What are the legal sources that set out the antitrust law applicable to vertical restraints?
Vertical restraints are subject to the Act against Restraints of Competition of 1958 (GWB) as amended on 9 June 2017 by the ninth amendment. Horizontal and vertical restraints are uniformly regulated by sections 1 and 2 GWB, whereby section 1 articulates the prohibition of agreements between undertakings, decisions by associations of undertakings and concerted practices that have as their object or effect the prevention, restriction or distortion of competition; and section 2 provides for possible exemptions from this prohibition. Sections 1 and 2 GWB are comparable with article 101(1) and (3) of the Treaty on the Functioning of the European Union (TFEU), respectively. In addition, undertakings and associations of undertakings shall not threaten or cause disadvantages, or promise or grant advantages, to other undertakings to induce them to engage in conduct that would infringe provisions of the GWB.
Until 1 July 2005, vertical restraints were not subject to section 1 GWB and were not generally forbidden, apart from resale price maintenance and restrictions with regard to the conditions that a party to a vertical agreement was allowed to impose on its own buyer. Certain vertical restraints could be prohibited if they qualified as abusive behaviour.
With regard to fines for acts that can be qualified as vertical restraints and were committed before the seventh amendment came into force (1 July 2005), the principle that the most lenient rule is decisive applies. According to this principle, no fine can be imposed for applying vertical restraints that were not forbidden before the seventh amendment. To avoid the imposition of fines, contracts that were already in force prior to 1 July 2005 must be adapted to the new legal situation.
Types of vertical restraint
List and describe the types of vertical restraints that are subject to antitrust law. Is the concept of vertical restraint defined in the antitrust law?
The GWB does not contain any definition of vertical restraints nor is its application limited to certain types of vertical restraints. One can, however, draw on the definition of vertical restraints in EU law as set out in article 1(1)(a) of the EU block exemption regulation on vertical restraints (vertical block exemption). A vertical restraint can therefore be described as an agreement or concerted practice entered into between two or more undertakings that operate for the purpose of the agreement on different levels of the production or distribution chain and that relates to the conditions under which the parties may purchase, sell or resell certain goods or services.
Is the only objective pursued by the law on vertical restraints economic, or does it also seek to promote or protect other interests?
By virtue of section 2(2) GWB, the EU block exemptions are also applicable in purely national cases. The objectives pursued by the law on vertical restraints resemble those set out in article 101(3) TFEU and the EU block exemptions. Although the European Commission used to take into account non-economic objectives in earlier decisions, it is increasingly concentrating on economic objectives, with a focus on consumer harm.
Pursuant to section 20(1) GWB, refusal to supply small or medium-sized undertakings that are dependent on the relevant products may qualify as abusive behaviour. This provision shows the German legislature’s intention to protect small and medium-sized undertakings. Also, in order to protect publishing houses and book stores, resale price maintenance for books, magazines and newspapers is expressly allowed in Germany.
Which authority is responsible for enforcing prohibitions on anticompetitive vertical restraints? Where there are multiple responsible authorities, how are cases allocated? Do governments or ministers have a role?
The principal competent authority for the enforcement of the rules for agreements or concerted practices restricting competition including vertical restrictions in Germany is the Federal Cartel Office (FCO). Although the FCO is under the responsibility of the Ministry of Economics and Energy, it does not receive political orders and is independent in its decision-making. The FCO accommodates 12 independent decision divisions. Further information can be accessed through the FCO’s website (www.bundeskartellamt.de). In addition, each federal state has its own competition authority for those cases in which the restraint has effects only on competition in this specific federal state. In practice, however, their role is rather limited.
What is the test for determining whether a vertical restraint will be subject to antitrust law in your jurisdiction? Has the law in your jurisdiction regarding vertical restraints been applied extraterritorially? Has it been applied in a pure internet context and if so, what factors were deemed relevant when considering jurisdiction?
According to section 185(2) GWB, the GWB shall apply to all restraints of competition having an effect within the scope of application of the GWB (ie, Germany) and also if they were caused outside Germany. Therefore, it is no precondition for the imposition of sanctions or remedies that the company in question has its seat, a branch or an office in Germany. It is not entirely clear if actual effects are required or if the likelihood of such effects suffices. In the context of the internet, the FCO has assumed jurisdiction in particular, where the restraint of internet dealing had an effect on price competition in the offline distribution of the respective goods in Germany.
Agreements concluded by public entities
To what extent does antitrust law apply to vertical restraints in agreements concluded by public entities?
According to section 185(1) GWB, the GWB is applicable to undertakings that are entirely or partly in public ownership or are managed or operated by public authorities. Exempted from the applicability of the GWB are the German Central Bank (Bundesbank) and the Reconstruction Loan Corporation (Kreditanstalt für Wiederaufbau).
Do particular laws or regulations apply to the assessment of vertical restraints in specific sectors of industry (motor cars, insurance, etc)? Please identify the rules and the sectors they cover.
Sector-specific rules were abolished to a large extent by the seventh amendment to the GWB as of 1 July 2005. However, specific rules still exist for certain economic sectors and restrictions, namely agriculture (section 28 GWB), resale price maintenance for books, newspapers and magazines (section 30 GWB) and the public supply of water (section 31 GWB). According to section 28 GWB, the prohibition of restrictive agreements in section 1 GWB shall not apply to agreements between agricultural producers or to agreements and decisions of associations of agricultural producers and federations of such associations of agricultural producers that concern the production or sale of agricultural products, or the use of joint facilities for the storage, treatment or processing of agricultural products, provided that they do not fix prices and do not exclude competition. Furthermore, section 1 GWB is not applicable to vertical resale price maintenance agreements concerning the sorting, labelling or packaging of agricultural products. Section 30 GWB provides that section 1 GWB shall not apply to resale price maintenance by which an undertaking producing newspapers or magazines requires the purchasers of these products by legal or economic means to demand certain resale prices or to impose the same commitment upon their customers, down to the resale to the final consumer. Further, via section 2(2) GWB, the EU block exemption regulations concerning individual sectors (such as the block exemption regulations regarding the motor vehicle sector) also apply to purely national cases.
Are there any general exceptions from antitrust law for certain types of agreement containing vertical restraints? If so, please describe.
The effects of the vertical restraint have to be noticeable. The criteria for noticeability have been set out by the FCO in its De Minimis Notice dated 13 March 2007. As regards vertical restraints the FCO will, according to the De Minimis Notice, abstain from initiating proceedings on the basis of section 1 GWB in those cases in which the market share of none of the undertakings party to a vertical agreement exceeds 15 per cent on any affected market and no hardcore restriction is given. If the vertical nature of an agreement is not entirely clear, a 10 per cent threshold, which usually applies only to horizontal restraints, is applicable instead.
The special exemption provided for in section 3 GWB for certain types of cooperation between small and medium-sized undertakings is applicable only to horizontal agreements, which was again emphasised by the FCO’s information memorandum on the possible types of cooperation for small and medium-sized undertakings, published in March 2007.
Types of agreement
Is there a definition of ‘agreement’ - or its equivalent - in the antitrust law of your jurisdiction?
The GWB does not define ‘agreement’. The interpretation of this term under German competition law and the interpretation of ‘agreement’ in article 101(1) TFEU are, however, the same.
In order to engage the antitrust law in relation to vertical restraints, is it necessary for there to be a formal written agreement or can the relevant rules be engaged by an informal or unwritten understanding?
A formal or written agreement is not a precondition for the application of the antitrust rules to vertical restraints. Any form of communication that substitutes the risks of competition for cooperation between the relevant undertakings is sufficient.
