Termination of Distribution Agreements and Resale Price Maintenance
In a recent judgment of the Amsterdam Court has ruled on the issue of Resale Price Maintenance (‘RPM’) in connection with the termination of distribution agreements.
Summary of the relevant facts
A manufacturer of upscale bicycles with a strong Brand image maintains distribution agreements with 255 dealers in the Netherlands. Recommended Resale Prices are used and practice shows that pressure is exercised by the manufacturer in order to ensure that a certain price level is maintained on the market.
The manufacturer had pressed the dealer on its use of resale prices of more than 23% below the recommended resale prices. At a certain moment the manufacturer decided to terminate the distribution relationship, inter alia based on the alleged use by the dealer of dumping prices.
The dealer initiated summary proceedings before the Amsterdam Court and claimed for a continuation on the ground that the termination of the distribution agreement was unlawful.
The manufacturer asserted that it left considerable discretion to its dealers to determine their resale prices but there were certain limits. Dealers are obliged to provide extensive service to the consumer from both in the ‘presale phase’ and in the ‘sale and after sale phase’. In order to be able to comply with the extensive service requirements under the company philosophy of the manufacturer, dealers must be able to realise a sufficient margin on the sale of the bicycles.
The manufacturer argued that the dealer did not provide any presale service and as such was essentially focused on quick sales which are not appropriate for the upscale market of the bicycles involved, not in line with the company philosophy as laid down in the Dealer programme document and, finally, not in line with the Brand image of the manufacturer.
The Court found that that no substantiation had been provided by the manufacturer of the argument that a certain price level is necessary to maintain the Brand image of the range of bicycles concerned or to acquire or protect a market share for new bicycles and which could justify certain restrictions. In connection therewith, the Court made reference to the judgement of the European Court of Justice in the Coty case. The Court thereupon ruled that, failing such a possible justification, enforcing adherence to recommended resale prices constituted a practice of RPM. Such a practice is a hard core restriction under article 4 of the Vertical Block Exemption Regulation and article 6 of the Dutch Competition Act and thus null and void.
Whereas the Court considered it likely that in the proceedings on the merits the termination will be qualified as in conflict with competition law and therefore as an unlawful termination, the manufacturer was ordered to continue the distribution relationship with the dealer.
The judgment is in line with earlier case law dealing with termination of distribution agreements for non-adherence to recommended resale prices.
Please feel free to contact Jaap van Till, Partner at Loyal for matters relating to (international) distribution agreements.