Background
Higher regional court decision
Federal Court of Justice decision
Comment


Background

In 2006 Dornbracht – a manufacturer of high-end sanitary fittings – announced an offensive against online distribution. Customers were informed on Dornbracht's website that price dumping by non-authorised online shops caused lasting damage to specialised retailers and traders, and were advised not to buy Dornbracht products from online traders. In 2008 Dornbacht introduced a so-called specialised retail agreement for the distribution of its products and changed its rebate system.

In Germany, sanitary fittings are traditionally sold through a three-step distribution system – manufacturers supply wholesalers, which then supply the products to retailers and traders. All prices in this system are determined by rebates calculated based on the manufacturers' price lists with recommended resale prices for end customers. The rebates granted by wholesalers to retailers are lower than those which the wholesalers receive from manufacturers; the difference between the two rebates is the wholesale margin.

Under the specialised retail agreement Dornbracht divided the rebate for wholesalers into two parts – a basic rebate and an additional rebate applicable only to sales to retailers fulfilling certain quality criteria, including offering "professional installation services" and "adequate after-sales services".

The Federal Cartel Office (FCO) soon received several complaints from online traders informing it that wholesalers would no longer supply them or would not supply them at prices which would allow them to compete on the end-customer market. The FCO investigated and found that Dornbracht's rebate system led to dual pricing which effectively hindered wholesalers' sales to online traders because they could not fulfil the criteria necessary for the full rebate. The authority concluded that this constituted a restriction of online sales and qualified as infringement of Article 101 of the Treaty on the Functioning of the European Union (TFEU). However, the proceedings were terminated in December 2011 after Dornbracht agreed to delete the critical clauses in its rebate system.

Higher regional court decision

Following publication of a case summary by the FCO, Reuter (which runs a large online shop for sanitary equipment) filed suit against Dornbracht. Reuter claimed that it had suffered total damages of approximately €2.5 million between 2008 and 2011, when Dornbracht's rebate system was in force. According to Reuter, the company had first received lower rebates from wholesalers than before the introduction of the specialised retail agreement. Reuter further suggested that as a result of the specialised retail agreement higher sales expected of Dornbracht products could not be realised.

The Cologne Regional Court dismissed the claim as unsubstantiated. According to the judges, the data submitted by Reuter to support its claims was unreliable. The court further considered that there were other possible reasons for the lower rebates that Reuter had allegedly received. Reuter appealed to the Dusseldorf Higher Regional Court.

In a widely regarded decision the court found that Reuter was entitled to damages of approximately €1 million. Because the FCO had not issued a formal decision against Dornbracht – which would have been binding on the court according to Section 33(4) of the Act against Restraints of Competition – the court first conducted a detailed competition law assessment of Dornbracht's rebate scheme. Citing the European Court of Justice's Allianz Hungaria decision, the court found that the specialised retail agreement constituted a restriction of competition by object because it was objectively suitable to restrict competition between the specialised trade and other retailers. The court elaborated that the rebate scheme provided a strong economic incentive for wholesalers to sell to the specialised trade and not to other buyers, and in any event allowed wholesalers to grant the specialised trade more favourable conditions than online traders.

Having established competition law infringement, the court had to decide on damages. Here, the judges applied a much lower standard of proof than the lower court had done. Making use of facilitations of proof under law for anticipated profits (Section 252 of the Civil Code) and the determination of damages (Section 287 of the Code of Civil Procedure), as well as tolerating smaller calculation errors, the court accepted Reuter's calculation of the hypothetical price that the company would have had to pay absent the anti-competitive clauses in the rebate system. To calculate the damage that Reuter had suffered, the hypothetical buying price was compared with the price that Reuter actually paid during the time that the rebate system was in force. However, Reuter's additional claim for lost profits (the company had argued that it would have achieved more sales of Dornbracht products without the specialised retail agreement) was dismissed as unsubstantiated, even under the lower burden of proof.

Remarkably, the court found that Dornbracht's managing director was also personally liable for the company's competition law infringement. While he obviously did not qualify as an 'undertaking' according to Article 101 of the TFEU, the court found that he had aided Dornbracht's competition infringement by instructing sales teams to implement the specialised retail agreement and was liable under general tort law as a contributor (Sections 830 and 840 of the Civil Code). Eventually, the court awarded Reuter damages of €820,000 plus interest, for which Dornbracht and its managing director were jointly and severally liable. An appeal to the Federal Court of Justice was not allowed.

Federal Court of Justice decision

Considering that the judgment was the first prominent case in which a court granted significant damages for infringement of vertical competition law rules (ie, the rules applicable to the relationship between suppliers and buyers), it is unsurprising that Dornbracht filed a non-admission complaint before the Federal Court of Justice. On October 8 2014 the complaint was rejected by the Supreme Court, effectively dismissing the appeal. This decision must be considered clear confirmation of the judgment of the Dusseldorf Higher Regional Court. It can be assumed that the Federal Court of Justice would have accepted the complaint and decided the appeal if the judges had had any doubt as to whether the decision of higher regional court was correct.

Comment

Given that the FCO has investigated several cases regarding vertical infringements, a wave of damages claims could be triggered. This could in particular be the case in the sanitary industry, where – despite a clear warning by the FCO to suppliers after the Dornbracht investigations – suppliers and wholesalers openly announced that tightening collaboration with the specialised trade is what promptly led to dawn raids by the competition watchdog in 2013.

For further information on this topic please contact Björn Herbers at CMS Hasche Sigle's Brussels office by telephone (+32 2 6500 420), fax (+32 2 6500 422) or email (bjoern.herbers@cms-hs.com). The CMS Hasche Sigle website can be accessed at www.cms-hs.com.

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