Regulation of the distribution relationshipCompeting products
Are restrictions on the distribution of competing products in distribution agreements enforceable, either during the term of the relationship or afterwards?
A commercial agency agreement can contain a non-compete clause, which will only be valid, however, if and to the extent that:
- it is made in writing;
- it relates to the specific types of transactions assigned to the agent;
- it is limited to the geographical area or to the group of customers and the geographical area entrusted to the agent; and
- its application is limited to a term not exceeding six months after termination or expiry of the agreement. Furthermore, the representation of competing products by the agent could also be perceived as a violation of his or her obligation to act in the best interests of the principal and to be loyal and of good faith.
Distribution agreements very often comprise restrictions on the distribution of competing products, which are admitted to a certain extent. In this regard, it is important to highlight that the Commission Regulation (EU) No. 330/2010 excludes certain non-compete arrangements from the ‘block exemption’ (eg, any direct or indirect obligation causing the buyer, after termination of the agreement, not to manufacture, purchase, sell or resell goods or services). Under said regulation, a supplier can impose a non-compete obligation on its distributor, insofar as it is imposed for a fixed term of no more than five years.Prices
May a supplier control the prices at which its distribution partner resells its products? If not, how are these restrictions enforced?
Suppliers may not restrict the buyer’s ability to determine its sale price, without prejudice to the possibility of a supplier to impose a maximum sale price or recommend a sale price, provided that they do not amount to a fixed or minimum sale price as a result of pressure from, or incentives offered by, any of the parties.
These restrictions are enforced by the competition authorities, national or European, which can impose substantial fines to perpetrators.
The supplier may determine the price offered by a commercial agent to the customers, since the commercial agent acts in the name and for the account of the supplier.
May a supplier influence resale prices in other ways, such as suggesting resale prices, establishing a minimum advertised price policy, announcing it will not deal with customers who do not follow its pricing policy, or otherwise?
As a general rule, the supplier may not, directly or indirectly, in isolation or in combination with other factors under its control, restrict the distributor’s ability to determine its sale price. However, it is possible for the supplier to impose a maximum sale price or suggest a sale price, provided that they do not amount to a fixed or minimum sale price as a result of pressure from, or incentives offered by, any of the parties. Where a minimum advertised price policy would be valid in principle, the refusal to deal with customers who do not follow its pricing policy would in principle not be valid.
May a distribution contract specify that the supplier’s price to the distributor will be no higher than its lowest price to other customers?
A distribution agreement may in principle include a clause stipulating that the supplier’s price to the distributor will be no higher than its lowest price to other customers (a ‘most favoured customer’ clause).
Are there restrictions on a seller’s ability to charge different prices to different customers, based on location, type of customer, quantities purchased, or otherwise?
Considering that contractual freedom is a cornerstone of the Belgian legal order, the seller can in principle differentiate its prices, insofar as such differences are not in violation of competition law, consumer legislation and possible regulatory provisions that might be applicable, and it does not constitute an abuse of rights.
To avoid being dragged into a discussion or even litigation based on an alleged violation of the anti-discrimination regulation, it is recommended to underpin differentiated prices with objective reasons (eg, transport costs, marketing, volumes, etc).Geographic and customer restrictions
May a supplier restrict the geographic areas or categories of customers to which its distribution partner resells? Are exclusive territories permitted? May a supplier reserve certain customers to itself? If not, how are the limitations on such conduct enforced? Is there a distinction between active sales efforts and passive sales that are not actively solicited, and how are those terms defined?
The answer to this question depends on the type of distribution used by the supplier.
It is possible to impose restrictions on the activities of the exclusive distributors outside their territory: active sales outside the territory may be prohibited insofar as the conditions of EU Regulation No. 330/2010 are abided by, whereas passive sales outside the territory must at all times be allowed. The supplier can prevent its exclusive wholesale distributors from selling to end users and consumers (both active and passive selling). However, if a supplier allocates a particular customer group exclusively to a specific distributor active at the retail level, the supplier cannot impose a restriction on passive sales towards such a customer group by the other distributors.
Non-exclusive distributors can, in principle, not be prevented from engaging in passive sales, but they may be subjected to territorial restrictions concerning their active sales outside their territory, insofar as the conditions of EU Regulation No. 330/2010 are abided by. The same rules applicable to customer allocation (wholesale and retail) with exclusive distribution apply to non-exclusive distribution.
