Vertical restraints block exemption

The replacement of the motor vehicle block exemption is complicated by the fact that the vertical restraints block exemption - Regulation 2790/1999 - expires at the same time as Regulation 1400/2002 was due to expire. Suggestions that vehicle distribution be brought under the general Regulation from next May were difficult to assess when we could not be sure what the latter regulation would say.

The issue has not gone away, but it has become a little clearer recently with the publication of the Commission's proposals. Most significantly, it says that Regulation 2790 is "working well and should not be fundamentally modified". But having said that, it proposes that exemption should apply only where the market shares of both parties are under 30 per cent, which will import buying power issues into the antitrust analysis needed to determine whether an agreement is allowed or not. (At present, Regulation 1400 focuses only on the market share of the supplier - that is, the manufacture or importer.)

The Commission also proposes stricter and more detailed rules on online sales, especially in selective distribution systems. Given that selective distribution is still the choice of virtually the entire car industry, and the Internet has had a significant impact (so the Commission believes) on the car market, this is likely to be a significant development.

The presumption against resale price maintenance - regarded, rightly, as a hardcore restriction on competition by both regulations - will be made easier to rebut where the Commission is assessing an efficiency defence. It is not inconceivable that even RPM can be justified (as the publishing industry, prior to the abolition of the Net Book Agreement!).

Finally, and this is going to take me some time to work out so let me come back to it, the Commission will introduce rules on category management and upfront access payments such as slotting allowances.

The Commission's proposals are open for public consultation until 28 September, and the new regulation will probably remain in force until 2020. Of course, the consultation should now be considered as part and parcel of the consultation on the motor industry regulation.

Trade associations respond to Commission's announcement

http://www.am-online.com/news/story/Trade-associations-respond-to-Block-Exemption-announcement/42900477

- but how much of the documentation have they read?

Commission communication on block exemption issued at last!

Finally, the Commission yesterday came up with a new Communication on the block exemption: here is a link to the page on the DG Competition website where the documents can be viewed or downloaded. The most immediately important point is that it will propose to extend the present exemption for a more-generous-than-expected three years, which means that no-one needs to feel quite as anxious about the approach of the end of next May as they did before. However, the Commission is drawing a distinction - in terms that seem to be rather novel, but probably very helpful - between the primary market and the aftermarket: the extension will apply (going by the slightly impenetrable wording of the press release) to the primary market (that is, the market for cars, and presumably for other vehicles within the scope of the regulation) but the aftermarket, it seems, might become subject to the application of the general competition rules together with a code of practice or guidelines or something similar containing the dealer protection stuff that the Commission has been saying was not appropriate in a competition instrument.

Further comment when I have studied more of the documents, over the next few days.

When can a manufacturer terminate dealers to facilitate restructuring?

Perhaps the most contentious issue in the block exemption concerns the ability of the supplier (manufacture or imperter) to terminate on shorter than usual notice - one year instead of two where "it is necessary to re-organise the whole or a substantial part of the network". Great: the first question I asked myself when I saw that language was, what has to be necessary? The termination (in order to effect a reorganisation), or the reorganisation itself?

Logically, I think the first makes more sense - you can tell when termination is necessary but can't really apply an objective standard to judging when a reorganisation is necessary. Desirable, perhaps, but necessary, well, that can rarely happen.

I hadn't done so before, but I thought a look at the French text would help, and indeed it does: "le fournisseur résilie l'accord en raison de la nécessité de réorganiser l'ensemble ou une partie substantielle du réseau". Pretty clear, then, that my rule of thumb doesn't work in French.

Last month, the Bundesgerichtshof (the German federal supreme court) held that a manufacturer can terminate on one year's notice to restructure its dealer and repairer network if it can establish what the lawyers who won the case call "comprehensible financial grounds" on which to do so. Dr. Dominik Wendel and Dr. Albin Ströbl of law firm Nörr Stiefenhofer Lutz yesterday obtained a Federal Supreme Court (BGH) judgement according to which the importer Nissan legally terminated all dealerships and workshops with one year's notice (judgement of 24. June, File: VIII ZR 150/08). The judgment doesn't seem to be available on the Web, but here is the story (as put out, I believe, by Nörr: there is an English translation on a subscription-only service, from which I quote below). Here is another account, also in German, and here is a piece by Rechtsanwalt Dr. Johannes Öhlböck from Vienna. (I have to confess not having practised my rudimentary German on either of these.)