In July 2017, the FCO published the Guidance Note on the prohibition of vertical price fixing in the brick-and-mortar food retail sector (the Guidance Note) in which it outlines examples for potentially critical communication between suppliers and food retailers regarding the setting of prices (see also question 19). Notwithstanding the title of the Guidance Note, it is regarded as also having implications beyond the food retail sector. As regards the finding of a concerted practice, the Guidance Paper shows that the FCO applies a rather strict policy. For instance, if the supplier approaches the retailer after the plain submission of recommended resale prices to address the price recommendations again, this renewed contact may, under certain circumstances, qualify as an indication of a concerted practice if, following the discussions, the retailer actually raises its sales prices. Further, a supplier’s statement over the phone that economically he or she cannot comprehend the buyer’s resale price calculation may already be considered illegal if the buyer has to consider this statement as an attempt to influence its pricing policy. While only one contact after the submission of recommended sales prices might not yet be problematic, renewed approaches to a retailer by the supplier may qualify as (attempted) resale price maintenance, at least in cases where the supplier is regarded as a key supplier in the respective product group.
Parent and company-related agreements
In what circumstances do the vertical restraints rules apply to agreements between a parent company and a related company (or between related companies of the same parent company)?
Agreements between undertakings belonging to the same group are under certain circumstances exempt from German antitrust law. This is the case if the undertakings in question form one economic entity and the subsidiary is restricted in its ability to autonomously decide on its market behaviour. According to section 17 of the Stock Corporation Act (AktG), an undertaking is dependent in this sense if another undertaking is in a position to directly or indirectly exert decisive influence over the dependent undertaking. Section 17(2) AktG establishes a presumption according to which an undertaking is regarded as dependent if a majority interest is held by another undertaking.
In what circumstances does antitrust law on vertical restraints apply to agent-principal agreements in which an undertaking agrees to perform certain services on a supplier’s behalf for a sales-based commission payment?
The assessment of agency contracts depends on the qualification of the specific relationship between the principal and the agent as a genuine or non-genuine agency agreement. Agreements between the principal and the agent restricting competition, for example exclusivity agreements, are not covered by section 1 GWB if the relationship can be qualified as a genuine agency agreement. Hence, an agreement according to which the principal may reserve the exclusive right to use certain distribution channels (eg, the internet) does not infringe competition law.
Clauses in agency agreements that restrict inter-brand competition may, however, be subject to article 101(1) TFEU and section 1 GWB. According to the European Commission, this is the case if the agreement contains (post-term) non-compete provisions. Under German law, non-compete provisions during the term of the agency agreement are encompassed in the agent’s duty to protect the principal’s interests (section 86(1) German Commercial Code) and not covered by section 1 GWB. It is, however, not completely clear if under German law, post-term non-compete clauses for the duration of more than two years after the termination of the agency agreement are also not subject to section 1 GWB in combination with section 90(a) of the German Commercial Code.
Where antitrust rules do not apply (or apply differently) to agent-principal relationships, is there guidance (or are there recent authority decisions) on what constitutes an agent-principal relationship for these purposes?
In the view of the FCO and the German courts, an agent-principal relationship may be qualified as genuine agency agreement if the agent is integrated in the business of the principal and if the agent does not bear any commercial or financial risk in relation to the activities for which it has been appointed as an agent by the principal. In such cases, the agent is qualified as a mere auxiliary of the principal and the principal and its agent are regarded as forming one economic entity with the consequence that article 101(1) TFEU and section 1 GWB do not apply to agreements between them. There are no recent decisions providing additional guidance on the treatment of agent-principal relationships in general or in the online sector.
Intellectual property rights
Is antitrust law applied differently when the agreement containing the vertical restraint also contains provisions granting intellectual property rights (IPRs)?
Exemptions to the prohibition of vertical restraints as set out in section 1 GWB apply under the EU block exemption for technology transfer agreements or, if the IPRs do not form the primary object of the agreement, the vertical block exemption, which by virtue of the reference in section 2(2) GWB, also apply to purely national cases.
Analytical framework for assessment
Analytical framework for assessment
Explain the analytical framework that applies when assessing vertical restraints under antitrust law.
As set out in question 1, according to section 1 GWB, agreements between undertakings, decisions by associations of undertakings and concerted practices, which have as their object or effect the prevention, restriction or distortion of competition, shall be prohibited. This provision is not applicable to certain sector-specific agreements (see question 7), to agreements between affiliated undertakings (see question 11) and to genuine agency agreements (see questions 12 and 13). Furthermore, under certain conditions, the De Minimis Notice may apply to vertical restraints (see question 8). Vertical agreements that are subject to section 1 GWB and do not fulfil the requirements of the De Minimis Notice may be exempted.
As regards the requirements for an exemption, section 2(2) GWB refers to the EU block exemption regulations. The most relevant block exemption in this context is the vertical block exemption. Where the parties to the agreement do not benefit from the vertical block exemption, it is necessary to conduct an individual assessment of the agreement at hand under section 2(1) GWB.
Should the agreement contain certain hardcore restrictions, this is very likely to exclude the applicability of the De Minimis Notice and the vertical block exemption, as well as an individual exemption under section 2(1) GWB. The following hardcore vertical restrictions under article 4 of the vertical block exemption will also be regarded as such by the FCO:
- restriction of the buyer’s ability to determine sale prices;
- restriction of the territory into which, or of the customers to whom, the buyer may sell the contract goods or services;
- restriction of active or passive sales to end users by members of a selective distribution system operating on the retail level;
- restriction of cross-supplies between distributors within a selective distribution system; and
- restriction agreed between a supplier of components and a buyer who incorporates those components, which limits the supplier to selling the components as spare parts to end users or to repairers or other service providers not entrusted by the buyer with the repair or servicing of its goods.
To what extent are supplier market shares relevant when assessing the legality of individual restraints? Are the market positions and conduct of other suppliers relevant? Is it relevant whether certain types of restriction are widely used by suppliers in the market?
Section 2(2) GWB refers to the EU block exemption regulations. In accordance with the vertical block exemption, a vertical agreement may benefit from the block exemption only if the seller’s market share on the relevant sales market does not exceed 30 per cent.
Similarly to the European Commission, the FCO takes into account cumulative effects arising from a parallel series of vertical restraints and leading to market foreclosure.
According to the FCO’s De Minimis Notice, a market share of 5 per cent is applicable in order to determine whether a vertical restraint may generally have an appreciable effect on competition instead of the usual 15 per cent threshold for vertical restraints in cases where cumulative foreclosure effects may exist. There is a presumption that cumulative foreclosure effects are regularly given if 30 per cent or more of the relevant market is covered by agreements that have similar effects on the market.
The Federal Supreme Court held that large numbers of gas supply agreements between one supplier and many buyers covering the total or nearly the total of the purchasers’ demand, thereby foreclosing the market for competitors, constitute an infringement of article 101 TFEU and section 1 GWB.
To what extent are buyer market shares relevant when assessing the legality of individual restraints? Are the market positions and conduct of other buyers relevant? Is it relevant whether certain types of restriction are widely used by buyers in the market?
As section 2(2) GWB refers to EU block exemption regulations, for a vertical agreement to benefit from the exemption, not only the seller’s but also the buyer’s market share is relevant. The market share of the buyer may not exceed 30 per cent on the relevant purchasing market.
Block exemption and safe harbour
Is there a block exemption or safe harbour that provides certainty to companies as to the legality of vertical restraints under certain conditions? If so, please explain how this block exemption or safe harbour functions.
As set out in question 7, German law only provides for specific exemptions with regard to the agricultural sector, resale price maintenance for books, newspapers and magazines and the public supply of water. In addition, section 2(2) GWB refers to the EU block exemptions, which results in the applicability of the vertical block exemption. Section 2(2) GWB emphasises that the exemption criteria as set out in the EU block exemptions also apply to purely national cases.
