The Blog Exemption

USA: State legislatures strengthen dealer protection

2011-11-26T21:13:00.001Z

Automotive News reported last month (here) that states in the USA are strengthening laws to protect dealers. The story focuses on the cost to a Mercedes-Benz dealer of complying with the manufacturer's specification for the premises from which the dealership runs - and the dealer principal's fear that not making the huge investment will mean that he will miss out on bonuses.

How can the law protect dealers? Well, for example in Virginia the law restricts the manufacturer from requiring dealers to remodel until ten years has elapsed since the last remodelling. There are probably some fine points of definition involved in that, but the principal seems good. Moreover, dealers have the right to source the materials for the remodelling from local businesses - they aren't obliged to go to the suppliers the manufacturer nominates. Other states have similar laws: in Colorado, a dealer who's spent $250,000 doing what the manufacturer wanted can't be required to remodel for seven years.

The state of the economy doesn't seem to be stopping manufacturers from insisting on substantial investments from dealers - in the States, or in Europe. Which makes it all the stranger that state legislatures on the other side of the Atlantic are tightening their laws while over here legal protection is being removed.

Manufacturers' rights of first refusal in the USA

2011-11-26T21:00:00.001Z

A dealer's ability to sell the business complete with franchise has been a controversial topic under the block exemption for years. Not surprisingly, perhaps, it doesn't only affect dealers in Europe. Start Automobile, a US Mercedes-Benz dealer, was recently prevented from selling its Mercedes dealership: Mercedes-Benz USA, LLC v. Star Automobile Co., et al., No. 3-11-cv-73, Order For Preliminary Injunction, (M.D. Ga. June 3, 2011).

The dealer agreement gave the manufacturer a right of first refusal, and on a preliminary application the Federal District Court accepted that the manufacturer would suffer "immediate and irreparable injury" if the injunction were not granted.

Not only did the dealer agreement to give the manufacturer a right of first refusal, but it also had a statutory right of first refusal under Georgia law. Applying principles governing the grant of an injunction in such a situation, the court said that an monetary damages would be difficult, if not impossible, to calculate. The harm the manufacturer would suffer if the injunction were denied would be likely to exceed any damage that an injunction would cause the defendant. Although there would be a delay in the transfer of the dealership, the company would continue to operate it.

The dealer challenged injunction on the grounds that it went against a state dealer statutory provision which governs the review and approval of all an ordinary business sale agreements as applied to dealers. And dealers enjoy a great deal more protection in the United States and they do in Europe, but the court explained that the rights of first refusal should be regarded as a counterweight to the approval provision. The court said this was "a less restrictive form of control a franchisor has over the identity of its business partners."

As this is only a preliminary injunction, the case might yet go to trial - though the court made clear that it considered the manufacturer was likely to succeed on its claim.

Validity of Commission's "soft law"

2011-11-26T18:52:00.001Z

We're accustomed to block exemption regulations being accompanied by "explanatory brochures" and now "guidelines", and very helpful they are given the lack of detail in the actual regulations. They don't apply only to the motor vehicle block exemption (in which expression I now include the vertical restraints block exemption, as it's an integral part of the industry's exemption), but of course that's where we are particularly interested in Guidelines. And it's clear that Guidelines are intended to be much more legally significant than the old explanatory brochures.
Which makes this article by Wolfgang Weiß in the Journal of European Competition Law and Practice particularly interesting. As the abstract says, following the Treaty of Lisbon, is it lawful for the Commission to adopt "soft law" interpretations of primary and secondary legislation? Is it in effect amending the law, contrary to the democratic principles laid down in the Treaty? As the Abstract of teh article says,

Article 290 of the Treaty on the Functioning of the European Union (TFEU) considerably increased the legal requirements for authorizing the Commission to adopt delegated legislation. These requirements cannot be undermined by adopting administrative standards, especially if these are of considerable legal significance.

It's a piece that will certainly bear careful reading (and, if you don't already subscribe to the Journal, you can get a day's access to the article for $50), and when I have had a chance to give it proper attention I will comment some more.

No summary judgment in New York dealer dispute

2011-09-06T12:31:00.000+01:00

... but does the manufacturer owe a fiduciary duty? Aaron Zerykier of Farrell Fritz PC reports a decision on 14 July by Justice Emerson in the Supreme Court of Suffolk County, New York. Two Audi dealers, aggrieved by the appointment of a new dealer in a bodering market area which had been assigned to them, sued Audi and one of its executive alleging, among other things, breaches of fiduciary duty and breach of contract.

