Netherlands: Court rules on refusal to appoint repairers

Although it happened in July (on the 25th to be precise , reports of the decision of the Court of First Instance in Amsterdam have been slow to reach me. Brussels law firm Van Bael and Bellis, who have fingers in every interesting EU competition law case affecting the motor industry, and probably every other industry too, publicised it in their imaginatively-titled newsletter VBB on Competition Law in September, so it will be covered in the next Motor Law newsletter - but meanwhile you can follow the link to the horse's mouth.

The story is that three former authorised repairers brought an action against Kia Motors Nederland BV, which took over from the bankrupt former importer, claiming that it had unlawfully refused to reappoint them as repairers. The President of the Court ordered their temporary reappointment on 3 December 2009, and the case came before the Court on the merits this year.

In Case T-19/92, Groupement d'Achat Édouard Leclerc v Commission [1996] ECR II-1851, [1997] 4 CMLR 995 and Case T-88/92 Groupement d'Achat Édouard Leclerc v Commission  [1996] ECR II-1961, [1997] 4 CMLR 995 the Court of First Instance (now the General Court), referring to earlier cases, held that a selective distribution system is compatible with Article 85 (now Article 101 TFEU) if:

1. The characteristics of the product in question necessitate a selective distribution system, in the sense that such a system constitutes a legitimate requirement having regard to the nature of the product concerned, in particular its high quality or technical sophistication, in order to preserve its quality and ensure its proper use;
2. Resellers are chosen on the basis of objective criteria of a qualitative nature which are laid down uniformly for all potential resellers and are not applied in a discriminatory fashion;
3. The system in question seeks to achieve a result which enhances competition and thus counterbalances the restriction of competition inherent in selective distribution systems, in particular as regards price; and
4. The criteria laid down do not go beyond what is necessary.

Both parties, oddly, agreed that Kia Motors' system did not meet these criteria - Kia conceding that they did not admit to the system all repairers who met the qualitative criteria - but they differed about the consequences. The excluded repairers argued that the system was automatically illegal, whereas the manufacturer contended that it was still necessary to consider the compatibility of the system with the competition rules before coming to a conclusion. The Court agreed with Kia that just because it did not apply the criteria in a non-discriminatory fashion did not mean that it automatically infringed the competition rules.

The next question for the court was whether Kia had refused to appoint applicants who were not also dealers as authorised repairers. This was not a hard-core restriction under the relevant version of the block exemption, but if it had happened the system would be likely to be in breach of the rules. However, the facts showed that Kia did not restrict admission to the repairer network to applicants that were also dealers, so the question of whether there was a breach did not arise.

The would-be authorised repairers also tried to argue that Kia's warranties breached competition rules, because they required vehicles to be serviced by authorised repairers: but the court found no evidence to show that a warranty would in fact be invalidated if the vehicle were serviced by an independent.

There was also an argument that Kia were abusing their dominant position in the repair market, and the court agreed that Kia were in such a position. However, they were free to choose with whom to contract. It was inherent in the system that authorised and unauthorised repairers would be treated differently, and the court was satisfied that the unauthorised ones were quite capable of competing.

CV manufacturer not dominant in repair market

I seem to find myself reading judgments of the Bundesgerichtshof, the German federal supreme court, more often these days than those of any other court. It's doing my scant knowledge of German a lot of good, too. They have more than their fair share of cases relating to competition in the motor industry. The latest to come to my attention (a bit tardily, I'm afraid) is case no ZR 7/09 from 30 March, in which a Daimler commercial vehicle dealer and repairer sought appointment to MAN's network too. When MAN turned the application down, the dealer claimed that it was an abuse of MAN's dominant position contrary to § 20 of the Gesetz gegen Wettbewerbsbeschränkungen (law against restraints of competition). This isn't a straightforward rehash of Article 102 TFEU, as what I still think of as Article 86 is now known - but it amounts to a similar thing.

To resolve a question of abuse of a dominant position, you have to start by considering whether the undertaking concerned is in a dominant position in the market, which means taking a step back and working out what the relevant market is. The lower court had taken the view that the relevant market was the one in which customers bought services from MAN repairers - the highly brand-specific market which the Commission believes requires the strict regulation provided for under the 2010 block exemption arrangements. The BGH rejected this approach, which meant rejecting the claim.

