STIHL (VI-Kart 4/22)

1. CASE SUMMARY

A. Summary of facts

STIHL is a manufacturer and distributor of motor driven equipment for the agricultural,  forestry and construction sectors. Until 2021, STIHL distributed its products in Germany through a network of specialist dealers and exclusive ‘STIHL Services’. While specialist dealers operated under a specialist dealer agreement, STIHL Services concluded an additional agreement with STIHL that formed the subject matter of the present proceedings.

Under that agreement, STIHL Services undertook not to promote the manufacture or sale of competing products and accepted various restrictions concerning involvement in competing businesses. The agreement applied from 1 January 2017 until 31 December 2021 and covered a broad range of STIHL product categories, including chainsaws, brushcutters, hedge trimmers and earth drilling equipment.

Following a decision of the German Federal Cartel Office finding that the agreements infringed Article 101 TFEU and Section 1 of the German Act against Restraints of Competition (‘ARC’), the Higher Regional Court of Düsseldorf annulled that decision and concluded that the agreements did not infringe those provisions.

B. Notes on case history

On 31 May 2022, the Bundeskartellamt (the German Federal Cartel Office) found that sole purchase agreements concluded by STIHL, under which resellers were prohibited from manufacturing or promoting competing products, infringed Article 101 TFEU and Section 1 ARC.

C. Legal analysis

C.1 - Assessment of the German Federal Cartel Office

The German Federal Cartel Office considered that the agreements at issue infringed Article 101 TFEU and Section 1 ARC. According to the authority, the combination of STIHL’s market position, the five year duration of the agreements, the broad product portfolio covered by the obligations and their territorial scope led to foreclosure effects that hindered existing and potential competitors seeking to establish or expand specialist retail networks. The authority therefore concluded that the agreements restricted competition.

C.2 - Assessment of the Higher Regional Court of Düsseldorf

The Court disagreed with the Federal Cartel Office and annulled its decision.

First, the Court held that the authority had relied on an incorrect temporal framework. According to the Court, the legality of the agreements had to be assessed on the basis of the legal and economic circumstances prevailing at the time they were concluded in 2016. Since the authority had primarily based its assessment on market conditions in 2019 and 2020, without sufficiently analysing the competitive circumstances existing in 2016, its assessment was incomplete.

The Court further held that exclusive purchasing obligations in vertical supply agreements may constitute a restriction of competition within the meaning of Article 101 TFEU where the agreement in question, either individually or in combination with similar agreements concluded by the same supplier or by competing suppliers, is capable of preventing new domestic or foreign competitors from entering the relevant market or increasing their market share.

In that context, the Court identified a number of relevant criteria for assessing whether such agreements contribute to cumulative market foreclosure. Besides the supplier's market share, particular importance must be attached to the proportion of outlets contractually tied to the supplier compared with non tied outlets, as well as to the duration of those contractual commitments. These factors must be taken into account when determining whether the agreement contributes to a foreclosure effect on the market.

Applying those principles, the Court held that a significant foreclosure effect resulting from a non compete obligation exceeding two years generally requires the supplier to hold a market share exceeding the presumption threshold for market dominance of 40% under Section 18(4) ARC and a degree of market coverage exceeding 30%, both in terms of market share and sales outlets. Even where those thresholds are met, additional significant barriers to market entry must be identified before a restriction of competition can be established.

The Court found that these conditions were not satisfied in the present case. Although STIHL exceeded the 40% market share threshold in certain product markets, the overall conditions required to establish a restriction of competition were not met. The Court therefore concluded that the agreements did not infringe Article 101 TFEU or Section 1 ARC and annulled the decision of the Federal Cartel Office.

2. QUOTES

“[…] According to the general principle that the legal and factual circumstances existing at the time a contract is concluded are decisive for assessing its validity […], the question whether a non compete clause has been agreed for an unlawfully excessive duration must generally be assessed on the basis of the competitive conditions prevailing when the clause was agreed. […] Therefore, whether the T. Service Supplementary Agreement at issue, concluded in 2016 […], infringed competition law by reason of its duration depends on the competitive conditions existing in 2016 and, in principle, not on those prevailing in 2019 and 2020, on which the Federal Cartel Office based the contested decision. […]” (free translation of §427)

“For that purpose, it must be examined whether the supply agreement, possibly in conjunction with other similar agreements entered into by the same supplier and with similar agreements concluded by other suppliers, is capable of preventing new domestic or foreign competitors from gaining access to the market or expanding their market position. This first requires a definition of the relevant product and geographic market. In assessing whether the agreement or comparable agreements restrict third party access to the market, particular importance must be attached to the number of outlets tied to suppliers in this manner compared with the number of non tied outlets, the duration of the commitments undertaken, the volume covered by those commitments and the relationship between that volume and the volume sold through non-tied outlets.” (free translation of §441)

“[…] For a non compete obligation to significantly affect market access opportunities by reason of its duration exceeding two years, it is in principle necessary that the supplier holds a market share exceeding the presumption threshold for dominance of 40% under Section 18(4) ARC and that the degree of market coverage exceeds 30% both in terms of market share and points of sale. Where those conditions are met, additional significant barriers to market entry must also be identified in order to establish an infringement of Article 101(1) TFEU and Section 1 ARC. […].” (free translation of §493)

“Applying those criteria, it can only be established for the chainsaw market and the earth drilling equipment market that the sales related non compete obligation significantly affects third party access to the market insofar as its duration exceeds two years. Only in those two product markets did the appellant hold market shares exceeding the presumption threshold for dominance of 40% under Section 18(4) ARC. […] Accordingly, a limitation of the non compete obligation to two years, subject to the existence of additional significant barriers to entry, can only be contemplated for those two product markets. […]” (free translation of §494)

3. RELEVANT LEGISLATION

• Section 1 ARC
• Article 101 TFEU

4. PRACTICAL SIGNIFICANCE

The judgment provides detailed guidance on the assessment of sole purchasing obligations under Article 101 TFEU and Section 1 ARC. It clarifies the criteria relevant to determining whether such obligations contribute to cumulative market foreclosure, including the supplier's market share, the proportion of tied outlets and the duration of the contractual commitment.