Droit Fiscalité belge

THE MOTOR VEHICLE REGULATION - (EC) 1400/2002 (VERSION ANGLAISE)

The "Motor Vehicle Regulation" is the Commission Regulation (EC)1400/2002 of 31July 2002 on the application of Article 81(3) of the EC Treaty to categories of vertical agreements and concerted practices in the motor vehicle sector, hereafter, the "Regulation".
 
This Regulation is a specific[1] block exemption for the motor vehicle sector, replacing the Regulation 1475/95 of 28 June 1995 which expired on 30 September 2002.
 
The car sector was previously regulated by the Commission Regulation n°123/85 of 12 December 1984 granting an exemption to the agreement between a car manufacturers and a distributor whereby supplier undertakes to deliver in the agreed territory cars for the purpose of reselling them to the distributor or a limited number of resellers. The purpose was to open the national markets to competition and to develop flexible and efficient markets structures. On its expiry, this Regulation, - which was shown to be flawed and has not reached all its purposes-, was replaced by the Commission Regulation 1475/95 of 28 June 1995, aiming namely at more independence for the dealers and more competition for cars and spare parts. This Regulation expired on 30 September 2002.

1. A draft contract with all the clauses expressly permitted by the Regulation.

 
It could come to one's mind that preparing a draft of contract with "all the clauses expressly permitted" is not the most suitable approach in view of applying the Regulation, due to the fact that this covers a large range of vertical agreements differing from each other.
 
Indeed, the Regulation is based on an "economic approach" and on the principle that it is for the economic operators (manufacturers, dealers) to organize distribution according to their own needs. As Mr Mario Monti, European Commissioner for Competition Policy, said in his speech at the Brussels Hilton Hotel on February 6, 2003: "The New Block Exemption offers an unprecedented opportunity for those who are willing to be imaginative in the way that they carry out their business and who are prepared to respond to consumer demand rather than conform to a single model".
 
Moreover, the Regulation adopts "a non prescriptive approach" and covers all vertical agreements which do not contain any listed black clauses (or hardcore restrictions) and which comply with the General and Specific Conditions. The Regulation clarifies what is not normally permitted. Under this Regulation, the approach to be adopted is therefore not to determine "which clauses are expressly permitted by the Regulation", but to check if "a vertical agreement does not contain any clauses directly or indirectly prohibited by the Regulation".

2. Hardcore restrictions: brief explanations and concrete examples in a contract.

 
Brief explanations
 
Irrespective of the market share of the undertakings concerned, the Regulation does not cover vertical agreements containing certain types of severely anti-competitive restraints (or hardcore restrictions) which in general appreciably restrict competition even at low market shares and which are not of vital importance to the attainment of the positive effects for competition (recital n°12 of the Regulation).
 
Article 4 of the Regulation contains a list of 13 severely anti-competitive restraints.
 
The Regulation defines hardcore restrictions as "provisions which directly or indirectly, in isolation or in combination with other factors under the control of the parties, have the object of restricting a certain ability (Article 4, 1, (a), (f), (g), (h), (k) and (j)) or a certain type of sale (Article 4,1, (b), (c), (d), (e) and (j))".
 
This broad definition indicates that each of the hardcore restrictions can be brought about through one or more indirect means and that in practice this may result in an anti-competitive outcome similar to that resulting from the express inclusion of the restriction in question in the written contract. Hardcore restrictions may of course take the form of outright prohibitions, but may also consist of limitations, financial disincentives, pressures or obstacles to certain activities or transactions.
The presence of one or more of these restraints in agreement would automatically lead to the benefit related to the block exemption being lost in respect of the entire agreement, and not only the vertical agreement concerned.
 
Moreover, the Commission considers that individual exemption of vertical agreements containing such hardcore restrictions is unlikely.
 
Examples
 
Our experience has shown that the most usual restrictions used in vertical agreements are restraints such as minimum or fixed resale prices to be observed by the distributor (Article 4, 1,(a)), or restrictions of the territory into which, or of the customers to whom, a distributor or a repairer may sell contractual goods or services (Article 4, 1,(b); for example, indirect measures aiming to include the distributor not to sell goods or services to certain customer groups, like refusal to supply to certain customers, reduction of bonuses or discounts, threat of contract termination, etc.
 
