Manufacturers and suppliers of product ranges invest a lot of time and money in building their brand and designing their product range in line with the brand. They therefore expect the retailers they supply to distribution obligations If they do not do so because they do not promote the brand, violate non-competition clauses, do not comply with the regulations on online trading or supply the grey market, the manufacturers want to refuse delivery, the Terminate the contractual relationship by extraordinary termination and claim damages request from the dealer.
right to delivery or continuation of the contractual relationship
A retailer's delivery claim corresponds to a company's obligation to deliver products or services to the retailer. The legal basis for a delivery claim is initially a delivery contract or authorized dealer contract. However, the principle of freedom of contract applies here, according to which no company is obliged to conclude a contract with another company. Consequently, the principle also applies that no manufacturer is obliged to supply retailers with its own product range. Likewise, every manufacturer is free to terminate a contract within the agreed termination provisions, in particular the agreed or legally mandatory notice periods. However, there are exceptions to this principle of freedom of contract. Antitrust law and competition law in particular set limits for manufacturers and sellers in their dealings with retailers.
market dominance
One of these exceptions is the misuse of a dominant market position. According to the legal provisions of the Act against Restraints of Competition (GWB) or Article 101 (1) TFEU, a company has a particularly high market share of at least 40% in a certain product market in Germany. If a manufacturer has a market share of 33% in the European market, it is already considered to be dominant. In practice, proving market dominance is extremely challenging. This usually requires investigations by antitrust authorities such as the European Commission and the Federal Cartel Office. Antitrust authorities play a crucial role in monitoring and enforcing competition rules. In the context of supply entitlements, top group dependency and non-compete clauses, assessing market power, identifying top groups and appropriately defining supply entitlements often require complex analyses. However, antitrust authorities are able to understand the dynamics of different industries and take appropriate measures to ensure fair competition.
It should be noted that a dominant position is not illegal. It only becomes critical when a dominant position is abused. This can be the case, for example, if a dominant party treats its dealers unequally without an objectively justified reason or unfairly hinders its competitors. This can be reflected in loyalty discounts, minimum purchase obligations, refusals to grant licenses or bundled offers. It is therefore considered abusive if the dominant party exploits its position and market position to obtain anti-competitive conditions or unfair advantages. In practice, however, the sheer market strength of a company and the dependence of other companies, especially dealers, on it are probably more relevant.
market strength and dependence of a trader
Depending on the type of product, retailers may be dependent on being able to stock the products of all leading manufacturers in their range in order to have a competitive advantage in the battle for end customers. Dependence always exists when there are no sufficient and reasonable options to switch to third-party companies and there is a clear imbalance in the countervailing power of the other companies. This is also referred to as relative market power, Section 19 Paragraph 1 Sentence 1 GWB.
In the case of dependence, it is not the market share that counts, but the specific characteristics of the goods and services. The dependence can relate to a certain product range, the fact that a company belongs to a leading group or to the focus on a certain company - for example a specific manufacturer brand in the new car trade. In the context of competition law, it is crucial to ensure that companies do not abuse their market dominance to deny other market participants access to important resources. If a company with a market dominance is obliged to supply, it may not terminate an existing contract unless there is an important reason. In the event of unjustified termination and cessation of supply, the company affected is entitled to continued supply and to compensation.
Assortment-related dependence
An important case of assortment-related dependency, Section 20 (1) GWB, is the so-called top group dependency. Top group dependency means the dependency of companies on a small, recognized brand manufacturer, also known as the top group. If a company is overly dependent on such a group, this can lead to unhealthy concentrations of power. Case law sets out certain requirements that must be met in order for assortment-related dependency to legally lead to a claim to supply. A particular example of this is the decision of the Federal Court of Justice in the "Mattress Price Breaker" case of September 12, 2023 (KZR 39/21).
The dependent company was active in the distribution of mattresses, primarily online. It was supplied by the defendant mattress manufacturer for a long time. At some point, however, the mattress manufacturer stopped supplying and no longer carried out orders. The dependent company saw the reason for the discontinuation of supply as its lack of price discipline. The Federal Cartel Office even imposed a fine of EUR 8.2 million for prohibited vertical price fixing. The dependent company now demanded damages of at least EUR 2.6 million, on the one hand because of the non-delivery and on the other because the mattress manufacturer caused other mattress suppliers to stop supplying the dependent company, i.e. a so-called boycott. According to the case law of the Federal Court of Justice, a product range-related dependency in the form of a top group dependency exists when a retailer needs a certain number of generally recognized brands from a top group in the product range in order to be competitive.
If a retailer wants to assert claims for damages or defend itself against termination, it must prove that it is dependent on the top group. A dependency based on the range of products can already be considered if a retailer is dependent on having non-interchangeable goods or services, in particular products of higher and lower quality, in its range according to the expectations of its customers. The indispensability of the range is therefore important. The decisive factor is proof that the product range of the manufacturer or supplier is indispensable for the other party. This means that the dependent party cannot or cannot reasonably rely on the other party due to the specific products or services offered by the other party.
alternative suppliers. The retailer must also explain which retailers he is comparable with, how the top group is defined, which suppliers belong to it and to what extent he is not (also) supplied by other suppliers in the top group.
The courts therefore regularly examine whether there are reasonable alternatives for the dependent party that would enable it to break free from the product range-related dependency. If there are practically no realistic substitution options, this will strengthen the signs of product range-related dependency.
Selective distribution and gray market import
Regardless of market position, a trader of a selective distribution system demand that the manufacturer prevent grey market trading in the contract products. The authorized dealer in a selective distribution system invests in the presentation of the products in line with the brand and thus promotes the brand image. "Free riders", i.e. unauthorized dealers who gain access to the branded products but do not invest in the brand presentation, have an advantage because on the one hand they benefit from the brand image, but on the other hand can sell to end users at lower prices due to a lack of investment pressure.
The problem here is that the company that operates the selective distribution system has not entered into a contract with the unauthorized dealers or gray market sellers and therefore cannot take action against the gray market dealers for breach of contract. On the other hand, it is contractually obliged to the authorized dealers not to supply unauthorized sellers.
However, the manufacturer has legal options under trademark law and antitrust law to prevent gray market sales. According to a ruling by the Düsseldorf Regional Court of September 29, 2022 (case number: 37 O 95/18), an exception to the so-called exhaustion principle applies. Once a manufacturer has sold its branded products in the European Union, it cannot assert trademark rights. However, this does not apply if there is a legitimate reason. If luxury products such as luxury cosmetics are sold in an environment, in particular by bypassing a selective distribution system, that is likely to damage the brand image of the brand and the branded products, the manufacturer can demand an injunction, disclosure and compensation. It is necessary that it is a luxury product that is sold in a corresponding selective distribution system and that the quality of the brand presentation by the gray market seller does not correspond to the brand image in the context of selective distribution.
Conclusion
Delivery requirements, top group dependency and non-competition clause are closely related topics in antitrust law. Assortment-related dependence refers to a legal situation where one party to a contract is dependent on another party due to the nature or extent of its assortment. Suppliers and selling companies should proactively ensure that their business practices are in line with competition rules. This requires careful monitoring of customer relationships, assessment of market power and implementation of measures to avoid excessive dependence on a top tier. Similarly, manufacturers are also required to protect their distributors against grey market sellers.
