Selective and exclusive distribution: does the mixed system work?
What happens if a manufacturer applies a mixed system (selective and exclusive distribution) within Europe? What are the main advantages and disadvantages?
As has already been pointed out, the European legislator has always
committed to finding a balance between the principle of free trade of
goods and the producers' interest in creating distribution networks
competitive.
The compromise reached by the legislator is now governed by the Regulation
330/2010 on vertical sales, which determines which agreements between undertakings
belonging to the same distribution network are subject to the prohibition of
agreements imposed by theart.
101(1) of the European Treaty and which, instead, benefit from the exemption
from this prohibition (formerly Art. 103(3)).
In essence, the producer is given a choice between two modes
of distribution: a general one that can be used by any type of producer (the
exclusive) and a particular one for specific situations (the selective one) (cf.
on the point La
selective distribution. A brief overview: risks and benefits e Clauses
exclusivity and vertical economic agreements in the European context: e-commerce and
territorial exclusivity).
With the exclusive distributionsupplier divides the markets into
which it operates through the appointment of exclusive distributors, who undertake to
to purchase goods and promote their sale in a manner that tends to
free.
Article 4(a) of the Regulation provides, in fact, that the producer shall not
can restrict, neither directly nor indirectly,[1] the
power of the exclusive distributor to determine the resale price,
without prejudice to the possibility of imposing a maximum price or recommending a
sale price.[2]
The manufacturer will also not be able to prevent, formerly Article 4(a) of the
Regulations, which the distributor make
of active sales[3]
within the territory, without prejudice to the right to reserve for itself customers
management and prevent them from retailing, in order to maintain this
level of the commercial chain, as distinct from the retail level.[4]
Finally, the distributor shall also have the right to make
sales outside the territory, provided they constitute a response
to unsolicited orders from individual customers outside the
territory (cd. sales
passive).[5]
It is clear that such freedom of the exclusive distributor is often incompatible
with what are the interests of certain types of producers, in
particular of those in the luxury sector or who develop products that are technically very
complexeswho will be more interested in, rather than a
widespread distribution, to the fact that their products are resold
only from authorised dealers.
Like
has already been dealt withexceptionally for specific situations
is provided for the producer to create a system of distribution
selectivewhich allows him, formerly Article 4(b)(iii), to prohibit members of the selective system from
sell to unauthorised distributors in the territory that the manufacturer has
reserved for such a system: in a selective system, assets can only pass
from the hands of one company admitted to the network to those of another, or to
those of the end user.[6]
In observance of the principle of free trade in goods, as
counterpart of the producer's right to impose such limitations on the
freedom of resale of members of the system, the Regulation:
- Article 4(b)(iv) confers on them the freedom to carry out the so-called cross-sellingwhich consist of unhindered procurement from "other designated distributors in the network, operating at the same or a different level of trade'.[7];
- Article 4(c) prevents the manufacturer from restricting to members of a selective distribution system, operating in the retail trade, the active or passive sales to end users.[8]
That being said, very often a producer, for practical, managerial and economic reasons, is unable to apply a single distribution system for the entire European market and reserves selective distribution only for those countries that are most strategic for him. In this context, the question arises, firstly, whether such a 'mixed' system is legitimate and, secondly, what risks are attached to it.
1. Mixed systems within the same territory.
The adoption of a mixed system within the same territory would lead to a conflict of interest between the exclusive distributor, which would have the right to be protected from active sales within its territory, and the selective distributor, which would have the right to make active and passive sales within the exclusive territory, pursuant to Article 4(c) of the Regulation.
The Commission questioned the legitimacy of a mixed system and clarified through the Guidelines that such a combination is not admissible "within the territory in which the supplier operates selective distribution [...] as it would make it a restriction of active or passive sales by resellers". incompatible with Article 4(c).[9]
2. Mixed systems in different EU territories.
Given that the Guidelines' prohibition on applying a mixed system refers only to the circumstance that it is developed within the same territory, it is implicitly inferred that the right antitrust does not prohibit the producer to create a mixed system within the different Member States.
This does not detract from the fact that this choice, although legitimate, may nevertheless create problems of no small importance, consisting mainly of the producer's inability to control:
- sales from the exclusive territory to the selective territory;
- sales from the selective territory, directed to the exclusive territory.
The individual cases are briefly analysed below.
a) Sales from the exclusive territory, directed to the selective territory.
The fact that the exclusive distributor may not be prevented from making passive sales outside the territory, and thus also within a selective distribution system that the manufacturer has reserved for another territory, is rather self-evident.