The court summarily dismissed the claims for what the article calls "tortuous interference" (many American lawyers seem to have trouble with the word "tortious": the interference might well have been tortuous too, but that surely discloses no legal remedy) and aiding and abetting breach of fiduciary duty against the executive. A corporate officer cannot generally be held liable for his actions on behalf of the corporation if he is acting in good faith. There are exceptions to that rule, but the evidence did not suggest that they applied in this case.

As for the claim for breach of fiduciary duty claim against the manufacturer, the court considered that this might well have some legs. There were issues of fact about the nature and extent of the manufacturer’s relationship with the plaintiff dealership which may, exceptionally, have created a fiduciary relationship. The breach of fiduciary duty claim did not merely repeat the breach of contract claim because a fiduciary duty may arise independent of the contract. The court declined to give summary judgment dismissing the claims for breach of contract and breach of the implied covenant of good faith and fair dealing, because there was an issue of fact whether the manufacturer exercised the discretion it had in its relations with its dealers in bad faith.

A judgment of a court in the US declining to decide a case without a trial is rarely likely to be interesting. Here, however, there are several interesting points, not least the question whether a manufacturer owes its dealers a fiduciary duty. Were that the case in English law, things would be fundamentally different from the way they are - and perhaps if interested parties succeed in persuading the Commission that dealer agreements should be treated as, or like, commercial agency agreements, it might not be so very far-fetched!

Legend Autorama, Ltd. et al v. Audi of Amer., Inc. et al., Sup Ct, Suffolk County, July 14, 2011, Emerson, J, Index No. 38667/08.

CV manufacturer not dominant in repair market

2011-08-04T22:17:00.000+01:00

I seem to find myself reading judgments of the Bundesgerichtshof, the German federal supreme court, more often these days than those of any other court. It's doing my scant knowledge of German a lot of good, too. They have more than their fair share of cases relating to competition in the motor industry. The latest to come to my attention (a bit tardily, I'm afraid) is case no ZR 7/09 from 30 March, in which a Daimler commercial vehicle dealer and repairer sought appointment to MAN's network too. When MAN turned the application down, the dealer claimed that it was an abuse of MAN's dominant position contrary to § 20 of the Gesetz gegen Wettbewerbsbeschränkungen (law against restraints of competition). This isn't a straightforward rehash of Article 102 TFEU, as what I still think of as Article 86 is now known - but it amounts to a similar thing.

To resolve a question of abuse of a dominant position, you have to start by considering whether the undertaking concerned is in a dominant position in the market, which means taking a step back and working out what the relevant market is. The lower court had taken the view that the relevant market was the one in which customers bought services from MAN repairers - the highly brand-specific market which the Commission believes requires the strict regulation provided for under the 2010 block exemption arrangements. The BGH rejected this approach, which meant rejecting the claim.

The BGH considered that the relevant market was the market for all those products, services, and rights that enable a repairer to gain entry to the market for repair and maintenance services for commercial vehicles – the "downstream" market. The "upstream" market, as it might therefore be called, includes spare parts, diagnostic tools, repair tools, and training in brand-specific know-how as well as admission to the network.

This market is not brand-specific, according to the judgment. It is not limited to goods, services, or rights supplied by MAN, and accordingly the vehicle manufacturer did not hold a dominant position in it. Admission to the MAN was not a prerequisite for a repair shop to be active in the downstream market for repair and maintenance services. A non-authorised repair shop might not be able to do warranty work, perform services on a goodwill basis (at least, not on the basis of the manufacturer's goodwill), or participate in recall campaigns, but could still offer plenty of other. The existence of such independent repair shops did not escape the notice of the Court, and illustrated that providing these services was economically attractive.

MAN might enjoy a big share of the downstream market for repair and maintenance services for MAN vehicles, but the Court took the view that this had no bearing on its position in the "upstream" market, the market for facilities for entry to the downstream market.

This is a rather different market analysis to that adopted by the Commission, which has tended to focus on the downstream market. Given that this is the market in which consumers are active, this is not entirely surprising, and ultimately what competition law needs to concern itself with is consumer welfare. The fact that this case involved commercial vehicles probably makes the downstream market less important, though I have to admit to not having worked through the judgment to see whether this is in fact relevant. It's certainly an interesting statement about manufacturer dominance in the repair market, and one with a surprising outcome which might prove influential in the future.

