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

Pursuant to the obligation to perform contracts in good faith, the distributor is bound by a general duty of fairness vis-à-vis the supplier . In particular, it cannot take advantage of its territorial exclusivity to eliminate the competition from the supplier's products with its own products and misappropriate the customers of that supplier in its favor .

The duty of fairness does not always constitute appropriate protection, and the parties generally include a non-compete clause in the exclusive distribution contract. As a corollary of territorial exclusivity, the non-compete obligation prevents the distributor from selling products that are identical or similar to the supplier's goods in an area where it could compete with other network members. The lawfulness of that obligation is allowed under certain conditions by competition law . As exclusive distribution agreements do not include a tacit non-compete obligation , such an obligation does not arise from the distributor's waiver of its right to sell substitutable goods . Where there is no exclusivity commitment, the supplier cannot blame the distributor for selling competing products .

The non-compete obligation can be temporarily suspended and when such is the case, the commercialization of a competing product after the expiry of the temporary agreement constitutes an act of unfair competition .The obligation ends at the expiration of the exclusive distribution contract. This does not mean that the distributor may adopt unfair conduct vis-à-vis its former supplier. Like any trader, it is bound to trade fairly. Therefore, a former distributor who still relies on its capacity as exclusive distributor and sells the contract goods at a loss is guilty of network disorganization .

The non-compete clause, which constitutes a restriction to the freedom of trade, is in principle subject to strict conditions of validity. However, regarding distribution, case law is more liberal since, in return for exclusivity, the non-compete obligation ceases with the contract. The distributor's non-compete obligation is not territorially limited and may apply outside the granted exclusivity area . By contrast, non-compete clauses must be limited in time and Regulation No 2022/720 grants exemption only to vertical agreements including a direct or indirect non-compete obligation less than or equal to five years .

3) Scope of application ratione personae.

The non-compete obligation, which is attached to the person of the distributor, does not, in principle, concern the partners and senior managers of the legal entity where the distributor is a legal entity, or other companies, except in the event of a fraud against the supplier's rights. Relying on the principle of autonomy of the legal personality of companies, the Court of Cassation refuses to extend the effects of the clause to an undertaking close to the distributor which sells competing goods and “created under a neighboring name, with the same share capital, the same corporate purpose, the same shareholders with one exception, the same three directors and the same CEO, who is the main shareholder of the undertaking” .

The non-compete clause can however be stipulated both in respect of the distributor and the intermediate legal entity . In such a case, the marketing through a front company might constitute a breach of the non-compete clause .

By contrast, where there is no proof of interference, the distributor cannot be blamed for the creation by a member of his family of a company which sells competing goods , or the sale of goods bearing different brands through different legal entities .

4) Scope of application ratione materiae.

The non-compete clause generally prevents the sale of competing goods . An isolated decision even considered that the non-compete clause imposed  on the distributor during the contract had to be confined to the  activity in question and justified by the supplier's legitimate interest .

A distributor who sells goods which compete with its supplier's ones in breach of the non-compete clause incurs the termination of the contract at its expenses  and the payment of damages to compensate for the harm suffered by the supplier . This is particularly so for a reseller, which, during the performance of the contract, has arranged the marketing of  competing products and accelerated said marketing by giving notice of early termination to the supplier . Similarly, distributors who set up a website that does not mention the affiliation of its members with the supplier’s network and presents itself as made up of independent companies, promotes the same activity, and offers potential candidates the opportunity to join the network as presented, are in breach of the non-compete clause .   On the other rhand, a supplier cannot reproach the distributor for the sale of non-competing products which are authorized under the contract on the sole ground that they would be dangerous for consumers and would indirectly harm its image . Likewise, the supplier may not, in order to verify the distributor’s compliance with its non-compete obligation, resort to the use of mystery shoppers, since such a stratagem constitutes a breach of the duty of fairness in the administration of evidence, justifying the exclusion of said evidence .

However, the non-compete clause may also concern economic or structural links with an undertaking distributing competing products. The acquisition of a direct or indirect shareholding , a merger , affiliation to an economic interest group  or the formation of a second company  constitute a breach of the non-compete clause where these entities sell products that compete with the contractual products. However, the scope of the non-compete clause is not unlimited. Thus, the partial transfer of assets when the clause only refers to merger, absorption or dissolution , or simply establishing contact with a competing supplier, not followed by the distribution of the latter's products , cannot constitute grounds for terminating the contract.

CA Douai, 10 October 2019, LawLex201900001208JBJ, recalling that the mere fact that they are bound by an exclusive distribution agreement does not prevent the supplier from alleging unfair competition against a distributor who submits quotations outside his exclusive territory and thereby attracts customers away from other resellers. 

