier may freely choose a distribution method, as long as it does not involve rejecting a reseller in a way that is contrary to the rules of competition. The manufacturer is also free to modify the way its distribution network is organized, and contracted members do not have the right to maintain their position . Manufacturers may therefore group the distribution of their products within a single undertaking, and this system cannot be qualified as an anticompetitive agreement between the manufacturer and the new distribution structure . The modification of the network does not in itself constitute an anticompetitive practice as long as resellers retain the option, in particular, of getting supplies from the distributor the manufacturer has designated . The supplier can therefore switch from a selective to an exclusive distribution system , or from an exclusive distribution system to franchising . The change must not be untimely or give rise to an unreasonable termination of business ties. To ensure this, the distributor must be notified sufficiently ahead of time. Under the principle of freedom of network organization, the supplier may locally protect the network by granting aid to distributors who are appreciably affected by the development of parallel imports, as long as this stimulates competition between network members and non-network distributors .

Furthermore, as the Court of Cassation has firmly stated, “the grantor has the right to deal with the contracting party of his choice... he is not required to justify his decision nor communicate the criteria in accordance with which that choice is made” . Selection criteria are set by the network founder. The Competition Authority has in particular specified that the professional and technical qualifications of exclusive dealership candidates are freely evaluated by the supplier . Selection must however be subject to certain limits, be free of discrimination, and not lead to anticompetitive practices . The Competition Authority has ruled that selective or exclusive distribution systems are not anticompetitive as long as the selection criteria are objective, do not have as their object or effect to categorically exclude one or more given modes of distribution, and are not applied in a discriminatory manner . In particular, the refusal to authorize a candidate as an exclusive dealership network member is lawful where justified for reasons of economic timing, or the interest of consumers or of current dealers . However, reserving distribution to a particular professional category without objective justification for doing so is not allowed by competition authorities .

Competition Council decision No 98-D-32 of 26 May 1998, LawLex200200003173JBJ.

Competition Council decision No 01-D-42 of 11 September 2001, LawLex200200003432JBJ.

CA Bastia, 3 February 1997, LawLex200200005635JBJ.

See esp. GC judgment of 27 February 1992, Case T-19/91, LawLex200500004903JBJ.

Competition Council decision No 02-D-26 of 9 April 2002, LawLex200200002224JBJ.

CA Paris, 10 February 1995, LawLex200200005448JBJ.

CA Paris, 16 October 1992, LawLex200200002640JBJ.

CA Paris 29 June 2004, LawLex200400001644JBJ.

Cass. com., 7 April 1998, LawLex200200005121JBJ. 

Competition Council decision No 91-D-31 of 18 June 1991, LawLex200200002673JBJ. See also Competition Council decision No 01-D-40 of 20 July 2001, LawLex200200002148JBJ. 

Competition Council decision No 97-D-81 of 4 November 1997, LawLex200200002974JBJ. 

Competition Council decision No 91-D-22 of 14 May 1991, LawLex200200002669JBJ. 

Freedom of network organization

Vertical agreements between suppliers and exclusive distributors must not restrict the freedom of the reseller, who shall be able to freely set resale prices. Competition authorities do not allow practices that lead to imposed prices. Thus a contract cannot contain a term that requires all resellers to charge resale prices as set by the manufacturer .

However, if prices are in fact a maximum limit set by the supplier, recommended prices do not harm competition where there is no evidence of concerted behavior between resellers or the manufacturer and its network. Distributor commercial freedom is intact as they may charge lower prices more in line with their own operating conditions .

Competition Council decision No 91-D-22 of 14 May 1991, LawLex200200002669JBJ.

Competition Council decision No 91-D-31 of 18 June 1991, LawLex200200002673JBJ.

Resale price maintenance

While exclusive distributors are barred from actively selling outside their own territory, they must be able to respond to any unsolicited request from a customer, even if situated outside that territory . Parallel imports are therefore lawful. Following the example of EU authorities, the Competition Authority has held that absolute territorial protection for exclusive distribution network members is anticompetitive . The Paris Court of Appeal has thus ruled against bans imposed on exclusive distributors against passive sales . Combining an exclusive supply obligation with an export ban has also been judged anticompetitive . The supply obligation in fact prevents selling back between exclusive distributors, which is incompatible with the free play of competition. The ban on exports also creates an artificial allocation of national markets . The mere act of limiting the dealers' export capacity outside their exclusive zone is tantamount to an absolute territorial protection . Similarly, monitoring imports or export capacities distorts competition and allocates national markets .

