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.

French Distribution Law

Title IV of Book IV of the Commercial Code entitled “Transparency, restrictive practices and other prohibited practices” governs the dealings between professionals at the various levels of trade. It penalizes a number of behaviors likely to affect commercial relations. These provisions prohibit per se the wrongful behavior regardless of its effect on the market. The point is to prevent businesses  …

Per se prohibition.

Title IV of Book IV of the Commercial Code entitled “Transparency, restrictive practices and other prohibited practices” governs the dealings between professionals at the various levels of trade. It penalizes a number of behaviors likely to affect commercial relations. These provisions prohibit per se the wrongful behavior regardless of its effect on the market. The point is to prevent businesses from taking a competitive advantage by resorting to restrictive practices - resale below cost, resale price maintenance - in respect of their business partners. Finally, Title IV prohibits a number of abusive practices in order to protect suppliers in a weak position in relation to large retailers. The formalism of those rules and the automatic character of the prohibitions have been criticized to such an extent that it has been suggested that they be abolished. In effect, the most recent commentaries on economic theory have shown that the restrictive practices which are subject to per se prohibition - such as resale price maintenance and resale below cost - are not necessarily harmful and that an absolute ban is not warranted. After negotiating the maintenance of provisions relating to restrictive practices in the context of the adoption of Regulation No 1/2003 of 16 December 2002, the French authorities have adopted a more reserved approach vis-à-vis the rules on restrictive practices in order to limit their adverse effects: the Chatel Law of 3 January 2008 has thus relaxed the resale below cost threshold, now fixed at the triple net price (i.e. net of discounts, rebates and services rendered by the distributor) and the per se ban on discriminatory practices was repealed by the LME law (law on the modernization of the economy) of 4 August 2008.

Traditionally, exclusive distribution agreements have given rise to an abundance of case law in respect of two restrictive practices: resale price maintenance and discriminatory practices. The prohibition per se of resale price maintenance, subject to criminal sanctions, seems to be rarely applied today and the courts favor the repression of resale price maintenance in vertical agreements through the rules on restrictive agreements. The per se prohibition of discriminatory practices was repealed by the LME Law of 4 August 2008.

The liabilities or prohibitions applicable per se to exclusive distribution today are primarily based on the two abuses of dependence provided for in Article L. 442-1 of the Commercial Code. The Macron Law of 6 August 2015 now makes affiliation contracts between distribution networks and retail stores subject to an excessively rigid set of rules which should not apply to exclusive distribution agreements at all and which morever would seem to contravene EU law.

A vertical agreement between an exclusive distributor and a supplier must not restrict the commercial freedom of the reseller who should be free to set his resale price . Article L. 442-5 of the Commercial Code prohibits any person from imposing, directly or indirectly, a minimum on the resale price of a product or good, on the price of a service provision or on a trading margin. This is also the case for a contract under which retail prices are determined on delivery and common to all stores . Resale price maintenance not only exposes the supplier to a criminal sanction , but also leads to the invalidity of the distribution agreement as Article L. 442-5 of the Commercial Code is a mandatory public policy provision . However, a resale price maintenance policy is not necessarily nor systematically inefficient. The courts have accepted the imposition of a maximum resale price, thus allowing the distributor to reduce its margin and charge more competitive prices . Similarly, a supplier is not imposing its resale prices when it prohibits the distributors from setting a higher margin than that provided in the contract, insofar as the recommendation of a price or a maximum margin is lawful .

The legitimacy of the per se prohibition of minimum resale price maintenance has been contested by legal commentators. In certain circumstances there is economic justification for minimum prices, particularly in the case of the launch of new products that are subject to promotional costs and whose position in terms of price have to be advertized to potential customers. Generally, minimum prices encourage distributors to promote the contract products and healthy inter-brand competition offsets the effects of resale price maintenance. Similarly, resale price maintenance can be useful in combating free-rider phenomena and the “double marginalization” problem . In addition, a per se prohibition on imposed minimum prices for restrictive practices does seem difficult to maintain where they are not punishable under the law of anticompetitive practices when distributors with those prices imposed upon them are not located in the same customer catchment area . It should be stated that the case law concerning criminal sanctions for minimum resale price maintenance is now generally quite old.

The handling of resale price maintenance under French competition law seems to be increasingly contestable. Under US law, the per se prohibition of RPM was abandoned by the Supreme Court  in favor of a case-by-case analysis of any harmful effects of the practice under the rule of reason. Even though the French criminal sanction for retail price maintenance is rarely implemented , we may doubt the validity of this provision, irrespective even of the issue of the legitimacy of maintaining a law of restrictive practices alongside the law of anticompetitive practices. The preferred option would be to repeal Article L-442-5 of the Commercial Code which no longer has its place in the positive law and conflicts with the current state of economic analysis of the law.

