A Legal Adventure in the World of Premium Products

- or the Recent Decision of the Court of Justice of the European Union on Exclusive Distribution Agreements and the Parallel Restrictions Needed for Their Enforcement

The Court of Justice of the European Union recently delivered a landmark ruling concerning a premium cheese — and, more broadly, the legal enforceability of exclusive distribution agreements.[1] According to the judgment, in order for the supplier of a product to grant an exclusive distribution right for a given geographical area with real protection, such a right must be accompanied by a requirement of a parallel prohibition. But what exactly is an exclusive distribution agreement, to whom or what does the parallel prohibition apply, and, after all: who is allowed to sell cheese on the Belgian market?

The Permissibility of Exclusive Distribution Agreements

Although written competition law has prohibited anti-competitive agreements and business practices[2] for nearly a century — and EU competition law has done so since the very creation of the Union — the fight against unlawful competition reaches back almost as far as Roman law. There have always been exceptions to this prohibition, particularly where conduct affecting market competition served the interests of consumers, or where allowing such conduct appeared necessary for the functioning of the market.[3]

There are, in fact, so-called vertical agreements which, according to the EU legislator[4], are not expected to distort competition and may even bring benefits for consumers or for the protection of the market. These are agreements concluded between undertakings operating at different levels of the production or distribution chain, where the market share of each party does not exceed 30%. Below this threshold, exemption is in principle automatic, but there are certain hardcore restrictions that exclude such exemption. For example, a supplier may not simply prohibit a distributor from selling in certain geographical areas or to certain customer groups. Yet the beauty of competition (law) is that there are also “exceptions to the exceptions.” One such exception is exclusive distribution, where a given territory or customer group is reserved for one or more exclusive distributors, and other distributors are prohibited from engaging in active sales in that territory or towards that customer group. However, under the recent judgment of the EU Court, exclusivity only provides the exclusive distributor with genuine protection if the non-exclusive customers are also aware of it and accept it. It is important to emphasize that in the case of non-exclusive resellers, only active sales may be restricted, while so-called passive sales (for example, unsolicited customer inquiries or the fulfilment of online orders) generally may not be prohibited by the supplier.

The Decision of the Court of Justice of the European Union

The underlying case involved three key players: Cono, a Dutch supplier of Beemster cheese (less known in our region but popular abroad); Beevers Kaas, its exclusive distributor in Belgium; and Albert Heijn, the largest Dutch retail chain. Cono and Beevers Kaas had concluded an exclusive distribution agreement covering Belgium. According to the exclusive distributor, Albert Heijn breached this agreement by selling Beemster cheese on the Belgian market that it had purchased directly from Cono. Albert Heijn defended itself by arguing that the manufacturer, Cono, had not contractually imposed any prohibition on active sales towards it, and therefore such a restriction could not be enforced against it under EU competition law. Moreover, the exclusive distribution agreement concluded between Cono and Beevers Kaas could in no way, by itself, limit Albert Heijn’s commercial sales activities.

The Court of Justice Confirmed: An Exclusive Distribution Agreement Alone Is Not Sufficient

The Court first held that, for a valid exclusive distribution arrangement, it is essential that the supplier (in this case, Cono) actually prohibit other resellers from engaging in active sales within the designated territory or to the designated customer group. According to the Court, an exclusive distribution right can only be enforced under EU competition law if it is accompanied by a parallel imposition requirement, meaning that the supplier’s non-exclusive customers are also aware of, and accept, the restriction on active sales.

How Can the Protection of the Exclusive Distributor Be Achieved in Practice?

For protection and enforceability to be ensured, it is therefore indispensable that agreements exist between the supplier and the other, non-exclusive distributors which, in light of the exclusivity, explicitly establish the prohibition of active sales. According to the Court’s interpretation, such an agreement may take the form of a written contract containing a clause that, in view of the exclusive distribution right granted to a third party, records the prohibition of active sales. Beyond this clause, the contract may also provide for sanctions in the event that the contracting partner breaches the prohibition. It is not uncommon, however, that no written agreement or no clause of this content is concluded — as was the case in the underlying dispute. In such circumstances, it must be examined whether the parties’ understanding of the exclusivity and their commitment to respect it was at least established through mutually indicative conduct. To this end, the Court identified two conditions: the supplier’s invitation that the reseller refrain from active sales, and the reseller’s acknowledgment or acceptance of this request. In practice, this may be achieved through emails, correspondence, general terms and conditions, or formal notices (which may even threaten sanctions). The key point is that the supplier must clearly inform the reseller of the existence of another party’s exclusive distribution right. Both the request and the acceptance must be unambiguous.  The reseller’s acceptance may be explicit, for example by agreeing to general terms and conditions or other documentation, or implicit, where the reseller actually ceases sales in the territory subject to another reseller’s exclusivity. Although none of Cono’s other customers engaged in active sales within the exclusive territory — and the Court acknowledged that this circumstance may be relevant — it was nevertheless insufficient, in this case, to serve as practical proof of Albert Heijn’s explicit consent.

Conclusion – A Practical Guide:

For Manufacturers (Suppliers):

The novelty of the CJEU’s decision lies in the fact that an exclusive distribution agreement, even if lawfully concluded and in compliance with EU law, does not automatically confer protective effect. It is not sufficient merely to contract with the exclusive distributor; the supplier must impose, and secure acceptance of, a clear and consistent obligation on all other potentially affected distributors with respect to the relevant geographical area or customer group. Based on the Beevers Kaas case, it is therefore particularly important that the supplier expressly record in its contracts with other distributors the prohibition of active sales within the scope of exclusivity. The burden of proof lies with the supplier, who must credibly demonstrate that the distributors not granted exclusivity have — at least tacitly — accepted the sales prohibition.

For Exclusive Distributors:

The key takeaway from the judgment is that exclusivity only provides genuine protection for the exclusive distributor if the manufacturer simultaneously guarantees that the distribution prohibition has been imposed on non-exclusive customers and that those customers have accepted it.

For Non-Exclusive Distributors:

It is crucial to understand that an agreement between the supplier and the exclusive distributor does not bind non-exclusive distributors unless they have their own agreement with the supplier or have received and accepted an explicit request to refrain from active sales. In light of the case, they are only required to comply with a sales prohibition applicable to them if there is a clear and legally valid agreement, a concordant expression of intent, and — ideally — a written contract that obliges them to do so.

[1] Beevers Kaas kontra Albert Heijn (C‑581/23. sz.) ügy

[2] EUMSZ 101. cikk (1) bekezdés

[3] EUMSZ 101. cikk (3) bekezdés

[4] Bár a korábbi, már nem hatályos 330/2010/EU rendeletet a jelenleg hatályos 2022/720 számú VBER váltotta fel, a két szabályozás rendszere és logikája azonos, így a cikk következtetései mindkét rendelet keretében érvényesek maradnak.