French cosmetics company Caudalie had previously made headlines in a case decided on February 2nd 2016. In that case, Caudalie had applied for an injunction against an online marketplace to compel it to cease selling Caudalie products, but the Paris Court of Appeal had rejected the claim, thus limiting the possibility for suppliers using selective distribution networks to impose an outright ban on marketplace retailers carrying their products (see our May 2016 EU & Competition Law Update).
On June 8th 2017, in a separate case, the French Supreme Court (Cour de cassation) ruled in favor of Caudalie, holding that Caudalie’s exercise of its contractual freedom prevailed over the need to apply qualitative selection criteria to contract renewals within a selective distribution network.
In 2008, Caudalie had entered into a one-year tacitly renewable selective distribution agreement for its products with a pharmacist. In October 2011, Caudalie notified the pharmacist that the agreement would not be renewed after its term on December 31st 2011, complying with the two-month notice period provided in the agreement.
Before the French Supreme Court, the pharmacist argued that within a selective distribution network, a supplier is not entitled, pursuant to Article L. 420-1 of the French Commercial Code and Article 101 §1 of the TFUE, to refuse to renew a given distribution agreement where the distributor meets the qualitative criteria previously defined by the supplier to be selected. The pharmacist claimed in this case that he did meet those criteria and that he had never breached the distribution agreement.
The pharmacist further argued that the refusal by Caudalie to renew the agreement constituted a refusal to sell, which would be wrongful under French competition law, to the extent that it would prevent the determination of resale prices by free competition, thereby artificially encouraging an increase in the resale price of the Caudalie products.
The French Supreme Court found, academically, that whether or not the pharmacist met the criteria defined by Caudalie to be a qualified distributor within its selective distribution network, and whether or not the pharmacist had breached the agreement, was irrelevant because the dispute did not relate, strictly speaking, to the re-selection of a non-renewed distributor following the decision not to renew his distribution agreement, but rather to the termination of that agreement. The Court found moreover that the pharmacist did not allege that Caudalie’s decision was an abuse of its right not to renew.
Thus, the French Supreme Court did not examine the competition law issues underlying a potential abuse of the right to renew, but based its decision purely on contract law. The Court ruled that since Caudalie was found to have complied with the provisions of the distribution agreement regarding its termination, Caudalie did not have to justify its decision not to renew the agreement, since, as a general contract law principle, no one can be forced to renew an agreement after its term.
Decision: cass.com. June 8th 2017, no. 15-28.355