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

Although exclusive distribution is particularly efficient from the economic and commercial point of view, the legal rules governing it are not at present totally ideal although, overall, the positive law does allow for the creation and operation of exclusive distribution networks.
However the various legislative reforms that have intervened over recent years have failed to contribute to improving  …

Impact of legislation and case law on exclusive distribution 

An exclusive distribution agreement 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”. The exclusive dealership contract is very marked by the intuitus personae (by reason of the person) principle and is distinguished from selective distribution insofar as exclusive dealers are chosen at the grantor's discretion , whereas in selective distribution, dealers are chosen based on specified selection criteria. The exclusive supply obligation 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 supplied on the territory granted. The grantor pledges to refrain from supplying other distributors, with the exception of specific, reserved customers .

An exclusive distribution agreement is a framework agreement in which the parties are free to fix the terms as they see fit. They come to an agreement on the core obligations, which will then be formalized in a series of implementation agreements, such as contracts of sale or provision of services. Although the framework agreement is not a contract of sale, obligations still arise out of it, principally positive obligations such as the obligation to place orders for the distributor and the obligation to meet the order for the supplier. Like any contract, its formation is subject to the conditions laid down in Article 1128 (former Article 1108) of the Civil Code. The obligation must have a lawful cause, a definite object which forms the subject-matter and concern parties who are able to consent to it. The subject-matter may be defined only generally. Only the implementation agreements must contain a firm and clear offer progressively implementing the overall objective set out in the framework agreement.

Cass. com., 7 April 1998, LawLex200200005121JBJ; Competition Council decision No 01-D-40 of 20 July 2001, LawLex200200002148JBJ.

Cass. com., 1 December 1992, LawLex200200005960JBJ.

Definition.

Suppliers turn to exclusive distribution particularly for the distribution of branded goods - technically advanced or luxury products - which require skilled distributors to provide advice and installation assistance and after-sales services. The network head can thus focus its sales activities and plan production, select its resellers and maintain a certain harmony within the network. The set of exclusive distribution agreements allow the supplier to cover an extensive geographic area and to precisely define the density of the network. In return, the distributor enjoys relative protection in a given geographical area against other distributors being selected on its territory - except where the new option to appoint up to five distributors per catchment area is used - and against active sales by other members of the network, including when the supplier uses different distribution methods.   In addition, the exclusive distributor is guaranteed a regular supply and continued demand: he may decide to invest by taking account of the opportunities offered to him in the territory, improve planning of purchases, maintain larger stocks and more product ranges, and concentrate efforts on the commercial territory reserved to him. Exclusive distribution also guarantees that the consumer gets a better service, in particular as regards information on the products, credit or after-sales.

By contrast, the main disadvantage of exclusive distribution is that it restricts supply, with the supplier only able to sell the products to its own distributors, and limits the number of sales outlets and consumers' choice, as in a given catchment area, they will only be able to go to one distributor of the brand. Combined with brand exclusivity, it also prevents the comparison in a single location of the products of various manufacturers. Hence from a competitive viewpoint, exclusive distribution has ambiguous results: inter-brand competition increases but intra-brand competition decreases. Exclusive distribution restricts competition but at the same time contributes to its development. It is therefore likely to escape prohibition under the rules on cartels, either under the rule of reason, or on the basis of an individual or collective exemption.

Exclusive distribution agreements are traditionally regarded by legal commentators as instituting a relationship of dependence: the distributor is legally an independent trader, who finds himself economically under the influence of the supplier. Even though this analysis is considered dated today given the concentration of distributors in all areas of activity, the case law and legislators have sought to give increased protection to distributors. Paradoxically, this increase in protection has come at a time when it is least needed in view of the changes which have occurred in the balance of economic power.

The law covering exclusive distribution still remains to a great extent marked by the competition rules. With the exception of the automobile sector, which will continue to be governed by a sector-specific regulation until 2013, exclusive distribution falls under Block Exemption Regulation No 2022/720 of 10 May 2022 on vertical restraints .

In some respects, exclusive distribution agreements appear to give rise to fewer legal issues than selective distribution or motor vehicle agreements, franchises and agency agreements. When just a basic exclusive distribution arrangement is entered into without combining with selective distribution, the network head does not have to define complex selection criteria and approve network members by means of a selection process that can be a litigation trap. Even when combined with selective distribution, the rules specific to exclusive distribution will prevail where a refusal of entry to the network is contested due to the limited number of territories within the network.

In comparison to franchise agreements, exclusive distribution has the advantage of dispensing the network head from providing original know-how and experience and from concerns about the provision of forecast accounts or market studies, the inaccuracy, excess of optimism and inefficiency of which are a constant cause of litigation by dissatisfied franchisees.

Finally, unlike agency agreements, at the end of the contract the supplier at the head of the network may terminate the contract without compensation provided he does not abuse his rights and observes a reasonable period of notice instead of being exposed to payment of a compensation equal to two years of commissions.

Exclusive distribution is nevertheless still the subject of continuing debate in respect of lawfulness of networks, resales outside the network, formation and performance of contract and most frequently, terminations.

Purpose and effects of exclusive distribution.

Although exclusive distribution is particularly efficient from the economic and commercial point of view, the legal rules governing it are not at present totally ideal although, overall, the positive law does allow for the creation and operation of exclusive distribution networks.

However the various legislative reforms that have intervened over recent years have failed to contribute to improving this situation. Roughly drafted and for the most part, strict, the laws have been inefficient and costly and have created additional constraints and uncertaintly for exclusive distribution networks. 

The Lurel Law had called into question the very existence of exclusive overseas importation rights even though it has not been established that they are the real cause of the high cost of living in the overseas territories.

The administrative interpretation under the Hamon Law on the single commercial agreement has had the result of imposing the risk that networks  will be unable to modify prices over the course of the year contrary to the fundamental precepts of the free market economy and the case law of the Court of Cassation. Finally, the reform of affiliation agreements by the Macron Law appears to be both aberrant and unnecessary.

These legislative interventions are particularly contestable in that they target problems which in most cases do not arise while ignoring  the real issues which do need to be addressed. The maintenance in French law of a per se prohibition of imposed minimum prices appears to go against the principles of modern economic analysis. The excesses of the law relating to the termination of trade relations have still not been corrected. 

The courts have not given in to the illusory principles of economic solidarity and contractual protectionism despite repeated attempts by some legal commentators to encourage them to adopt that approach. Although the judicial remedies appear satisfactory, however, the courts could be more severe with regard to outside network reselling and more realistic in terms of refunds and need to resolve the profusion of jurisprudential conflicts between the various chambers of the Court of Cassation in particular with regard to the rules concerning tacit renewals and the possibility to terminate contracts for serious breach regardless of the stipulations of the termination clause. 

French Distribution Law

37. Impact of legislation and case law on exclusive distribution

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Sous parties

Les notions juridiques connexes

37. Impact of legislation and case law on exclusive distribution

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

Sous parties

Les notions juridiques connexes

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