More controversial (and commercially impactful) is the
question of whether the exclusive distributor can also sales
active within the selective territory and, therefore, also carry out
real commercial campaigns within that territory. From a reading
Strictly speaking, Article 4(b)(i) of the Regulation prohibits the
exclusive distributors to make active sales "in the territory
exclusive customers reserved for the supplier or by the supplier
attributed to another buyer' and does not extend this prohibition to the
distribution system.
To date, there are no case law precedents that have clarified this question, which remains open. In any event, it is believed that a contractual clause requiring the exclusive distributor to make active sales in the selective system, which, due to the manner in which they are presented to the public, may be legitimate, do not harm the image luxury and prestige of the manufacturer's products (on this point see also Online sales by unauthorised distributors. The Amazon, L'Oréal and Sisley cases.).
b) Sales from the selective territory to the exclusive territory.
The problems for the exclusive producer, should the producer create
a mixed market, are essentially related to the fact that:
- in the first place, formerly Article 4(c) of
Regulation, the manufacturer may not prohibit authorised retailers from
making passive and active sales within the EU. The question arises whether
these should also include the sales within the
exclusive territoryor if the distributor's exclusivity protects him from
such sales actions; - secondly, the manufacturer may prohibit, formerly
Art. 4(b)(iii), sales of members of the selective system to resellers
unauthorised within the territory that the producer has
reserved for that system. It follows from a restrictive reading of the rule,
this prohibition would not seem to be able to be extended to the sales that the
selected distributors outside the distribution system
selectiveIf this interpretation were to be followed, authorised distributors could
sell freely within a different territory recognised in
exclusive to a distributor appointed by the manufacturer.
With reference to the above points, it should be noted that the
Guidelines state that "to retailers in a distribution system
selective [...] no restrictions can be imposed except to protect a
exclusive distribution system operated elsewhere."[10]
There is a serious uncertainty of interpretation,
given that a reading of the statutory text inclines towards the view that the
holder of an exclusive right does not have the right to be protected from 'invasion
zone' by selective distributors, whereas the Guidelines would make
leaning in the opposite direction.[11]
The only thing that is certain is that the risks to create a mixed system are very high and that if such a distribution strategy is adopted by the manufacturer, in the medium to long term it would lead to great difficulties in the management, especially of the parallel sales and reciprocal and continuous area invasions.
[1] Article 4(a) provides, in fact, that the taxation
of fixed prices, it cannot take place even indirectly, as a result of
pressure exerted or inducements offered by one of the parties. The Orientations,
No. 48 list numerous examples of such measures and, in particular, "agreements
setting the distributor's margin, or the maximum level of discounts that
the distributor may charge from a prescribed price level; the
the granting of discounts or reimbursement of promotional costs by the
supplier to respect a given price level; the price linkage
resale prices imposed on competitors' resale prices; threats,
intimidation, warnings, penalties, postponement or suspension of deliveries or
termination of contracts in relation to compliance with a given level of
price"In case law, the Commission's decision is referred to, Yamaha Case, 16.7.2003in which I was recognised as an imposition
indirect pricing the following clause: premiums/bonus "will be
granted only to retailers who have applied, in their actions
advertising, normal margins' and that "publicity actions and
promotions involving discounts in excess of 15% would not be
considered normal."
[2] Importantly, the Guidelines, No. 225
justify this choice of the European legislator, considering that ''imposition
of resale prices may [...] reduce dynamism and innovation to the level
distribution [and thus] prevent more efficient retailers from entering the
market and/or to acquire sufficient size at low prices." Other
song, it is also acknowledged that "Sometimes the imposition of
resale prices not only has the effect of restricting competition but can
lead, in particular if determined by the supplier, to increases in
efficiency, which will be assessed pursuant to Article 101(1). 3 [...].
Resale price maintenance plus avoidance of free-riding
[...]. According to the Best Doctrine
(Pappalardo, 356, op. cit.) pending decisions to verify
with this openness of the Commission, certainly the basis of the approach
open and positive of the Commission, it is preferable to consider it as the
confirmation of the absence of prohibitions in EU competition law
automatic.
[3] Cf.
Orientations, no. 51.
[4] On this point, see also Guidelines, no. 55.
[5] Cf. Guidelines, no. 51.
[6] Cf. Pappalardo, Competition Law
of the European Union, p. 363, 2018, UTET.
[7] On this point, the Guidelines, no. 58, state that '[...]
an agreement or concerted practice may not have as its direct or
indirectly to prevent or limit the active or passive sales of the
contractual products between the selected distributors, who must remain
free to purchase these products from other designated distributors in the network,
operating at the same or a different level of the business chain. "
[9] N. 57.
[10] Orientations,
n. 56.
[11] On
Point cf. Pappalardo, op. cit., 364.