Refusal to appoint repairer not abuse of dominant position

2011-08-04T21:25:00.001+01:00

Car price differentials in 2010

2011-07-27T10:02:00.000+01:00

The European Commission has published its latest car price report (press release here). The data are six months old, relating to the start of this year.

It seems a long time since this information was anxiously awaited, when car price differences and the (misguided, in my view) attempt to prevent them drove the whole policy underlying the block exemption. Now of course the Commission is able to say that the market for new vehicles is competitive and doesn't need the close attention of which a sectoral block exemption was symptomatic. Curiously, though, we still have special rules and extensive quasi-legal guidelines which rather indicate that the motor sector remains a special case - just special in a different way, I guess. The Commission is certainly not as excited about the price differentials as it used to be, although in a true single market perhaps it should zealously stamp out any differentials ... And some of them still look pretty big to me.

One major explanation for the ending of price differentials has been the advent of the Euro, and the Commission's report distinguishes the situation in the Eurozone from that in the non-Eurozone countries. What if the Euro fails to survive its present difficulties? Perhaps it will be back to the good old days of parallel imports - and sectoral block exemptions.

Widely differing tax treatment of car purchases also made a large contribution to the problem of price differentials, and that remains: VAT rates are far from harmonised. But even more importantly, spending power is more uneven than ever - during the last few years, in which price differentials have closed, the EU has expanded considerably, bringing in eastern European countries where spending power must be a great deal less than in some other Member States. The price might be the same in Germany and Bulgaria

Selling franchised dealerships

2011-07-25T11:18:00.000+01:00

One of the important pieces of protection given to dealers in the 2002 Block Exemption - still there, until 2013, but cut from the new version of the Regulation - is the right to transfer the franchise to another member of the network. Previously, vehicle manufacturers had generally reserved the right to dictate to whom a dealer might sell, and often they would have preferred candidates. "Of course you can sell your dealership: and this is who you can sell it to ...". The provision in the 2002 Regulation that effectively said members of the network were pre-approved recognised an inherent truth in the way dealer networks are structured, but at the same time deprived manufacturers of protection against over-concentration of franchises in the hands of large dealer groups, which can be as much a problem for competition as vehicle manufacturers having market power.

With the removal of this condition for exemption, the protection of dealers will be significantly weakened. Whether this is a good or bad thing depends in the first place on where you stand - but to my mind, this is a dealer protection provision too far. No-one should be obliged to do business with someone they haven't chosen. Competition law does not generally require this, although for a dominant firm a refusal to supply may be an abuse (and therefore a breach of Article 102 TFEU or Part II of the Competition Act). Within the manufacturer-dealer relationship, of course, the manufacturer might be regarded as dominant, and certainly just because the new Regulation is silent on the question of transfers doesn't mean that the manufacturer will always be able to impose its wishes on the dealer - there is no exemption from Article 102.

However, the biggest limitation on the usefulness of the block exemption has always been the gap between the rights given to dealers and the practicalities of enforcing them. Legal action against a vehicle manufacturer to enforce rights given by the Regulation has clearly never been an attractive proposition for dealers: I can't think of any legal actions being brought. There have been a few disputes referred to expert determination, as the Regulation also requires for certain matters, but not many. Even just intimating to one's supplier that one's rights might have been breached is likely to be a step too far for most dealers.

The removal of the automatic right to transfer will look to dealers like a huge step backwards. On the face of it, manufacturers will be able arbitrarily to stop dealers transferring their business as a going concern. In fact, it merely reinforces the fact that the value of that business is built entirely on a contract, and it is common to find that rights under a commercial contract cannot be transferred freely. Obligations perhaps, but that makes no difference here. And even now, if the manufacturer doesn't like what the dealer proposes to do it can terminate the contract on notice. It would have to state its reasons, which must be objective, but unless it were blatantly anti-competitive it's not likely to help the dealer much as the block exemption contains no automatic sanction for a breach of this requirement. So perhaps the current dealer protection measure doesn't count for much anyway.

