CJEC, July 10, 1980, No 99-79

THE COURT,

1. By order of 19 June 1979, which was received at the registry of the Court on 21 June 1979, the Arrondissementsrechtbank, Haarlem, submitted to the Court of Justice for a preliminary ruling under Article 177 of the treaty questions on the interpretation of Article 85 and certain provisions of Regulation No 17 of the Council of 6 February 1962 (Official Journal, English special edition 1959-1962, p. 87).

2. Those questions are put in the context of a dispute between Lancôme and its subsidiary in the Netherlands, Cosparfrance Nederland, the plaintiffs in the main action, and two companies, Etos and Albert Heyn Supermart, the defendants in the main action, which operate a chain of retail shops in the Netherlands. The plaintiffs brought proceedings against the latter before the Arrondissementsrechtbank, Haarlem, asking that Court to order the defendants to cease selling Lancôme products in their shops which are not authorized to sell those products. The plaintiffs in the main action, who maintain that the defendants are guilty of an act of unfair competition by undermining their selective distribution system, in particular by provoking breaches of contract by authorized stockists, also claim compensation for the damage suffered by reason of that conduct.

3. The selective distribution system set up by Lancôme is based in particular on exclusive distributorship agreements concluded with the general agents which it appointed in the various Member States and also on sales agreements concluded with retailers in France. The standard-form contract concluded with the general agents was notified to the Commission on 30 January 1963. The contracts concluded between the general agents or Lancôme's subsidiaries and the various authorized retailers were subsequently notified to the Commission.

4. Upon the defendants ' in the main action contending in their defence that the plaintiffs ' sales organization was partially void because it was incompatible with Article 85 (1), the latter referred to a letter of 16 December 1974 from the Director-General for competition of the Commission of the European Communities. That letter, which is addressed to Lancôme, recalls that, as a result of a notice of complaints of 24 July 1972, Lancôme amended the agreements of which its sales organization in the EEC is the outcome in such a way that authorized retailers are henceforth free to re-sell Lancôme products to, or to buy them from, any general agent or authorized retailer estblished in the EEC and to fix their selling prices where the products are re-imported from or re-exported to other countries of the common market. The letter concludes in these terms :

" I have the honour to inform you that in these circumstances, in view of the small share in the market in perfumery, beauty products and toiletries held by your company in each of the countries of the common market and in view of the fairly large number of competing undertakings of comparable size on that market and because the financial links between your company and L'Oreal group do not seem in this case likely to influence the volume of your turnover for the products in question, the Commission considers that there is no longer any need, on the basis of the facts known to it, for it to take actions in respect of the above-mentioned agreements under the provisons of Article 85 (1) of the treaty of Rome. The file on this case may therefore be closed ".

5. The Arrondissementsrechtbank decided to stay the proceedings before it and to address to the Court of Justice a request for a preliminary ruling worded as follows :

'' Whereas ''

In a situation in which, on the one hand :

(I) An undertaking applies a selective distribution system for marketing its perfumes, beauty products and toilet preparations in the EEC;

(II) The agreements on which the selective distribution system is based were already in existence at the time of the entry into force of Regulation No 17 of the EEC and were notified to the Commission within the prescribed period by means of form B pursuant to Article 5 (1) of Regulation No 17;

(III) changes were made to those agreements as described by the Commission in its fourth report on competition policy, No 94;

(IV) The Director-General for competition sent the undertaking a letter on 16 December 1974 for the content of which reference is made to the part of this judgment entitled ' legal considerations ' ;

(V) Most (if not all) other undertakings in the perfume sector apply selective distribution for selling their ' prestige products ' as described by the Commission in its fifth report on competition policy, Nos 57-59;

(VI) The publication provided for in Article 19 (3) of Regulation No 17 has not been made;

On the other, leaving aside the question whether circumstances referred to under question 3 (a) and/or (b) exist here,

Asks the Court of Justice of the European Communities to rule on the following questions :

1. What is the nature of the letter referred to under (IV) from the Director-General for competition in particular from the following aspects :

1.1. Does it constitute a declaration that the Commission is of the opinion that Article 85 (1) of the EEC treaty is not applicable to agreements to which the changes referred to under (III) have been made ?