The BGH considered that the relevant market was the market for all those products, services, and rights that enable a repairer to gain entry to the market for repair and maintenance services for commercial vehicles – the "downstream" market. The "upstream" market, as it might therefore be called, includes spare parts, diagnostic tools, repair tools, and training in brand-specific know-how as well as admission to the network.

This market is not brand-specific, according to the judgment. It is not limited to goods, services, or rights supplied by MAN, and accordingly the vehicle manufacturer did not hold a dominant position in it. Admission to the MAN was not a prerequisite for a repair shop to be active in the downstream market for repair and maintenance services. A non-authorised repair shop might not be able to do warranty work, perform services on a goodwill basis (at least, not on the basis of the manufacturer's goodwill), or participate in recall campaigns, but could still offer plenty of other. The existence of such independent repair shops did not escape the notice of the Court, and illustrated that providing these services was economically attractive. 

MAN might enjoy a big share of the downstream market for repair and maintenance services for MAN vehicles, but the Court took the view that this had no bearing on its position in the "upstream" market, the market for facilities for entry to the downstream market.

This is a rather different market analysis to that adopted by the Commission, which has tended to focus on the downstream market. Given that this is the market in which consumers are active, this is not entirely surprising, and ultimately what competition law needs to concern itself with is consumer welfare. The fact that this case involved commercial vehicles probably makes the downstream market less important, though I have to admit to not having worked through the judgment to see whether this is in fact relevant. It's certainly an interesting statement about manufacturer dominance in the repair market, and one with a surprising outcome which might prove influential in the future.

Refusal to appoint repairer not abuse of dominant position

I seem to find myself reading judgments of the Bundesgerichtshof, the German federal supreme court, more often these days than those of any other court. It's doing my scant knowledge of German a lot of good, too. They have more than their fair share of cases relating to competition in the motor industry. The latest to come to my attention (a bit tardily, I'm afraid) is case no ZR 7/09 from 30 March, in which a Daimler commercial vehicle dealer and repairer sought appointment to MAN's network too. When MAN turned the application down, the dealer claimed that it was an abuse of MAN's dominant position contrary to § 20 of the Gesetz gegen Wettbewerbsbeschränkungen (law against restraints of competition). This isn't a straightforward rehash of Article 102 TFEU, as what I still think of as Article 86 is now known - but it amounts to a similar thing.

To resolve a question of abuse of a dominant position, you have to start by considering whether the undertaking concerned is in a dominant position in the market, which means taking a step back and working out what the relevant market is. The lower court had taken the view that the relevant market was the one in which customers bought services from MAN repairers - the highly brand-specific market which the Commission believes requires the strict regulation provided for under the 2010 block exemption arrangements. The BGH rejected this approach, which meant rejecting the claim.

The BGH considered that the relevant market was the market for all those products, services, and rights that enable a repairer to gain entry to the market for repair and maintenance services for commercial vehicles – the "downstream" market. The "upstream" market, as it might therefore be called, includes spare parts, diagnostic tools, repair tools, and training in brand-specific know-how as well as admission to the network.

This market is not brand-specific, according to the judgment. It is not limited to goods, services, or rights supplied by MAN, and accordingly the vehicle manufacturer did not hold a dominant position in it. Admission to the MAN was not a prerequisite for a repair shop to be active in the downstream market for repair and maintenance services. A non-authorised repair shop might not be able to do warranty work, perform services on a goodwill basis (at least, not on the basis of the manufacturer's goodwill), or participate in recall campaigns, but could still offer plenty of other. The existence of such independent repair shops did not escape the notice of the Court, and illustrated that providing these services was economically attractive. 

MAN might enjoy a big share of the downstream market for repair and maintenance services for MAN vehicles, but the Court took the view that this had no bearing on its position in the "upstream" market, the market for facilities for entry to the downstream market.

This is a rather different market analysis to that adopted by the Commission, which has tended to focus on the downstream market. Given that this is the market in which consumers are active, this is not entirely surprising, and ultimately what competition law needs to concern itself with is consumer welfare. The fact that this case involved commercial vehicles probably makes the downstream market less important, though I have to admit to not having worked through the judgment to see whether this is in fact relevant. It's certainly an interesting statement about manufacturer dominance in the repair market, and one with a surprising outcome which might prove influential in the future.

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.