Breach of block exemption conditions is not necessarily anti-competitive

The effects of block exemption regulations are often misunderstood. In the case of the motor vehicle block exemption, people have often ascribed to it powers that it was never intended to have. Even with Regulation 1400/2002, which adopted a much more permissive approach to exempting dealer agreements from the competition rules than had formerly been the case, it often seemed to be thought that the regulation could perform magic. Just because a clause does not comply with the terms of the block exemption does not mean that it is anti-competitive - competition laws exist to protect competition, no-one else.
A French court case provides a timely reminder about this. The decision comes from the cour d'appel, Paris, and was handed down on 2 September: it is helpfully reported by the leading French competition law firm, Vogel & Vogel (no relation, as far as I can see, to Bird & Bird) on the International Law Office service, for which you'll probably have to register, here.
A vehicle manufacturer - a small one, evidently, because the agreement fell within the Notice on agreements of minor importance - made an evergreen agreement, terminable on 6 months' notice, with a distributor. It then terminated the distributor during a reorganisation, and the distributor sued. At first instance the distributor lost, so the case went to the cour d'appel.
The distributor's case turned on Articles L420-1 and L442-6 of the French commercial code. It argued that because the termination provisions did not comply with the requirements of the block exemption they were prohibited under Article L420 (the equivalent of Article 101 of the EU Treaty, or the UK's Chapter 1 prohibition), and that they were actionable under Article L442-6 which prohibits discrimination between trading partners. (You can consult a copy of the commercial code, in English, here). The discrimination argument was based on the fact that the manufacturer had taken a long time to deal with a request for authorisation as a repairer. Finally, the distributor claimed that the notice period was too short - a quarter of the norm in the sector in Europe - another Article L442-6 matter.
The court rejected the discrimination claim, apparently on the grounds (among others) that with no cap on the number of authorised repairers there could be in the territory the distributor would still be able to become authorised. The court was at liberty to assess the reasonableness of contract terms (even in commercial contracts, unlike the position in the UK where remedies are usually available only to consumers) but it didn't limit itself to comparing the agreement with block exemption regulations, which required two years' notice: it looked at the situation in which the claimant found itself, noting that their relationship had only existed for five years and that the dealer had taken on a new franchise before the notice had expired. Far from suffering damage, it had seen its turnover increase by 3.84 per cent.
As for the notice period point, the manufacturer didn't have to comply with the block exemption anyway because its market share was so small. In any event, the court stated, just because a clause is not within the scope of the block exemption does not mean it is anti-competitive. Just because the manufacture terminated a dealer who had continued to meet the criteria set by the manufacturer did not amount to breach of the competition rules. An indefinite contract had to be terminable unilaterally by either party.

Use of non-original spare parts

More from the website I have just been reading ...

Regarding a claim on a gearbox, which falls outside warranty but might be a candidate for a goodwill contribution, the Vauxhall man says "you can have your vehicle serviced where ever you choose as long as it's per Vauxhall guidelines and genuine Vauxhall parts are used and this is just one criteria when we're reviewing a contribution."


His interlocutor responds: "Block exemption regulations only require parts as good as or of equivalent quality and in the case of oils, meet manufactuers [sic] specifications." But that is about dealers using parts of matching quality, and has nothing to do with warranty claims - still less to do with goodwill contributions. Contrary to what many people believe, the block exemption has never said anything useful about warranties - the Commission now recognises that they offer considerable scope to create obstacles to competition, but that's no more than an indication that the general competition rules will be applied, not a provision in the block exemption. If a customer wants a goodwill payment, they need to show goodwill themselves - and this is just one thing that Vauxhall say they are taking into account. If the customer feels aggrieved at that, there are ways to pursue it - through the courts, if the failed component was not of satisfactory quality, or under the code of practice.

Technical information - some misconceptions

There's more rubbish talked about the block exemption than just about any other piece of legislation in the entire world. Today I have been reading postings on a consumer website, where a Vauxhall representative was being engaged in discussions about customer care issues.

