Delivery claim in selective sales – If you want to score points with customers, you have to meet their expectations in terms of choice and breadth of the product range. Retailers who do not have access to in-demand products or services face difficulties in attracting and retaining customers. At the same time, many providers are starting to sell their products as part of a selective distribution system. Dealers who are not permitted to do this will not be supplied and will be left in the dark. However, under certain conditions, retailers can turn the tables and demand delivery. As a specialist lawyer with a focus on antitrust law, I advise many clients on the assessment and enforcement of their antitrust claims under Sections 19, 20 GWB, Article 101 (1) TFEU and the Vertical GVO and Vertical Guidelines. Read general explanations about the right to delivery here.
A right to delivery is the right to be supplied at standard market conditions. This right arises from a contract or from antitrust law. A dominant company is obliged under antitrust law to deliver. If there is a dependency on the product range, there is also a right to delivery under antitrust law. Where there is a right to delivery, a contract may not be terminated.
What is Selective Selling?
The selective distribution is a special one distribution system. The manufacturer or importer decides to offer its products only through certain distributors within its selective distribution network. The provider will only conclude a contract with these dealers. After the contract has been concluded, these dealers must meet the specified criteria according to which the provider “selects” the dealers, i.e. selects them, and authorizes them for sales.
Typical selection criteria or requirements are, for example, the use and further training of staff who are trained on the products or the product presentation in stationary trade and in the retailer's online shop. This also includes requirements for online trading, the provision of a minimum range or maintenance and services. These constraints are vertical restraints and allowable under antitrust laws when set out in the contract.
In the contract, the manufacturer or importer undertakes to authorize only those dealers who meet these criteria through a dealer contract. He is not allowed to supply all other dealers either directly or indirectly, for example via abroad. In return, the selected dealers promise in the same contract to meet the qualitative criteria during the contract period. At the same time, like the supplier, they must undertake not to sell the products to unauthorized retail colleagues. While this is a vertical limitation of their ability to supply other traders.
Such a contract for selective distribution is a vertical agreement that must comply with antitrust regulations, in particular the GWB and the Vertical Block Exemption Regulation. This also applies to international matters. In this way, the manufacturer or importer ensures that only those dealers who make a strong commitment to selling the products in line with the brand and who invest in sales get a chance. The traders on the other hand are protected in their investments. This is because customers can only obtain the products from retailers who have also invested in shop fittings and the web shop.
The gaps in selective distribution
That's the theory. In practice, the situation is often very different. On the one hand, many dealers complain about the fact that, from their point of view, they meet the respective selection criteria in full, but are still not offered a dealer contract. The excluded dealers are then often told that the manufacturer or importer has decided on a maximum number of dealers and that this number has already been reached.
On the other hand, dealers feel that they do not get a "fair chance" to meet the requirements for a selective distribution agreement. It can often be observed that authorized dealers who have received a dealer contract do not meet the selection criteria at all. References to this can often be found in the store design and the product presentation in the web shop. So there is an obvious difference in treatment here. Manufacturers then often argue that gaps in the distribution system cannot be ruled out.
The impression can often also arise that a brand manufacturer is only "putting forward" a selective distribution system in order to push through its interests with compliant dealers. After all, there are constellations in which a supplier's product is very well known and in demand. The customers then expect that a retailer is so well stocked that it carries this product. The retailer is then dependent on being able to offer a specific product or even a specific range.
What is the legal position now? Does a dealer have to accept that he does not get a contract or is not supplied? Can he plead that he is treated unequally? Because it may actually meet all the selection criteria. He would then have to receive a contract like all other authorized dealers. In addition, it is not very convincing when a manufacturer or importer refuses to conclude a contract or to supply because an interested dealer does not meet the selection criteria, but the manufacturer apparently no longer "looks so closely" at the authorized dealers after the conclusion of the contract. Can a powerful company exploit its market power and almost arbitrarily exclude dealers from deliveries? Equally interesting is the question of whether, in the case of a dependency on having to carry a certain product, there is a right to delivery in the case of selective distribution.
Right to delivery with selective sales – strength is what counts
Whether there is a claim to delivery in the case of an incomplete selective distribution system or dependency depends on the market strength of the provider. In principle, freedom of contract applies, even in the case of selective distribution systems. Every manufacturer or importer can therefore initially choose freely with whom he wants to conclude a contract and who he wants to supply with his products. Selling via a selective sales system does not change this either. In the case of a selective distribution system, the question arises as to whether it is permissible under distribution cartel law or whether the entrepreneur is impermissibly restricting competition between the dealers.
However, the distribution cartel law, i.e. the Vertical Block Exemption Regulation and the guidelines, do not answer the question of whether there is a right to conclude a contract or to be supplied. By introducing a selective distribution system, the entrepreneur does not automatically restrict his freedom of contract. In terms of sales antitrust law, he is on safe ice if he offers a contract to all dealers who meet his selection criteria. However, a selective distribution system may be permissible even if it is not.