Under the Regulation which has been in application for only a few months, we have not faced vertical agreements containing some of the prohibited hardcore restrictions.
 
However, it is possible to list some hardcore restrictions likely to be found in such vertical agreements and concerning after sales-services such as repair, maintenance or the selling of spare parts.
 
1) The Regulation will ensure that effective competition between distributors located in different Member States is not restricted if a supplier uses selective distribution in some markets and exclusive distribution in others. In particular, clauses or practices within a selective distribution system which would restrict the sale of spare parts, such as:
 
-  restriction of passive sale to end users or unauthorized distributors located in markets where exclusive territories have been allocated or,
-  restriction of passive sale of spare parts to customer groups which have been allocated exclusively to other distributors, would be prohibited.
 
The benefit of the exemption would also be withheld from exclusive distribution agreements if active or passive sale of spare parts to any end users or unauthorized distributors in markets where selective distribution is applied were restricted.
 
2) Clauses of practices which restrict the right of any distributor to sell spare parts or of any authorized repairer to passively sell repair and maintenance services to any end users or, where relevant, actively including the right to use Internet or Internet referral sites.
 
3) Clauses of practices which restrict the sale of original spare parts or spare parts of matching quality by members of the distribution system to independent repairers which use them for the purpose of repair or maintenance services. Indeed, without access to such spare parts, the independent repairers are not able to compete effectively with the authorized repairers.
 
4) Clauses of practices which lead to the linking of sales of spare parts and servicing activities or which make the performance of one of these activities dependent on the performance of the other.
 
5) Clauses of practices whereby a manufacturer of motor vehicles restricts the ability of a manufacturer of components or original spare parts to place his trade mark or logo on these parts effectively and in a visible manner. Such a restriction would prevent authorized or independent repairers and end users from identifying the manufacturer of the motor vehicle components or spare parts. 
 
7) Clauses of practices which restrict authorized repairers from using spare parts of matching quality for the repair or maintenance of a motor vehicle except for the repair under warranty, free servicing and recall operations.
 
8) Clauses of practices whereby a motor vehicle manufacturer restricts the full access to all technical information, diagnosis and other equipment to any of the interested independent operators. In particular, a restriction would occur by giving access to authorized and independent repairers in a discriminatory way, for a different price or at a different time.
 
9) Clauses of practices which restrict the ability of repairers of motor vehicles to provide repair or maintenance services for brands of competing suppliers.
 
Such a list is by no means exhaustive.

3. Type of agreements covered by the Regulation : detailed explanation relating to your position as supplier of spare parts and after sale services.

 
The Regulation covers vertical agreements: agreements whereby the manufacturer and distributor or repairer each operate at different levels of the production or distribution chain, which fall within the scope of Article 81 of the EC Treaty, i.e., agreements which are likely to have an appreciable effect on trading between Member States.
 
Broadly speaking, the Regulation covers agreements concerning the distribution of spare parts and distribution agreements governing the provision of repair and maintenance services by authorised repairers. It also deals with the issue of access to technical information for independent operators which are directly or indirectly involved in the repair or maintenance of motor vehicles, such as independent repairers, and of access to spare parts.
 
However, the scope of the Regulation is limited to:
 
-          "the motor vehicle" (defined as a self-propelled vehicle intended for use on public roads and having three or more road wheels), excluding the vehicles which are not self-propelled, like horse-drawn wagons, which only have three wheels, like motor-bikes, or which are not intended for use on public roads though they may circulate occasionally, like tractors or earthmoving machines;
 
-          the "new motor vehicle" which excludes the second-hand car market;
 
-           the spare parts defined as goods which are to be installed in or upon a motor vehicle so as to replace components of that vehicle, including goods such as lubricants which are necessary for the use of a motor vehicle, with the exception of fuel (article 1 of the Regulation).
 