Types of restraint
Assessment of restrictions
How is restricting the buyer’s ability to determine its resale price assessed under antitrust law?
Resale price maintenance is subject to the prohibition in section 1 GWB. The term ‘price’ is interpreted broadly and also covers calculation schemes or rebates. The rules on resale price maintenance are equally applicable to both parties to the vertical agreement. The Federal Supreme Court decided that for an infringement of section 1 GWB through resale price maintenance, a certain degree of substantiality has to be reached.
According to the FCO, the following measures always qualify as a restriction of the buyer’s ability to determine its sale prices:
- agreements on maximum rebates that may be granted in relation to a given price level;
- agreements on margins or a neutrality of margins (sliding price maintenance);
- the sponsoring of promotions if this is related to the retailer’s adherence to certain recommended prices; and
- the communication of minimum prices or fixed prices in order forms if the retailer uses these forms without any modifications.
In the Guidance Note, the FCO provides guidelines and examples for communication between suppliers and retailers in the food retail sector. However, the Guidance Note is understood to have implications beyond the food retail market. While the FCO’s current enforcement practice with regard to resale price maintenance is, in principle, very strict, the Guidance Note provides further clarity on some aspects that have been subject to discussion previously. For example, according to the Guidance Note, it will not be qualified as an infringement if, in the annual negotiations and also on additional occasions during the same year, a supplier that the retailer can easily replace by another company points out its recommended resale price to a retailer that has substantial buyer power. In such a scenario, the retailer will generally not have any indication that there will be negative consequences in case of its non-compliance with the supplier’s price recommendation. If, however, the supplier plays a key role for the retailer’s sales prospects (eg, because its product range makes it one of the leading suppliers in the relevant product group), and if, because of previous refusals to supply, it can be expected that the supplier will use this measure again, even one single contact with the retailer during which its low price is discussed can be seen as a threat and an attempt to exert pressure on the retailer to raise prices. Further, according to the Guidance Note, suppliers are allowed to provide support in the calculation of hypothetical margin effects, provided this does not enable the retailer to draw conclusions on the pricing decisions of competing retailers. In previous cases, the provision of calculation schemes by a supplier had been seen as very critical.
In relation to resale price maintenance agreements, the FCO will also assess if the communication between a supplier and a retailer is aimed at, or results in, an indirect horizontal coordination of prices or other relevant conditions between the different retailers (‘hub and spoke’).
Resale price maintenance continues to be an enforcement priority of the FCO. In addition to past (and still ongoing) investigations, it can be observed that the FCO’s activities regarding resale price maintenance practices are frequently linked to internet sales (see question 32 et seq).
Have the authorities considered in their decisions or guidelines resale price maintenance restrictions that apply for a limited period to the launch of a new product or brand, or to a specific promotion or sales campaign; or specifically to prevent a retailer using a brand as a ‘loss leader’?
Article 4(b) of the vertical block exemption applies by virtue of the reference in section 2(2) GWB. In any case, such an agreement needs to have an appreciable effect on the competitive process.
According to the Guidance Note, vertical price fixing, which generally qualifies as a hardcore restriction, can be admissible in exceptional cases provided the conditions as set out in article 101(3) TFEU and section 2(1) GWB are met. These conditions are:
- the agreement must contribute to improving the production or distribution of goods or to promoting technical or economic progress;
- consumers must be allowed a fair share of the resulting benefit;
- the agreement must be indispensable to the attainment of these objectives; and
- it must not afford the parties the possibility of eliminating competition in respect of a substantial part of the products in question.
Vertical price fixing could possibly be justified on the basis of these criteria in the following three scenarios: (i) market launch of new products; (ii) short-term low price campaigns in a franchise system or similar distribution systems; and (iii) in order to avoid free-riding in the case of complex products for which retailers provide intensive pre-sales services.
Have decisions or guidelines relating to resale price maintenance addressed the possible links between such conduct and other forms of restraint?
Previous decisions show that resale price maintenance is frequently linked to other forms of restraints, in particular, restraints of online sales.
In 2012, the Federal Supreme Court found a statement by a producer of branded rucksacks and school bags, that operates a selective distribution system towards the distributor, that the seller could not economically comprehend the distributor’s price calculation as amounting to an illegal resale price maintenance.
In 2014 and 2015, the FCO imposed fines totalling €27.08 million on manufacturers of mattresses for requiring resellers not to sell certain products below predetermined resale prices. The manufacturer, Recticel, had offered selected online resellers the opportunity to call themselves ‘authorised Schlaraffia online dealers’ and to use the respective trademarks for merchandising purposes, if they agreed to respect recommended resale prices for strategically important products. In the case of deviations, Recticel threatened to delay shipments or to prevent the dealers from using eBay or Google adwords. Another manufacturer, Tempur, also forced resellers to follow the recommended resale prices by threatening them with delivery cancellations and ordering them to exclude the Tempur products from general sale campaigns, such as ‘25 per cent discount on everything’. The FCO imposed a fine in the amount of €15.5 million against Tempur. However, the FCO did not find evidence of horizontal agreements between the manufacturers.
In 2016, the FCO imposed a fine on the toy manufacturer Lego for enforcing vertical resale price maintenance in the sale of ‘highlight articles’ (ie, products in high demand). In some cases, the retailers were threatened with a reduction of supply, or even with a refusal to supply, if they deviated from the recommended resale price. In other cases, the level of discount on retailers’ purchase prices granted by Lego was made conditional on the retailers’ maintenance of the recommended resale prices. The investigation against Lego was closed because the toy manufacturer committed to changing its rebate system with a view to granting equally high rebates for online and brick-and-mortar sales.
In 2017, the Federal Court of Justice found that restrictions of retail prices in the form of a minimum price set by the supplier are a restriction by object, which, according to settled case law of the European Court of Justice, is prohibited irrespective of any effect. Thus, it annulled a judgment of the Higher Regional Court of Celle that previously allowed the temporary commitment of a reseller not to undercut a retail price owing to a lack of appreciable effect on competition.
Also in 2017, the FCO imposed fines of €10.9 million on Wellensteyn, a manufacturer of outdoor clothing and the clothing retailer Peek & Cloppenburg Düsseldorf (P&C). Wellensteyn set its retailers minimum sale prices and prohibited them from reducing prices and selling goods online. Any retailer found deviating from this strategy was threatened with a refusal to supply, which was also implemented in several cases. P&C accepted these conditions and asked Wellensteyn to take measures against price undercutting by other retailers. In the press release, the FCO explicitly referred to the Guidance Note and stated that the practical examples set out in the Guidance Note can also be of relevance for other consumer goods markets, depending on how similar the respective market conditions are to those in the brick-and-mortar food retail sector.
Have decisions or guidelines relating to resale price maintenance addressed the efficiencies that can arguably arise out of such restrictions?
Efficiencies in resale price maintenance cases are not frequently dealt with in decisions. With respect to a franchise system in which the franchiser forced the franchisees to resell at certain prices, the Federal Supreme Court held that the prohibition of resale price maintenance also applied within franchise systems. The court mentioned that there were no facts in the case that could justify a restriction of the franchisee’s freedom to set its own prices, thereby implying that in certain situations such restrictions may be permissible. This view is confirmed by the FCO in the Guidance Note. By contrast, where the franchiser bears all economic and financial risk, the prohibition of resale price maintenance does not apply (see the principal-agent relationship, questions 12 and 13).
As indicated in question 20, resale price maintenance may, in exceptional cases, be justified if the conditions set out in article 101(3) TFEU and section 2(1) GWB are met.