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

Cass. com., 21 June 2017, LawLex201700001106JBJ.

For an example see TGI Paris, 14 June 1993, LawLex200200000011JBJ.

CA Paris, 17 January 1995, LawLex200200000317JBJ. 

CA Toulouse, 26 January 2006, LawLex200600002468JBJ. 

CA Toulouse, 27 May 2003, LawLex200300004116JBJ.

Communication from the Commission on the application of the Community competition rules to vertical restraints (follow-up to Green Paper) of 26 November 1998 describes, at point 3(5), the problem of 'double marginalisation' thus: "In case both the manufacturer and the retailer have market power each will set its price above marginal cost. They both add their margin that exceeds the one that would exist under competition. This may result in a final price that even exceeds the monopoly price an integrated company would charge, to the detriment of their collective profits and consumers. In this case quantity forcing on the buyer or maximum RPM could help the manufacturer bring the price down to monopoly level". 

Where distributors are not in the same catchment area, the Competition Council found there was no unlawful resale price maintenance: See esp. Competition Council decision No 97-D-48 of 18 June 1997, LawLex200200002657JBJ; No 03-D-39 of 4 September 2003, LawLex200300003480JBJ. For an opposing view: a minority trend in the case law has, in the high quality dog food sector, refused to take into account, in a vertical relationship, the fact that the resellers are located in different catchment areas, CA Paris, 4 April 2006, LawLex200600001057JBJ. As it is an isolated decision it is hard to assess whether it constitutes a overturning of the case law. 

Supreme Court of the United States, 28 June 2007, Leegin Creative Leather Products, Inc. v. PSKS, Inc., 75USLW 4643 (US June 28 2007) (No 06-480) 2007 WL 2335892. 

According to the civil and criminal case law review carried out by the DGCCRF for 2015, in terms of criminal law: there were no criminal reports filed, no settlements and no judgments or appeal rulings for the period. For civil cases: a study carried out by the Montpellier law faculty (published on the CEPC site) found only one appeal court ruling for the same year. 

Exclusive distribution and per se prohibition of resale price maintenance.

Prior to the LME law of 4 August 2008, discriminatory practices were automatically prohibited under French law regardless of their effect on the market. Previously liability was incurred for any party who applied to or obtained from an economic partner discriminatory prices, terms of payments and conditions of sale or purchase which were not justified by any real quid pro quo and thus created for that economic partner a competitive disadvantage or advantage (former Article L. 442-6, I, 1º of the Commercial Code, repealed by the LME law). Some difference of treatment could however be justified  by the existence of either real consideration or objectively dissimilar situations.  The existence of real consideration, which was assessed objectively, could be as a result of the scale of quantities sold or services rendered . A practice was only likely to be regarded as discriminatory if between economic partners tied by current business and the lack of current commercial relations precluded a former distributor from claiming discrimination . There could only be discrimination if the victim was in a competitive relationship with the perpetrator. An objectively different situation could explain the existence of an advantage or a disadvantage and therefore a difference in treatment. The concept of an objectively dissimilar situation was assessed in concreto and in light of the specific situation of the parties involved. Therefore an exclusive dealer could not complain of discriminatory practices by the manufacturer regarding the granting of sales bonuses where the dealer was not in a situation of competition with the other network members . Likewise, price differences between Member States did not incur the liability in tort of a car manufacturer in respect of a distributor . No discrimination was found either in the case of a supplier forcing a dealer to stop distributing a competing brand even though other network members did not face the same prohibition insofar as they did not have the same legal status . The solutions identified by the courts may serve, where relevant, as a guide in the analysis of the term “discriminatory conditions/terms” and “disadvantage or advantage” when applying the rules on anticompetitive practices .

However, even in this area, discrimination is regarded as of lesser importance. In effect under the law applicable to restrictive agreements, discriminatory practices do not constitute black or red clauses. They are therefore exempt as of right under the vertical restraints regulation . The same solution applies under national law, in particular due to the use of the vertical restraints regulation and accompanying guidlines to assist with analysis. The increasingly important role of the effects theory  has also tended to reduce the scope of discriminatory practices in the law relating to dominant position. The former prohibition of discriminatory practices now finds a back-door application through the good faith obligation by which heads of network are bound  or the liability they incur for imposing or attempting to impose imbalanced obligations.

For a synthesis of the principle, see TGI Metz, 26 October 2004, LawLex200400002599JBJ: the manufacturer is under no obligation to charge the same prices in all countries as long as there are no discriminatory practices. 

CA Paris, 21 June 2002, LawLex200400003317JBJ. 

CA Nîmes, 25 January 1996, LawLex200200000315JBJ, confirmed in Cass. com., 7 April 1998, LawLex200200005121JBJ: an automobile manufacturer is free to do business with the distributor of his choosing. 