He - unwisely - mentioned that his colleagues had helped one consumer with some vehicle information. He was shot down by another poster who said that the block exemption had imposed a legal obligation on Vauxhall "to make freely available service and technical information available to all who wanted it as opposed to restricting it to dealers only". Wrong. Even assuming that "service information" is an accurate paraphrase for what is covered in addition to technical information, it only ever had to be made available to "independent operators", which includes a longish list of undertakings - but consumers are not "undertakings", the key feature of which is that they are engaged in economic activity. All manner of professional repaires are covered, but not the DIY mechanic.

That was the old regulation: the new one is silent on the matter, so now a fortiori that statement is wrong although the guidelines contain very similar language.

But at an even more fundamental level the block exemption never required vehicle manufactures to do anything, it merely offered them an easy way to operate certain restrictions on competition in their dealer agreements. In prctice, of course, they chose (generally) to comply, but it's quite wrong to read the block exemption (version 1, 2, 3 or 4) as making anything compulsory. To do so might offend against the competition rules, but that would take a lot of proving. Now, however, it could also be in breach of Regulation 715/2007, so the sweeping statement is closer to the truth than it deserves to be.

Guest post: Bloggers or Blaggers? Stalkers or Leakers? Have OHIM stolen Europe's Auto Secrets?

Thanks to Dave Musker for permission to reproduce this from the Class 99 blog:

There is nothing the auto industry enjoys so much as the razzamatazz of a new car launch.  Yet as mass expulsions remind us of the spy era, there are rumours that OHIM has a mole, who leaks new car designs to auto bloggers.  "It's no great secret that the European Union's patent office has more leaks than a Soviet submarine" writes Noah Joseph of Autoblog, according to whom OHIM "has more leaks than a colendar".  Alex Ricciuti of  Worldcarfans  claims to be publishing pictures "... courtesy of a leak from the European Office for Harmonization of the Internal Market (OHIM), where trademark records are kept."
Rather than take these alarming claims at face value, in this blog-eat-blog world a few quick searches enable us to reveal the truth.
Take first Ricciuti's claim to have published leaked designs of the Opel Ampera.   His blog article is dated 18th February 2009.  However, the pictures he shows had already, quite properly, been published by OHIM several days earlier on 11th February as RCD 001086300-0001.
On to Autoblog (motto: "We Obsessively Cover the Car Industry").  They revealed the design of the Suzuki Kizashi on 11th September 2008, acknowledging their source as OHIM's records, and not at that time claiming that there had been a leak.  OHIM had published the design in question the previous day, as RCD 000990122-0001.  On 18th January 2009, they broke news of the design of the Nissan 370Z Roadster, Joseph this time claiming that it was from an OHIM leak.  In fact, lower down the article they quote their source as The Motor Report blog, on which the relevant article (also of 18th January) cites OHIM but does not claim a leak.  And, indeed, OHIM had published the design as RCD 001030282-0002 on 14th January.
Joseph's "Soviet submarine" claim was made in the course of his disclosure of the design of the "stretch" Pullman Mercedes reported on 4th May 2009.  But, as you are by now no doubt expecting, OHIM had published the design as RCD 000999024 (several parts) on 30th April.
In the same article, Joseph referred back to the Nissan Roadster "leak", and one other, dated 11th August 2008, concerning the "facelifted" Mazda 3.  The Mazda 3 article quotes as its source an article on the Carspyshots blog.  Here perhaps the timing is less clear.  OHIM appears to have published the design in question as RCD 000977384-0001 on 11th August.  So, how is it that the pseudonymous Carspyshots posting is apparently dated 9th August 2008, 23:45, and last edited on 10th August at 17:51?  But even here, pPerhaps timezone differences enabled the editor to see OHIM's publication and then disclose the design the "previous" day.
Putting these claims together, there is no evidence that anyone has published OHIM applications before OHIM itself has done so.  On the other hand, there is ample evidence that the blogs are closely monitoring publications in the car class (Locarno class 12.08) and publishing within a few days, or even hours - one could be forgiven for assuming that they were tipped off in advance, but the evidence does not require that assumption.  Unless Joseph or Ricciuti care to reveal their sources, it seems likely that they are simply passing off stalking as leaking.
To take one last example, on 13th July, the Carscoop blog published an article disclosing some Chevrolet designs.  OHIM had published these on 12th July, as RCD 001729088-0001 & 2.  The filing date was ... only five days earlier, on 7th July.  
The moral?  OHIM is now publishing e-filed applications in a matter of days.  Carmakers who want to keep their designs under wraps would do well to use OHIM's "deferred publication" system, to keep the publication date in their own hands.