In its proceedings against Gardena, a manufacturer of gardening equipment, and Bosch Siemens Hausgeräte, a manufacturer of household goods, the FCO dealt with efficiencies that could possibly stem from the dual-pricing systems applied by these manufacturers. They granted more favourable conditions to retailers (their customers) with respect to the retailers’ offline sales to compensate the higher costs associated with offline sales (eg, trained sales personnel). However, the pricing and rebate systems were designed in such a way that they contained incentives for retailers to limit their online sales since they could obtain more favourable overall conditions the higher the percentage of offline sales. The FCO found that these dual-pricing systems constituted illegal incentives to reduce online sales. Efficiencies possibly stemming from the compensation of higher costs incurred by offline sales could not justify the restrictions. Rather, the manufacturers could have compensated the retailers for the costs stemming from offline sales by granting certain fixed subsidies, as such fixed payments may not have constituted disincentives regarding online sales.
Similarly, in a private litigation case, the Düsseldorf Higher Regional Court dealt with the question (and answered it in the negative) of whether the dual-pricing system in question could generate efficiencies that could justify an exemption pursuant to section 2 GWB and article 101(3) TFEU.
Explain how a buyer agreeing to set its retail price for supplier A’s products by reference to its retail price for supplier B’s equivalent products is assessed.
There does not seem to be any recent practice that explicitly deals with pricing relativity agreements. The Guidance Note does not address this issue. However, it is very likely that such a practice would be considered to be illegal by the FCO. An agreement between a supplier and a retailer by means of which resale prices are determined by reference to equivalent products of another supplier reduces inter-brand competition. Further, it deprives the retailer of the possibility to change the resale prices for A’s products while leaving the resale prices for B’s products unchanged.
Explain how a supplier warranting to the buyer that it will supply the contract products on the terms applied to the supplier’s most-favoured customer, or that it will not supply the contract products on more favourable terms to other buyers, is assessed.
The agreement between a supplier and a buyer of a most-favoured nation clause that requires the supplier to treat the buyer as its most-favoured customer is not automatically illegal. Further, it does not constitute a hardcore restriction within the meaning of article 4 of the vertical block exemption. However, the block exemption may not apply to vertical agreements concluded between competitors.
While most-favoured nation clauses are not illegal, per se, the FCO takes a very critical view regarding them. This is because an agreement that requires a supplier not to sell its products at lower prices to other customers can - according to the FCO - have negative horizontal effects.
The investigations against Amazon and the online booking portals HRS, booking.com and Expedia, illustrate the FCO’s position. According to the FCO, the agreements between Amazon and marketplace sellers, and between HRS and booking.com and hotels, respectively prevented them from offering lower prices (for the products sold via the market place or for hotel accommodation) elsewhere. Hence, the FCO concluded that these clauses restricted competition between other online portals and made the entry of new platforms considerably more difficult. In December 2015, the FCO decided that not only a broad most-favoured nation clause, which prevents the seller from offering lower prices anywhere, but also a clause applying only to certain sales channels, is illegal. Booking.com, after having been ordered by the FCO to stop its most-favoured nation practice, had modified the respective clause in a way that hotels should be allowed to sell their service for lower prices on other platforms, but not on their own website. The FCO found that this narrower clause also restricted competition between the hotels and between platforms, as in the FCO’s view, the hotels’ incentive to reduce prices on certain platforms is low if they are not allowed to reduce the price on their own website. In an appeal against the FCO’s decision before the Higher Regional Court of Düsseldorf, the Court confirmed the FCO’s decision that booking.com’s narrow most-favoured nation clause violated article 101 TFEU and section 1 GWB as it resulted in a restriction of competition by effect.
Explain how a supplier agreeing to sell a product via internet platform A at the same price as it sells the product via internet platform B is assessed.
The recent investigations against Amazon illustrate that the FCO considers such agreements to be restrictive of competition between comparable online platforms and with regard to the entry of new online platforms. This approach is confirmed by the recent investigations against the online booking portals HRS, booking.com and Expedia (see question 24).
Explain how a supplier preventing a buyer from advertising its products for sale below a certain price (but allowing that buyer subsequently to offer discounts to its customers) is assessed.
There is no explicit guidance dealing with minimum advertised price policy or internet minimum advertised price; however, since resale price maintenance in general and restrictions of online sales in particular are viewed very critically, it appears likely that any such advertising restrictions would be considered restrictive of competition and therefore illegal. If a retailer faces restrictions with regard to naming the resale prices of the advertised products, it can be assumed that the FCO or a court would consider such a restriction illegal. In this context, it should further be noted that the FCO considers restrictions of the optimisation of online search engines (ie, restrictions of dealers’ attempts to appear at the top of search results when potential customers use online search engines) as hardcore restrictions.
Explain how a buyer’s warranting to the supplier that it will purchase the contract products on terms applied to the buyer’s most-favoured supplier, or that it will not purchase the contract products on more favourable terms from other suppliers, is assessed.
The requirement of a buyer not to purchase the contract products on more favourable terms from other suppliers is not per se illegal. Rather, it may qualify for an exemption pursuant to the vertical block exemption as long as it is not linked to resale price maintenance (or another hardcore restriction).
Restrictions on territory
How is restricting the territory into which a buyer may resell contract products assessed? In what circumstances may a supplier require a buyer of its products not to resell the products in certain territories?
A restriction with regard to the territory into which a buyer may resell its contract products is regarded as covered by the prohibition of anticompetitive agreements as set out in section 1 GWB, but may be exempted by section 2 GWB in combination with the respective EU block exemption. There are no specific differences between the German and the EU approach. Generally speaking, outside a selective distribution system the restriction of active sales may qualify for an exemption pursuant to the vertical block exemption, whereas restrictions of passive sales are viewed as hardcore restrictions.
Have decisions or guidance on vertical restraints dealt in any way with restrictions on the territory into which a buyer selling via the internet may resell contract products?
There does not seem to be any recent practice or guidance dealing with restrictions on the territory into which a buyer selling via the internet may resell contract products. However, considering that the FCO’s practice on restrictions of online sales is very strict, it can be assumed that such clauses would probably be viewed critically.
Restrictions on customers
Explain how restricting the customers to whom a buyer may resell contract products is assessed. In what circumstances may a supplier require a buyer not to resell products to certain resellers or end-consumers?
Restrictions on the customers to whom a buyer may sell products are generally forbidden pursuant to section 1 GWB, but may be exempted by section 2 GWB in combination with the respective EU block exemption. The German approach is therefore consistent with the EU approach. Generally speaking, outside a selective distribution system the restriction of active sales may qualify for an exemption pursuant to the vertical block exemption, while restrictions of passive sales are viewed as hardcore restrictions. In its investigations into Gardena and Bosch Siemens Hausgeräte (see question 22), the FCO considered dual-pricing systems that contained incentives to reduce online sales to constitute hardcore restrictions within the meaning of article 4(b) of the vertical block exemption (restriction of customers) that did not qualify for an exemption from the cartel prohibition.
In a case dealing with private damages, the Düsseldorf Higher Regional Court also found a dual-pricing system that contained incentives to restrict sales to certain customers (such as online shops) to infringe competition law, since wholesalers were induced to direct sales to privileged retailers to the effect that intra-brand competition from other retailers was restricted. Moreover, the requirements for an exemption pursuant to section 2 GWB were not met since the defendant failed to show how the restriction could generate efficiencies and whether consumers would adequately benefit from any such efficiencies. Various courts also found restrictions of sales via online platforms illegal (see question 33 for more details). However, according to the recent Coty judgment of the European Court of Justice published on 6 December 2017, the prohibition imposed by a supplier of luxury goods on its authorised distributors to use, in a discernible manner, third-party platforms for the internet sale of those goods neither constitutes a hardcore restriction within the meaning of article 4(b) (restriction of customers) nor article 4(c) of the vertical block exemption (restriction of passive sales to end users) since it does not prohibit online sales in general and platform customers are not a distinct customer group within the general group of internet customers. Only six days after the Coty judgment, the Federal Court of Justice ruled in its Asics decision that a general prohibition to use price comparison engines as part of a selective distribution system regarding non-luxury goods qualifies as a restriction of passive sales to end users within the meaning of article 4(c) of the vertical block exemption since it was combined with other distribution restrictions and thus - in contrast to the Coty situation - largely prevented customers from accessing the distributors’ online offers at all.