1.2. Does it constitute application of Article 85 (3) of the EEC treaty ?

1.3. Is it effective as against third parties ?

1.4. Does it put an end to the provisional validity of old agreements which were notified in good time ?

2. Is it possible that the agreements, to which the changes referred to under (III) have been made, do not fall under the prohibition of Article 85 (1) of the EEC treaty because of the relatively small share of the market held by the undertaking referred to under (I), in spite of the fact that :

2.1. They contain provisions which entail, on the one hand, a selection of so-called authorized retailers and, on the other, a prohibition on supplies to persons other than consumers or authorized retailers ;

2.2. The competitors of the undertaking referred to under (I) also apply a system of selective distribution ;

2.3. Until now selective distribution appeared to be possible only pursuant to an exemption under Article 85 (3) ?

3. If the Commission has granted an undertaking exemption under Article 85 (3) of the EEC treaty for the application of a selective distribution system is that exemption invalid if it appears that :

(A) the undertaking concerned is not complying with the conditions or obligations to which the Commission has made the exemption subject ; and/or

(B) in practice the products in question are offered for sale within the common market by wholesalers and retailers who have not been selected by the undertaking concerned " ?

The first question

6. In the first question the Court is asked, first, to specify the legal nature of letters such as that which was sent to Lancôme by the directorate-general for competition and to state the effects which such letters produce as regards third parties. Secondly, it is asked whether such a letter puts an end to the " provisional validity " of old agreements which were notified in good time.

The legal nature of the letters in question

7. Article 87 (1) of the treaty authorized the Council to adopt any appropriate Regulations or directives to give effect to the principles set out in Articles 85 and 86. In accordance with that authorization the Council has adopted Regulations, in particular Regulation No 17 of 6 February 1962 (Official Journal, English special edition 1959-1962, p. 87), which gave the Commission power to adopt various categories of Regulation, Decision and re- commendation.

8. The instruments thus placed at the Commission's disposal for the accomplishment of its task include Decisions granting negative clearance and Decisions applying Article 85 (3). So far as Decisions granting negative clearance are concerned, Article 2 of Regulation No 17 of the Council provides that, upon application by the undertakings concerned, the Commission may certify that, on the basis of the facts in its possession, there are no grounds under Article 85 (1) or Article 86 of the treaty for action on its part in respect of an agreement, Decision or practice. So far as Decisions applying Article 85 (3) are concerned, Article 6 et seq. Of Regulation No 17 provide that the Commission may adopt Decisions declaring the provisions of Article 85 (1) to be inapplicable to a given agreement provided that the latter has been notified to it or notification has been dispensed with by virtue of Article 4 (2) of the Regulation.

9. Regulation No 17 and the Regulations issued in implementation thereof lay down the rules which must be followed by the Commission in adopting the aforementioned Decisions. Where the Commission intends to give negative clearance pursuant to Article 2 or take a Decision in application of Article 85 (3) of the treaty, it is bound, in particular, by virtue of Article 19 (3) of Regulation No 17 to publish a summary of the relevant application or notification and invite all interested third parties to submit their observations within a time-limit which it shall fix. Decisions granting negative clearance and exemption must be published as provided for by Article 21 (1) of that Regulation.

10. It is plain that a letter such as that which was sent to Lancôme by the directorate-general for competition, which was despatched without publication as laid down in Article 19 (3) of Regulation No 17 and which was Not published pursuant to Article 21 (1) of the Regulation, constitutes neither a Decision granting negative clearance nor a Decision in application of Article 85 (3) within the meaning of Articles 2 and 6 of Regulation No 17. As is stressed by the Commission itself, it is merely an administrative letter informing the undertaking concerned of the Commission's opinion that there is no need for it to take action in respect of the contract in question under the provisions of Article 85 (1) of the treaty and that the file on the case may therefore be closed.

