Following the ruling of the Court of Justice of the European Union (“ECJ”) on 14 June 2012, the Cour de Cassation (French Supreme Civil Court) put an end to the lawsuit between Auto 24 and Jaguar Land Rover (“JLR”) and shed light on the interpretation and use of the Motor Vehicle Block Exemption Regulation¹  (“MVBER”) in respect to selective distribution systems.

This ruling of the French Supreme Court constitutes a landmark decision. Under previous case law, suppliers using quantitative criteria had to be in a position to demonstrate that the limitation of the distributors number was objectively justified, for instance with regards to the sales potential for the various sales areas concerned².

The Auto 24 lawsuit

Background

In 2005, the car dealer Auto 24 initiated proceedings against JLR who refused to readmit it as an authorised car distributor in the city of Périgueux (South of France) as the “numerus clausus” drawn up by JLR did not provide the appointment of a distributor of new vehicles in that area.

Lodging an appeal before the French Supreme Court, Auto 24 argued that the Court of Appeal of Paris³ had wrongly applied Article 1(1)(g) of the MVBER and Article 1382 of the Code Civil by stating that there was no requirement for “the grantor to justify the reasons, economic or otherwise, behind the drawing up of a numerus clausus and by finding that JLR had drawn up a numerus clausus precluding the possibility of a location in Périgueux”. Auto 24 claimed that the Court of Appeal was bound to examine “the objectivity of the selection criteria, their economic use, the improvement in customer services and the condition of their implementation”, to hold that the “numerus clausus” was legally set up by JLR. Indeed, Auto 24 claimed that the selection criteria in a quantitative selective distribution system have to be “specific, objective, proportionate to the aim pursued and implemented in a non-discriminatory manner when selecting distributors”4.

Based on the MVBER, the French Supreme Court  referred the following question to the ECJ: “What is to be understood by the words “specified criteria” in Article 1(1)(f) of Regulation n°1400/2002 as regards quantitative selective distribution?”

The French Supreme Court5 asked whether the “specified criteria” must be interpreted as meaning that a quantitative selective distribution system must be based on criteria which are objectively justified and non-discriminatory to benefit from MVBER.

ECJ and French Supreme Court Judgments

In its preliminary ruling, the ECJ stated that “the term ‘specified criteria’ referred to in Article 1(1)(f) of the MVBER means, as regards a quantitative or qualitative selective distribution system within the meaning of that regulation, criteria the precise content of which may be verified […] It is not necessary for such a [quantitative selective distribution] system to be based on criteria which are objectively justified and applied in a uniform and non-differentiated manner in respect of all candidates for the authorisation”6.

The French Supreme Court7 followed the principles set in the ECJ judgment and ruled that JLR was entitled to limit the number of dealers in its selective distribution network without any legal requirement to justify its choice as long as it is based on criteria that can be verified.

What does this mean for selective distribution in the car sector and other sectors?

According to the MVBER, a selective distribution system is “a distribution system where the supplier undertakes to sell the contract goods or services, either directly or indirectly, only to distributors or repairers selected on the basis of specified criteria” (emphasis added).

As a reminder, two types of selective distribution systems can be distinguished:

  • Quantitative selective distribution systems where a supplier uses criteria for the selection of distributors or repairers which directly limit their number;
  • Qualitative selective distribution systems where the supplier uses qualitative criteria required by the nature of the contract goods or services. These criteria may cover specific premises to display the products, skills of the sales force or specific services to be provided such as after-sale services. Those criteria have to be met by any distributor wishing to be appointed by the supplier as an authorised dealer or repairer.

Impact on quantitative selective distribution in the new car sector

According to the French Supreme Court, relying on the ECJ judgment, under the MVBER car manufacturers are free to use a quantitative selective distribution system to organise their distribution network, in particular through the determination of a limited number of car dealers admitted to the network in a specific area8.

Distributors must be selected on the basis of “criteria whose precise content may be verified”. This does not mean that the supplier has to publish the criteria, i.e. to make those criteria publicly available. But in practice, carmakers are advised to keep a written record of these criteria and provide them when requested.

Based on the French Supreme Court ruling, unlike in a qualitative selective distribution systems, there is no obligation for the carmaker using a quantitative selective distribution system to adopt objective and non-discriminatory criteria and appoint every applicant who meets the criteria.

Impact beyond the Auto 24 case

The MVBER expires at the end of May 2013, after which distribution agreements relating to the sale of new cars will be governed by the general Vertical Agreements Block Exemption Regulation (“VBER”).

Whether the ECJ and French Supreme Court judgments have a longer term impact will depend on whether they apply equally to quantitative selective distribution under the VBER.  Indeed, the VBER is drafted in similar terms to the MVBER and covers selective distribution agreements under which distributors’ selection is based on “specified criteria”.

One may also wonder whether the rulings of the ECJ and French Supreme Court apply to selective distribution agreements for other products, which are governed by the VBER.

If the answer is yes, the ECJ and French Supreme Court judgments would have far-reaching effects as, for example, in the luxury goods area, suppliers ask for more flexibility so as to limit the number of authorised retailers.