In its paper, ‘Restrictions of Competition in the Field of Internet Distribution after Coty and Asics’, published in October 2018 (www.bundeskartellamt.de; German version available), the FCO stresses the importance of different online sales channels and that the assessment of a prohibition to use individual sales channels under article 4 of the vertical block exemption depends on the actual market conditions and individual consumers’ preferences.
Restrictions on use
How is restricting the uses to which a buyer puts the contract products assessed?
Such restrictions are subject to section 1 GWB and generally forbidden. Field-of-use restrictions may be exempted according to section 2 GWB in combination with the relevant EU block exemption. There are no noticeable differences between the German and the EU approach to field-of-use restrictions.
Restrictions on online sales
How is restricting the buyer’s ability to generate or effect sales via the internet assessed?
It is generally considered a hardcore restriction to impose a complete ban on internet sales on distributors. Further, the FCO found certain quantitative restrictions as being anticompetitive and not qualifying for an exemption. These include a restriction of the permitted turnover volume achieved with internet sales. The same applies to threats to impose delivery stops on distributors or to engage in other exclusionary conduct if the distributors sell products on the internet at lower price levels than the recommended prices. Certain qualitative criteria may qualify for an exemption. According to the FCO and jurisprudence of the German courts, it is also permissible to require a distributor to maintain a physical store - in addition to the internet shop - if the nature of the product requires certain guidance and service (see question 35).
In different decisions, the FCO also emphasised that incentives to reduce sales via the internet are considered hardcore restrictions. In 2013, the FCO terminated separate proceedings against Gardena and Bosch Siemens Hausgeräte, after they had agreed to abolish the dual-pricing systems they had concluded with retailers, and that contained incentives to reduce sales via the internet. A similar dual-pricing system was held to be illegal by the Düsseldorf Higher Regional Court in a private litigation. Also in 2013, the FCO hosted a workshop that dealt with vertical restraints in the internet economy. A background paper that addresses various aspects of vertical restraints in the online economy is published on the FCO’s website (www.bundeskartellamt.de; English version available). The paper provides an overview of its practice in the past; in particular, regarding resale price maintenance, dual-pricing, restrictions of online sales in selective distribution systems and price parity clauses used on online platforms.
In 2017 and 2018, several courts, including the European Court of Justice as well as the Federal Court of Justice, have dealt with the highly disputed question of whether restrictions of specific internet sales channels (eg, sales via online platforms, such as eBay and Amazon), particularly within selective distribution systems, are illegal or might be justified under certain circumstances. In addition, in October 2018, the FCO published a brief overview of its assessment regarding certain restrictions of competition in the field of internet distribution in (see question 33).
Have decisions or guidelines on vertical restraints dealt in any way with the differential treatment of different types of internet sales channel? In particular, have there been any developments in relation to ‘platform bans’?
In recent years, the treatment of different types of internet sales channels has been subject to a number of court decisions and investigations by the FCO, finally leading to the first decision of the Federal Court of Justice in this field in 2017. The FCO also published a short paper entitled ‘Restrictions of Competition in the Field of Internet Distribution after Coty and Asics’ in 2018, that summarises key aspects for the assessment of ‘platform bans’.
In an investigation regarding adidas (2014), the FCO took the view that the per se ban on sales via online platforms, as imposed by adidas on members of its selective distribution system, was not permissible. The FCO pointed out that a per se ban on sales via online marketplaces could not be qualified as a qualitative criterion necessary for maintaining product and distribution quality, but that it would rather result in the entire exclusion of certain distribution channels. The restriction did not qualify for an exemption because it did not generate sufficient efficiencies, consumers did not adequately participate and it was not indispensable. In particular, addressing any possible free-riding problems was considered not to suffice to outweigh negative effects. Similarly, the FCO considered a ban on sales via third-party online platforms that a manufacturer of consumer audio products, Sennheiser, had imposed on the members of its selective distribution system to be illegal. In that particular case, retailers were not allowed to sell the contract products via the third-party platform Amazon marketplace, while at the same time, Amazon was one of the authorised retailers. In its recent paper, the FCO attests that a total prohibition to sell via third-party platforms is not likely to be qualified as necessary to protect the brand image of (high quality) brand products and therefore usually prohibited. The FCO’s recent practice shows that this also applies to provisions that do not explicitly prohibit platform sales but provide for incentives to not cooperate with internet intermediaries and therefore result in indirect restrictions of corresponding sales (eg, by granting bonuses).
However, according to the decision of the European Court of Justice in Coty (2017), restrictions of online sales can be justified under certain circumstances. The European Court of Justice answered several questions with regard to platform bans that were addressed by the Frankfurt Higher Regional Court in a referral regarding the assessment of distribution provisions of Coty, a leading supplier of luxury cosmetics. Coty had, in the context of its qualitative selective distribution system, prohibited its buyers from engaging third-party companies for distribution on the internet (eg, selling via Amazon). The European Court of Justice found that the prohibition imposed by a supplier of luxury goods on its authorised distributors, to use, in a discernible manner, third-party platforms for the internet sale is appropriate to preserve the luxury image of those goods (it further stated that such a prohibition does not constitute a hardcore restriction in the meaning of article 4 of the vertical block exemption; see question 30). Against this background, the Frankfurt Higher Regional Court subsequently ruled that Coty’s sales terms did not infringe article 101 TFEU.
From today’s perspective, it is not clear whether this assessment also applies to non-luxury goods. In past decisions (prior to the Coty judgment), German courts partially found that the prohibition of sales via eBay could be permissible in a selective distribution system to safeguard the brand image (also of non-luxury products), provided the selective distribution criteria were applied in a non-discriminatory manner. In a decision regarding high-quality backpacks (Deuter), the Frankfurt Higher Regional Court decided that a clause preventing retailers within a selective distribution system from selling the contract products via certain online platforms, such as Amazon marketplace, may be regarded as an appropriate and admissible qualitative criterion for a selective distribution system. According to the Court, the manufacturer had a legitimate interest in safeguarding its brand image by offering qualified service through selected retailers to end-customers. Owing to the structure of Amazon marketplace, customers are not directed to the selected retailers’ online shops, but get the impression that they buy directly from Amazon. In the Court’s view, this mechanism may interfere with the manufacturers’ premium image, because the end-consumer may get the impression that Amazon is a ‘selected dealer’, which is not the case.
With regard to possible qualitative provisions for online sales after the Coty decision, the FCO in ‘Restrictions of Competition in the Field of Internet Distribution after Coty and Asics’, sets out that the protection of the brand image of (high-quality) brand products may justify specific quality requirements for the sale of these goods via third-party platforms (eg, that the distributor operates an own online-shop page on the platform without selling together with other distributors on the same page). In addition, qualitative provisions may be required to ensure the distribution quality (eg, regarding a specific need for advice on the product). Also subsequent to the Coty judgment, in 2018, the Hanseatic Higher Regional Court in Hamburg ruled that a temporary prohibition to sell non-luxury cosmetics via third-party platforms (eg, via eBay) in connection with a qualitative selective distribution system did not infringe article 101 TFEU, since the affected cosmetics, in view of their ‘special nature’ and brand specific image, required specific advice to ensure their quality standard that could not be guaranteed by third-party platforms like eBay.