11. Such a letter, which is based only upon the facts in the Commission's possession, and which reflects the Commission's assessment and brings to an end the procedure of examination by the department of the Commission responsible for this, does not have the effect of preventing national courts before which the agreements in question are alleged to be incompatible with Article 85 from reaching a different finding as regards the agreements concerned on the basis of the information available to them. Whilst it does not bind the national courts, the opinion transmitted in such letters nevertheless constitutes a factor which the national courts may take into account in examining whether the agreements or conduct in question are in accordance with the provisions of Article 85.

Provisional validity

12. As the Court ruled most recently in its judgment of 14 December 1977 in Case 59/77 de Bloss c/ Bouyer (1977) ECR 2359, during the period between Notification and the date on which the Commission takes a Decision, " Courts before which proceedings are brought relating to an old agreement duly notified or exempted from notification must give such an agreement the legal effects atributed thereto under the law applicable to the contract, and those effects cannot be called in question by any objections which may be raised concerning its compatibility with Article 85 (1) ".

13. The Court making the reference asks whether a letter such as that of 16 December 1974 sent to Lancôme by the relevant departments of the Commission has the result of putting an end to the provisional protection which, by virtue of the case-law of the Court, is enjoyed, as from the date of notification, by old agreements which were notified within the time-limit provided for by Article 5 (1) of Regulation No 17 or which are exempted from notification.

14. With a view to answering that question the considerations which form the basis of the case-law of the Court on " provisional validity " should be recalled.

15. As the Court has observed in particular in its judgment of 9 July 1969 in Case 10/69 Portelange c/ Smith Corona Marchant International (1969) ECR 309, Article 85 of the treaty is arranged in the form of a rule imposing a prohibition (paragraph (1)) with a statement of its effects (paragraph (2)) mitigated by the exercise of a power to grant exceptions to that rule (paragraph (3)). To treat a given agreement, or certain of its clauses, as automatically void presupposes that that agreement falls within the prohibition of paragraph (1) of the said Article and that it may not benefit from the provisions of paragraph (3).

16. The exclusive power to apply Article 85 (3) which is conferred on the Commission by Article 9 (1) of Regulation No 17, considered in conjunction with the provisions laid down in favour of old agreements by Article 6 (2) and 7 of that Regulation, has led the Court to conclude that, in the case of those old agreements, the principle of legal certainty in contractual matters requires that, where the agreement has been notified in accordance with the provisions of Regulation No 17, a Court may only declare it to be automatically void after the Commission has taken a Decision by virtue of that Regulation.

17. In the light of those considerations, it appears that the maintenance of the provisional protection from which notified old agreements benefit is no longer justified from the date on which the Commission informs the parties concerned that it has decided to close the file on the case concerning them. After the adoption of such an attitude, which indicates that the Commission does not contemplate taking an individual Decision on the notified agreements in question, it is unlikely that the Commission would subsequently exercise in favour of those agreements its power to apply Article 85 (3) with, where appropriate, retroactive effect for the period prior to their notification, as permitted by Article 6 (2) of Regulation No 17. There is, therefore, no longer any reason to release national Courts, before which the direct effect of the prohibition in Article 85 (1) is relied upon, from the duty of giving judgment.

18. The answer to the first question should therefore be that an administrative letter informing the person concerned that the Commission is of the opinion that there are no grounds for it to take action with regard to agreements which have been notified pursuant to the provisions of Article 85 (1) has the effect of terminating the period of provisional validity accorded from the date of notification to agreements made prior to 13 March 1962 notified within the period laid down in Article 5 (1) of Regulation No 17 or exempted from notification. The opinions expressed in such a letter are not binding on the national courts but constitute a factor which the latter may take into account in examining whether the agreements are in accordance with the provisions of Article 85.

The second question

19. The second question put by the national court seeks to determine whether the agreements upon which a selective distribution system is based may escape the prohibition laid down in Article 85 (1) of the treaty because of the relatively small market share held by the undertaking in question. In that regard the Court making the reference draws attention to the fact that the competitors of the undertaking concerned also apply a system of selective distribution. That Court also makes mention of its opinion that until now selective distribution appeared to be possible only pursuant to an exemption under Article 85 (3).

