The EU General Court has provided some further guidance for luxury-brand companies on different practices allowed on the secondary markets such as repairs and supply of spare parts. First, the General Court has confirmed that luxury watch manufacturers (and, by analogy, other luxury-brands and high-tech goods) can use selective repair and maintenance systems if they are objectively justified, non-discriminatory and proportionate. Secondly, the General Court has also confirmed that the refusal to supply spare parts would only constitute an abuse of a dominant position only where it would eliminate all competition.
The recent General Court judgment (case T-712/14) follows the 2004 complaint made by an association representing independent watch repairers to the European Commission against a number of luxury watch manufacturers. It was alleged that independent repairers would be driven out of the market as the luxury watch manufacturers refused to supply spare parts to independent repairers, other than those who were part of the selective repair and maintenance systems. The authorised repairers were required to invest in machines, training and premises to obtain authorisation to become part of the selective repair and maintenance system.
In 2008, the complaint was rejected by the European Commission on the basis that there was no sufficient EU interest in continuing the investigation. The association appealed the European Commission’s decision to the General Court, which annulled that decision since the European Commission had failed to take into account all the relevant facts and arguments put forward by the complainant.
As a result, in 2011, the European Commission opened a new investigation to investigate further allegations made by the association of independent watch repairers. The investigation was closed by a decision of the European Commission in July 2014 due to the disproportionate nature of the resources required for a more detailed investigation given the low probability of identifying an EU competition law infringement. The association appealed for a second time the European Commission’s decision to reject the complaint. The association claimed that the European Commission wrongly concluded that the repair and maintenance systems set up by the luxury watch manufactures were compliant with EU competition law on the basis that they were objectively justified, non-discriminatory and proportionate.
Selective Distribution/repair Systems
The General Court noted that selective distribution systems capable of providing specific services for high-quality and high-technology products are not prohibited under EU competition law as long as such systems aim to attain a legitimate goal of improving competition in relation to factors other than price. The General Court held that the European Commission did not err in law by considering that a selective distribution system, and, by analogy, a selective repair system, was in conformity with EU competition law as long as it was objectively justified, non-discriminatory and proportionate.
The European Commission in its 2014 decision considered that the selective repair systems used by the luxury watch manufacturers were justified based on the need to take into account the increased complexity of luxury watch models, the preservation of brand image, the maintenance of high and uniform quality repair services, and the prevention of counterfeiting. The General Court held that while preserving a brand image cannot justify a restriction of competition by establishing a selective repair system, the objective of preserving the quality of products and ensuring their use may justify the use of a selective repair system. The General Court noted that it was apparent from the file that one of the objectives pursued by the watch manufacturers was the prevention of counterfeiting of watches and their spare parts. Further, the General Court noted that the association did not put forward arguments about why there was no risk of counterfeiting or that the refusal to supply spare parts is not a means of limiting the counterfeiting of those parts.
Refusal to Supply Spare Parts
Consistent with the existing case law, the General Court held that only in certain circumstances will a refusal to supply services or goods (including spare parts) by a company in a dominant position constitute an abuse within the meaning of EU competition law. In particular, the following points should be met:
- The refusal of the goods or services must be likely to eliminate all competition on the market on the part of the company requesting the goods or services;
- Such refusal must not be capable of being objectively justified (the lack of an objective justification does not constitute a sufficient ground for the establishment of abusive conduct); and
- The goods or services must themselves be indispensable to carrying on that company’s business.
The General Court also found that the European Commission was right to consider that the probability of establishing a risk of all effective competition being eliminated was low, based for example, on the fact that the Commission had established that:
- There was competition on the repairs market between the authorised repairers and between those repairers and the watch manufacturers;
- The possibility of creating economies of scale as the authorised repairers may carry out repairs for several brands; and
- During the investigation some independent repairers had joined the selective repair systems of certain brands.
The judgment provides greater certainty to companies, including those that are in a dominant market position, that would like to only supply spare parts to authorised companies. The General Court clearly recognises that the objectives of preserving the quality of the products and ensuring their proper use may justify a selective distribution or repair system. It also considers the prevention of counterfeiting to be a legitimate objective for such systems. The judgment also helpfully confirms that refusal to supply spare parts by dominant companies may only occur in limited circumstances.