The modernisation of competition law

The European Commission is good at dressing up things that have to be done, to make them look as if they are actually desirable rather than simply inevitable. So, for example, its chosen approach to the motor vehicle block exemption - bringing dealer and repairer agreements under the umbrella of the vertical restraints block exemption - meant that multifranchising would be impossible to continue in the form the industry knew it: so they said it never really worked anyway. I don't think everyone agrees with that assessment, and the Commission's whole approach to the motor industry often looks like the work of people who trade in their Mercs or BMWs every couple of years and get their impression of the motor industry from that ...

So too a few years ago, when regulation 1/2003 was presented as a modernisation measure. Its most important feature was a switch from the old system under which you could only get exemption for a restrictive agreement from the Commission, which is what made block exemptions necessary. Since it came into operation on 1 May 2004 it has been for the parties to an agreement to decide whether it was caught by the competition rules, and if so whether it could be exempted. It became a matter for self-assessment - with the Commission and national competition authorities in the background, to keep the parties to the agreements honest.

Now, those of you with a penchant for modern European history will realise that 1 May 2004 was also the day on which the European Union expanded from 15 Member States to 25. Every previous enlargement had caused a flood - perhaps tsunami, or avalanche, would be a better word - of agreements to be sent to the Commission to get exemption. The old system not only gave the Commission the exclusive power to grant exemption (which for convenience it exercised in large part by promulgating block exemptions, permitting whole categories of agreements), it also said that once you send in your agreement with a request for exemption you are free to carry on operating it until the Commission says you can't. There were an awful lot of precautionary notifications, and the thought of all those agreements from the new members - and the languages they'd be written in! - left no alternative but to change the system. Or, as the Commission put it, "modernise".

That's not an arcane piece of knowledge, of interest only to competition law specialists. The block exemption is of central importance to everyone in the motor industry, and the modernisation regulation has a fundamental and far-reaching effect on the way in which it works (or, perhaps, doesn't). Remember, this change to the fundamentals of EC competition law came in while Regulation 1400/2002 was already in force, so the renewal process we're now going through is the first opportunity to judge how block exemption will work in this brave new world.

This is, of course, the fourth block exemption. The first two (in 1985 and 1995) were straitjackets: they told you exactly what you could do, what was not permitted was generally prohibited, and the block exemption was the right place to write prohibitions and conditions. Regulation 1400 took a radically different approach: what was not prohibited was permitted, which made it a lot harder to work out where you stood - and deprived dealers and authorised repairers (as well as independent repairers) of much of the protection that they'd previously had. (Leaving aside the fact that the protection often turned out to be an illusion, requiring as it did a complaint to the Commission and the will then for the bureaucrats to take it up.) But still, you needed to have the Commission's OK for your restrictive agreement, and if that were available merely by complying with the terms of a Regulation that wasn't too hard.

The new Regulations - the block exemption is now found in two separate instruments, the vertical restraints block exemption and the motor vehicle one - still offer what is now invariably, and trendily, referred to as a safe harbour for dealer and repairer agreements. The difference  is that since modernisation the parties can decide, with the benefit of legal and economic advice, whether they need to seek shelter in the safe harbour or whether they can simply drop anchor in the open sea. The authorities can still tell them that they need to anchor elsewhere, and there are some heinous anticompetitive practices like price-fixing and export bans that will hardly ever be tolerated, but the block exemption has become very much an optional regime.

I recently reviewed an authorised repairer agreement for a dealer association. In previous years I'd been able to say whether each clause appeared to comply with the block exemption, and that was almost job done. Now, to do it properly, one would have to engage economic consultants, consider the state of the market and the vehicle manufacturer's position in it, and also the position of the network. It would be a massive job, and I bet it's never going to get done for any franchise.

Back in the mists of time, Commissioner Monti promised to put the consumer in the driving seat with regulation 1400. Regulation 1/2003 had effectively put the car manufacturers back in the driving seat long before regulations 330 and 461/2010 came along. The scope for taking issue with anything the manufacturers write into their agreements is negligible. Of course, commercially they don't enjoy freedom of action, but the additional constraints imposed on them by competition rules, so important for the protection of the networks in a hugely unequal relationship, have effectively been lifted.

