Distribution agreements, and more specifically exclusivity clauses, lie at the heart of many commercial strategies. They allow a supplier to organise the marketing of its products and to secure an effective presence on a given market. However, these contracts are closely scrutinised by competition authorities, as they can easily drift towards anti-competitive practices. The line between a legitimate organisation of one’s distribution network and an unlawful agreement is often thin and has largely been shaped by case law. Understanding these nuances is essential to secure commercial relationships, an exercise in which the advice of a lawyer versed in unfair competition and cartel matters can make all the difference. This article offers an in-depth analysis of the court decisions that have defined the framework of these practices, as a complement to our comprehensive guide to vertical restraints in French and EU competition law.

The principle of legality of exclusive distribution agreements

An exclusive distribution contract is not, as such, prohibited. Competition law, both at European and national level, does not condemn the nature of the agreement, but rather its object or its restrictive effects on competition. This pragmatic approach, which consists of assessing the agreement’s actual impact on the market, is the cornerstone of the analysis. It is by examining this competitive balance that one can determine whether the agreement is acceptable. The modern framework for this assessment is notably set out in EU Regulation 2022/720 on vertical restraints, which establishes a block exemption regime for many agreements.

The European Union approach (ECJ Technique minière)

As early as 1966, in the seminal Technique Minière case, the Court of Justice of the European Communities (now the CJEU) laid down a fundamental principle. For an agreement to fall within the prohibition on cartels, it must have « as its object or effect » the prevention, restriction or distortion of competition. The Court thus rejected a formalistic approach that would have condemned all exclusivity agreements. It imposed a concrete analysis: one must examine the content of the agreement, but also and above all its economic and legal context. Is the agreement genuinely liable to affect trade between Member States and to harm competition? This is the question that has since guided the analysis of European authorities.

The French approach (the Conseil de la concurrence‘s rule of reason)

French law has adopted a similar approach, often described as a « rule of reason ». The Conseil de la concurrence (French Competition Council, the predecessor of the current Autorité de la concurrence or French Competition Authority) has consistently held that exclusive distribution contracts are not unlawful in principle. To be prohibited, the agreement must not only contain restrictive clauses, but also have an identifiable negative effect on competition. The analysis rests on a « competitive balance sheet ». The authority assesses whether the agreement’s pro-competitive effects (such as improved distribution, promotion of innovation or benefits to consumers) outweigh its anti-competitive effects (such as market foreclosure or price increases). If the overall balance is positive or neutral, the agreement is deemed lawful.

Restrictions on distributor sales and absolute territorial protection

The most sensitive issue in exclusive distribution contracts is undoubtedly the supplier’s temptation to guarantee its distributor total protection within its territory. While the basic idea is to motivate the distributor to invest, this protection cannot be absolute. Competition authorities view it as a hardcore restriction, aimed at partitioning national markets and eliminating intra-brand competition.

Prohibition and EU case law (Consten, Grundig, Hasselblad, Dunlop)

The 1966 Consten and Grundig ruling is emblematic. Grundig, a German electronics manufacturer, had granted Consten exclusivity for the distribution of its products in France. The contract prohibited Consten from re-exporting the products, and Grundig’s distributors in other countries were under a similar ban on exporting to France. The Court held this arrangement to be unlawful because it created absolute territorial protection. Its purpose was to prevent parallel imports, that is to say sales made in France by other European resellers who would have sourced their products from Grundig. By blocking these imports, the agreement eliminated all competition on Grundig products in France and kept prices artificially high. This case law has been consistently reaffirmed, for instance in the Hasselblad (photographic equipment) and Dunlop (tyres) cases, where complex monitoring and penalty systems were put in place to prevent cross-exports between distributors.

Condemnation and national examples (Magneti Marelli, Outils Wolf)

In France, this approach is applied with equal firmness. In the Magneti Marelli case, the Conseil de la concurrence sanctioned a distribution system for automotive spare parts which, through differentiated bonuses and rebates, discouraged dealers in one country from selling to customers located in the territory of another dealer. Similarly, in the Outils Wolf decision, the gardening tools manufacturer was sanctioned for inserting clauses in its contracts prohibiting its authorised distributors from selling the products to other non-authorised resellers. The practice was aimed at entirely controlling the distribution channel and, in effect, prohibiting any sale outside the selective network, which amounts to a form of territorial protection.

The limits of the prohibition: relative territorial protection and group policy (Honda, Viho)

The prohibition is not, however, without nuance. Competition law distinguishes between « active » and « passive » sales. A supplier may prohibit its exclusive distributor from actively soliciting customers outside its territory (through targeted advertising, canvassing, and so on). It may not, however, prohibit it from responding to unsolicited orders from customers located outside its exclusivity zone. This is what is known as « relative » territorial protection, which is generally permitted. The Honda case law, for instance, sanctioned practices that, under the guise of banning active sales, in fact resulted in blocking passive sales. Another important limit was clarified by the Viho ruling, which concerns « group policies ». The Court held that where subsidiaries are wholly controlled by their parent company and have no commercial autonomy, they form a single economic entity. In such a case, a prohibition on one subsidiary selling in the territory of another is not a cartel but a mere internal allocation of tasks within a single group.