So there's a window of opportunity until the end of May 2013 for dealers to sell or buy, if they see an opportunity for consolidation - and manufacturers will probably be cautious about trying to terminate in such circumstances. (Of course, many networks are under wholesale notices of termination during the two-year run-up to the change anyway.) After that, the basic competition rules will be there as a long-stop to prevent egregious anti-competitive behaviour - as they always have been. And there remains the possibility that the matter will be dealt with in the much-vaunted Code of Conduct.

However, the Code of good practice regarding certain aspects of vertical agreements in the motor vehicle sector. seems to be in trouble. The manufacturers, through ACEA, had offered a draft, but it didn't cover all the aspects of dealer protection - being limited to dispute resolution and minimum periods of notice. The Commission, which at first adopted a "hands off" approach consistent with its view that dealer protection had nothing to do with competition, has now become more proactive and announced that it wanted ACEA to reach agreement with CECRA before November this year. Subsequently it seems that ACEA has decided not to take part in further discussions - presumably, standing by its draft Code. So whether we will ever see anything in a form useful to dealers is up in the air - but as ACEA will be well aware there's always the general competition law lurking in the background to deal with any arbitrary exercise of power by vehicle manufacturers - if dealers dare invoke it.

Dealer standards American style

2011-06-13T19:29:00.001+01:00

It's a story very reminiscent of what happens over here too. Ford has told Lincoln dealers to put their hands in their pockets and come up with an average of $1 million to remodel their dealerships. For those dealers fortunate enough to represent Ford too, the average is $1.9 million, Automotive News reports. But maybe some British dealers (or manufacturers) would regard that as small beer? All in the name of "dealer standards", "brand values" and "customer experience."

Block exemption effect on property market

2011-06-03T08:39:00.001+01:00

Nothing new about block exemption replacement creating uncertainty in all sorts of ways, including the property market. Automotive Management has this story. The trend, not only for block exemption reasons, is towards larger dealers, and it's the bigger dealer groups (not to mention the sponsored dealers) who are financially in a position to benefit from the disruption caused by the block exemption. I certainly recall clients deciding that it was time to retire when a new block exemption came along - back in '95 and '02.

Mike Pearce, of Rapleys, the nationwide commercial property and planning consultants, is quoted in AM on the demand for showroom properties from retailers and fast-fit outlets, which I suppose conveniently (in a way) meshes with dealers moving to ever-more-flamboyant gin palaces on the edge of town. He says that while manufacturers have not been raising the dealer standards bar during the financial crisis, they are changing tack now and the cost of entry to the established and especially premium networks, already high, will increase. On the other hand, he thinks that multifranchising (multibranding as the block exemption has unnecessarily rechristened it) for smaller marques will be the way forward for many smaller dealers as well as for smaller manufacturers and new entrants. What a pity that the Commission has effectively written multifranchising out of the block exemption at this stage - not that it's prohibited, of course, just not a right for dealers.

NFDA concern over new agreements

2011-06-01T18:18:00.000+01:00

New agreements are being issued by manufacturers, and the National Franchise Dealer Association (NFDA) is warning dealer councils that they should alert their members to them. Press reports (such as this one in Fleet News) are not clear exactly what they need to be alerted about - but the main concern seems to be that dealers are not being given adequate opportunity to take advice on the effect of the new agreements. Sue Robinson, director of RMI NFDA, said:

The European Commission has created an expectation that manufacturers should operate in a transparent manner with their dealers and adhere to minimum standards of behaviour in their commercial relationships, as set out in a published code of conduct. We are urging all dealer councils to lobby manufacturers for such a code that would make the relationship between dealers and manufacturers as fair as possible.

The Supplementary Guidelines on the new motor vehicle block exemption (Regulation 461/2010) say (in para 7):

The history of competition enforcement in this sector shows that certain restraints can be arrived at either as a result of explicit direct contractual obligations or through indirect obligations or indirect means which nonetheless achieve the same anti-competitive result. Suppliers wishing to influence a distributor's competitive behaviour may, for instance, resort to threats or intimidation, warnings or penalties. They may also delay or suspend deliveries or threaten to terminate the contracts of distributors that sell to foreign consumers or fail to observe a given price level. Transparent relationships between contracting parties would normally reduce the risk of manufacturers being held responsible for using such indirect forms of pressure aimed at achieving anticompetitive outcomes. Adhering to a Code of Conduct is one means of achieving greater transparency in commercial relationships between parties. Such codes may inter alia provide for notice periods for contract termination, which may be determined in function of the contract duration, for compensation to be given for outstanding relationship- specific investments made by the dealer in case of early termination without just cause, as well as for arbitration as an alternative mechanism for dispute resolution. If a supplier incorporates such a Code of Conduct into its agreements with distributors and repairers, makes it publicly available, and complies with its provisions, this will be regarded as a relevant factor for assessing the supplier's conduct in individual cases.

