Exclusive distributorship agreements are commonly found in supply chains. Such agreements allow suppliers to grant specific territories or customer groups to particular distributors, ensuring that those distributors have exclusivity within their designated territory or in respect of their group.
But ubiquitousness is not enough – these agreements must comply with competition law – and in the case of a distributor within the EU, with EU competition law – in order to remain valid.
This month, the European Court decided what is necessary in order to ensure that such agreements are valid under EU law.
The case in focus
The case concerned Beevers Kaas, a Belgian distributor of Beemster cheese, produced by the supplier Cono, and Albert Heijn, a supermarket chain operating in Belgium and the Netherlands.
Cono had granted Beevers Kaas the exclusive right to distribute Beemster cheese in Belgium. However, Albert Heijn obtained supplies from Cono in the Netherlands and sold them in Belgium. Beevers Kaas claimed that this action breached its exclusive rights.
In its defence, Albert Heijn argued that the agreement granting exclusivity to Beevers Kaas did not benefit from a general exemption to EU competition law because Cono had not implemented sufficient measures to restrict its other buyers, including Albert Heijn, from selling actively in Belgium. This raised the question of whether Cono had met the so-called “parallel imposition requirement.”
The key issue before the European Court
The key issue referred to the European Court was whether the mere absence of active sales by other buyers into Beevers Kaas’ territory could be treated as adequate proof of compliance with the parallel imposition requirement.
Specifically, was it necessary for a supplier to engage actively with its other buyers to prevent active sales into a territory exclusively granted to one distributor? Alternatively, could compliance with the legal requirements be assumed simply by the lack of such sales?
The European Court’s decision
The European Court decided that the absence of active sales by other buyers into an exclusive distributor’s territory or customer group was not sufficient, on its own, to meet the parallel imposition requirement.
For this requirement to be met, there must be evidence that the supplier has taken steps to secure agreement among its other buyers to refrain from active selling into the territory granted to the exclusive distributor. This could be established in two ways:
- Explicit restrictions: The supplier includes clear, written terms in its agreements with other distributors expressly prohibiting active sales into the exclusive distributor’s area or to its customer base.
- Implied restrictions: There is clear evidence – based on communications, behaviour, or other circumstances – that demonstrates that (i) the supplier invited its other distributors to respect the exclusive territory and (ii) those buyers knowingly complied with this restriction.
Merely observing that other buyers do not engage in active sales is insufficient without further evidence. So, if a supplier has not clearly communicated to its other buyers that active sales into the exclusive territory are not permitted, their lack of such sales could simply reflect their independent business decision rather than compliance with the supplier’s expectation.
However, the European Court accepted that an agreement can still arise even in the absence of explicit terms if there is evidence, such as a tacit mutual understanding bred by consistent communication, that shows the parties acting in alignment with the restriction.
In the Beevers Kaas case, the European Court decided that:
- Cono, the supplier, did not include contractual clauses in its distributorship agreements to expressly prohibit Albert Heijn or other buyers from engaging in active sales into Belgium.
- While none of Cono’s buyers (other than Albert Heijn) sold actively in Beevers Kaas’ territory, the mere absence of such sales was not proof that Cono had taken proactive steps to impose this restriction on its buyers.
The Belgian court which referred the case to the European Court now has to consider whether there is any evidence – either in Cono’s agreements or in its conduct – that could substantiate a tacit agreement with other buyers.
Only this evaluation can determine whether Cono’s actions satisfied the parallel imposition requirement under the relevant EU Competition law.
Implications for businesses
This decision provides important guidance for both suppliers and distributors using exclusive distributorship agreements:
- Suppliers: To ensure that exclusivity agreements comply with EU competition law, suppliers must actively impose restrictions on all buyers to prevent them from selling into an exclusive distributor’s territory. This can be done through clear and enforceable contractual provisions or by taking consistent and documented actions to enforce exclusivity. Without these measures, the agreement risks falling outside the exemption from EU competition law, exposing the arrangement to scrutiny.
- Distributors: An exclusive distributor relying on such agreements should confirm that their supplier meets the parallel imposition requirement through express terms or demonstrable actions. If this requirement is not met, the distributor’s exclusivity rights may not be enforceable.
- Suppliers: To avoid the consequences of non- compliance – the agreement being unenforceable, the possibility of fines for infringing EU competition law, and claims for damages by third parties – suppliers should regularly review their distributorship agreements and enforcement processes to ensure that they align with the latest EU competition law guidance. Failure to comply with the exemption from EU Competition law could result in – at best – the exemption being lost.
How we can help
To ensure your exclusive distribution arrangements stay on the right side of the law, our team of agentlaw experts is here to help. Contact us for tailored advice on structuring and reviewing your agreements in line with the latest EU competition law developments.
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