Distributors’ pricing freedom and resale price maintenance

One of the fundamental objectives of competition law is to ensure that prices result from the free interplay of supply and demand. Any practice by a supplier aimed at dictating its distributors’ resale prices is therefore examined with particular mistrust. The distributor must remain free to set its own selling prices to the final consumer. On this subject, it is useful to consult our dedicated article on price setting to avoid the pitfalls of below-cost resale and resale price maintenance.

Prohibition of minimum/fixed prices and case law (Honda, Mercedes-Benz, Volkswagen)

Imposing a minimum or fixed resale price on a distributor is one of the most serious restrictions in competition law. It eliminates price competition between resellers of the same brand (intra-brand competition), directly harming consumers. Case law is settled on this point. There are numerous cases in the automotive sector. The European Commission sanctioned Volkswagen for requiring its Italian dealers not to sell cars below a certain price to customers coming from Germany or Austria. Similarly, Mercedes-Benz was sanctioned for participating in an agreement with its Belgian dealers aimed at limiting the discounts granted to customers. Imposed prices are not always written into the contract. They may result from pressures, threats of termination, supply delays or bonus systems that strongly encourage compliance with a « recommended price ».

Lawfulness of maximum and recommended prices

Conversely, a supplier has the right to communicate « recommended » resale prices or to impose « maximum » resale prices. The rationale is that these practices can benefit the consumer, by counteracting potentially excessive prices charged by a distributor enjoying a local monopoly. However, this permission is strictly framed. The recommended or maximum price must not, in practice, become a fixed price. If the supplier exerts pressure or puts in place economic incentives (such as linking rebates to compliance with the recommended price), the authorities will consider that this amounts to a disguised fixed price and the practice will be condemned.

Selection of distributors and the principle of objectivity

In principle, any producer is free to choose with whom it wishes to contract. Setting up a selective distribution network, in which only resellers meeting certain criteria are authorised, is a common and legitimate commercial practice. It is justified in particular for technically advanced or luxury products which require a specific sales environment or high-quality after-sales service. However, this freedom of choice is not absolute and must respect principles of objectivity and non-discrimination.

Evolution of case law on the choice of dealers (Seita)

French case law, notably in the Seita case (tobacco distribution), has clarified the conditions of validity of selective distribution networks. To be lawful, such a network must rest on qualitative selection criteria, necessary to preserve the nature of the product. These criteria must be objective, that is to say based on the reseller’s professional qualifications, the characteristics of its point of sale or the quality of its services. They must be uniformly defined for all potential candidates for approval and not go beyond what is necessary. For example, requiring the presence of staff who have undergone specific technical training is an acceptable qualitative criterion for a complex product.

Discriminatory application of the criteria

The most litigious issue is the application of these criteria. A supplier cannot use them as a pretext to arbitrarily exclude certain distributors, in particular those known for their aggressive pricing policy or those selling primarily online. If a candidate meets all of the objective qualitative conditions defined by the supplier, the latter must in principle approve it. A refusal of approval or termination of contract based not on failure to meet the criteria but on a desire to oust a player for commercial reasons would be deemed a discriminatory and anti-competitive practice. Proving such discrimination can be complex and requires a detailed factual analysis of exchanges between the parties.

Non-compete and exclusive purchase agreements

Non-compete or exclusive supply clauses are common in distribution contracts. The first prohibits the distributor from selling competing products, while the second requires it to source a given product only from its supplier. These clauses may be justified to protect know-how that has been transferred, or to ensure that the distributor concentrates its efforts on the brand. Nevertheless, they may also have the effect of locking up a market, which can resemble practices amounting to abuse of a dominant position if the supplier is a major player.

Restrictive effects of isolated agreements (tobacco, tachographs, phonograms)

A single agreement of this kind can be anti-competitive if concluded by a supplier holding a significant market share. By tying a key distributor through an exclusivity clause, the supplier can deprive its competitors of essential access to the market. Case law has examined such effects in a variety of sectors, such as tachographs for heavy goods vehicles or the distribution of phonograms. The analysis focuses on the « locking-in » or « foreclosure » effect on the market: do the supplier’s competitors still have sufficient and realistic opportunities to sell their products to final consumers despite this exclusivity?

Cumulative restrictive effects (Delimitis, Langnese-Iglo)

The most frequently analysed risk is that of « cumulative effects ». In many markets (such as beer or ice cream), it is common for most suppliers to impose exclusivity clauses on their distributors (cafés, points of sale). Taken individually, each contract may seem innocuous. However, the aggregate of these parallel contracts can create a « network effect » that makes entry into the market extremely difficult for a new competitor. The Delimitis case law (brewery contracts) established a two-step analysis: first, examine whether the market is genuinely foreclosed by the presence of numerous similar agreements; then, determine the significant contribution of the contract at issue to that foreclosure effect. The Langnese-Iglo case (ice cream) is a well-known application of this principle, in which the Court confirmed that Unilever’s network of exclusivity contracts prevented small ice cream manufacturers from accessing points of sale and hence consumers.

The case law on exclusive distribution agreements reflects a constant search for balance between freedom of contract and the protection of competition. The analysis is always fact-specific and depends on the economic context of each agreement. For a business, navigating these complex waters without professional assistance can prove risky. The consequences of a poorly drafted agreement can range from the nullity of the clause to heavy financial penalties. To secure your distribution contracts and ensure their compliance, contact our firm for a tailored analysis.

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