I have added the emphasis - both the italics and the bold. That word "if" makes a huge difference - not that the NFDA is wrong, but clearly it is not a mandatory requirement to have a Code. Of course, the sort of Code the guidelines are talking about would do the job of the old dealer protection measures in the block exemption - the ones that the Commission decided had no place in a competition instrument ...

Turkey: Competition Board fines car and CV businesses over cartel

2011-05-07T17:13:00.000+01:00

Turkey's Competition Board recently concluded its investigations in the Turkish motor vehicles sector and imposed record fines, according to an article on Mondaq (free subscription) by Gönenç Gürkaynak of ELIG, Attorneys-at-Law, who represented Mercedes-Benz Türk A.Ş.

The Authority launched an investigation against 23 passenger car and light commercial vehicle companies in September 2009, suspecting that a cartel was being operated contrary to the Competition Law. The undertakings it investigated were suspected of having discussed future pricing policies, stock data, sales targets and sales strategies.

The Board decided that the investigated undertakings violated Article 4 of the Competition Law (in similar terms to Article 101 of the Treaty on the Functioning of the European Union and Chapter 1 of the UK's Competition Act 1998) and imposed financial penalties on 15 undertakings, totalling approximately 277 million TL. This is by far the largest amount of fine that has ever been imposed by the Board.

Beetle design invalid

2011-03-05T16:12:00.001Z

Alicante News, the organ of the Office for Harmonisation in the Internal Market, reports a decision of the Invalidity Division (ICD 7100) declaring invalid VW's 2003 registration of the Beetle shape as a Community design.

The application was filed as soon as registered Community designs became available. Unfortunately for VW, they had already obtained international design registrations for the original full-size model of the new Beetle and the first production model, which meant that there can never have been much chance of convincing anyone that the 2003 application was for a design that had individual character compared to the earlier designs. Indeed, I find it hard to see how it could have been considered novel, but it was for want of individual character that the design was declared invalid.

The invalidity proceedings were brought by model car maker Autec, which previously obtained a judgment from the Court of Justice, Case C-48/05 Adam Opel v Autec, controversially allowing toy manufacturers to use the trade marks of the real things on their own products. So, 2-0 to the toymakers so far - and should this hopeless-looking registered Community design be counted as an own goal?

The highest level of dealer protection?

2011-03-05T13:22:00.001Z

Manufacturers will be made responsible for unsold cars under a new law in Spain, Automotive News Europe reported on 17 February. Dealers would be entitled to claim a refund for unsold cars which have been hanging around for three months, and sometimes to charge the carmaker for their sales teams' efforts and other expenses.

The manufacturers will also be required to compensate terminated dealers for loss of business and the cost of layoffs. The same would also apply if the dealer's appointment was not renewed. This echoes proposals, emanating from the European Distribution Lawyers group and other sources, for dealer agreements to be treated like commercial agency agreements under European Union law.

Sounds too good to be true? Perhaps it is - though it's not yet 1 April, as you'll have noticed. In fact, it seems that the vehicle manufacturers were taken rather by surprise when the proposed Spanish law was announced, and they have prevailed on the Spanish government to put it on the back burner for the time being. It certainly seems to have contributed to a rift between the two sides of the industry in Spain.

The law was published along with a bundle of other measures to stimulate the Spanish economy (though how this one, however worthy, might be expected to have that effect isn't clear). The industry ministry quickly announced that it was calling a meeting to assess the new law with regional governments, unions and car manufacturers (did they forget dealers?). Revised proposals are expected within three months.

