Legal Basis
The sole-distributor agreement, in contrast to the commercial agent agreement, is not directly regulated by EU-law, and with the exception of Belgium, the EU member-states have not passed laws that refer directly to sole-distributors. Sole-distributor agreements that are in existence within the EU are merely subject to the limitations of the laws of contractual freedom in the country regulating the agreement. The level of contractual freedom in member states within the EU can differ, and it is therefore recommended, especially regarding sole-distributor agreements, to insert a jurisdiction-clause, and a choice of law-clause in the contract, so that the entire agreement, or part hereof, is not later “unexpectedly” set aside, due to its breach of domestic law.
EU-competition Law
EU-competition law regulates, to a certain extent, sole-distributor agreements if the agreement has Community dimension. According to art. 101 of the Treaty on the Functioning of the European Union (TFEU) all agreements between corporations, all decisions within associations of corporations and all sorts of concerted practices (cartel) that can affect the trade between the member states, the objective being to prevent, limit or distort the competition within the internal market, are incompatible with the internal market and prohibited.
As an outset, sole distributor agreements are in breach of TFEU art. 101, as the trading opportunities of the producer and the exclusive distributor are restricted. The producer can, as an outset, not appoint other distributors, and the exclusive distributor will typically not engage in distributing competing products.
However, in The Block Exemption Regulation, EU no. 330/2010 of April 20th 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, the Commission has, to a certain extent, exempted sole-distributor agreements from the prohibition in TFEU art 101. If the sole-distributor agreement meets the requirements in the regulation the agreement is automatically exempted from the prohibition. If this is not the case the exclusive distributor or the producer can apply for individual exemption. In the communication dated May 10th 2010, the EU-Commission has adopted the Guidelines on Vertical Restraints, which indicates the Commission’s position in the application of the Block Exemption Regulation.
The Block Exemption Regulation sets forth a set of requirements that have to be met in order for a specific sole-distributor agreement to be exempt from the prohibition in TFEU art 101. The first requirement is that the agreement cannot contain any of the severe limitations, set forth in the Block Exemption Regulation. The second requirement sets forth a market share threshold for suppliers and the exclusive distributor of 30%; and as a third requirement the Block Exemption Regulation sets forth certain requirements regarding three specific limitations.
The first severe limitation concerns resale price maintenance: the suppliers are not allowed to fix the (minimum) price, to which the exclusive distributor may resell his products. The second severe limitation concerns limitations concerning the area or the costumers, to whom the exclusive distributor is allowed to sell. This severe limitation concerns market allocation according to territory or customer groups. Exclusive distributers shall freely decide where and to whom, they wish to sell. The Block Exemption Regulation has an exception to this rule, which allows corporations to operate with an exclusive or a selective distribution system. The third and the fourth severe limitation concerns selective distribution. Firstly, exclusive distributors, who are prohibited to sell to unauthorised distributors, cannot be restricted in their choice of end-users. The fifth severe limitation concerns distribution of spare parts: an agreement between a producer of spare parts and an exclusive distributor, who installs the parts in his own products, may not prevent or limit the producer’s sale of these parts to end-users, independent shops or service providers.
A sole-distributor agreement is covered by the Block Exemption Regulation, if the market share of the supplier as well as the exclusive distributor of a product or a service does not exceed 30%. Regarding the supplier, the market considered is the market share on the relevant supply market, i.e. the market in which the supplier sells the products or delivers the services subject to the application of block exemption. Regarding the exclusive distributor, the market considered is the market share on the relevant procurement market, i.e. the market in which the exclusive distributor procures goods or services subject to the application of block exemption.
The Block Exemption Regulation applies on all vertical limitations with the exception of aforementioned severe limitations. Furthermore it contains specific requirements regarding three vertical limitations:
- non-competition clauses during the term of the contract
- non-competition clauses after the termination of the contract
- exclusion of specific brands in a selective distribution system
When the requirements are not met these vertical limitations fall outside the scope of the exemption according to the Block Exemption Regulation. The Block Exemption Regulation will however still apply on the rest of the sole-distributor agreement, if it can be assessed separately from the vertical limitations that are not covered by the exemption.
Sole-distributor agreements can also be covered by the prohibition of abuse of a dominating position in TFEU art. 102, however it requires that the exclusive distributor and the producer have market shares of more than 40-50%