Tretorn and others (IV/32.948 – IV/34.590)

1. CASE SUMMARY

A. Summary of facts

Tretorn AB is a Swedish industrial company, active in the market of tennis balls through its subsidiary Tretorn Sport Ltd. Ireland. Tretorn used a network of exclusive distributorships to distribute its tennis balls in various Member States (except for Germany and Denmark, where it used its own subsidiaries).

The European Commission (‘Commission’) carried out dawn raids at the premises of various tennis balls companies and uncovered documents and correspondence that suggested that Tretorn was actively seeking to prevent parallel imports of its products into different Member States.

B. Legal analysis

B.1 - Article 101(1) TFEU

Tretorn and its exclusive distributors implemented an export ban and barriers to prevent parallel import. The Commission concluded that this export ban and these barriers had the direct object and effect of restricting competition. As a result, Tretorn and its exclusive distributors could partition the internal market and apply a differentiated pricing policy.

Agreement/concerted practices

The export ban and the barriers were not the result of a unilateral action of Tretorn. These were (although unwritten) an integral part of Tretorn’s distribution and sales agreements, or at least the result of concerted action by Tretorn and its exclusive distributors.

• General export ban: Meeting minutes and correspondence between Tretorn and its exclusive distributors proved that Tretorn had committed to its distributors to give them absolute territorial protection. The same minutes and correspondence also showed that Tretorn’s distributors and retailers were prohibited from exporting or supplying to any company likely to export.
• Reporting and investigating parallel imports: Both Tretorn and its exclusive distributors systematically reported parallel imports. In order to be able to investigate parallel imports, they exchanged information on code numbers, the type of packaging, the address of suspected parallel importers, etc. In one case at least Tretorn and the distributor agreed to share the costs of the investigation.

• Marking of products: Evidence showed that Tretorn marked tennis balls with date codes and that these codes were used by Tretorn and its distributors to trace the origin of the parallel import. Tretorn gave balls different names and used different packaging to make parallel imports more difficult. In at least one case Tretorn agreed to make a sticker to put on the packaging that would identify the distributor in that particular country.

• Suspension of supplies: Tretorn and its exclusive distributors suspended supplies to different markets in order to prevent parallel imports. In at least one case Tretorn even switched to another exclusive distributor when it was not convinced by the assurances given by the previous distributor to prevent parallel imports.

Effect on trade between Member States

The general export ban implemented by Tretorn affected trade between Member States in different ways:

• Export ban from a Member State into other Member States: Because Tretorn had subsidiaries and distributors in almost all Member States, the Commission concluded that Trenton’s distribution scheme resulted in the partitioning of the internal market and thus had an effect on trade between Member States.
• Export ban from the internal market into Switzerland: As a result, Swiss dealers could not buy tennis balls in one Member State (where the price was low) and resell them in another Member State (where the prices were higher). According to the Commission this export ban affected trade between Member States as it maintained price differentiation between Member States.
• Export ban from the US into Switzerland: The Commission concluded that also this export ban had an effect on trade between Member States as the price structure in Europe and the US made parallel imports into the internal market highly probable.

Conclusion

The exclusive distribution agreements between Tretorn and its distributors containing a (unwritten) export ban infringed Article 101(1) TFEU. Furthermore, the Commission confirmed that the system of reporting and investigation, marking of products and suspension of supplies reinforced the export ban in breach of Article 101(1) TFEU.

B.2 - Article 101(3) TFEU – no block exemption

Because the distribution system operated by Tretorn gave the exclusive distributors absolute territorial protection, and thus contained a hardcore restriction, the exclusive distribution agreements could not benefit from the vertical block exemption.

B.3 - Article 101(3) TFEU – no individual exemption

Tretorn had failed to notify its distribution agreements to the Commission (which was a mandatory condition at the time to be eligible for an individual exemption). Because the export ban was not indispensable to the effectiveness of Tretorn’s distribution system, the exclusive distribution agreements could in any event not qualify for an individual exemption.

B.4 - Fines

According to the Commission, Tretorn could not have been unaware that the export ban and the conditions of sale infringed Article 101(1) TFEU. The same applies for the barriers to prevent parallel imports. Tretorn and its exclusive distributors could not have been unaware that the various concerted practices aimed at preventing parallel import were contrary to Article 101(1) TFEU.

When determining the level of the fine, the Commission noted that some of the exclusive distributors had taken a particularly active part in preventing parallel imports, while other distributors had participated in a limited way. According to the Commission, the participation of the latter has to be set in the context of Tretorn’s general policy of prohibiting any exports.

Tretorn was fined EUR 600,000 for applying a general export ban and implementing barriers to prevent parallel import contrary to Article 101(1) TFEU. The exclusive distributors who actively participated in preventing parallel import were fined EUR 10,000 each

2. QUOTES

"[…] The general export ban and the barriers had the direct object and effect of restricting competition, affecting trade between Member States and partitioning the common market. This, in fact, constitutes an obstruction of the achievement of a fundamental objective of the Treaty, the integration of the common market. […] "(§51)

"Those agreements or concerted practices between Tretorn and its exclusive distributors to prevent parallel trade and to monitor the implementation thereof, are specifically prohibited by Article [101(1) TFEU]." (§56)

"This system of reporting and investigation in order to identify parallel importers and cut off supplies to them is clearly the result of an agreement or concerted practice between Tretorn and its distributors and reinforces the ban on parallel exports in breach of Article [101(1) TFEU]." (§58)

"This system of product-marking is also in agreement or concerted practice aimed at implementing and reinforcing the ban on parallel trade, thereby protecting Tretorn’s distributors, contrary to Article [101(1) TFEU]." (§61)

"It is clear that the suspension of supplies was made in coordination with Tretorn’s distributors, who asked Tretorn to take action when parallel imports turned up on their markets. These actions, which reinforced and implemented the ban on parallel trade, are clear examples of concerted practices contrary to Article [101(1) TFEU]." (§63)

"[…] The ban is a general one, and affects trade throughout the Community, since Tretorn has distributors or subsidiaries in almost all Community countries. This results in a partitioning of the common market." (§64)

"[…] The impediment of parallel exports from the Community and into Switzerland affected trade between Member States since it prevented Swiss dealers from buying from one Member State and re-exporting to a second Member State." (§65)

3. RELEVANT LEGISLATION

• Article 101 TFEU
• Regulation 1983/83
• Regulation 17

4. RELEVANT LITERATURE

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5. PRACTICAL RELEVANCE

The case clarifies that:

• absolute export bans implemented in the context of a distribution relationship violate Article 101 TFEU. The illegality of the practice extends to all of the tools used to implement such bans (such as monitoring, reporting and investigations, marking of products, suspension of supplies);
• unwritten undertakings and obligations can form an integral part of distribution and sales agreements;
• an export ban from a Member State into a third country can affect trade between Member States;
• an export ban from a third country into a third country can affect trade between Member States.