ANFAC, the Spanish carmakers' association, at first indicated (predictably) that its members would have to reconsider their investment plans. ANFAC chairman Francisco Javier Garcia Sanz said that the lawmakers had "made a mistake and they are going to have to correct it. If they do not, they will be responsible for the loss of investment and employment that this law will cause." Exactly the sort of thing we'd have said back in the days when I worked at the SMMT. On the other hand, the dealers's association Faconauto said that the new law would safeguard jobs by reforming a legal framework that left them at the whim of changes to dealer agreements. According to the Spanish website cincodias.com, Faconauto claims the price of cars would come down by an average of €400 to €500 as a result of the law and the closure of 30 per cent of dealer outlets would be prevented. CincoDias also reports that ANFAC points out that the protection of the law would benefit shareholders, not employees, of dealers, an analysis that might rebound on the vehicle manufacturers one day.

Where's the beef?

2011-02-11T11:27:00.000Z

(Cross-posted from my IP blog)

The spat over Ferrari's use of the designation F150 for this year's Formula One car, reported in the US press (WSJ here), is about dilution. Dilution, would you believe, of Ford's F-150 registered trade mark, used for pick-up trucks.

In fact Ferrari weren't using "F150" as the designation of the car, but calling it the F150th Italia, a rather convoluted reference to the unification of Italy in 1861. So they settled on the basis that they would use the full designation only. Whether TV commentators will or not is, I suppose, another matter, but there's not often much need to quote model numbers - there will only be one Ferrari model taking part in the races, after all. The print media might be a different story.

I still don't see how a claim of dilution could hold water. Are Ferrari taking some sort of advantage of the repute attaching to Ford's trade mark? Are you joking? How many examples of this model do you think they plan to sell, anyway? Are they doing something detrimental to it? Quite the opposite, I'd have thought. Does anyone in the US pay any attention to Formula One, especially since that farce at Indy that called itself the US Grand Prix a few years ago?

So (as Garibaldi might have said), where's the beef?

Protecting secret technology

2011-01-31T09:54:00.000Z

Trade secrets and intellectual property are where value lies in the motor industry these days, according to a rather inconsequential article which seems to have been reposted from the New Tork Times. Noting that electric and hybrid vehicles require a lot of new technology, and that three senior Renault executives were fired not long ago for leaking secret information (to what it calls an "organised international network", whatever that means), the article makes the far-from-startling point that intellectual property is important to the motor industry. To be fair, it says it always has been: which gives me an opportunity to mention, arbitrarily, Nichols Advanced Vehicle Systems Inc & Ors v Rees, Oliver & Ors [1979] RPC 127 - as a motor racing fan, perhaps my earliest knowledge of the importance and power of intellectual property.

The novelty is that it's not just mechanical intellectual property - an issue in the motor industry ever since Otto's patents for the four-stroke cycle were held invalid over de Rochas's earlier patents - but another of the three areas into which patent attorneys divide their world, electronics (the third being, I believe, chemistry - broad interpretations are needed). In particular, it's the software that controls modern vehicles, which has been present for many years but which is a whole new ball game now that cars run on stuff other than fossil fuels:

The Chevrolet Volt plug-in hybrid, for example, uses about 10 million lines of computer code to shunt power among the car's battery pack, power inverter, drive motor, gas engine, generator and other subsystems. By comparison, Boeing's new 787 Dreamliner relies on a mere 8 million lines of code.

That statistic strikes me as interesting - but the most likely effect it will have on my mind is to make me wonder about flying by Dreamliner. Should I be reassured that Boeing haven't relied more on electronics, should I be impressed by the economy of their coding, or should I be worried that they might not have put enough computer code in?

The article goes on, in what appears to be a colossal non-sequitur:

"It's a little like the wild, wild West right now," said Jon Lauckner, president of General Motors Ventures, the automaker's new venture capital group.

Not, perhaps, in Europe, though, where at least the Commission is aware of the implications of restrictions on the availability of technical information - and have been trying, through the medium of the block exemption, to do something about it, for years. I wonder whether we are moving into a new phase, in which the car makers argue that all that good stuff about technical information is now old hat as it moves from the field of diagnostics to a central place in the way vehicles work - demanding the strongest possible protection?