After the Coty judgment, in 2017, the Federal Court of Justice ruled that a general prohibition to use price comparison engines as an element of a selective distribution system for non-luxury goods qualifies as an unlawful hardcore restriction within the meaning of article 4(c) of the vertical block exemption (restriction of passive sales to end users). However, the prohibition to use price comparison engines dealt with in this decision was combined with other distribution restrictions that - at large - prevented customers from accessing the distributors’ online offers.
For the future, it will have to be seen how German courts will deal with cases in view of the European Court of Justice’s Coty ruling. However, it might be presumed that a total ban on internet sales is likely to be assessed as unlawful regardless of being part of a selective distribution system, while bans limited to specific internet sales channels may be assessed as eligible depending on the specific circumstances.
Selective distribution systems
Briefly explain how agreements establishing ‘selective’ distribution systems are assessed. Must the criteria for selection be published?
Selective distribution systems may be subject to the prohibition of agreements restricting competition as set out in section 1 GWB. They may be exempted according to section 2 GWB, in connection with the relevant EU block exemptions. A specific feature of German law is that the refusal to supply certain distributors that are dependent on the relevant products may be qualified as discriminatory and therefore as abusive behaviour under section 20(1) and (2) GWB, even if the supplier is not dominant but only has a strong position in the relevant market, in particular by virtue of the importance of its products. The refusal to supply may, however, be justified if the dependent distributors do not meet the qualitative criteria of a selective distribution system. In a recent decision, a German court has decided that a supplier of branded luxury goods may also refuse to supply retailers based on a quantitative selection as long as the selection criteria are objective and applied in a non-discriminatory manner. Quantitative selective distribution systems that expressly or factually limit the total number of distributors admitted to the system do generally qualify as restrictions of competition in the meaning of article 101(1) TFEU and section 1 GWB. They may be permitted according to article 101(3) TFEU and section 2(1) GWB under exceptional circumstances only, depending on the degree and the duration of the restriction. A quantitative selective distribution system may potentially be justified if there is no economically appropriate alternative to the quantitative restriction to implement the selective distribution system or if the distribution via a few exclusive distributors is a particular marketing feature for the supplier. However, a quantitative selection would usually only be permissible for a limited time period, such as for the marketing of a new exclusive product.
Are selective distribution systems more likely to be lawful where they relate to certain types of product? If so, which types of product and why?
In accordance with EU competition law, the implementation of a selective distribution system may fall outside article 101(1) TFEU and section 1 GWB. This is specifically the case where the selective distribution system is necessary to preserve the quality or the proper use of a certain product, for example, because of its technological complexity, its luxury or brand reputation or strong safety implications, and where the members of the selective distribution system are chosen with regard to their professional qualification, the qualification of the sales personnel and the quality of the sales facilities. Additionally, the qualitative selection criteria have to be applied in a non-discriminatory manner and must be adequate. In a recent case, a court held that the protection of a particular brand image may justify the implementation of a selective distribution system. The objective criteria are, for instance, not applied in a non-discriminatory manner if the supplier prohibits sales via online auction platforms, but at the same time supplies a discounter chain.
In selective distribution systems, what kinds of restrictions on internet sales by approved distributors are permitted and in what circumstances? To what extent must internet sales criteria mirror offline sales criteria?
Generally speaking, a restriction imposed on members of a selective distribution system, according to which the existence of a physical store is a precondition for the admissibility of sales through the internet, is considered permissible. In addition, internet sales criteria and offline sales criteria generally have to be comparable (‘equivalence test’). In a case in which the supplier had prohibited sales via eBay, but at the same time sold considerable amounts of the contract goods via a discounter chain, a court held that the equivalence test was not met.
The European Court of Justice held in the Pierre Fabre decision that the vertical block exemption does not apply to a clause in a selective distribution agreement that de facto prohibits internet sales by authorised dealers. Such restrictions may, however, be subject to an individual exemption pursuant to article 101(3) TFEU. Since pursuant to section 2(2) GWB the EU block exemption regulations apply to purely national cases, this judgment also affects decisions at the national level.
Some German courts in private litigation have ruled that it is legal to impose certain quality standards on the members of a selective distribution system if the products subject to this selective distribution system have a certain brand image. In particular, it was held permissible to request the distributor’s internet shop to adhere to quality standards. In ‘Restrictions of Competition in the Field of Internet Distribution after Coty and Asics’, the FCO states that the protection of the brand image of (high-quality) brand products may justify specific quality requirements for the sale of these goods via third-party platforms. In addition, several courts have held in previous cases that it might be admissible to prohibit sales through internet auction or other third-party platforms if this is necessary to ensure the quality standards of the selective distribution system (eg, caused by the need for specific advice). In its Coty decision, the European Court of Justice decided that a prohibition imposed by a supplier of luxury goods sold via a selective distribution system on its authorised distributors to use, in a discernible manner, third-party platforms for the internet sale of those goods is appropriate to preserve the luxury image of those goods.
In ‘Restrictions of Competition in the Field of Internet Distribution after Coty and Asics’, the FCO states that a total ban on selling via third-party platforms is not likely to be qualified as necessary to protect a certain brand image of high-quality (at least non-luxury) brand products. See question 33 for further details regarding the assessment of platform bans.
Has the authority taken any decisions in relation to actions by suppliers to enforce the terms of selective distribution agreements where such actions are aimed at preventing sales by unauthorised buyers or sales by authorised buyers in an unauthorised manner?
There are court decisions dealing with this issue. However, the focal point of these decisions is the Act against Unfair Competition. In one case, a German car manufacturer tried to stop a dealer from selling and advertising cars that had been reimported from other EU member states at prices that were below the price level in Germany. The manufacturer claimed that the dealer was only able to do so because the dealer acquired such cars based on the breach of the conditions of the selective distribution system. However, the manufacturer could only succeed with its claim if the dealer had enticed a member of the selective distribution system to breach the contract, but not if it only took advantage of a member breaching the contract by selling cars to the outsider.
Does the relevant authority take into account the possible cumulative restrictive effects of multiple selective distribution systems operating in the same market?
The FCO takes into account cumulative effects arising from a parallel series of vertical restraints and leading to market foreclosure. A cumulative market foreclosure effect according to the FCO’s De Minimis Notice generally exists if 30 per cent or more of the affected market is covered by parallel networks of suppliers’ or distributors’ agreements for the sale of goods or offer of services, which have similar effects on the market.
Has the authority taken decisions (or is there guidance) concerning distribution arrangements that combine selective distribution with restrictions on the territory into which approved buyers may resell the contract products?
In accordance with EU law, suppliers may commit themselves to supplying only one dealer or a particular number of dealers in a certain territory. They are also allowed to impose restrictions on dealers that are members of selective distribution systems with regard to the location of their business premises. It qualifies as a hardcore restriction, however, to prohibit supplies to end-customers in other territories (but this does not apply to wholesalers who actively or passively sell the relevant products to end-customers in other territories). To restrict the supply of other dealers who are members of selective distribution systems is, irrespective of the supply level, completely forbidden.
How is restricting the buyer’s ability to obtain the supplier’s products from alternative sources assessed?
Exclusive purchasing agreements are subject to the prohibition of anticompetitive agreements set out in section 1 GWB, but may be exempted according to section 2 GWB in connection with the relevant EU block exemptions. There are no differences between the EU and the German system.
How is restricting the buyer’s ability to sell non-competing products that the supplier deems ‘inappropriate’ assessed?
There are no specific rules in German law dealing with this issue, so general rules apply. This means that a restriction of the buyer’s ability to sell ‘inappropriate’ products must not restrict competition or will require an exemption, for example, under an EU block exemption.
Explain how restricting the buyer’s ability to stock products competing with those supplied by the supplier under the agreement is assessed.