Technical information, tools, training, and all that stuff

Diagnostic information and special tools and training have been bones of contention in debates on the block exemption for years. The independent sector had secured a set of rules in the last block exemption regulation, which for the aftermarket has just expired: what does the new one do?
Actually, that’s almost the wrong question now: the new block exemption (Regulation 461/2010) is deliberately much less draconian than its predecessor. Instead of setting down strict conditions and prohibitions, it leaves most restrictions in (and outside) agreements to be scrutinised under basic competition rules.
Changes brought in a few years ago make the competition rules a matter for something like self-assessment. Block exemptions are safe harbours that can be used by those whose arrangements will fit within them, or who want certainly above all. The European Commission has trimmed off those parts of the old block exemption that seemed to serve no competition-law purpose – minimum notice periods, requirements for arbitration or mediation, and rules about diagnostic information, training and tools. The basic competition rules will apply if the treatment of these matters have a detrimental effect in the aftermarket: action can be taken, but it no longer says on the face of the Regulation that these practices are prohibited.
Suppliers to vehicle manufacturers of spare parts, tools, and diagnostic and other equipment do still have an express right under the new Regulation to sell direct to the independent aftermarket. But while vehicle manufacturers can decide that they don’t actually need to be in the safe harbour, it’s just possible that they could justify such restrictions anyway.
Nor does the regulation oblige those suppliers to sell to the independents. If they unilaterally choose not to, that could be an abuse of a dominant position which the competition rules prohibit, but that’s an extremely blunt instrument and one that independents would find prohibitively costly to use.
The block exemption regulation is supplemented by Guidelines, which explain among other things how restraints are to be assessed outside the cut and dried situations set out in the block exemption. While it’s permissible for vehicle makers to select their authorised, repairers, anything they do to prevent independents competing could be prohibited – the buzz-word is “foreclosure”. Independents who don’t have access to technical information suffer this fate.
Vehicle repair and maintenance information is now dealt with in type approval legislation. Regulation 715/2007 obliges manufacturers to make the information available for passenger cars marketed after 1 September 2009. (Another regulation does the same for CVs, from the end of 2012.) As for earlier vehicles – which is probably what the independent sector is worried about – the Guidelines say that the Commission will take these regulations into account when assessing cases of withholding of information. The Commission will consider whether the item in question is available to authorised repairers, whether the information will be used for repair or maintenance or another purpose (such as writing a DIY manual), and whether withholding it will have “an appreciable impact on the ability of independent operators to carry out their tasks and exercise a competitive constraint on the market”. The nature of the information will also be relevant: if it is commercial rather than technical it can probably legitimately be withheld.
Technical information will include software, fault codes and other parameters needed to work on CPUs. Regulation 715 defines vehicle repair and technical information to include all information required for diagnosis, servicing, inspection, periodic monitoring, repair, re-programming or re-initialising of the vehicle which the manufacturers provide for their authorised dealers and repairers, including all subsequent amendments and supplements. It also includes all information required for fitting parts or equipment on vehicles. According to the Guidelines, vehicle identification methods are also included, along with parts catalogues (that’ll be contentious) and recall notices. Independents must be able to get access without delay and on demand: anything less wouldn’t truly amount to “access”. They can be charged, but not so much that they are discouraged: the charge must take account of the use they will make of the information. Independents must have access at the same time as authorised repairers get it, and cannot be obliged to buy more than they need for the job they are trying to do.
The Guidelines treat tools and training in the same way. Tools include diagnostic and other repair tools, plus software for those tools, updates for the software, and aftersales service for the tools. So the Guidelines seem to cover the problem fairly comprehensively – the only problem being how to make these rules stick.
Previously, you could at least point to the block exemption and say its requirements were being broken. Morally, the party in breach of the rules would be in the wrong, even though legally no-one did anything about it. Now you’d have to be sure of your ground, whether the other party is acting anti-competitively, and that inevitably requires a lot of expensive economic and legal analysis. The documents say all the right things, but who will make them stick, and how?