In particular, the Regulation applies, inter alia, to the following agreements:
 
-          Sales or distribution agreement between a supplier of spare parts and individual members of a network of independent or authorised repairers (via an exclusive or selective distribution system, latter implying qualitative and/or quantitative selection criteria)who use these spare parts to provide repair and maintenance services;
 
-          Franchise agreement between a supplier of spare parts and individual members of a network of independent repairers organized as an exclusive distribution system;
 
-          Distribution agreement between a manufacturer of motor vehicles and individual members of his authorised network of distributors or repairers;
 
-          Sales agreement between a manufacturer of spare parts and an association of authorised or independent dealers or repairers who jointly buy spare parts, if none of the individual members of the association has a total turnover exceeding EUR 50 million.
 
This list is provided for illustrative title and by no means exhaustive.   
 
Needless to say that all these agreements concluded via the Internet fall within the scope of this Regulation.

4. Minimum protection for you in the contract, e.g., tie in clause, any loopholes we can benefit from.

 
No general response can be given to this question because the scope of hypothesises to be considered is too large and mainly depends on the type of vertical agreement concerned and the kind of distribution targeted.

5. Which formula we advise: selective or exclusive distribution agreements.  

 
The Regulation bans the combination of selective and exclusive distribution formerly permitted by Regulation 1475/95 and imposes to manufacturers of motor vehicle a choice between creating selective or exclusive distribution systems when appointing their distributors.
 
The Commission also confirmed that a manufacturer of spare parts has also to make the same choice when establishing a distribution system in order to offer good quality services to the consumer.
 
No general response can be provided as to the choice of a distribution system given that each system is different in nature and has advantages and disadvantages, which must be deeply analysed in view of the targeted distribution system.
 
Moreover, the Regulation allows suppliers to apply different distribution systems in different markets of the European Union space. For example, selective distribution may be used in some markets and exclusive distribution in others.
 
What are the characteristics of each system?
 
a) Selective distribution agreements
 
Generally, a selective distribution agreement means a distribution system where the supplier undertakes to sell contractual goods or services, either directly or indirectly, only to distributors or repairers selected on the basis of specified criteria and as long as these distributors or repairers undertake not to sell such goods or services to unauthorized distributors or independent repairers.
 
Under a selective distribution system, the supplier establishes criteria, either qualitative and/or, in certain cases, quantitative ones, according to which distributors / repairers will be appointed.
The goods and services are supplied by selected specialists who employ trained staff, specific equipments, etc. and who are prepared to undertake certain sales commitments.
 
In contrast to exclusive distribution, such a selective distribution does not provide the distributor with an exclusive territory. The distributors / repairers are allowed to sell actively or passively to any other authorised distributors or end-users within the selective distribution system and the supplier may restrict the sale to unauthorized distributors / repairers. 
 
However, the supplier must apply the criteria laid down for the selection of the distributors uniformly and without discrimination and must take into consideration in his distribution system any candidate who fulfils the criteria, without restriction as to the number of distributors / repairers when no quantitative criteria have been set.
 
Moreover, the supplier may not impose a "location place" to the repairer.
 
Finally, the Regulation requires no market share threshold for the qualitative selection distribution system.
 
Pros:
 
- Qualitative selection distribution system: no market share is required, which therefore implies that the definition of the market and the calculation of the market share are not necessary;
 
- The supplier may set criteria, either qualitative and/or, in certain cases, quantitative ones, for selecting authorized distributors / repairers;
 
- The products are distributed by selected specialist who employ trained staff, specific equipments and who are prepared to undertake certain sales commitments;
 
- The supplier may oblige the distributor not to sell to independent resellers in areas where selective distribution is applied;
 
- The supplier may control the distribution system; for example, the supplier may exclude distributors who do no longer comply with the selection criteria.
  
Cons:
 
- The supplier must apply the criteria laid down for the selection of the authorized distributors /repairers uniformly and without discrimination and must allow in its distribution system all candidate who fulfil the criteria;
 
- No limit on the number of the distributors allowed must be set except in quantitative selection distribution system where the market share may not exceed the threshold of 30%; this implies that the market must be defined and the market share to be calculated.
 
