A refusal to deliver is not permitted under antitrust law if the manufacturer is in a leading position and the retailer is dependent - the distribution rate is important for the leading position, even if there is a switch to selective distribution. As a specialist lawyer for international business law, I will inform you here about the antitrust law requirements for a delivery claim in the event of a delivery refusal.
dr Christian Andrelang, LL.M.
Specialist lawyer for international business law Specialist lawyer for commercial and corporate law
Refusal to deliver – what is it about?
Sales through selected dealers, who have to invest in the presentation of branded products, are becoming increasingly popular in all industries. Despite the extensive Internet offering, customers still want a “look and feel” experience from a brand, to which manufacturers have to respond. Smaller retailers who cannot meet the requirements for the size of the range to be kept, the presentation space and also the investments cannot offer these products. Will they now fall by the wayside? When do you have a right to delivery if delivery is refused? In principle, freedom of contract applies: everyone can choose with whom they want to conclude a contract and with whom they do not. As a result, this also means that every manufacturer is free to decide how they sell their products. In principle, a refusal to deliver is therefore also permissible under antitrust law.
A manufacturer can develop its own marketing strategy and refuse to supply dealers accordingly. He can conclude long-term framework agreements with retailers that regulate sales obligations such as minimum product range, presentation space, requirements for the retailer's online trading and reporting obligations. However, he can also decide to only deliver on the dealer's order. A manufacturer is also always free to change the way it sells, such as introducing a selective distribution system by specifying criteria that dealers must meet in order to be supplied. Especially since the Coty ruling by the European Court of Justice (see business insight on the Coty ruling here) and court decisions issued since then, a selective distribution system with restrictions on online trading is permitted when it comes to luxury or at least prestige products.
Antitrust supply claims – what’s new?
However, there is an exception to the right to refuse delivery if the manufacturer has a special position in the market, a so-called leading position. The Federal Court of Justice had to decide under what conditions a dealer had to decide in its judgment of December 12, 2017 (KZR 50/15). The plaintiff there runs a retail store selling leather goods and suitcases. The plaintiff often sold the goods at prices that were below the manufacturers' recommended sales prices. The plaintiff was not the only one. This no longer suited the manufacturer of high-quality branded suitcases and he then terminated all dealer contracts. At the same time, he offered the plaintiff the conclusion of a new dealer contract for the selective distribution system, which included, among other things, the dealer's obligation to present the manufacturer's cases in a certain way and, in particular, to purchase a shop-in-shop system from the manufacturer and in his to use stores. However, the parties were unable to agree on the conclusion of the new dealer agreement for all of the dealer's stores. The retailer is now suing for delivery and argues that it is a so-called “small to medium-sized company” that is dependent on the supply of the manufacturer's cases because customers expect that a leather specialist store has this manufacturer's cases in its range. Therefore, the dealer has no alternative to other suitcases. The manufacturer has a so-called leading position in the market with its cases and is therefore of such importance that supplies are necessary for the dealers so that the dealers can maintain their competitive opportunities.
The Munich Higher Regional Court (judgment of September 17, 2015 - U 3886/14 Kart) has affirmed the delivery claim: The suitcase manufacturer has a leading position in the market for high-quality suitcases and the dealer, conversely, as a small to medium-sized company, is dependent on a delivery because he has no equivalent alternative to other suitcases. The fact that the manufacturer sold its cases through a large number of comparable dealers also supported this leading position of the manufacturer. Such a high distribution rate leads to a leading position for the manufacturer. If a small to medium-sized company is also dependent, there may be a delivery claim. The Federal Court of Justice (judgment of December 12, 2017 - KZR 50/15) did not entirely agree with the decision of the Munich Higher Regional Court, but only on one point: the Federal Court of Justice was bothered by how the Higher Regional Court determined the distribution rate and how it determined the top position and therefore the market power of the manufacturer closed.
What does that mean?
Conversely, this means that the Federal Court of Justice also considers a refusal to deliver in the case of a top position dependency due to a high distribution rate to be inadmissible under antitrust law and affirms a delivery claim if the following conditions are met: The dealer must be a small to medium-sized company. An indication of this can be sales if they are below EUR 25 million per year. However, the decisive factor is the competition in which the retailer operates his business. If your company is small because its competitors are larger, the number of locations or its sales are irrelevant. If there is a product-related dependency in question, according to the Federal Court of Justice, a comparison of the size of the disabled company with its competitors is usually crucial.
According to the case law of the Federal Court of Justice, there must also be a dependency on top positions. This is often difficult to prove in court. This occurs when a manufacturer enjoys such a reputation due to the quality and exclusivity of its product and has achieved such importance on the market that the inquiring retailer, in his position as a supplier, is dependent on (also) carrying this product , because its absence from the offer led to a loss of its own business reputation and a significant impairment of the retailer's competitiveness and therefore existing options for switching to other providers did not prove to be sufficient and reasonable. Whether such a form of assortment-related dependency exists and whether the refusal to supply is permissible under antitrust law must always be assessed specifically on a case-by-case basis. According to the Federal Court of Justice, indications of a provider's top position can arise due to the excellent quality, the unique technical design or the prominent advertising.
The distribution rate is often of great importance. A high distribution rate is a clear indication of dependence on the top position, at least for goods that are not sold via a selective distribution system. However, if the manufacturer operates a selective distribution system, the top position must not be assessed based on the distribution rate alone. In this case, the provider only supplies retailers who are prepared to meet certain quality requirements, such as upscale furnishings or a preferred store location. If a provider decides at a certain point in time to switch to a high-quality selective distribution system, it usually indicates that there is a dependence on the top position if a high distribution rate can be determined for the period before the introduction of the selective distribution system. When determining this, the number of dealers who do not sell the manufacturer's products or who are otherwise affected by the refusal to supply must also be taken into account.
Refusal to deliver – what is important to you now?
Despite the principle of freedom of contract, a manufacturer may have a right to delivery under certain conditions. The MI manufacturers should also be warned here. The better their products are positioned in the market, the more small retailers can argue that they depend on these products in order to be competitive. In this case, the manufacturer must supply the dealer. However, the dealer must accept the manufacturer's other conditions that the manufacturer otherwise applies to similar companies. The manufacturer may therefore demand that the MI dealer is only supplied on the basis of the dealer contract, i.e. under the conditions of this contract, for example with minimum ranges with the current product range at the prices of the current dealer price lists. Dependency does not result in a better position for the dealer. However, if the manufacturer has a leading position, the quantitative selection compared to dependent small to medium-sized companies is likely to be limited.