The legislative jigsaw

Once upon a time, all there was to worry about was the block exemption regulation itself. The Commission produced a Notice setting out some detail about price differentials, and later one that expanded on how to recognise an intermediary, but essentially the rules that applied to the motor industry seemed pretty self-contained. Now the rules are split between two separate block exemption regulations, each of which comes with guidelines (items 1 to 4 in the list below), plus the manufacturers' concessions on dealer protection issues in the form of the code of good practice, while there are more guidelines and Notices that might be relevant to considering the application of the competition rules to motor vehicle agreements. And technical information is now dealt with in Regulation 715/2007. They can all be found through the Commission's website, but for ease of reference I'll post links here:

1. Commission Regulation (EU) 461/2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices in the motor vehicle sector.
2.  Supplementary guidelines on vertical restraints in agreements for the sale and repair of motor vehicles and for the distribution of spare parts for motor vehicles.
3. Commission Regulation 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices.
4. Commission notice - Guidelines on Vertical Restraints  (Official Journal C 130, 19.05.2010, p. 1).
5. Code of good practice regarding certain aspects of vertical agreements in the motor vehicle sector.
   
6. Commission notice on the definition of the relevant market for the purposes of Community competition law (Official Journal: OJ C 372 09.12.1997, p. 5-13).
7. Commission Notice on agreements of minor importance which do not appreciably restrict competition under Article 81(1) of the Treaty establishing the European Community (de minimis) ( Official Journal C 368, 22.12.2001, pages 13-15).
8. Communication from the Commission - Notice - Guidelines on the application of Article 81(3) of the Treaty (Official Journal C 101, 27.04.2004, pages 97-118).
9. Commission Notice - Guidelines on the effect on trade concept contained in Articles 81 and 82 of the Treaty (Official Journal C 101, 27.04.2004, pages 81-96)
10. Regulation (EC) No 715/2007 of the European Parliament and of the Council of 20 June 2007 on type approval of motor vehicles with respect to emissions from light passenger and commercial vehicles (Euro 5 and Euro 6) and on access to vehicle repair and maintenance information.

The demise of multifranchising: problems for small networks?

One area where there are big differences between the new block exemption regime and the old one is in the treatment of multifranchising. In essence, the problem arises because of the different definitions of non-compete obligations in the old and new regulations. Under Regulation 1400, non-competes were permitted up to 30 per cent - meaning that a dealer or authorised repairer could be obliged to buy up to 30 per cent of its requirements from one source, which left room for them to have three sources (and a frustrating and useless bit to spare). That, you'll notice, is a rather liberal interpretation of "non-compete". Now, the vertical restraints block exemption (Regulation 330/2010)has become the relevant part of the patchwork of documents that now makes up the motor vehicle block exemption, and it takes a more logical but less helpful view of what amounts to a non-compete: it says 80 per cent is permissible.

The Commission has tried to justify this enormous change (and big step backwards, whether you approve of it or not, because it takes us back to the first motor vehicle block exemption which didn't permit multifranchising at all) by dismissing multifranchising (or multibranding, as they now like to call it) as something that never really worked anyway.

The idea of allowing dealers - by which I mean distributors and authorised repairers - to take on more than one marque is intended to prevent foreclosure of the market. A small manufacture, or a new entrant, needs to be able to get a toe-hold, and they can't expect to find lots of garages looking for a solus franchise. The only way competition can realistically be preserved in this area is by insisting that dealers be allowed to take on more than one franchise. So, for small manufacturers and their networks, as Automotive Management reports this week in connection with Hyundai, the changes are not good news.

Competition authorities will point out that if foreclosure is a problem the rules on competition can be brought to bear. It will be a breach of Article101 of the new Treaty, and if it is conduct that the block exemption permits, that permission can be withdrawn. True, but the Commission hasn't yet withdrawn exemption from a motor vehicle distribution agreeement and it's had 25 years in which to do so - and don't tell me there haven't been enough problems to justify it. Anyway, what dealer - especially the sort of dealer who's likely to be anxious about being able to multifranchise - is going to pick that sort of fight with a vehicle manufacturer?