Non-compete clauses are generally subject to the prohibition of anticompetitive restraints as set out in section 1 GWB. The applicability of section 1 GWB may, however, be restricted in cases in which the non-compete clause is necessary for the realisation of the contract. Such non-compete clauses are comparable to ancillary restraints in EU law. Restrictions that are not necessary for the realisation of the contract in this sense may be exempted by section 2 GWB in connection with the relevant EU block exemptions, which are also applicable to purely domestic German cases.
How is requiring the buyer to purchase from the supplier a certain amount or minimum percentage of the contract products or a full range of the supplier’s products assessed?
Whether the requirement to purchase from one supplier a specific amount or minimum percentage of a certain product must be regarded as a non-compete clause and therefore covered by section 1 GWB, can be determined by referring to article 1(1)(d) of the vertical block exemption, according to which this is the case if more than 80 per cent of the requirements of the relevant product have to be bought from one specific supplier. For the assessment of non-compete clauses, see question 42.
With regard to the highly concentrated German energy sector, the FCO decided, and the courts confirmed, that a supply agreement entered into for at least two years that covers 80 per cent or more of the customer’s gas or electricity requirement, or a supply agreement entered into for at least four years that covers 50 per cent or more of the customer’s gas or electricity requirement is invalid. The same holds true for cumulative contracts with one customer, exceeding the thresholds with regard to time or quantity, as well as for gas or electricity supply agreements containing tacit renewal clauses.
The requirement to purchase a full range of the supplier’s products can also result in market foreclosure and therefore constitute an infringement of section 1 GWB. A key example of such an agreement or concerted practice is tying, according to which the supplier makes the sale of one product conditional upon the purchase of another distinct product. Such an agreement constitutes an infringement of section 1 GWB unless it is objectively justified or in line with commercial custom. In contrast, if a tying requirement is imposed unilaterally by a dominant undertaking and not by means of an agreement or concerted practice, it may amount to abuse of a dominant position within the meaning of section 19 GWB.
Explain how restricting the supplier’s ability to supply to other buyers is assessed.
There is no explicit guidance in this regard. Since pursuant to section 2(2) GWB the vertical block exemption also applies to purely national cases, the (few) situations in which it covers restrictions of the supplier are also relevant under German law.
Explain how restricting the supplier’s ability to sell directly to end-consumers is assessed.
There is no explicit guidance in this regard, but such a restriction would generally be treated as an exclusive or direct supply obligation. Since pursuant to section 2(2) GWB the vertical block exemption also applies to purely national cases, the circumstances in which it exempts exclusive or direct supply obligations of the supplier are also relevant under German law.
Have guidelines or agency decisions in your jurisdiction dealt with the antitrust assessment of restrictions on suppliers other than those covered above? If so, what were the restrictions in question and how were they assessed?
Outline any formal procedure for notifying agreements containing vertical restraints to the authority responsible for antitrust enforcement.
The German antitrust regulations do not provide for any formal notification procedure with regard to vertical restraints. In accordance with the EU system, parties to a vertical agreement cannot apply for a formal exemption decision but must assess the requirements for an exemption as set out in section 2 GWB by themselves. They may, however, apply for a decision based on section 32(c) GWB (see question 48).
If there is no formal procedure for notification, is it possible to obtain guidance from the authority responsible for antitrust enforcement or a declaratory judgment from a court as to the assessment of a particular agreement in certain circumstances?
According to section 32(c) GWB, the FCO may, similarly to a decision based on article 10 of EC Regulation No. 1/2003, decide that there are no grounds to take any action if, on the basis of the information available, the conditions for a prohibition pursuant to (inter alia) section 1 GWB and article 101(1) TFEU are not fulfilled. These decisions are, however, not of huge practical relevance for vertical restraints as it is completely at the FCO’s discretion to render such a decision at all and the FCO is very reluctant to do so. Furthermore, a section 32(c) GWB decision is only binding on the FCO itself and not on third parties or courts. Another possibility is to approach the FCO for informal guidance on the relevant question, which the FCO is regularly willing to provide.
Complaints procedure for private parties
Is there a procedure whereby private parties can complain to the authority responsible for antitrust enforcement about alleged unlawful vertical restraints?
The GWB does not provide for any formal complaint procedure for third parties with regard to vertical restraints. Any undertaking or person may, however, approach the FCO with information on possible infringements of the antitrust laws through vertical restraints. The decision to open formal proceedings is at the FCO’s discretion.
How frequently is antitrust law applied to vertical restraints by the authority responsible for antitrust enforcement? What are the main enforcement priorities regarding vertical restraints?
As the vertical block exemption is also applicable to purely German cases by virtue of section 2(2) GWB, most vertical restraints apart from hardcore restraints are permitted, up to market shares of 30 per cent (with the possibility of an individual exemption above this market share pursuant to section 2(1) GWB and article 101(3) TFEU). In recent years, the FCO has been active specifically with regard to legal or contractual or indirect resale price maintenance and the restriction of internet sales. In this respect, the FCO handed down a number of decisions regarding internet sales (see questions 32 and 33 for an overview of the FCO’s enforcement activities in the field of internet sales), most-favoured nation clauses (see question 24), exclusivity agreements and resale price maintenance.
In January 2010, the FCO started proceedings against a number of retailers and producers of branded products in the areas of coffee, confectionery and pet food, suspecting maintenance of artificially high prices for these products through vertical arrangements. In the course of these proceedings the FCO extended the investigations to other product areas, particularly the areas of beer, baby food, baby care and personal hygiene. Meanwhile, the investigation has finished with a considerable number of fines against both food retailers and producers of branded products.
In 2015 and 2016, the FCO imposed fines on several retailers for resale price maintenance in the beer business that amounted to €112 million in total. The FCO also imposed fines that amounted to more than €60 million on six food retailers and Haribo, a producer of confectionery, for their participation in a hub-and-spoke price maintenance system. A price maintenance system was also identified in relation to the coffee roaster, Melitta, which had already been fined for horizontal infringements with other coffee roasters in 2010. In addition, the FCO imposed total fines of about €50 million on five food retailers for participating in a hub-and-spoke cartel with Melitta. In 2016, the FCO finally imposed a fine in the amount of €5.25 million against Rossmann - for resale price maintenance of Melitta coffee products - that ultimately, in early 2018, was increased by more than 450 per cent to €30 million by the Düsseldorf Higher Regional Court in the course of Rossmann’s appeal against the FCO’s decision. Thus, the investigations in the consumer goods sector, which were initiated in 2010, resulted in total fines of €285.25 million.
See also question 21 regarding fines made against manufacturers and retailers in various sectors in 2014, 2015 and 2017. In 2016, the FCO fined the toy manufacturer Lego €130,000 for enforcing vertical resale price maintenance by threatening retailers with a reduction of, or refusal to, supply. In another case in 2016, five brand manufacturers of furniture were fined a total of €4.43 million for vertical price fixing in proceedings that were initiated because of complaints by retailers.
In ‘Restrictions of Competition in the Field of Internet Distribution after Coty and Asics’, the FCO describes a ‘renaissance of vertical price fixing and alternative restrictions of online sales’. Against this background, online sales restrictions and resale price maintenance continue to be an enforcement priority of the FCO.
What are the consequences of an infringement of antitrust law for the validity or enforceability of a contract containing prohibited vertical restraints?
Agreements that are contrary to section 1 GWB and are not exempted on the basis of section 2 GWB are prohibited by law and therefore, according to section 134 of the German Civil Code (BGB), null and void. According to section 139 BGB, the invalidity of one part of the agreement is usually regarded as an indication of the invalidity of the whole agreement. Section 139 BGB further provides, however, that the invalidity of the whole agreement will not be presumed if there is evidence that the agreement would also have been concluded without the invalid part. Whether this condition is fulfilled has to be assessed on a case-by-case basis. Where the invalid part is separable from the whole agreement and the agreement contains a severability clause, a presumption applies that the remaining parts shall remain valid.