CA Nîmes, 2 May 1991, LawLex200200001813JBJ, approved by Cass. com., 7 June 1994, LawLex200200001562JBJ; See also CA Nîmes, 2 December 1997, LawLex200200004177JBJ, for a motor vehicle agent having misappropriated orders that he was supposed to forward to its distributor.

Cass. com., 15 December 1992, LawLex200200001676JBJ.

Cass. com., 23 March 1999, LawLex200200005196JBJ.

CA Paris, 19 March 1990, LawLex200200001880JBJ: the sale by the distributor of motor vehicles of another manufacturer through a front company constitutes a breach of the non-compete clause; CA Montpellier, 1 July 2014, LawLex201400002289JBJ: company created by the distributor's spouse. 

CA Paris, 3 March 1994, LawLex200200005378JBJ: the creation by the son of a distributor of a distinct legal entity assigned to the sale of competing goods does not characterize a breach of the non-compete clause where there is no proof of intervention.

CA Aix-en-Provence, 21 March 1997, LawLex200200005654JBJ: the clause of termination for breach by the distributor of the non-compete clause is not validly implemented where the two brands represented in the latter's premises are operated by legal entities which are distinct.

For examples, See CA Paris, 20 April 2000, LawLex200200004774JBJ; CA Lyon, 31 May 2001, LawLex200400001593JBJ; Cass. com., 21 January 2003, LawLex200300000744JBJ, upholding CA Amiens, 30 March 2001, LawLex200300000808JBJ.

CA Versailles, 27 November 2003, LawLex200400000844JBJ, ground for the decision: “[…] the validity of a non-compete obligation regarding exclusive distribution is subject to a limitation regarding the nature of the prohibited activity and time or space, and the fact that it is proportionate to the purpose of the contract or the legitimate interests to be protected”. See also CA Paris, 10 May 2007, LawLex200700001439JBJ.

CA Versailles, 22 October 1998, LawLex200200005009JBJ; CA Paris, 17 October 2003, LawLex200400000855JBJ: under Motor Vehicle BER No 1475/95, the distribution of competing goods without the distributor complying with the obligation to have separate sales outlets subject to distinct management with the hiring of a specific seller, justified the immediate termination of the concession contract.

For an ex., See CA Paris, 20 April 2000, LawLex200200004774JBJ.

CA Paris, 8 March 2017, LawLex201700000474JBJ.

See Regulation No 2022/270, of 10 May 2022 on the application of Article 101(3) of the Treaty on  the Functioning of the European Union to categories of vertical  agreements and concerted practices Article 4(5). 

CA Paris, 17 January 2024, LawLex202400000604JBJ.

CA Paris, 16 November 2017, LawLex201700001964JBJ.

CA Montpellier, 6 June 2023, LawLex202300007737JBJ.

CA Toulouse, 11 January 1995, LawLex200200005431JBJ.

Cass. 1re civ., 27 May 1997, LawLex200200005674JBJ; T. com. CA Paris, 30 November 1999, LawLex200200005256JBJ.

CA Aix-en-Provence, 15 January 1991, LawLex200200005819JBJ.

CA Lyon, 14 September 2006, LawLex200800000209JBJ.

Cass. 1re civ., 27 May 1997, LawLex200200005674JBJ.

CA Versailles, 7 December 2006, LawLex200800000857JBJ.

CA Paris, 18 November 1998, LawLex200200005153JBJ: the non-compete obligation as a corollary of the territorial exclusivity, must be express.

CA Paris, 27 November 2019, LawLex201900001491JBJ.

Cass. com., 11 May 1993, LawLex200200005998JBJ: where a distributor has not taken out any exclusivity commitment vis-à-vis the supplier, the latter cannot blame it for distributing competing products.

CA Colmar, 8 January 2014, LawLex201400000065JBJ.

CA Orléans, 22 October 1996, LawLex200200005608JBJ: a former distributor disorganizes the supplier's commercial network by still relying on its capacity as exclusive distributor and by selling the contract goods at a loss.

CA Paris, 17 January 1989, LawLex200200005733JBJ: to be valid, it is not necessary that the non-compete clause be limited to the granted territory; CA Nancy, 23 May 1991, LawLex200400000844JBJ; CA Versailles, 27 November 2003, LawLex200200001880JBJ, approved by Cass. com., 16 January 2007, LawLex200700000104JBJ: a non-compete clause that does not provide for territorial limitation must be interpreted as applying both within the area allotted to the dealer and outside that area.

Regulation No 2022/720, Article 5(1)(a). 

93. Non-compete clause.