If a supplier operates an EEA-wide selective distribution network, the supplier may not impose territorial restrictions, apart from a location clause. The active and passive sales to consumers by members of such a network may not be restricted. The same rules applicable to customer allocation (wholesale and retail) with exclusive distribution apply to selective distribution.Online sales
May a supplier restrict or prohibit e-commerce sales by its distribution partners?
The answer depends on the type of distribution used by the supplier.
In exclusive distribution, it is not possible to prevent the exclusive distributor from having passive sales (eg, e-commerce sales) outside its contract territory. However, the supplier can restrict the exclusive wholesale distributor to refrain from selling to end users and consumers. This is also true for e-commerce (passive sales). However, if a supplier exclusively allocates a specific customer group to a retail distributor, passive sales by other distributors cannot be restricted by the supplier.
E-commerce sales by non-exclusive distributors can not in principle be restricted by the supplier. However, the same rules applicable to customer allocation (wholesale and retail) with exclusive distribution apply to non-exclusive distribution.
The supplier must restrict the ability of a distribution partner that is part of a selective distribution network to engage in active or passive sales to resellers that are not part of said network. A supplier may prohibit its distribution partners that are part of a selective distribution network from using, in a discernible manner, third-party platforms for internet sales of the goods in question, provided that:
- such prohibition has the objective of preserving the luxury image of the goods in question;
- it is laid down uniformly and not applied in discriminatory fashion; and
- it is proportionate in the light of the objective pursued (European Court of Justice case of 6 December 2017, C-230/16).
Under what circumstances may a supplier refuse to deal with particular customers? May a supplier restrict its distributor’s ability to deal with particular customers?
A supplier wishing to refuse to deal with particular customers must make sure that such refusal cannot be considered as a restrictive practice, an abuse of a dominant market position or an abuse of the right to contractual freedom (see question 17). To avoid being dragged into a discussion or even litigation, it is recommended to underpin a refusal with objective reasons.
A supplier may restrict:
- the active sales to an exclusive customer group reserved to the supplier or allocated by the supplier to another distributor where such a restriction does not limit sales by the customers of the distributor;
- the sales to end users by a distributor operating at the wholesale level of trade;
- the sales by the members of a selective distribution system to unauthorised distributors; and
- the distributor’s ability to sell components supplied for the purposes of incorporation, to customers who would use them to manufacture the same types of goods as those produced by the supplier (see question 18).
Under which circumstances might a distribution or agency agreement be deemed a reportable transaction under merger control rules and require clearance by the competition authority? What standards would be used to evaluate such a transaction?
Any merger of a certain scope requires prior approval of the national competition authority or the European Commission.
A distribution or agency agreement might only be reportable if it qualifies as a ‘merger’ operation under Belgian law; that is, a lasting change of control of an undertaking, which can particularly occur when two independent undertakings decide to integrate; when one undertaking or one person having control of an undertaking purchases another undertaking or part of its activities; or when two undertakings create a lasting common undertaking between them (article IV.6 of the Belgian Code of Economic Law).
Notification to the competition authorities would only be required for mergers that meet certain turnover thresholds. For the relatively small mergers, the Belgian Competition Authority will deal with the case (articles IV.7 to IV.10 of the Belgian Code of Economic Law). For larger mergers (generally having effects that extend beyond national borders), the notification will have to be made to the European Commission (Council Regulation (EC) No. 139/2004 of 20 January 2004 on the control of concentration between undertakings).
In practice, the parties to sizeable transactions will often stipulate that the operation is subject to such prior approval.
In short, the procedure comprises a notification to be made to the competent competition authority (usually following informal pre-notification communication with said authority). It is then up to the authority to define the market concerned and to examine the merger’s likely effects on that market. A first decision will be made, which can be followed by a second phase procedure where there are serious doubts as to the merger’s eligibility.
Do your jurisdiction’s antitrust or competition laws constrain the relationship between suppliers and their distribution partners in any other ways? How are any such laws enforced and by which agencies? Can private parties bring actions under antitrust or competition laws? What remedies are available?
In general, anticompetitive behaviour is sanctioned both by national and EU legislation. Regarding the impact of such behaviour on intra-community trade, the matter will be dealt with by the national or the European competition authorities (see question 21), which can impose fines.
On 26 November 2014, the European Parliament and the European Council adopted Directive 2014/104/EU on certain rules governing actions for damages under national law for infringements of the competition law provisions of the member states and of the European Union. This Directive has been transmitted in national law through the Act of 6 June 2017 allowing any natural or legal person who has suffered harm caused by an infringement of competition law to claim and to obtain full compensation for that harm through damages actions before national courts.