Dr. Markus Schöner Christoff Henrik Soltau March 22 2012 Press wholesale system to end as we know it? CMS Germany | Competition & Antitrust - Germany Dr. Markus Schöner, Christoff Henrik Soltau Competition & Antitrust IntroductionEstablished press wholesale systemFactsDecisionComment IntroductionOn February 14 2012 the Cologne District Court handed down its judgment(1) in a lawsuit initiated by Bauer Vertriebs KG against the Press Wholesaler Association. Bauer objected to the association's decades-long practice of negotiating universal prices and conditions on behalf of its members. The court concluded that such universal negotiation is not compatible with Article 101 of the Treaty on the Functioning of the European Union (TFEU). The Press Wholesaler Association has appealed the judgment. It remains to be seen how the judgment will affect the German press wholesale system. Established press wholesale system At present, the distribution of newspapers and magazines in Germany is mainly carried out through a press wholesaler system (ie, the so-called 'Presse Grosso' system). Seventy-three wholesalers – primarily medium-sized companies – each distribute publications to approximately 120,000 retail points of sale. The negotiation of prices and conditions between publishing houses and wholesalers is jointly conducted by the Press Wholesaler Association on behalf of the wholesalers. The agreed prices and conditions are then applicable to all press wholesalers. Furthermore, for many decades wholesalers have enjoyed absolute territorial protection, meaning that only one wholesaler is active in each distribution area (except in Hamburg and Berlin where two wholesalers share one area). As a result, a network of regional wholesaler monopolies exists in Germany. The established press wholesaler system is underpinned by several basic principles, which have been considered essential not only by the parties to the system and most German publishing houses, but also by all German governments over the last decades. These principles are: the right of publishing houses to determine the circulation figures of their products; the right of wholesalers and retailers to return any unsold publications to publishing houses; the obligation of wholesalers not to discriminate against any publishing house; and the right of publishing houses to set the retail prices of their products. Facts In 2009 Bauer, the distribution company of the Bauer Media Group – one of the leading magazine publishers in Germany and Europe – attempted to negotiate prices and conditions with press wholesalers on an individual basis. The press wholesalers, however, declined such individual negotiations. Instead, the Press Wholesaler Association tried to negotiate with Bauer as usual. In response, Bauer took the case before the Cologne District Court and sought an order prohibiting the Press Wholesaler Association to negotiate on behalf of its members and to request its members not to negotiate individually with Bauer. Decision By its judgment, the court followed the claimant's applications and prohibited the Press Wholesaler Association from: negotiating universal conditions (especially prices) with publishers and national distributors for its members with any publisher or national distributor; and prompting its members to deny individual negotiations with the claimant. The court found the prohibited behaviour of the Press Wholesaler Association to be a violation of Article 101 TFEU. The crucial issue was whether the negotiation of joint prices and conditions by the Press Wholesaler Association restricted competition between its members. In this regard, the defendant argued that there was neither actual nor potential competition between individual press wholesalers since the distribution areas in Germany are completely partitioned and, thus, no (price) competition between press wholesalers was possible. The court agreed on the assessment that no competition existed between press wholesalers due to the exclusivity of distribution areas, but held that potential competition was in place. On that point, the court quashed the defendant's argument that the resale price maintenance with respect to publications excluded potential competition. Instead, it found that press wholesalers could compete with each other for contracts with publishers on their trade margin. The court also rejected the argument referring to territorial exclusivity, as any market partitioning as such would be in breach of Article 101 TFEU. In particular, the court did not consider it essential for the purpose of the press wholesaler system to maintain exclusive distribution areas. Therefore, even if there was a realistic perspective that at least some press wholesalers could compete with each other on the terms and conditions for the distribution of publications, the joint price negotiations conducted by the Press Wholesaler Association were – in the court's eyes – restrictive of potential competition. The court also rejected any efficiency arguments under Article 101(3), which were put forward by the defendant. It could not see how the negotiation of universal conditions applicable to all press wholesalers, not having regard to any differences between them, could produce efficiencies with respect to the distribution of publications. The court could neither discern any benefits of the restriction for consumers, since retail prices for publications were set due to resale price maintenance. Further, the court concluded that the joint negotiation of universal conditions was not indispensable within the meaning of Article 101(3) TFEU, since the distribution of publications would not be put at risk in the event of individual negotiations. Finally, due to the overarching scope of the joint negotiations, the court held that the negotiation of universal conditions excluded competition for all publications covered by the negotiation. Comment The judgment certainly has the potential to influence the German press wholesale system. However, the Press Wholesaler Association has appealed the judgment and it is unclear how publishing houses and national distributors will react. The judgment does not prohibit publishing houses, national distributors and individual wholesalers from fulfilling the contracts that were negotiated by the Press Wholesaler Association, which are due to expire on February 28 2018. This could mean that the judgment will not have any immediate effect. As to the court's reasoning, several aspects should be highlighted. First, the court ordered the Press Wholesaler Association not only to refrain from negotiating with the claimant, but also with any other publishing house or national distributor. The scope of the court's order is noteworthy as it is one matter to sustain the claimant's concern for individual negotiations, but another matter to ban joint negotiations by the Press Wholesaler Association regarding third parties. Second, the Cologne District Court rejected the idea that joint negotiation is efficiency enhancing and therefore justified under Article 101(3) TFEU. The Federal Supreme Court, in its October 24 2011 judgment, avoided such conclusion with respect to the German equivalent of Article 101(3) when it found that this issue was not decisive for the case at hand. The merits of the efficiency defence, especially in light of the constitutionally protected freedom of the press, will certainly be at issue before the appeal court. Finally, the press wholesaler system has been accepted not only by most publishing houses but also by the federal government. It remains to be seen whether specific regulations will be adopted in order to uphold the press wholesaler system in its traditional form.For further information on this topic please contact Markus Schoner or Christoff Soltau at CMS Hasche Sigle by telephone (+49 40 37 63 00), fax (+49 40 37 63 040 600) or email ([email protected] or [email protected]).Endnotes(1) Case No 88 O (Kart) 17/11.