Domestic legislation

In all the talk about the block exemption, don't overlook UK legislation. The Supply of New Cars Order 2000 (SI no 2088) was the legislative response to the last Competition Commission investigation of the new car market and it remains in force.
An earlier statutory instrument, the Restrictions on Agreements (Manufacturers and Importers of Motor Cars) Order 1982 (SI 1982/1146) has been repealed - not before time, because it was defective when made, because it covered motor cars when it should have been limited to passenger cars. I asked a friendly backbench MP to oppose the SI in Parliament at the time: the government assured him that his fears (my fears, and therefore the fears of my employer the Society of Motor Manufacturers and Traders) were unfounded, and it became law in its defective state. So much for the negative resolution procedure. Or was it positive? I forget.

New rules for authorised repairers

Back in 1985, the justification for granting a block exemption for motor vehicle distribution and servicing agreements was that motor vehicles were complex products that required periodical maintenance and repair, not always in the same place: and the best way to ensure that consumers could get those services wherever in the European Community they happened to be was to make it a condition of exemption that the two went hand in hand. In other words, if you wanted to sell the vehicles you had to offer the service, or try to get individual exemption for your arrangement and the Commission could be expected not to look very kindly on it.

The same philosophy remained in fashion in 1995 when the block exemption was renewed (or, perhaps more accurately, the first Regulation was replaced), but by 2002 the sales-service link was seen as a problem rather than a solution. Strange how these things can change, and I don't recall ever seeing a convincing explanation for it. These things are so often dressed up to meet the needs of political expediency, or to hide the fact that it just wouldn't work to change another piece of law (which is what's now happening with multifranchising, as described in my last blog post here).

Of course, this time round - in block exemption v4 - the divide is even more pronounced. Actually, I should refer to block exemption 4.1, which deals with the aftermarket, and block exemption 4.2, which will deal with vehicle distribution but in a couple of years from now. And since we've all started referring to the block exemption as MBER, make that MBER 4.1 and 4.2. I wonder whether I will start a trend here? I will when I write the new version of the Motor Law Guide.

I have already described the main points of the vertical restraints block exemption, the VBER, Regulation 330/2010. To appreciate how this instrument regulates the automotive aftermarket, it will be necessary to consider also the specific "mini-block-exemption" which the Commission still hasn't finalised, which I shall call MBER 4.11. However, it published a draft in December last year and doesn't seem minded to make many changes (and if looking back through my various notes I discover otherwise in any respect I will let you know, dear reader) so we can look at that document for guidance, as well as the accompanying notice and the contributions of those who commented.

The important thing about MBER 4.11 is that it preserves the hard core restrictions that we know and love from Regulation 1400: sales of spares to the independent sector, restrictions on the sale of spares, tools or diagnostic equipment, and branding. Nothing here about technical information, but the other basic stuff that we are used to seeing to enable independent repairers to continue in business is all carried forward. The first of these three hardcore restrictions (how pleased I am that the expression "blacklist" has completely disappeared from the vocabulary) is a matter for those of us drafting or reviewing authorised repairer agreements, and so up to a point is the second, while the third is a matter of the vehicle manufacturer's conduct. In fact, Article 4(e) of the VBER protects sales of spares too and has to be read in conjunction with the relevant provision of MBER I am going to have to some cutting and pasting to put all these provisions next to each other so we can make sense of them.

The new vertical restraints block exemption

The starting point for understanding what is happening in the automotive sector is the vertical restraints block exemption. The new Regulation was adopted on 20 April, and you can read the press release here and the regulation itself here. There are some questions and answers produced by the Commission too, here. Guidelines are in preparation.

The new regulation is no 330/2010, and it applies across the whole gamut of vertical agreements - exclusive distribution, exclusive purchasing, selective distribution, franchising - with the important exception of motor vehicle distribution agreements. These will however be brought within its scope in three years' time. Aftermarket activities are already subject to this regime (or at least they will be from 1 June), albeit under the terms of a specific "mini-block-exemption" and a set of tailor-made guidelines.

The vertical restraints block exemption - the VBER, as it now seems to be called - applies where the parties' market shares do not exceed 30 per cent. Below this threshold, selective or exclusive agreements are permitted. (The Commission will keep talking of "distribution" in the aftermarket, which is fine as far as parts are concerned but which makes no sense at all in connection with services.) So there's a difference to start with: under the existing motor vehicle block exemption, Regulation 1400/2002, there are different thresholds for exclusive distribution agreements and selective ones, the latter being less restrictive of competition and therefore tolerated at higher market shares. Indeed, for a purely qualititative selective distribution agreement, no market share criteria apply at all under the present regulation. So in effect there are changes at both ends of the spectrum - although with a purely qualitative arrangement, it is at least arguable that there is no affect on competition to worry about and exemption is therefore unnecessary.