20. As the Court observed in its judgment of 25 October 1977 in Case 26/76, Metro c/ Commission (1977) ECR 1875, selective distribution systems constitute an aspect of competition which accords with Article 85 (1) provided that re-sellers are chosen on the basis of objective criteria of a qualitative nature relating to the technical qualifications of the re-seller and his staff and the suitability of his trading premises and that such conditions are laid down uniformly for all potential re-sellers and are not applied in a discriminatory fashion.

21. It follows that, in principle, a selective distribution network admission to which is made subject to conditions going beyond simple, objective qualitative selection falls within the prohibition laid down in Article 85 (1) especially when it is based on quantitative selection criteria.

22. However, as the Court observed in its judgment of 30 June 1966 in Case 56/65 Societe Technique Miniere c/ Maschinenbau Ulm GmbH (1966) ECR 235, in order to be prohibited as being incompatible with the common market under Article 85 (1) of the treaty an agreement between undertakings must fulfil certain conditions depending less on the legal nature of the agreement than on its effects on " trade between " and its effects on competition.

23. To decide, on the one hand, whether an agreement may affect trade between Member States it is necessary to decide whether it is possible to foresee with a sufficient degree of probability on the basis of a set of objective factors of law or of fact that the agreement in question may have an influence, direct or indirect, actual or potential, on the pattern of trade between Member States.

24. On the other hand, in order to decide whether an agreement is to be considered as prohibited by reason of the distortion of competition which is its object or its effect, it is necessary to examine the competition within the actual context in which it would occur in the absence of the agreement in dispute. To that end, it is appropriate to take into account in particular the nature and quantity, limited or otherwise, of the products covered by the agreement, the position and the importance of the parties on the market for the products concerned, and the isolated nature of the disputed agreement or, alternatively, its position in a series of agreements. In that regard, the Court stated in its judgment of 12 December 1967 in Case 23-67 Brasserie de Haecht I (1967) ECR 407 that, although not necessarily decisive, the existence of similar contracts is a circumstance which, together with others, is capable of being a factor in the economic and legal context within which the contract must be judged.

25. It is for the national court to decide, on the basis of all relevant information, whether the agreement in fact satisfies the requirements necessary for it to fall under the prohibition laid down in Article 85 (1).

26. The answer to the second question should accordingly be that agreements on which a selective distribution system is based which relies on tests for admission which go beyond simple objective qualitative selection possess all the constituents making them incompatible with Article 85 (1) when those agreements, either individually or with others, in the economic and legal circumstances in which they are made and on the basis of a number of objective elements of law or of fact, may affect trade between Member States and have as their object or effect the prevention, restriction or distortion of competition.

The third question

27. Having regard to the answer given to the first question, the third question put by the Court making the reference is purposeless.

28. The costs incurred by the Belgian Government, the Danish Government, the Netherlands Government, the French Government, the Government of the Federal Republic of Germany, the Government of the United Kingdom and the Commission of the European Communities, which have submitted observations to the Court, are not recoverable. As these proceedings are, in so far as the parties to the main action are concerned, in the nature of a step in the action pending before the national court, the Decision on costs is a matter for that court.

One those grounds,

THE COURT,

In answer to the question submitted to it by the arrondissementsrechtbank, Haarlem, by order of 19 June 1979,

Hereby rules:

1. An administrative letter informing the party concerned that the Commission is of the opinion that there are no grounds for it to take action with regard to agreements which have been notified pursuant to the provisions of Article 85 (1) has the effect of terminating the period of provisional validity accorded from the date of notification to agreements made prior to 13 March 1962 notified within the period laid down in Article 5 (1) of Regulation No 17 or exempted from notification. The opinions expressed in such a letter are not binding on the national courts but constitute a factor which the latter may take into account in examining whether the agreements are in accordance with the provisions of Article 85.

2. Agreements on which a selective distribution system is based which relies on tests for admission which go beyond simple objective qualitative selection possess all the constituents making them incompatible with Article 85 (1) when those agreements, either individually or with others, in the economic and legal circumstances in which they are made and on the basis of a set of objective elements of law or of fact, may affect trade between Member States and have as their object or effect the prevention, restriction or distortion of competition.