Breach of block exemption conditions is not necessarily anti-competitive

2010-10-25T12:38:00.003+01:00

The effects of block exemption regulations are often misunderstood. In the case of the motor vehicle block exemption, people have often ascribed to it powers that it was never intended to have. Even with Regulation 1400/2002, which adopted a much more permissive approach to exempting dealer agreements from the competition rules than had formerly been the case, it often seemed to be thought that the regulation could perform magic. Just because a clause does not comply with the terms of the block exemption does not mean that it is anti-competitive - competition laws exist to protect competition, no-one else.
A French court case provides a timely reminder about this. The decision comes from the cour d'appel, Paris, and was handed down on 2 September: it is helpfully reported by the leading French competition law firm, Vogel & Vogel (no relation, as far as I can see, to Bird & Bird) on the International Law Office service, for which you'll probably have to register, here.
A vehicle manufacturer - a small one, evidently, because the agreement fell within the Notice on agreements of minor importance - made an evergreen agreement, terminable on 6 months' notice, with a distributor. It then terminated the distributor during a reorganisation, and the distributor sued. At first instance the distributor lost, so the case went to the cour d'appel.
The distributor's case turned on Articles L420-1 and L442-6 of the French commercial code. It argued that because the termination provisions did not comply with the requirements of the block exemption they were prohibited under Article L420 (the equivalent of Article 101 of the EU Treaty, or the UK's Chapter 1 prohibition), and that they were actionable under Article L442-6 which prohibits discrimination between trading partners. (You can consult a copy of the commercial code, in English, here). The discrimination argument was based on the fact that the manufacturer had taken a long time to deal with a request for authorisation as a repairer. Finally, the distributor claimed that the notice period was too short - a quarter of the norm in the sector in Europe - another Article L442-6 matter.
The court rejected the discrimination claim, apparently on the grounds (among others) that with no cap on the number of authorised repairers there could be in the territory the distributor would still be able to become authorised. The court was at liberty to assess the reasonableness of contract terms (even in commercial contracts, unlike the position in the UK where remedies are usually available only to consumers) but it didn't limit itself to comparing the agreement with block exemption regulations, which required two years' notice: it looked at the situation in which the claimant found itself, noting that their relationship had only existed for five years and that the dealer had taken on a new franchise before the notice had expired. Far from suffering damage, it had seen its turnover increase by 3.84 per cent.
As for the notice period point, the manufacturer didn't have to comply with the block exemption anyway because its market share was so small. In any event, the court stated, just because a clause is not within the scope of the block exemption does not mean it is anti-competitive. Just because the manufacture terminated a dealer who had continued to meet the criteria set by the manufacturer did not amount to breach of the competition rules. An indefinite contract had to be terminable unilaterally by either party.

Use of non-original spare parts

2010-09-03T19:27:00.000+01:00

More from the website I have just been reading ...

Regarding a claim on a gearbox, which falls outside warranty but might be a candidate for a goodwill contribution, the Vauxhall man says "you can have your vehicle serviced where ever you choose as long as it's per Vauxhall guidelines and genuine Vauxhall parts are used and this is just one criteria when we're reviewing a contribution."

His interlocutor responds: "Block exemption regulations only require parts as good as or of equivalent quality and in the case of oils, meet manufactuers [sic] specifications." But that is about dealers using parts of matching quality, and has nothing to do with warranty claims - still less to do with goodwill contributions. Contrary to what many people believe, the block exemption has never said anything useful about warranties - the Commission now recognises that they offer considerable scope to create obstacles to competition, but that's no more than an indication that the general competition rules will be applied, not a provision in the block exemption. If a customer wants a goodwill payment, they need to show goodwill themselves - and this is just one thing that Vauxhall say they are taking into account. If the customer feels aggrieved at that, there are ways to pursue it - through the courts, if the failed component was not of satisfactory quality, or under the code of practice.

Technical information - some misconceptions

2010-09-03T19:08:00.000+01:00

There's more rubbish talked about the block exemption than just about any other piece of legislation in the entire world. Today I have been reading postings on a consumer website, where a Vauxhall representative was being engaged in discussions about customer care issues.

He - unwisely - mentioned that his colleagues had helped one consumer with some vehicle information. He was shot down by another poster who said that the block exemption had imposed a legal obligation on Vauxhall "to make freely available service and technical information available to all who wanted it as opposed to restricting it to dealers only". Wrong. Even assuming that "service information" is an accurate paraphrase for what is covered in addition to technical information, it only ever had to be made available to "independent operators", which includes a longish list of undertakings - but consumers are not "undertakings", the key feature of which is that they are engaged in economic activity. All manner of professional repaires are covered, but not the DIY mechanic.

