Background
Federal Court of Justice decision
Comment
On October 24 2011 the Federal Supreme Court confirmed that the termination of independent press wholesaler Heinz-Ulrich Grade KG by the Bauer Media Group was valid.(1) Bauer is thus not obliged to continue distributing its publications through Grade in the contractual territory of the wholesaler, but may use alternative means of distribution. This decision may have far-reaching consequences for the press landscape in Germany.
Background
The distribution of newspapers and magazines in Germany is mainly carried out through a press wholesaler system (ie, the so-called 'Presse Grosso' system). Approximately 70 wholesalers – primarily medium-sized companies – each exclusively distribute the publications of all publishing houses to approximately 120,000 retail points of sale. As a result, a network of wholesaler regional monopolies exists in Germany. Only Hamburg and Berlin each have two wholesalers (the 'double Grossos' or 'double wholesaler' system).
The tried and tested Grosso distribution system is accepted by most German publishing houses. However, in the case before the court, the Bauer Media Group – one of the leading magazine publishers in Germany and Europe – successfully challenged the principle according to which distribution contracts with the wholesaler monopolists could not be terminated.
Bauer terminated its press wholesaler distribution agreement with Grade, a company that distributes in the Hamburg area, at the beginning of 2009. Since then, Bauer has distributed its magazines in this territory through its group company PVN. Grade filed a lawsuit seeking reinstatement as the exclusive wholesaler of Bauer's publications.
In the view of the higher regional court, the termination of the wholesaler distribution agreement was valid – contrary to the view of the regional court. Further, the higher regional court ruled that Grade could not claim to be supplied with publications from Bauer.
Federal Court of Justice decision
The appeal filed by Grade was rejected by the Federal Court of Justice, primarily for the following reasons:
- The court rejected a claim based on Section 20(1) of the Act against Restraints of Competition, since Grade could not demonstrate a case of unlawful discrimination. The court held that if Bauer continued to supply other wholesalers on an exclusive basis in other territories, this would not interfere with the Grade's competitive opportunities. Further, such behaviour would not amount to unfair impairment of Grade if Bauer transferred the distribution of its publications to PVN. Any publishing house is, in principle, free to distribute its own products, even if they have hitherto been distributed by independent entities.
- It did not appear to the court that there were any special circumstances which would indicate that the termination could be deemed unfair. However, the court considered that the activities of press wholesalers fall within the scope of the basic right concerning freedom of the press. In this regard, the court gave consideration to the principle according to which resale price maintenance for newspapers and magazines is allowed in order to ensure freedom of the press. However, the court held that the freedom of the press would not be endangered by the termination of the wholesaler agreement. This would require a connection between exclusive supply of all publications to a territory by a single wholesaler on the one hand, and resale price maintenance on the other, which the court refused to accept. Further, the termination would not interfere with the newspaper retailers' interest in a wide variety of goods and a simple returns process; nor would it hinder smaller publishers from accessing the market. The court pointed to the fact no problems had been experienced in Hamburg and Berlin as a result of their double wholesaler system. Moreover, the court held that even without the publications from Bauer, due to its dominant position in press distribution in its territory, Grade remained obliged to grant all publishers access to its distribution network.
This judgment will have far-reaching implications. First, a case is pending before the Cologne District Court in which Bauer Vertriebs KG objects to joint price negotiations of the wholesalers represented by the Federal Association of German book, newspaper and magazine wholesalers.(2) One of the arguments that have been used to justify the wholesalers' joint price negotiations is that they are monopolists in their respective territories and thus do not compete on the downstream market. Bauer will be able rely on the judgment in the Grade case to challenge this argument. If, in principle, it is legal to terminate distribution contracts with wholesalers, there exists at least potential competition between wholesalers for the distribution of Bauer's publications. Second, before the Grade judgment, the Federal Cartel Office cleared mergers between wholesalers on the basis that they did not compete among themselves.(3) Such mergers may be more problematic if wholesalers are to be considered as potential competitors. Finally, in light of this ruling, opportunities have emerged for wholesalers to expand into neighbouring territories by offering their distribution services to Bauer.
For further information on this topic please contact Markus Schöner at CMS Hasche Sigle by telephone (+49 40 37 63 00), fax (+49 40 37 63 040 600) or email ([email protected]).
Endnotes
(1) Case KZR 7/10.
(2) Case 88 O 17/11.
(3) Case B 6 – 09/09 concerning the acquisition of control over Presse-Vertrieb Pfalz by Roth + Horsch, March 30 2010.