The lawyers tell us: "The reduced notice period of one year applies if the manufacture can establish that the reduction of the dealership network is necessary on financial grounds, Art. 3 ss. 5b) ii) Block Exemption Regulation". That, with respect, seems to be how the BGH interprets it, but it isn't what the English or French versions say. In German, I am a little lost, but "für den Lieferanten ergibt sich die Notwendigkeit, das Vertriebsnetz insgesamt oder zu einem wesentlichen Teil umzustrukturieren" doesn't seem to me to make express reference to financial grounds. Surely those grounds are merely desirable - entirely to do with the manufacturer's profits?

The first instance court in Cologne, it seems to me, was closer to the mark. Nörr say:

"TheHigher Regional Court (OLG) Cologne required "convincing" grounds forthe necessity of the termination within a year - and found that thetermination was invalid (judgement of 7. December 2007, File 19 U59/07). The OLG Frankfurt am Main considered on the other hand whetherNissan had provided a comprehensible ("nachvollziehbare") financial prognosis and drawn defensible conclusions therefrom - and affirmed the validity of the termination (judgement 13 Mai 2008, File 11 U 39/07 (Kart))."

I don't think the standard espoused by the Frankfurt court reaches the height demanded by the word "necessary", although it might well be within the spirit of the Regulation. Am I being too much of a common lawyer, thinking that if it says "necessary" it means necessary? This provision is an essential piece of dealer protection - one of those unfashionable bits of the block exemption that Mr Cesarini would like to throw out in the next iteration of the legislation - and a generous interpretation leaves the dealers exposed. Remember the Mercedes Benz fiasco, years ago, courting litigation by ditching its entire UK network on 12 months' notice? The BGH wouldn't bat an eyelid at that.

The most worrying part of this, for dealers, is its timing. Quoting again:

"'The judgement of the BGH on the standard affirming the OLG Frankfurt am Main has fundamental significance for all motor manufacturers and comes at the right time due to the possible amendment of the motor vehicle sector regulation in 2010', said Wendel and Ströbl."

Exactly. While the Vulkan Silkebord case says that a change in the regulation is not enough in itself to create the requisite necessity, the way it has worked in previous transition stages has been that the manufacturers and importers have terminated and offered reappointment. If they can get away this easily with one year's notice, the dealer protection provisions are hardly worth the paper they are printed on.

Can we please have an appeal to Luxembourg?

Use of vehicle manufacturer's trade mark

In the independent trade (as in many other areas of commerce) it is important to know when you can and when you can't use someone else's trade mark (in this case, the vehicle maker's) when promoting the goods or services you sell. I have blogged elsewhere an interesting case from the USA about this.

Whither or wither the block exemption?

Is anything actually happening with the block exemption at the moement? My Google Alerts aren't producing much material.

The other day, Profit Training posted a blog entry about the extended timetable, drawing on material from ICDP and stressing the detrimental effect of the uncertainty. The date for the publication of proposals has slipped, with the Commission apparently doing what it can to keep the pot boiling by releasing on its web site a synopsis of the roundtable discussions from February. The latest gossip (reported by Profit Training) suggests that we'll finally see something later this month.

Also recently, the Britannia Radio blog has published (with scant regard, it seems, for copyright) the briefing offered by the House of Commons Library for Memebrs of Parliament on the effect of the block exemption on the independent garage sector. It rehearses the familiar arguments about the need to preserve access to technical information, but the government view it sets out - that they don't really want the BE renewed, but some minimal regulation might be needed and something is certainly necessary to preserve access to existing technical information - sounds like last year's.

When Regulation 123/85 expired, an extension was necessary before 1475/95 was put in place. When 1475/95 expired, the Commission had to extend it before it could put the present block exemption, 1400/2002, in place. Why should anyone be surprised that the Commission is not ready with the replacement for that regulation? Less than a year to go before the expiry date on the face of the legislation (31 May 2010) with (on the most optimistic view) a year's notice needed to terminate old agreements, and we are still waiting. Surely it's time the Commission announced what everyone can see, that the present regulation is going to have to be extended?

Or will the industry be expected to operate for the interim on the basis of "legal exemption" under Article 81(3), effectively assuming that compliance with the rules set out in the block exemption even if they have expired is enough to satisfy the general requirements for exemption from the Article 81(1) prohibition?

NFDA lobbies for dealer rights (of course)

Motor Trader reports that NFDA director, Sue Robinson, has been lobbying for a continuation of the dealer protection provisions of the block exemption when the present regulation expires.  She has been talking to Paolo Cesarini, the Commission official responsible for the regulation, and to a member of the cabinet of Commission Vice President Verheugen, Joanna Szychowska.  She has also been talking to Malcolm Harbour MEP, which I suspect was the easiest of the meetings, and Marc Greven of ACEA, whose members mostly support the Cesarini approach of removing everything from the regulation that does not have a clear antitrust role.