- The selective distribution does not provide the distributor / repairer with an exclusive territory;
 
- The distributor / repairer may not be restricted from selling actively or passively to any other authorised distributors or end-users in an area within the European Union where selective distribution is applied;
 
- The distributor / repairer must be allowed to sell passively to end users or unauthorized distributors within areas of the European Union where exclusive distribution is applied;   
 
- The supplier may neither restrict the place of establishment of the authorised repairer nor restrict the distributor to establish an additional outlet elsewhere in the common market after 30 September 2005 ("location clause).
 
b) Exclusive distribution agreements
 
An exclusive distribution agreement means a distribution system where the supplier undertakes to sell contractual goods or services only to one distributor within a specified territory and where the supplier undertakes, in principle, not to personally supply goods or services in the territory or to appoint another distributor in that territory and the distributor undertakes not to sell such goods or services actively to customers located outside the exclusive territory.  
 
Under an exclusive distribution system, the supplier agrees to supply only one distributor in a certain territory or to a certain group of customer. A limit is set on the total number of distributors.
 
The supplier may not restrict the active sale by the distributor in that territory (or to the allocated customer group) nor in territories (or allocated customer groups) which are not subject to exclusive distribution nor the passive sale into other exclusive distributor's territories.
 
The Regulation also allows the supplier to reserve, for him or for another distributor, the active sale to certain customers or to a certain territory.
 
The market share threshold may not exceed 30%.
 
Pros
 
- The supplier allows an exclusive territory or an exclusive customer group to his distributor;
 
- The supplier sets a limit to the number of distributors allowed;
 
- The distributor is free to sell actively within his territory or to his exclusive customer group and the other distributor within the exclusive system may not sell actively within their territory or to their allocated customer group.
 
Cons
 
- The distributor must be free to supply passively all other buyers within the exclusive distribution system (end users or resellers);
 
- The distributor must be allowed to sell actively to end users or unauthorized distributors within the areas of the European Union where selective distribution is applied; 
 
- The market share threshold is limited to 30% which implies the definition of the market and the calculation of the market share.  

6. Scope of information you are obliged to give to independent repairers / distributors? Should you draw up a small info brochure?

 
Under this Regulation, only the motor vehicle manufacturer has to provide access to technical information for the repairers (independent or authorised) or distributors.
 
The spare parts manufacturer has, on the contrary, no similar obligation.  
A telephone conversation with the European Commission has confirmed this position.
 
However, under general law, the supplier may have to perform such an obligation depending of the type of distribution concerned.
 
It could come to mind that the Regulation does not oblige you to draft such an information brochure.

7. Scope of IP Protection that you can obtain in the contract ?

 
Regarding "the original spare parts", i.e., either those supplied by the spare parts manufacturer to the vehicle manufacturer who sells them on to his distributors, or those which are not supplied to the relevant vehicle manufacturer, but which are nevertheless manufactured according to the specifications and production standards provided by him, the spare parts producer may not be restricted from placing its trade mark or logo effectively and in a easy manner on these parts.
 
This right also includes the right to place the trademark or logo on the packaging and on any accompanying document. It's worth noting that in the first case, the vehicle manufacturer may also place his trademark or logo on these parts.   
 
Moreover, the European Commission made it clear that a vehicle manufacturer may not embark on an agreement with a spare parts manufacturer which would result in any intellectual property rights (IPR) or know-how that the spare part manufacturer has developed being transferred to the vehicle manufacturer who would use these rights to restrict the right of the spare parts manufacturer to distribute the spare parts manufactured by using those rights.
 
Indeed, even though the Regulation does not cover such a transfer of rights, IPRs or know-how may not be used by the supplier (vehicle manufacturer or its importer) to restrict the spare parts manufacturer's right to sell the spare parts in question to authorised and independent repairers. If the vehicle manufacturer were to use IPRs or know how in this way, the Regulation would not apply to his distribution system. 
 
It should also be noted that Article 3.3 of the Regulation provides that the supplier of motor vehicles may not restrict the right of the distributor or repairer with whom he concluded a vertical agreement to transfer the rights and obligations resulting from the vertical agreement to another distributor or repairer within the distribution system.
 
Even if it can be doubted whether such an obligation may be imposed on a supplier of spare parts, the European Commission takes the view that it is also in favour of the supplier of spare parts to comply with this obligation.  

[1] The 'general' block exemption covering being the EC Block Regulation 2790/99 of 22 December 1999 on the application of Article 81 §3 of the EC Treaty to categories of vertical agreements and concerted practices. This regulation 2790/99 applies to all vertical agreements except those whose subject