The European Court of Justice (ECJ) has issued a ruling confirming that an automotive dealer may refuse dealers entry to its quantitative selective distribution system without publishing its entry criteria, nor need such criteria be objective or implemented in a non-discriminatory manner, although the precise content of such criteria must be verifiable.
Whilst the decision concerns a specific case in the context of the EU Motor Vehicle Block Exemption (MVBE), the case is of relevance to all selective distribution systems.
The principal feature of any selective distribution system is that distributors are selected on the basis of ‘specified criteria’.
Competition law distinguishes between selective distribution systems that are either quantitiative (based on criteria which directly limit the number of distributors) or qualitative (based on purely qualitative criteria which are laid down uniformly for all distributors, applied in a non-discriminatory manner, and do not directly limit the number of distributors). Both types of system are permissible under the MVBE provided that certain conditions are satisfied. These conditions include market share thresholds which differ for the two types of selective distribution system.
The ECJ’s ruling effectively confirms the above definition of a quantitative selective distribution, noting that:
- it is not necessary for the criteria underpinning such a system to be published;
- nor is it necessary that the system be based on criteria that are objectively justified and applied in a uniform and non-differentiated way with regard to all applicants for authorisation.
The ECJ added that publication of criteria for a quantitative selective distribution system could compromise business secrets or even facilitate possible collusive behaviour.
The case concerned a selective distribution system put in place by Jaguar Land Rover France SAS (JLR) in 2005.
Auto 24 had been the exclusive distributor of JLR in Perigueux (France) since 1994. This distribution agreement terminated in 2004 and Auto 24 made several applications to JLR for a renewed distribution agreement. However, the then current quantitative selective distribution system which provided for the possibility of 72 dealership agreements for 109 sites in France, did not include Perigueux. Consequently, JLR refused to appoint Auto 24 as one of its distributors.
Auto 24 appealed to the French courts and the case came before the ECJ for a ruling on the meaning of ‘specified criteria’ in the MVBE. Auto 24 appears to have accepted that JLR’s selective distribution system was quantitative in nature but argued that the criteria should satisfy objective economic justifications, of which the supplier must provide evidence, and must be applied in a uniform and non-discriminatory manner in all of the catchment areas and to all of the potential candidates for the distribution system.
The ECJ dismissed these arguments and noted that it was never intended that the MVBE would apply the same conditions of exemption on the two systems of distribution (qualitative and quantitative).
Application of this ruling
As noted above, while this ruling considered the MVBE, it applies beyond the automotive sector as it relates to selective distribution more generally. Therefore it serves as a reminder to anyone involved in selective distribution (or considering its use) of the freedom to choose contractual partners in a quantitative system.
It is also important to remember that the MVBE considered in this case will expire on 31 May 2013 in relation to new vehicles (rather than spare parts/the provision of repair and maintenance services) and from that point, assessment will take place under the terms of the general vertical agreements block exemption. While the vertical agreements block exemption also refers to the concept of “specified criteria” in relation to selective distribution it takes a stricter line on permissible market shares that the MVBE.