In the recent past, manufacturers have entrusted the marketing of their products to authorized dealers and sales representatives. Above all, the sale as a selective distribution was often chosen in order to "spin off" the competition. By selling their products directly, manufacturers and companies are now regaining control over the direct sale of their products and services, which they have acquired over time Distribution system – be it a selective distribution system or an exclusive distribution system – have given to wholesalers and authorized resellers. The dual sales of direct sales via dealers and direct sales are intended to combine the "best of both worlds".
The renaissance of direct selling
Direct sales - often via the company's own web shop - has a number of advantages. End customers are supplied directly, the company regains direct customer contact. The manufacturer gets back part of the margin that it had to give to wholesalers, authorized dealers and sales representatives for their sales activities. In addition, direct sales give the provider the opportunity to stabilize prices in the market. However, direct selling also has some downsides. The manufacturer often has to rebuild direct sales and also take care of the logistics, which is often a major problem in business that costs time and money. At the same time, direct sales mean direct competition with the authorized dealers in the sales system, which they will not simply accept. At the same time, the question arises as to whether direct sales within the framework of a sales system - one speaks of dual sales or dual distribution - is legally permissible under the contract, and if so, under what conditions. As Specialist lawyer for international business law and specialist lawyer for commercial law and corporate law I regularly encounter these questions when advising my clients on direct sales and the associated dual sales.
First of all, it should be made clear that the dual distribution after the new Vertical GVO 720/2022 of the European Commission since June 1, 2022 in international and national sales is permissible under antitrust law. This is a major innovation in sales antitrust law and gives entrepreneurs more flexibility in selling their products and services. Under the old vertical BER, the dual sale of goods in the combination of direct sales and distribution systems with dealers and commercial agents was still prohibited. However, manufacturers now have the opportunity to get involved in sales themselves and to supplement the selected distribution system, above all with their own online shop, their own social media measures and their own services for customers.
The introduction of direct sales
If a manufacturer or entrepreneur has not yet operated a selective distribution system or exclusive distribution system, entering the market will be comparatively easy. This applies in particular if there is no contract with the respective reseller, but is only supplied on the basis of occasional orders. Because in such constellations, the supplier – if he is not dominant or strong in the market – is generally allowed to stop supplying the customer at any time. Because there is no contract from which a Delivery obligation could result. However, if there is no obligation to deliver, the customer cannot suffer any economic or legal disadvantages from non-delivery. The manufacturer also owes no compensation and no "omission of non-delivery". Consequently, the buyer must also accept that the manufacturer himself invests in his direct sales for the B2B area or the B2C area. Neither commercial agency law, commercial law, company law, nor international commercial law prevent him from doing so.
However, if the provider is in a contractual relationship with dealers, for example because they are supplied selectively or exclusively for a specific area on the basis of a corresponding distribution system, the law sets some limits. These limits do not result from the new Vertical BER 720/2022, which applies to the entire market of the European Union, or other antitrust law that regulates dual sales between direct sales and indirect sales through distribution systems as shown in vertical agreements such as dealer contracts expressly allows. Rather, the limits can result from the contractual regulations and the otherwise applicable German law. If the dealer or distribution contract prohibits the manufacturer from direct sales to end customers, for example, he may not start direct sales without further ado. Such a prohibition can also result indirectly from a formulation in the contract, according to which the provider undertakes to only deliver to authorized dealers. He may not sell to non-selected dealers and end customers. This restriction then applies to cross-border sales on your own account in Germany.
Even if direct sales are not expressly restricted and the company is therefore free to compete with its own dealers, this does not mean that the authorized dealers have to accept this. This is because the introduction of direct sales represents a change in distribution, which puts the retailer at a disadvantage. Because potential customers are now supplied by the manufacturer in active sales or passive sales. The trader may therefore be entitled to demand a compensation payment. This in turn depends on certain conditions. However, these should be taken into account in the legal advice on the introduction of direct sales, so that the provider does not experience any nasty surprises in the new competition with his dealers. This applies in particular to selective sales, because the selected dealers have to regularly invest in marketing, shop fittings and e-commerce. Manufacturers are therefore well advised to inform their dealers if they want to create competition in national or international sales through dual sales.
The antitrust limits of direct selling
However, antitrust law and distribution law restrict the exchange of information between supplier and retailer if dual direct sales is introduced as an additional sales channel. Typically, as part of a selective distribution system, the retailer is contractually obligated to report to the entrepreneur in one form or another, such as in-store and e-commerce sales, competitor products, or customer feedback. In dual sales, however, authorized dealers and the company are in competition with each other. Why is this problematic?
The competition between companies and dealers does not only exist among themselves as so-called intra-brand competition. Consequently, there is competition between the two regarding the price of the products – and dealers must not be given the resale price (cf. Vertical GMO-720-2022-Price-Recommended-Price-and-Price-Comparison). International Distribution Law and antitrust law in the form of Art. 101 (1) TFEU, also only allow restrictions on multi-brand sales and thus inter-brand competition within narrow limits. Many authorized dealers therefore also sell products from the competition. If the dealership is now obliged under his dealership contract to provide the company with general information about the sale of goods by the authorized dealership, he would also receive information about the products, the discount structure and the marketing plans of the competition. This also applies in the opposite direction: A strong exchange of information between competing manufacturers could take place via the dealer - so-called hub and spoke situations - which are not permitted under antitrust law. If, when introducing direct sales, a company does not simultaneously observe these limits on the flow of information, which are set by antitrust and sales law, there is a very high risk of violating the applicable law.
For contract drafting
Regardless of the form of sales, the introduction of direct sales should also be used to examine existing categories of dealers, sales structures and discount systems. Often it can also be appropriate to check the trade to see whether all wholesalers, dealers or sales representatives really deserve their margin or commission. Possibilities for corrections to the sales contract arise during negotiations for annual agreements if discounts are only agreed for a 12-month period. As shown above, the exchange of information is very critical under antitrust law due to the competition that is developing between the company and the authorized dealer. Irrespective of the form of distribution as selective distribution or exclusive distribution, the information obligation of the authorized dealer according to the distribution contract must be limited to information that is essential for the implementation of the distribution contract. As a specialist lawyer for international commercial law, I regularly advise companies on the limits of dual sales, direct sales and the exchange of information in cross-border sales, such as the DACH region, as part of a selective sales system.