The manufacturer or importer is also free to define the selection criteria in the way he deems appropriate from a business point of view. The selection criteria must not go beyond what is objectively necessary to sell the products. However, a violation of this does not lead to a claim to the conclusion of a contract or delivery. Rather, a violation can lead to the ineffectiveness of all contracts concluded. However, a right to the conclusion of a contract that is ineffective under sales cartel law does not exist.
Claim for delivery against dominant companies
However, a claim for delivery can still arise from other provisions of antitrust law outside of sales antitrust law. This is the case when the manufacturer or importer is dominant in the market for the respective product. According to the GWB, market dominance exists if the market share in Germany is over 40%. These 40% do not refer to the entire market, mind you.
The question of market dominance within the meaning of the GWB always only refers to a specific product market, i.e. all products that are interchangeable. A company can have a low total turnover compared to others and be a follower for many products, but hold a dominant position for a certain niche product despite its comparatively small size.
Having to conclude a contract due to antitrust regulations can be unfortunate. Market-dominant companies are also entitled to sell their products within the framework of a selective distribution system. In particular, a dominant company is in principle free to make objectively reasonable requirements for inclusion in its distribution system, provided that it applies them uniformly and without discrimination (Federal Court of Justice, judgment of November 24, 2020 - KZR 11/19).
However, according to the GWB, dominant companies are restricted in their freedom to conclude a contract: If a dealer meets the selection criteria of a dominant company (more 40% market share on a specific product market), the dealer has the right to conclude a dealer contract and to be supplied. It is therefore difficult for dominant companies to limit the number of dealers they have, because this often automatically means discrimination against those dealers who meet the selection requirements but have not (yet) been offered a dealer contract.
Such a claim to the conclusion of a contract and delivery can arise in the case of a market-dominant company, but also in the case of an incomplete selective distribution system. Because for a dominant company, the principle of equal treatment and thus the prohibition of discrimination according to the GWB applies. A distribution system will only be implemented without discrimination if it is practiced seamlessly. A dominant company must therefore ensure that its sales system is complete and monitor the authorized dealers. If it tolerates gaps and deviations from selection requirements, it cannot demand compliance with these requirements from non-interested dealers.
Delivery claim against strong market company
In practice, it is regularly difficult to prove that a certain company has a market share of more than 40% with a certain product. However, the ban on discrimination also applies to claims for delivery and selective distribution by a strong company. A firm is strong, regardless of its market share, if other firms are dependent on it.
This is the case when a retailer does not have access to other reasonable sources of supply for a specific product, i.e. other manufacturers. The more dealers buy a manufacturer's product, the more likely it is that this indicates a high distribution rate. The higher the distribution rate and the fewer reasonable delivery alternatives, the more likely it is that there will be a product or range-related dependency.
The distribution rate is an important indication of the dependency (OLG Düsseldorf, judgment of April 14, 2021 - VI U (Kart) 14/20; BGH, judgment of December 12, 2017 - KZS 50/15 Rimowa) and helps the dealer his question about his right to be supplied with selective distribution. Incidentally, the Federal Cartel Office and the European Commission do not act in the case of claims for the conclusion of a contract and for delivery or failure to terminate. You will be regularly referred to an antitrust attorney.
Right to delivery in selective distribution - effects of the new vertical BER
On June 1, 2022, the new so-called vertical BER will come into force. Read details of the new Vertical BER 2022 here. The draft of this block exemption regulation and the vertical guidelines has already been published. The Vertical BER 2022 is a European regulation. It regulates which restrictions may be imposed on trade when selling branded products. It contains many innovations on the subject of platform economy, online trading and selective sales.
However, the new Vertical Block Exemption Regulation provides just as little an answer to the question as to whether an excluded dealer must be offered a dealer contract or delivery, nor does the current sales antitrust regulations. Even after June 1, 2022, a claim for delivery against a dominant or strong company will only be possible in exceptional cases.
However, the new vertical BER expands the possibilities for the manufacturer or importer to protect their selective distribution system and to additionally control product distribution. In particular, gray market imports can be better restricted. This limits the ability of those dealers who are not authorized to purchase products from "alternative sources" nonetheless.
Complex legal questions arise on the subject of entitlement to delivery in selective distribution. As a specialist lawyer for international commercial law with a focus on antitrust law, I will advise you and your company on the design of your sales system according to the new GVO and the qualitative and quantitative criteria for your authorized dealers in order to legally sell your products on the Internet, especially online platforms to secure. I will also be happy to explain to you whether there is a right to delivery under antitrust law. Before you and the retailer conclude the contract, I will also advise you on the legally permissible requirements for online trading itself, in particular the use of third-party platforms, and the retailer's online shop. Certain obligations can also be stipulated in general terms and conditions.