For an example, see Competition Council decision No 97-D-31 of 20 May 1997, LawLex200200002624JBJ; No 01-D-41 of 20 July 2001, LawLex200200002148JBJ.

CA Paris, 30 March 1992, LawLex200200002569JBJ.

Competition Council decision No 93-D-50 of 23 November 1993, LawLex200200002651JBJ.

Competition Council decision No 96-D-17 of 19 March 1996, LawLex200200002568JBJ.

Competition Council decision No 97-D-68 of 23 September 1997, LawLex200200002493JBJ.

Competition Council decision No 97-D-21 of 25 March 1997, LawLex200200002454JBJ; No 97-D-68 of 23 September 1997, LawLex200200002493JBJ.

Absolute territorial protection

Moreover, while a post-contractual non-compete term may be included in the contract in order to protect the know-how that has been transmitted, such a clause is capable of restricting competition on relevant markets where its length is disproportionate to the objective it seeks to achieve .

Competition Council decision No 00-D-82 of 26 February 1982, LawLex200200002680JBJ.

Non-compete clauses

The mere fact that products covered by an exclusive distribution agreement have been sold out of the network does not constitute a fault . To be allowable, however, the resale must involve products acquired within the rules . Outside network sales must not be made possible by third party complicity in violating the exclusivity obligation or by unfair conduct.

In the area of motor vehicle distribution, outside network sales raise particular difficulties . Regulation No 1475/95 provided for the possibility of appointing an intermediary for acquiring a new vehicle within the EU. Some have claimed that the motor vehicle block exemption did not allow outside-network sales by third party, parallel importers . Others maintained that on the contrary, new vehicle sales by parallel importers who are aware of the existence of an exclusive distribution network is not an act of unfair competition if there are no other wrongful practices , and also claimed that neither operating as an outside-network reseller, nor combining this status with that of appointed intermediary were prohibited by the Motor Vehicle Regulation . In a 15 February 1996 ruling , the Court of Justice took a position in favor of this second interpretation. In it, the Court states that the Motor Vehicle Block Exemption Regulation does not forbid an operator outside the official distribution network for a given vehicle make, and who is not an appointed intermediary within the meaning of the regulation, from independently marketing new vehicles of that make. The Court of Cassation followed in the ECJ's footsteps that same year . The scope of that decision should not however be overestimated. The court has only ruled that insofar as the regulation does not concern third party activity, it cannot serve as grounds for forbidding such activity. It does not follow that outside network resale is legal. Further, the new Motor Vehicle Block Exemption Regulation expressly provides for the possibility of banning selective new vehicle and spare parts distribution network members from selling outsidenetwork to non-authorized distributors on those markets where distribution is selective (Art. 4). This ban is however not an option for exclusive distribution.

Cass. com., 30 January 2001, LawLex200200000667JBJ; Cass. com., 9 October 2001, LawLex200200000613JBJ.

For examples of authorized supply, see CA Chambéry, 11 October 1995, LawLex200200001419JBJ; Cass. com., 9 October 2001, LawLex200200000613JBJ.

French competition authorities forbid exclusionary practices such as boycotts. Dealers may not for any reason engage in concerted practices intended to hinder resellers or agents from gaining market access: see Competition Council decision No 94-D-05 of 18 January 1994, LawLex200200002446JBJ; No 96-D-42 of 25 June 1996, LawLex200200002444JBJ; CA Paris, 25 March 1997, LawLex200200002642JBJ; Competition Council decision No 97-D-62 of 16 September 1997, LawLex200200002524JBJ; CA Dijon, 10 February 2000, LawLex200200000841JBJ.

CA Orléans, 29 November 1994, LawLex200200005423JBJ; CA Poitiers, 11 January 1995, LawLex200200001501JBJ.

CA Reims, 14 December 1994, LawLex200200001506JBJ.

CA Montpellier, 8 June 1995, LawLex200200005473JBJ. 

ECJ Judgment of 15 February 1996, Case C-226/94, LawLex200200005535JBJ; Case C-309/94, LawLex200200005536JBJ; 20 February 1997, Case C-128/95, LawLex200200005645JBJ.

Cass. com., 9 July 1996, LawLex200200001343JBJ; Cass. com., 15 October 1996, LawLex200200005603JBJ; 13 January 1998, LawLex200200001191JBJ and LawLex200200001195JBJ; 10 February 1998, LawLex200200001182JBJ.

