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

The Macron law of 6 August 2015  added a new Title IV entitled “Commercial distribution networks” to Book III of the Commercial Code. The provision is intended to harmonize the duration of all the contracts concluded between the parties and to revise the system of rules governing post-contract non-compete clauses. 
New Article L. 341-1 of the Commercial Code provides that “all contracts concluded, …

Do Articles L. 341-1 and L. 341-2 of the Commercial Code apply to motor vehicle distribution?

Why still dedicate developments specifically to automobile distribution whereas the area is now in principle subject to the general rules of competition law? Of course, when the motor vehicle block exemption regulation was in force, specific rules were applicable to the sector . The motor vehicle block exemption regulations made the exemption of distribution agreements subject to very specific conditions and virtually all operators complied with those constraints in order to benefit from the legal certainty provided by block exemption. In practice, the regulations determined the content of contracts in such a precise way that automobile distribution contracts were undeniably specific in legal terms. However, such contracts are now governed by the general vertical restraints regulation. Contracts for the provision of services, repair and maintenance or spare parts distribution now have to meet all the conditions for exemption laid down in Regulation No 2022/720 on vertical restraints and the more specific conditions of Regulation No 461/2010 relative to after-sales activities. The sale or resale of new vehicles remained subject to Regulation No 1400/2002 until 1 June 2013 when it came into the scope of application of Regulation No 330/2010 then the current Regulation No 2022/720. The conditions under Regulation No 1400-2002, which contributed to the specific nature of motor vehicle distribution agreements such as requirements relating to the duration of contracts, the length of notice periods, justifications for terminations, the freedom to transfer dealerships within the network, the right to resort to an arbitrator or independent expert for the settlement of disputes, are no longer required in order to qualify for the block exemption. 

Does this mean that it is now sufficient in matters concerning motor vehicle distribution to look to the general rules on vertical restraints, in particular works and commentaries relative to exclusive or selective distribution to be totally clear about the rules applicable to this type of distribution? Nothing is less certain and the need for a specific analysis of the case law applicable to motor vehicle distribution remains for a number of reasons. 

First of all, most of the distribution agreements still in dispute in the courts were concluded under Regulation No 1400/2002. In some cases they are even subject to earlier motor vehicle regulations, the previous case law remaining applicable. Contracts still in force, even those entered into after 1 June 2013, have on the whole retained all or a part of the former conditions for exemption. Some networks have not changed their contracts at all: as the terms of Regulation No 1400/2002 were stricter than the general regulation, such contracts remain fully compliant with the block exemption regulation. Other contracts have been renegotiated or replaced but the new contracts have not necessarily taken advantage of all the options available under the general regulation in terms of network organization. Many networks have decided to continue using quantitative selective distribution for the sale of new vehicles as was encouraged under the former motor vehicle regulation. Further, most auto brands have adopted the codes of good practice of the ACEA  and JAMA  associations, under which manufacturers and importers grant their dealers a minimum notice period of two years for ordinary terminations and the possibility to resort to an independent arbitrator or expert.

Finally, more competition and contract law issues are being raised with increasing frequency in relation to motor vehicle distribution law than in any other area. In practice, on behalf of both distributors and suppliers, motor vehicle distribution law is closely observed by specialized lawyers in most European countries and continues to be the subject of dedicated conferences  and publications . We therefore consider it appropriate to devote a stand-alone chapter to this specific area.

Automobile distribution in Europe seems to be a mature sector. Some brands are preferring the Asian market, and are even withdrawing from European distribution altogether. The average age of car buyers is rising, and a large number of consumers are doing without a car, particularly in Paris, or are turning to the rental or second-hand market. Disputes between suppliers and distributors are declining sharply, as the concentration of distributors de facto protects them against the risk of termination. Are motor vehicle distribution and the laws governing it doomed to disappear? There is no obvious answer to this question, since at the same time, the motor vehicle distribution industry is undergoing a process of renewal. New models appear every year, and new technologies are being developed, from electric vehicles to driverless cars, raising new legal issues. Some brands are attempting to sell via the internet without a physical network, or are replacing their distribution contracts with agency agreements. More than ever, therefore, motor vehicle distribution law continues to generate a need for specific analysis, which these developments are designed to satisfy.

Regulation No 123/85, No 1475/95 and No 1400/2002.

European Automobile Manufacturers Association.

Japan Automobile Manufacturers Association.

See IBC Conference on motor vehicle distribution law where experts in the field meet each year in Brussels.

See WEGNER and OBERHAMMER, The Application of Competition Law to the Automotive Industry, JECLAP, 2015, 669.

Does motor vehicle distribution law still maintain its specificity?

The Macron law of 6 August 2015  added a new Title IV entitled “Commercial distribution networks” to Book III of the Commercial Code. The provision is intended to harmonize the duration of all the contracts concluded between the parties and to revise the system of rules governing post-contract non-compete clauses. 

New Article L. 341-1 of the Commercial Code provides that “all contracts concluded, on the one hand, between a natural person or a legal person governed by private law grouping traders together, other than those referred to in Chapters V and VI of Title II of Book I of the present code , or providing those services referred to in the first paragraph of Article L. 330-3, and on the other hand, any person operating, on its own behalf or on behalf of a third party, a retail store, having as their common purpose the exploitation of this store and containing clauses likely to limit the operator's freedom to carry out its commercial activity provide for a common end date”. The provision harmonizes the duration of contracts and makes those contracts legally indivisible: the termination of one of the contracts in question results in the termination of all of them. 

