1. CASE SUMMARY
A. Summary of facts
YSLP, a supplier of luxury cosmetics based in France, enjoyed an individual exemption for the selective distribution of its products within the EU. YSLP concluded with Javico, an independent distributor based in Germany – which is not part of YSLP’s distribution network within the EU – two contracts for the distribution of its products, one covering Russia and Ukraine and the other Slovenia.
The distribution contracts between YSLP and Javico provided that the products were intended for sale solely in Russia, Ukraine and Slovenia, and that in no circumstances the products could leave these territories. After discovering products sold to Javico in the United Kingdom, Belgium and the Netherlands, YSLP terminated the contracts and instituted proceedings before the Commercial Court (Tribunal de Commerce) of Nantere. The Commercial Court upheld the termination of the contracts. Javico appealed to the Court of Appeal (Cour d’appel) of Versailles, which considered that the validity of the provisions in the distribution agreements should be appraised in the light of Article 101 TFEU.
B. Legal analysis
B.1 - Article 101(1) TFEU – a prohibition on re-imports is not a by object restriction but may have restrictive effects
In response to the first preliminary question, the European Court of Justice (‘ECJ’) first outlines the framework of analysis which includes references to the Société Technique Minière and Consten and Grundig cases. (§10-12)
The ECJ reaffirms that the type of restrictions in vertical agreements that may be caught by the prohibition of Article 101(1) TFEU includes:
- agreements intended to deprive a reseller of his commercial freedom to choose his customers by requiring him to sell only to customers established in the contract territory; (§13) and
- agreements which require a reseller not to resell contract products outside the contract territory. (§14)
However, for such agreements to be effectively caught by Article 101(1) TFEU, they also must be capable of affecting trade between Member States. (§15-16) According to the ECJ, the existence of an effect depends essentially on the position of the parties on the relevant product market. (§17)
The ECJ then considers whether these principles can be transferred to distribution agreements making export outside the EU compulsory and, hence, prohibit re-importation. (§18) The ECJ confirms that such distribution agreements that are intended to apply outside the EU are to enable the producer to penetrate a market outside the EU, and thus are not designed to exclude parallel imports and to prevent marketing within the EU. According to the ECJ, this interpretation is supported by the fact that the prohibition of selling outside the contract territory also covers all other non-EU countries. (§19)
Although distribution agreements that are intended to apply outside the EU do not have the object of restricting competition in the EU, the ECJ does not exclude that they may have such an effect. (§20-22) The ECJ confirms that it is for the national courts to establish any effect, but, nevertheless, indicates which elements should be taken into consideration during such an appraisal:
- the structure of the relevant product market; (§23) and
- any significant price difference between products sold inside and outside the EU (§24).
If a national judge were to establish that a contested distribution agreement has the effect of restricting competition, it should then assess whether that agreement can appreciable effect trade between Member States. (§25) In that respect, the ECJ explains that trade between Member states cannot be appreciably affected if the products intended for markets outside the EU account for only a very small percentage of the relevant product market in the EU. (§26-28)
B.2 - Article 101(3) TFEU – exemption not applicable to distribution of products outside the EU
With regard to the second preliminary question, the ECJ first explains that the individual exemption issued by the Commission to YSLP relates only to standard selective distribution contracts for the sale of products in the EU. (§29-30) Because the distribution agreements at issue concerned the distribution of products outside the EU, they cannot benefit from the individual exemption granted. (§31) For the same reasons, the exemption under Regulation 1983/83 (applicable at the time) is also considered to be irrelevant. (§32) The ECJ concludes that exemption decisions must be interpreted restrictively so as to ensure that their effects are not extended to situations which they are not intended to cover. (§33)