Outside network resale

An exclusive distribution agreement is not in itself anticompetitive. It only becomes so if it unreasonably limits the distributor's commercial freedom. Application of the rule of reason has been extended to exclusive distribution, but to a more limited degree than for selective distribution. This approach allows for exclusive distribution systems, which do not prevent the entry of new competitors even though they contain clauses that may potentially restrict competition, to remain valid. In fact, to the extent that exclusivity includes distributor selection, and that these clauses reinforce competition and are not discriminatory, they escape the ban, without the necessity of a specific exemption . The Competition Authority has specified in particular that where criteria are objective, do not have the exclusion of one or more given modes of distribution as their object or effect, and are not applied in a discriminatory manner, exclusive distribution is lawful . The conditions that are laid down in the regulation on vertical restrictions, applied as an interpretive guide by French competition authorities, should now be added to those just enumerated.

Even where unlawful, the agreement or contract clause concerned could theoretically benefit from an exemption on the grounds of Article L. 420-4(I)2 of the Commercial Code. The Paris Court of appeal has specified that exemptions cannot be granted if the alleged economic progress has not been obtained due to brand exclusivity which instead restricts consumer choice, limits competition, and reduces producer innovation efforts . Likewise, the Competition Authority has not recognized non-sell-back clauses, which ensure a certain amount of territorial protection to the exclusive distributor, as having the effect of improving inter-brand competition .

See for ex., Competition Council decision No 91-D-31 of 18 June 1991, LawLex200200002673JBJ.

Competition Council decision No 91-D-22 of 14 May 1991, LawLex200200002669JBJ. Also, Cass. com., 25 January 2000, LawLex200200005274JBJ, applying the rule of reason to an exclusive distribution agreement for the first time.

CA Paris, 7 May 2002, LawLex200200002185JBJ.

Rule of reason or individual exemption

Regulation No 330/2010 covers virtually all purchase, sale, or resale agreements for goods or services between undertakings situated at different levels of the production and distribution chain. The Guidelines set up a method for analyzing vertical restraints that should allow undertakings to assess the compatibility of their agreements with competition rules. They first set forth a certain number of general rules that they transpose to the main types of vertical agreement.

In the Guidelines, it appears that in an exclusive distribution system, the distributor's ability to engage in active sales towards other exclusive territories is limited . These agreements restrict intra-brand competition in particular and may produce a market partitioning effect and price discrimination . Where the supplier's and the buyer's market share does not respectively exceed 30%, the distribution agreement is exempt, even if it includes other vertical restrictions such as a 5-year non-compete obligation or quotas. Exclusive distribution can only be combined with selective distribution however if active sales to end users are not limited. Beyond the exemption threshold, the effect of the weakening of intra-brand competition on inter-brand competition has to be examined.

Regulation No 2790/1999 did not pertain to the motor vehicle sector which was governed by Regulation No 1400/2002. This regulation, which repealed and replaced Regulation No 1475/95, completely broke from the main principles of the previous regulation in barring the combination of exclusive with selective distribution, implementing absolute multi-branding, abolishing the link between sales and after-sales service, reinforcing distributor protection, adding spin-off ability throughout the common market, imposing a purely qualitative selective distribution in after-sales services, and the multiplication of prohibited clauses, that could be qualified as “black” (hardcore restriction) and “red” (specific condition) clauses. Motor vehicle distribution agreements benefited from a presumption of legality as long as the supplier's share of the new vehicle, spare parts, or repair and maintenance services market did not exceed 30% . This threshold rose to 40% where the manufacturer implemented a quantitative selective distribution system for new vehicle sales.

As Regulation No 1400/2002 expired on May 2010, the Commission has simply substituted it with the new general BER No 330/2010 and on 27 May 2010 adopted a new motor vehicle Regulation No 461/2010 - which entered into force on 1 June 2010 and which provides for two different regimes for sales and after-sales. Sales are subject to the general Vertical Restraints Regulation whereas contracts for the provision of services, repair and maintenance and distribution of spare parts must, cumulatively fulfill the conditions for block exemption in the general scheme set out in Regulation No 330/2010 and the more specific conditions set out in Regulation No 461/2010.

On passive sales, see GC Judgment of 19 May 1999 - BASF Coatings AG - Case T-175/95, LawLex200200003648JBJ, declaring bans on passive sales unlawful; On exports towards exclusive territories and cross-deliveries, see GC Judgment of 7 July 1994, Case T43/92 -Dunlop Slazenger International -, LawLex200200003871JBJ.

On an agreement granting absolute territorial protection, see EC Comm. No IV/36.516 of 5 July 2000 - Nathan-Bricolux -, OJEC, L54 of 23 February 2001.

In cases of exclusive supply, it is the buyer's market share that is used as a point of reference.

French Competition Law

318. Concept

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318. Concept

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Les notions juridiques connexes

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