The market share criteria apply to both parties - in the case of a repairer agreement, to both the vehicle manufacturer or importer and to the authorised repairer. It's probably not an issue in the context of authorised repairers, because the 30 per cent threshold will always be exceeded because of the captive nature of the market: that was certainly the analysis that was applied under Regulation 1400. Exclusive agreements, and quantitative selection, are unacceptable under the block exemption. Which doesn't mean that they are always prohibited, but it does mean that they won't find a berth in the safe harbour and will need indiidual assessment and justification if they are to enjoy exemption.

The inclusion of a market share threshold for the authorised repairer (or the distributor or franchisee in other types of arrangement) is intended to protect small and medium-sized enterprises. If they find themselves dealing with large customers, they might find that they lack countervailing power, hence the extra protection given to them by providing that the agreement will not be admitted to the safe harbour. It may nevertheless enjoy exemption, just not automatically. Again, in the aftermarket it is hard to imagine sircumstances in which this might be important: in the vehicle market, it is perfectly possible that a large dealer group might have a lot more muscle than a small manufacturer or importer. Remember too that easing the entry of new manufacturers, which entails ensuring that they can hire dealers and repairers, is an important item on the Commission's agenda.

In addition, the agreement must not contain what are referred to as "hard core" restrictions - resale price maintenance and certain types of resale restrictions, which can have the effect of partitioing the internal market. Again, merely because they are not exempted does not make them unlawful, though they will be difficult to justify.

Exclusive distributors may be protected against competition from other distributors, as all members of the network should concentrate on the territory or customer group allocated to them. But they cannot be prevented from accepting orders from a customer who should be the "property" of another member of the network. The distinction between active sales and passive ones has run through block exemptions ever since they were first produced. A ban on pasive sales would be hard core.

In selective distribution systems, there are no exclusive territories or customer groups, so selected dealers are free to sell to other dealers and also to customers from anywhere. Again, a restriction that went further than this would be hard core and would not be automatically exempt.

Restrictions on dealers using the Internet to sell products would also be considered to be hard core restrictions. The Internet, after all, is a means of marketing to consumers throughout the Internal Market. The agreement cannot require customers to be "rerouted" if they turn out to come from another part of the market (which their credit card details would reveal). Nor can it cap the volume of products that a distributor can sell online as opposed to through bricks-and-mortar premises, or impose two-tier pricing to deter or limit Internet sales. Probably not important issues in the aftermarket, but clearly significant in the primary (vehicle) market.

The VBER permits non-compete obligations, as does Regulation 1400, but on rather different terms. In fact, it defines them very differently. In the context of motor vehicle distribution, the provisions on non-compete clauses are what govern the extent to which multi-franchising (or multi-branding, as it is now being called) is protected: Regulation 1400 says that a clause that requires the distributor to purchase 30 per cent of its requirements from the manufacturer is permitted, so effectively they can have three franchises (perhaps four, if one or more of them will settle for less than 30 per cent). In the context of authorised repairer contracts, which fit within the distribution model only with difficulty, it means that you can have three (or possibly four) authorisations. But the VBER says 80 per cent.

Now, 80 per cent is much more like a true non-compete (though literally it would have to stipulate 100 per cent). Effectively, multi-franchising is out of the window. The Commission makes a virtue out of necessity by claiming (quite accurately, as we probably all know) that multifranchising never really worked anyway. There  is, however, one ray of hope for anyone who does want to be able to take on more than one brand: the VBER only allows these non-compete obligations to last for five years. They can be renewed, but it has to be by agreement and the rules are designed to prevent any sort of duress.

So we have a basic structure for the new regime that isn't entirely unlike parts of what we already have. This much is in place now, though not in operation until next month. In order to make the new regime even more like what we have had since 2002 we have to look at some other instruments, and I'll proceed to write them up next.

