In its judgment of 25 October, the Dutch Supreme Court rules on the compatibility of an exclusive purchasing clause with the Dutch cartel prohibition. The Supreme Court upholds the finding of the Court of Appeal that the clause in question has an anticompetitive object. The ruling of the Court is contrary to the conclusion of the Advocate General ("AG") in whose opinion the Court of Appeal incorrectly interprets EU law.
The facts of the case
In 2008, A purchased two parcels of land situated on both sides of a busy street on Texel (one of the Dutch islands in the North Sea). A purchased the parcels from X, who had acquired the land 13 years earlier from B. Up to one year prior to selling the land, B had exploited a petrol station on one of the parcels.
The first transaction B sold the land to X was subject to a non-compete agreement. The agreement contained an exclusive purchasing clause which provided that the purchaser could exploit a petrol station on the premises on condition that he purchase the fuel exclusively from Y. Y is an affiliate of B, which owns two fuel stations on Texel and which supplies motor fuel to three other petrol stations on Texel. Apart from these five, there are two other petrol stations on the island. The deed of transfer relating to the first transaction contained a clause to the effect that the purchaser granted, in his capacity as purchaser, rights to third parties. As a result of this the non-compete agreement and the exclusive purchasing clause comprise obligations attached to the capacity of purchaser of the parcel.
Almost a year after the second transaction, A informed B of his intention to exploit a petrol station and requested B to release him from any obligation stemming from the non-compete agreement. B refused.
The dispute in the main proceedings
A brought the case to court. He argued that the obligation attached to the capacity of purchaser of the parcels infringed the Dutch prohibitions of restrictive agreements or abuse of dominance. Such arguments were rejected by the court in first instance due to a lack of sufficient substantiation.
The Court of Appeal overturned the judgment in first instance. It held that the non-compete agreement was in breach of the cartel prohibition and therefore void and that the judgment could be listed in the public register.
The Court of Appeal found that the non-compete agreement had a anti-competitive object. It based this finding on: (i) the title of the agreement ('non-compete agreement'); (ii) the context in which the agreement was concluded; (iii) its view that the exclusive purchasing clause in this particular non-compete agreement differs from the exclusive purchasing clauses in earlier judgments on which the court in first instance based its conclusion (as in those cases the supplier was investing in the sales activities of the purchaser); (iv) the only reason for B to require the non-compete agreement, was to protect the considerable market share which B already had; (v) the lack of alternatives for A to exploit a competing petrol station elsewhere on the island; (vi) the relevant geographic market was the island of Texel; the market share of B was considerable; it could not be argued that the anti-competitive effect of the agreement would not be appreciable.
The Conclusion of Advocate General
Advocate General Keus takes a different view. He concludes that the Appeal judgment should (on certain points) be annulled. The AG states that the core of this non-compete agreement is formed by the exclusive purchasing clause. Referring to case law of both the EU and national courts, he concludes, in line with the court in first instance, that it is established case law that exclusive purchasing agreements do not have the object of restricting competition. In the view of the AG, this case law does not provide sufficient foundation for the view of the Court of Appeal that the qualification of an exclusive purchasing agreement as a restriction by object is dependent upon whether or not the supplier provides the purchaser with certain benefits for the selling process (for example, letting him use certain objects) nor that it is dependent upon whether or not the supplier in the exclusive purchasing agreement is also active in the same retail sector as the purchaser. He finds it likely that the suppliers in the aforementioned case-law are, in many cases also active in the retail sector. According to the AG, if exclusive purchasing clauses can by their nature limit competition, certain benefits to the purchaser would not affect the conclusion that they have an anti-competitive object. He also points out that in almost every case the motive for a supplier to require an exclusive purchasing agreement will be the maintenance of the supplier's market share and revenue, something the Court of Appeal did not take into consideration.
The AG furthermore considers that the finding of the Court of Appeal that it follows from the title given to the agreement that its object is to limit competition, is a misinterpretation of the law. In his view, in stating that the anti-competitive object 'already follows from…', the title, the Court of Appeal is assuming that the intention of the parties plays a decisive role. This is however incorrect. The intention of the parties is not in itself decisive in determining the object of the agreement. It is merely an element that should be taken into consideration.
