Clifford Chance

The European Court of Justice (ECJ) has clarified the conditions that must be met for a ban on active sales designed to support an exclusive distribution arrangement between a supplier and a distributor to be valid under EU competition law. In particular, it is necessary to show that the active sales restriction is explicitly included in a contractual arrangement with the suppliers’ other distributors, or at the very least, that the supplier has invited its other distributors not to engage in active sales in the exclusive territory and this has been acquiesced by them.

Background

Since 1993, Beevers Kaas has been the exclusive distributor of Beemster cheese in Belgium, which is supplied by Cono. Albert Heijn, a Dutch supermarket chain active in Belgium and the Netherlands, also purchases Beemster cheese from Cono for distribution in markets outside of Belgium.

The dispute arose when Albert Heijn began selling Beemster cheese in Belgium (i.e., Beevers Kaas’ exclusive territory). Beevers Kass initiated legal action alleging that Albert Heijn's sales of Beemster cheese in Belgium violated its exclusive distribution rights. Albert Heijn countered that it was not bound by the exclusivity agreement between Beevers Kaas and Cono, as Cono had not imposed an active sales ban on its other distributors.

In July 2021, the Commercial Court of Antwerp dismissed the case, ruling that no contractual or legislative provision prevented Albert Heijn from sourcing directly from Cono and selling in Belgium. Beevers Kaas appealed this decision to the Court of Appeal in Antwerp.

Legal issue

On appeal, Belgian judges sought clarification from the ECJ on whether, when a supplier allocates an exclusive territory to a distributor, it suffices to demonstrate that other distributors do not actively sell into that territory to establish an agreement prohibiting such sales.

ECJ judgment

By way of reminder, Article 4(b)(i) of the Vertical Block Exemption Regulation (VBER) provides a safe harbour from the prohibition in Article 101 TFEU for vertical agreements that restrict active sales into a territory that is exclusively allocated by the supplier to another distributor (provided that certain market share thresholds are met).

The ECJ, following the approach taken by Advocate General Medina’s Opinion, confirmed that Article 4(b)(i) of the VBER covers both agreements to allocate an exclusive territory to a distributor, as well as the necessary "parallel imposition" of obligations on the supplier to protect the exclusive distributor from active selling into the exclusive territory by the supplier's other distributors. To benefit from the VBER safe harbour, it is therefore necessary to show that there was an “agreement” between the supplier and its other distributors banning active sales into the exclusive territory.

Absent explicit contractual restrictions, the ECJ found that there must be evidence that (i) the supplier invited the other distributors not to engage in active sales in the exclusive territory allocated to the exclusive distributor, (ii) those distributors expressly or tacitly acquiesced to that invitation, and (iii) there are means enabling the supplier to implement the ban in practice. The ECJ emphasised that the mere fact that the other distributors did not actively sell in the territory (in this case for a period of 20 years) was insufficient to demonstrate the existence of an agreement in isolation.

Practical implications

The simple lesson from this judgment is to make sure that your exclusive distribution arrangements contain all the required contractual provisions for competition law compliance. These include explicit contractual restrictions in agreements with other distributors to ban active sales into an exclusively allocated territory.

If these provisions are not in the contract, it will be much harder to enforce the territorial exclusivity. If it is unenforceable, any attempt to restrict cross-border sales of other distributors could amount to a serious competition law infringement and attract high fines. In order for non-contractual territorial exclusivity to be enforceable suppliers must, at the very least, clearly communicate to the other distributors that they should not actively sell in the exclusive territory (e.g., through a specific communication sent by the supplier to its distributors requiring them to respect an exclusive territory or a clause or specific mention to that effect in the supplier’s general terms and conditions) and have mechanisms in place to enforce the ban (e.g., through monitoring systems and penalties). In addition, there must be evidence of the distributors explicitly acknowledging the ban, or at least following the ban in practice, to show acquiescence.