The Court of Justice in Luxembourg has handed down another judgment in which it considers what the old block exemption – Regulation 1400/2002 – means: Auto 24 v Jaguar Land-Rover. The Court's wisdom remains relevant to the new regime.
The block exemption gives vehicle manufacturers setting up networks three choices, depending on their market share. They can go for exclusive distribution but only if they have under 30 per cent, and on terms so unattractive that only one carmaker has opted for it. They can go instead for selective distribution, and if their market share is less than 40 per cent they can choose to impose quantitative criteria in addition to the qualitative criteria that are permissible regardless of market share.
The market share issue is not significant in many national markets, but remember that in the early 1990s when the Monopolies and Mergers Commission (as we called it back then) investigated the new car market in the UK it found not only a complex monopoly situation but also a scale monopoly enjoyed by the Ford Motor Company and its subsidiary, Jaguar (remember those days?). There are countries in the EU where a single manufacturer has over 40 per cent of the market.
Anyway, we can forget exclusive distribution – as the industry has. With a market share under 40 per cent, the block exemption allows you to go for quantitative selective distribution, and even above that you can still have qualitative selection of dealers. Just to remind you, dear reader, a qualitative selective distribution system is one in which you set requirements for admission to the network but don't apply any criteria to do with numbers of dealers. This, of course, is what happens in the aftermarket – where everyone is assumed to have shares of well over 40 per cent of their captive markets. In that situation you have to accept all qualified businesses: you can't limit their numbers, and still less can you grant exclusive territories – that is something that can only be done within an exclusive distribution system, and you need a market share under 30 per cent to be able to do that within the block exemption.
The block exemption regulation provides definitions of these concepts, among other matters. The definition of “selective distribution” refers to “specified critria”, which lies at the heart of the judgment. The litigation began with the termination, in 2002 (when the new block exemption came into effect) of Auto 24's Jaguar Land-Rover franchise in Périgueux. Up to then the dealer could lawfully have had an exclusive territory, but JLR took the view that it did not need a dealer there. It had a little list – referred to in the judgment as a “numerus clausus” - which did not call for a dealer in Périgueux.
All very well, you might think (as I did) – manufacturers can decide how many dealers they want in the market served by a single distribution company, but surely since location clauses were outlawed in 2006 the manufacturer can have no say over where the dealer is located? JLR might have been within their rights at the key time for Auto 24, but surely not now? The numerus clausus looks suspiciously like an attempt to recreate an old-style selective and exclusive dealer network.
In October 2006, when location clauses became prohibited, the numerus clausus should have counted for nothing. A JLR dealer, Pericaud Automobilies, opened an outlet in Trélissac, not far from Périgueux, and not surprisingly Auto 24 sued for compensation for JLR's refusal to appoint it for that area.
This was Auto 24's second legal action arising from the original termination and refusal to reappoint. The first, in the Tribunal de Commerce, Versailles, was based on a claim that JLR's decision was discriminatory under French law. The court awarded damages for Auto 24's lost business. The second claim was less successful. The Tribunal de Commerce in Bordeaux dismissed the claim, and the Cour d'Appel upheld the judgment. Auto 24 appealed to the Cour de Cassation, which referred a question to Luxembourg: “what is to be understood by the words 'specified criteria' in Article 1(1)(f) …?”
I'd have preferred to see a different question, but this is the only one the Court had. What if the Cour de Cassation had asked on what basis does the numerus clausus stand, given that location clauses are no-no's? But that would have been of no help to Auto 24, so there was little point in asking it.
The court, as it must in a reference such as this, gave a bland answer the full meaning of which will only become apparent when the national court applies it to the facts of the case before it. But just to tell us that “specified criteria” “must be interpreted [where does the “must “ come from, incidentally?] as referring to criteria whose precise content may be verified”. Which, I think, sounds like something quite different from “specified criteria”.
Those criteria need not be published, as the Court recognised that to require publication would put trade secrets at risk.
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