Unlike the Supreme Court the AG concludes that the definition of the relevant market is insufficiently motivated. Arguments put forward by B, to the effect that the geographic market was not the island of Texel, but at least part of the Netherlands were not considered in the Appeal judgment.
The Judgment in of the Supreme Court
The Supreme Court points out that the Dutch cartel prohibition should to the extent possible be interpreted in line with EU law. The Court summarizes established case law of the Court of Justice on the circumstances in which agreements can be found to have an anti-competitive object. This is the case if, after individual and particular assessment of the content of the relevant agreement, its objectives and the economic and legal context, it can be concluded that by its nature, the agreement has the potential to harm competition on a particular market. When considering these factors, the nature of the goods or services concerned and the real conditions of the functioning and structure of the market in question should also be taken into account. The Supreme Court found that the Court of Appeal had applied the aforementioned standard correctly when determining whether the object of the non-compete agreement was to restrict competition. B's interpretation of the Appeal judgment was held to be incorrect. B presumed that the Court of Appeal had considered whether the non-compete agreement had a restrictive effect.
When considering the conditions of the functioning and the structure of the relevant market, the Court of Appeal held that the relevant geographic market was the island of Texel. The Supreme Court assumes that the Court of Appeal was referring to the retail sale of motor fuel. In Appeal it was found that it is not plausible that people staying on the island would go to the mainland with the sole purpose of filling up their tank given the cost, time and effort required for the trip to the mainland. The Supreme Court holds that this is evidence that different competition conditions apply on the island, when compared to the mainland and this would still be the case even if many people make the journey on a daily basis.
B challenged the Court of Appeal's conclusion that the non-compete agreement differs from the exclusive purchasing agreements that formed the subject of the cases relied on by the Court in first instance. The Supreme Court upheld the finding of the Court of Appeal. It found that the Court of Appeal referred to the fact that the non-compete agreement in this case applies to a horizontal relationship, given that A and B are (potential) competitors on the market for the retail sale of motor fuel. By contrast, the cases mentioned by the Court in first instance and by the Advocate General in his conclusion concern exclusive purchasing agreements in vertical relations (between parties at different levels of trade) where the suppliers provide the purchasers financial benefits. According to the Supreme Court, applying this jurisprudence to the present case would be contrary to the standard of review required by European jurisprudence (individual and particular review of the content of the agreement). Moreover, the Supreme Court refers to the wording in the judgments. These contain the phrase: even if this exclusive purchase agreement does not have as its objective to limit competition. Such wording does not suggest that an exclusive purchasing agreement never has the object of limiting competition.
The authors have two comment on this judgment: one relating to the qualification of the clause as a restriction by object and one relating to market definition.
The Supreme Court decides that the exclusive purchasing clause in the non compete agreement has the object of limiting competition. The validity of this conclusion is questionable. The EU block exemption for vertical agreements provides that exclusive purchasing obligations of 5 years or less between parties with a modest market share are block exempted. The block exemption also applies where the supplier is active on the market of the purchaser. Given that the EU does not exempt hardcore restrictions by object, even if they are concluded between small market players, the exemption of the exclusive purchasing obligation in the block exemption suggests that it is not seen by the European Commission as a restriction by object.
The judgment appears to break with Commission policy and EU case law as to the concept of a restriction by object. This was unnecessary. The Court of Appeal and Supreme Court could have concluded that the exclusive purchasing clause is void given its (potentially) anti-competitive effects The courts had enough information at their disposal to make such assessment. They did not need to establish that the object of this exclusive purchasing agreement significantly differed from the object of the other (potentially block exempted) exclusive purchasing agreements.
The Supreme Court's consideration of the relevant geographic market is brief particularly where the Court suggests that for the definition of the geographic market it is irrelevant that a considerable number of people travel from Texel to the mainland on a daily (and/or weekly) basis to go to work. For Texel to comprise a separate market for the retail fuel industry, the number of people that do not have the option of going to the mainland to fill up their tank, would have to be large enough for the petrol stations on Texel not to have to take account of competition from the mainland when determining their commercial strategy. In such circumstances the competition circumstances on the island differ from those on the mainland. If there is a large number of people (both inhabitants of Texel and tourists) travelling to and from the mainland on a regular basis, the number of people who do not have the option of taking petrol on the mainland is significantly reduced. Consequently this argument would seem to be relevant.