Deja vu all over again

In my regular perusal of the blawgs, especially the IP ones, I came across a rather heated discussion on Dennis Crouch's excellent Patently-O on the use of design patents (the US equivelant, roughly, of our registered designs) to protect designs for car parts. It's hard to believe that the Americans are only now tearing each other apart over this as we did in the 1980s ...
Each to their own, and the US law in this area is sufficiently different from ours as to make comparisons difficult. But I hope they don't make the same mistakes we made, pruning the duration of (unregistered) protection so there's hardly anything left, carving out exceptions to protection that are almost as wide as the protection was to start with, and capping it all off with compulsory licensing and licensing of right provisions. I always thought that the vehicle manufacturers lost the battle by overstating their case. And it wasn't a battle that should have been fought out in the intellectual property arena anyway: it raised important product liability and safety issues which should have been addressed as such.
I believe that US law on dealer protection has a great deal to teach us, so perhaps it's only right that we should offer them the benefit of our experience in dealing with design protection for parts.

US repair parts legislation: Automotive Services Association weighs in

The repair industry in the States is getting excited about a proposal that would do much the same as our legislation on spares: details of the Automotive Service Association's reservations about it are here. The legislation is the Access to Repair Parts Act, H.R. 3059, which will be considered shortly in the House of Representatives Committee on the Judiciary.

The ASA opposes this legislation because it contains no assurances about the quality and safety of non-OEM parts, and because it would deny businesses the ability to protect their intellectual property. ASA, along with other associations, wrote on 18 November 2009 to state their opposition to the bill. The letter is available on ASA’s legislative Web site, www.TakingTheHill.com. The letter says:

Manufacturers of unlicensed automobile parts have to meet only one basic threshold, to produce a copy that looks similar to an original part. Those who produce such parts incur no costs attributable to original design, research and development and most importantly, product safety testing. Accordingly, the manufacturer of the original product for whom such unlicensed replacement parts are made does not know how these parts will perform and how their use will impact the quality and integrity of the original product. Automotive collision repairers are very concerned about the quality of replacement crash parts. Permitting this intellectual property infringement also exposes consumers to significant safety, performance or durability risks.

All this is familiar to those of us who listened to the arguments on the Copyright, Designs and Patents Act back in 1987-8, or the EU designs legislation, or indeed the block exemption. Surprising, really, that the US has taken so long to have its own debate, although design protection has always been rather weaker there than here. It will be interesting to see how it turns out.

Things to Come

The Commission has now revealed its plans for motor vehicle distribution for the next few years. It has taken me some time to find time to write about it - there are too many other demands on my time, and every time I look at the volume of paper that the block exemption consultations generate I recoil in horror. So it is past time for me to write about them - and as I become more familiar with what is proposed the more comments occur to me.
First, though, a note on what is proposed. Most readers will probably be familiar with all this. The idea of finding a place for motor vehicle distribution agreements in the large safe harbour afforded by the vertical restrains block exemption (Regulation 2790/1999) rather than continuing to maintain a smaller safe harbour (a safe marina, perhaps) specially designed for them has been floating around for a long time. The Commission's latest plan to do precisely this was made public on 21 December: here is a link to the press release.
The idea is to wait three years before making the change for the vehicle market (or primary market, as it is being called: the terminology changes with bewildering frequency, and another example is the change from the vertical restraints block exemption to "general" block exemption). This is because, though it seems contrary to 25 years' experience, the vehicle market is considered to  be competitive, with low margins and competitive prices. Amazing. On the other hand, the aftermarket (thank goodness we can still use that expression) is highly brand-specific and less competitive, and the Commission thinks it would benefit from being brought sooner into the general safe harbour. Or perhaps that consumers would benefit from this. So that change is going to happen on 1 June, but don't worry that things are going to change dramatically, because there will still be a "mini-block exemption" (a species of legislation unknown to the Treaty on the Functioning of the European Union, another new piece of terminology though one that corresponds to a substantive change too) which will contain the special rules that we have come to love over the history of the block exemption.
Right, that's what's happening in general terms. I am now busy writing up the discussion of the new proposals at last week's Motor Law conference, and I'll post comments about specific matters as and when they occur to me. My subjective views aren't really appropriate for inclusion in what are supposed to be the proceedings of the conference.