Cass. com., 3 December 2002, LawLex200300000530JBJ, confirming CA Paris, 15 September 2000, LawLex200300000646JBJ. 

TGI Paris, 27 November 2002, LawLex200300000640JBJ, confirmed on this question in CA Paris, 26 January 2005, LawLex200500003766JBJ. 

Cass. com., 28 April 2004, LawLex200400001111JBJ, upholding CA Paris, 3 July 2002, LawLex200400002109JBJ.

CA Paris, 30 September 2015, LawLex201500001190JBJ.

CA Paris, 29 February 2012, LawLex201600001: "although, in strict application of the principle of freedom of trade and industry, it is up to suppliers to organize the means of distribution of their goods and to carry out all modifications and rationalizations deemed necessary, the head of the network [...] must however deal with distributors on the basis of specified and objectively-fixed criteria and apply them in a non-discriminatory manner, or will fall foul of the obligation of contractual fairness".

CA Paris, 18 March 2015, LawLex201500000388JBJ.

Exclusive distribution and discriminatory practices.

Abuse of dependence was also subject to a per se prohibition on the basis of former Article L. 442-6, I, 2º, b) of the Commercial Code according to which any producer, trader, manufacturer or person listed in the trades directory (répertoire des métiers) who takes “unfair advantage of a trading partner's dependence on him or of his own buyer power or selling capacity by subjecting him to unjustified trading conditions or obligations” renders the perpetrator liable. The courts ruling on Article L. 442-6, I, 2º, b) of the Commercial Code would strictly interpret the concept of dependence and regarded it in the same way as economic dependence as defined by the Competition Authority, which has virtually never applied it in practice . In order to be able to more easily sanction certain abuses committed mostly by large retail chains towards their suppliers without having to establish a situation of dependence, the LME Law of 4 August 2008 replaced the Article L. 442-6 sanction of abuse in relationships of dependence or purchasing or selling power with the sanction of the practice of “subjecting or seeking to subject a trading partner to obligations giving rise to a significant imbalance in the rights and obligations of the parties”. The LME Law has thus done away with the condition that evidence of a relation of economic dependence or of buyer power must be brought. Nowadays, claimants increasingly seek to rely on the law outside of its natural domain, in particular within distribution networks. The refusal to supply a product range to an exclusive distributor has thus been held to be abusive, insofar as all the network members in the same situation must be treated in the same manner and be on an equal footing with regard to competition in their respective catchment areas . Likewise, a clause that allows the supplier to impose a sanction for a dysfunction which is not within the control of the dealers and for which they are not necessarily responsible, without allowing them to monitor the conditions of its implementation, is imbalanced . However, a clause in a distribution contract which provides that in the course of the notice period, both manufacturer and distributor will be relieved of their mutual exclusivity obligation does not constitute significant imbalance merely because only the manufacturer chose to exercise that right . Similarly, a clause for early termination which gives the supplier and the distributor the right to terminate under the same conditions is not imbalanced merely because at a certain point in time it promoted the supplier's interests more than those of the distributor . Finally, the obligation to give the distributor one year's notice and severance pay corresponding to three years' margins is not imbalanced insofar as it only constitutes consideration for the discretionary right of termination by the supplier and as the other terms of the contract are generally favorable to the latter .

Generally, although it no longer specifically sanctions abuse in the dependent relationship, Articles L. 442-1 et seq. which sanction a body of cases of abuse of dependence in the wider sense, which are prohibited per se and incur civil fines. Although the legislation is as likely to apply to the relationship that producers have with their distributors and their suppliers, essentially it has tended to affect certain abuses of buyer power, such as the obtaining of benefits without compensation, abusive listing or de-listing, which suppliers are at times the victims of, on the part of the major distributors or their central purchasing agencies.

CA Paris, 26 January 2005, LawLex200500005580JBJ: distributor is not dependent where he cannot establish the lack of an alternative solution; CA Paris, 14 June 2006, LawLex200600001403JBJ: distributor is not dependent where he can easily switch networks and the manufacturer does not hold a large market share.

CA Paris, 11 October 2017, LawLex201700001648JBJ, also emphasizing that the balance of power between the supplier and its dealers, which does not allow them, even collectively, to negotiate the terms of the contract, despite a stated refusal not to implement one of the clauses, characterizes the 'subjection' element of a significant imbalance.

CA Paris, 13 January 2016, LawLex201600000071JBJ.

Cass. com., 12 April 2016, LawLex201600000816JBJ.

CA Paris, 5 September 2019, LawLex201900001022JBJ.

French Distribution Law

40. Per se prohibition.

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Les notions juridiques connexes

40. Per se prohibition.

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Les notions juridiques connexes

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