Further, Article L. 341-2, lays down the principle that “any clause having as its effect, after the expiration or termination of one of the agreements binding the trader to the distribution network, the restriction of the trader's freedom to carry on his commercial activity, shall be deemed unenforceable”. It does however contain a derogation for clauses which fulfill four cumulative conditions based on EU Regulation No 330/2010, now replaced by Regulation No 2022/720. Those clauses must relate to goods or services which compete with the contract goods or services; be limited to the premises and land from which the trader has operated during the contract period; be indispensable to protect the know-how, which is secret, substantial and identified, transferred by the supplier to the trader in the context of the contract; be of a duration not exceeding a period of one year after expiry termination of one of the agreements referred to in Article L. 341-1. 

The poor drafting of the provisions gives rise to a number of questions of interpretation especially with regard to their applicability to motor vehicle distribution networks. The amendment at the origin of the new section  purported to remedy the issues revealed in Opinion No 10-A-26 of the Competition Authority relative to contracts with independent traders affiliated to retail food distribution groups  and to “strengthen competition in the large-scale distribution sector by facilitating the switch by independent stores to other chains” . The legislation which was eventually adopted is no longer limited to the food retail distribution sector. The application of Articles L. 341-1 and L. 342-2 to motor vehicle distribution remains nevertheless doubtful. In effect, contracts must include “clauses likely to limit the operator's freedom to carry out its commercial activity”. This is not the case for motor vehicle distribution contracts which are primarily purely qualitative or a combination of qualitative and quantitative selective distribution agreements and do not contain any restrictions to the dealer's activity other than a prohibition on selling to non-network resellers, which is inherent to such agreements; they do not in any case contain any exclusivity clauses. 

If the courts nevertheless find that the reform does apply to motor vehicle distribution agreements, what would the effect of the new provisions be on ongoing contracts? Does the common deadline necessarily mean mandatory recourse to fixed-term contracts? The Conseil constitutionnel does not seem to think so  since it has declared the provisions in question to be constitutional provided that they “allow the contracting parties the freedom to fix the common duration and maturity of all the contracts binding them and to provide for their tacit renewal”. Presumably then there is nothing to prevent the conclusion of open-ended contracts. The principle according to which all contracts are tied to each other is an undeniable source of complication and uncertainty. In cases of networks containing several brands and/or several activities, such as sales and after-sales, will the reorganization of one of them, terminate the entire network? Does a termination for fault justify the termination of all the contracts concluded between the parties even if they still wish to pursue the others? Unfortunately Article L. 341-2 has extended the scope of the rule governing post-contractual non-compete clauses to cover those “having as their effect, after the expiration or termination of one of the agreements binding the trader to the distribution network, the restriction of the trader's freedom to carry on his commercial activity”. Preemption and priority clauses, criticized in Opinion No 10-A-26, would appear to be directly affected. And what about confidentiality or non-solicitation clauses? The lack of clarity here is all the more regrettable in that the derogation provided for in section II will not apply to contracts that do not transfer specific know-how.

The last question relates to whether Articles L. 341-1 and L. 341-2 are in line with EU competition law. Currently, almost all vertical agreements comply with European competition law, and if they do not, they are covered by the vertical restraints regulation below 30% market share, or can be granted an individual exemption. Can the Macron Law, the stated objective of which is the strengthening of competition in the distribution sector , add further conditions to those required under the Vertical Restraints Regulation without violating the principle of the precedence of European Union law?

Law No 2015-990 of 6 August 2015 pour la croissance, l'activité et l'égalité des chances économiques (for the promotion of growth, activity and equality of economic opportunities) OJ of 7 August 2015, 13537.

The provision refers to collective stores of independent traders and mutual guarantee companies. It also excludes lease agreements the duration of which are governed by Article L. 145-4 of the Commercial code, partnership agreements and civil law, commercial or cooperative partnership agreements.

Amendment No 1681 tabled by François Brottes.

Competition Authority Opinion No 10-A-26 of 7 December 2010.

Constitutional Council decision No 2015-715 DC of 5 August 2015.

See Explanatory Statement of Amendment No 1681, above, and the observations of the government presented to the Constitutional Council according to which “the legislator is pursuing a general interest objective by favoring competitive economic public policies”.

Automobile distribution seems to be a mature sector in Europe. Some brands now have no hesitation in favoring Asia, withdrawing completely from distribution in Europe. The average age of car buyers is on the increase and a large number of consumers choose not to own a motor vehicle, particularly in Paris, or only purchase used vehicles. Litigation between suppliers and distributors is in sharp decline with the concentration of distributors serving as a de facto protection against the risk of termination. Are motor vehicle distribution and the rules governing it destined to disappear? Nothing could be less certain because at the same time, automobile distribution is constantly self-renewing. New models appear each year, new technologies are developed - from the electric car to driverless vehicles - which in themselves raise new legal challenges. Certain brands are testing online sales with no physical network. Motor vehicle distribution law therefore more than ever needs to be the subject of a specific analytical treatment, which is what we hope to provide in these pages. 

French Distribution Law

237. Do Articles L. 341-1 and L. 341-2 of the Commercial Code apply to motor vehicle distribution?

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237. Do Articles L. 341-1 and L. 341-2 of the Commercial Code apply to motor vehicle distribution?

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