May the authority responsible for antitrust enforcement directly impose penalties or must it petition another entity? What sanctions and remedies can the authorities impose? What notable sanctions or remedies have been imposed? Can any trends be identified in this regard?
The FCO may issue a cease-and-desist order according to section 32 GWB, requiring the undertakings to bring to an end the infringement of section 1 GWB, any other provision of the GWB or article 101 TFEU. Furthermore, according to sections 81 and 82 GWB, the FCO or the respective regional competition authorities have the power to impose administrative fines. The FCO or the regional cartel authorities are also competent to order the skimming-off of economic benefits gained through the intentional or negligent violation of section 1 GWB or article 101 TFEU through vertical restraints (section 34 GWB) to the extent to which this economic benefit has not already been skimmed off by the imposition of a fine. The administrative fine may be as high as €1 million and if imposed on undertakings as high as 10 per cent of the undertaking’s turnover in the business year preceding the administrative decision. The undertaking’s turnover comprises the worldwide turnover of all natural and legal persons acting as one economic entity. In 2013, the FCO issued updated guidelines on the setting of fines, an English version of which can be found on the FCO’s website at www.bundeskartellamt.de.
A trend that can be identified is the FCO’s focus on restrictions of online sales (eg, via platforms or price comparison websites). Some cases were also linked to resale price maintenance (see questions 21 and 50). With regard to ‘pure’ restrictions of online sales that do not concern resale price maintenance (such as platform bans, double pricing systems and most-favoured nation clauses imposed by sales platforms), no fines have yet been imposed, although the FCO has handed down cease-and-desist orders. However, with the FCO’s position in the field of online sales restrictions to be clarified and consolidated, it might be expected that fines will be imposed for such restrictions in the future.
Investigative powers of the authority
What investigative powers does the authority responsible for antitrust enforcement have when enforcing the prohibition of vertical restraints?
The cartel authority may conduct any investigations and collect any evidence required. The FCO may request the disclosure of information by way of an informal or a formal information request from the parties themselves or third parties, search business premises based on orders of the Local Court of Bonn, seize documents and interrogate witnesses or experts.
To what extent is private enforcement possible? Can non-parties to agreements containing vertical restraints obtain declaratory judgments or injunctions and bring damages claims? Can the parties to agreements themselves bring damages claims? What remedies are available? How long should a company expect a private enforcement action to take?
Intentional or negligent infringements of section 1 GWB may lead to liability for the damage caused by these infringements. The EU’s Directive 2014/104/EU on antitrust damage actions in order to facilitate antitrust damage claims has been implemented into German law by the 9th amendment of the GWB, which came into effect on 9 June 2017. The new rules for private damage claims in section 33 to 33h GWB contain, inter alia, a refutable presumption that cartels lead to damages. Companies engaging in vertical restraints that infringe section 1 GWB are obliged to compensate other undertakings that suffered economic damage from the respective anticompetitive behaviour (section 33a(1) GWB). Further, they may be ordered to terminate anticompetitive conduct (section 33(1) GWB).
Claimants must be affected by the infringement (section 33(3) GWB). In the case of a vertical restraint, they will usually be members of the opposite market side; for example, suppliers or customers. Typical cases may involve distributors that are in a position to argue that the vertical restraint has been imposed on them by the other party owing to a weak negotiation position. The party winning the lawsuit can expect to be compensated for legal costs and to receive interest on the damages. If the FCO investigates a case, the parties suffering loss through vertical restraints may prefer to wait for the FCO decision before claiming private damages as the outcome of the decision establishes with binding effect whether the behaviour in question can be qualified as an anticompetitive vertical restraint (section 33b GWB). For instance, in 2013, the Düsseldorf Higher Regional Court awarded damages in the amount of approximately €800,000 to an online dealer of sanitary equipment (the further claim regarding additional €1.6 million was dismissed). In addition, the court held a manager to be liable for the payment of damages as well. These damages claims were preceded by a decision by the FCO in 2011.
However, there is also standalone private enforcement. This is illustrated by a judgment by the Federal Supreme Court that ordered a producer of branded school bags to abstain from inducing a member of its selective distribution system to raise its resale prices. The buyer had applied for a cease-and-desist order with the competent civil court. In 2013 and 2014, different courts handed down judgments in the context of selective distribution systems (regarding branded school bags and digital cameras). Also in this context, restrictions of online sales are playing an increasing role. Damages proceedings will normally take months, if not years.
In addition, section 33(4) GWB provides for the possibility of industry associations and consumer associations to bring lawsuits if they meet certain institutional criteria and represent a significant number of member undertakings that offer products or services competing with those of the defendant.
Is there any unique point relating to the assessment of vertical restraints in your jurisdiction that is not covered above?
Update and trends
What were the most significant two or three decisions or developments in this area in the last twelve months?
Probably the most important recent development in Germany was the reception of the European Court of Justice’s Coty judgment of 6 December 2017 by German courts and the FCO. This led to extensive discussion about the future treatment of distribution restrictions in the field of internet sales (especially regarding third-party platforms and price comparison engines). In a recent interview with the German newspaper, Lebensmittel Zeitung, Andreas Mundt, chairman of the FCO, stated that e-commerce constitutes a very central field of the FCO’s work.
The Coty decision arose from a referral of the German Higher Regional Court of Frankfurt addressing several questions concerning the restriction of sales via online platforms to the European Court of Justice. In its answers, the European Court of Justice found that a prohibition imposed by a supplier of luxury goods sold via a selective distribution system on its authorised distributors to use, in a discernible manner, third-party platforms for the internet sale is appropriate in preserving the luxury image of those goods. Following this judgment, the Higher Regional Court of Frankfurt unsurprisingly ruled that Coty’s practice of prohibiting its buyers from engaging third-party companies (such as Amazon marketplace) for the online distribution of their luxury cosmetics was not prohibited.
Some courts have already dealt with possible implications and interpretations of that ruling. While a total ban on internet sales is likely to be assessed as unlawful regardless of being part of a selective distribution system, bans limited to specific internet sales channels have partially been held eligible under certain circumstances. For instance, in March 2018, the Hanseatic Higher Regional Court in Hamburg ruled that a temporary ban of third-party platform sales (eg, via eBay) in connection with a qualitative selective distribution system did not infringe article 101 TFEU, since the cosmetics concerned, in view of their ‘special nature’ and brand image, required specific sales advice that could not be guaranteed by third-party platforms, such as eBay. However, regarding a general prohibition to use price comparison engines (in combination with other distribution restrictions) as an element of a selective distribution system for non-luxury goods, the Federal Court of Justice held in its Asics decision, in 2017, that such prohibition qualifies as a hardcore restriction within the meaning of article 4(c) of the vertical block exemption (restriction of passive sales to end users).
In October 2018, the FCO published a paper entitled, ‘Restrictions of Competition in the Field of Internet Distribution after Coty and Asics’, stressing that the Coty decision led to several open questions, including the definition of ‘luxury goods’, as well as the importance of different internet sales channels for the assessment of a restriction within the meaning of article 4 of the vertical block exemption. The FCO also states that the protection of the brand image of (high-quality) brand products may justify specific quality requirements for the sale of these goods via third-party platforms, while a total prohibition from selling via third-party platforms is not likely to qualify as necessary in this respect.
On the European level, the European Commission recently presented plans for a consultation regarding a possible prolongation or modification of the vertical block exemption that will expire in 2022. By virtue of the reference in section 2(2) GWB, a possible prolongation or modification will also affect purely national cases in Germany.