That was the old regulation: the new one is silent on the matter, so now a fortiori that statement is wrong although the guidelines contain very similar language.

But at an even more fundamental level the block exemption never required vehicle manufactures to do anything, it merely offered them an easy way to operate certain restrictions on competition in their dealer agreements. In prctice, of course, they chose (generally) to comply, but it's quite wrong to read the block exemption (version 1, 2, 3 or 4) as making anything compulsory. To do so might offend against the competition rules, but that would take a lot of proving. Now, however, it could also be in breach of Regulation 715/2007, so the sweeping statement is closer to the truth than it deserves to be.

Guest post: Bloggers or Blaggers? Stalkers or Leakers? Have OHIM stolen Europe's Auto Secrets?

2010-07-22T11:41:00.000+01:00

Thanks to Dave Musker for permission to reproduce this from the Class 99 blog:

There is nothing the auto industry enjoys so much as the razzamatazz of a new car launch. Yet as mass expulsions remind us of the spy era, there are rumours that OHIM has a mole, who leaks new car designs to auto bloggers. "It's no great secret that the European Union's patent office has more leaks than a Soviet submarine" writes Noah Joseph of Autoblog, according to whom OHIM "has more leaks than a colendar". Alex Ricciuti of Worldcarfans claims to be publishing pictures "... courtesy of a leak from the European Office for Harmonization of the Internal Market (OHIM), where trademark records are kept."
Rather than take these alarming claims at face value, in this blog-eat-blog world a few quick searches enable us to reveal the truth.
Take first Ricciuti's claim to have published leaked designs of the Opel Ampera. His blog article is dated 18th February 2009. However, the pictures he shows had already, quite properly, been published by OHIM several days earlier on 11th February as RCD 001086300-0001.
On to Autoblog (motto: "We Obsessively Cover the Car Industry"). They revealed the design of the Suzuki Kizashi on 11th September 2008, acknowledging their source as OHIM's records, and not at that time claiming that there had been a leak. OHIM had published the design in question the previous day, as RCD 000990122-0001. On 18th January 2009, they broke news of the design of the Nissan 370Z Roadster, Joseph this time claiming that it was from an OHIM leak. In fact, lower down the article they quote their source as The Motor Report blog, on which the relevant article (also of 18th January) cites OHIM but does not claim a leak. And, indeed, OHIM had published the design as RCD 001030282-0002 on 14th January.
Joseph's "Soviet submarine" claim was made in the course of his disclosure of the design of the "stretch" Pullman Mercedes reported on 4th May 2009. But, as you are by now no doubt expecting, OHIM had published the design as RCD 000999024 (several parts) on 30th April.
In the same article, Joseph referred back to the Nissan Roadster "leak", and one other, dated 11th August 2008, concerning the "facelifted" Mazda 3. The Mazda 3 article quotes as its source an article on the Carspyshots blog. Here perhaps the timing is less clear. OHIM appears to have published the design in question as RCD 000977384-0001 on 11th August. So, how is it that the pseudonymous Carspyshots posting is apparently dated 9th August 2008, 23:45, and last edited on 10th August at 17:51? But even here, pPerhaps timezone differences enabled the editor to see OHIM's publication and then disclose the design the "previous" day.
Putting these claims together, there is no evidence that anyone has published OHIM applications before OHIM itself has done so. On the other hand, there is ample evidence that the blogs are closely monitoring publications in the car class (Locarno class 12.08) and publishing within a few days, or even hours - one could be forgiven for assuming that they were tipped off in advance, but the evidence does not require that assumption. Unless Joseph or Ricciuti care to reveal their sources, it seems likely that they are simply passing off stalking as leaking.
To take one last example, on 13th July, the Carscoop blog published an article disclosing some Chevrolet designs. OHIM had published these on 12th July, as RCD 001729088-0001 & 2. The filing date was ... only five days earlier, on 7th July.
The moral? OHIM is now publishing e-filed applications in a matter of days. Carmakers who want to keep their designs under wraps would do well to use OHIM's "deferred publication" system, to keep the publication date in their own hands.

The modernisation of competition law

2010-07-05T17:39:00.003+01:00

The European Commission is good at dressing up things that have to be done, to make them look as if they are actually desirable rather than simply inevitable. So, for example, its chosen approach to the motor vehicle block exemption - bringing dealer and repairer agreements under the umbrella of the vertical restraints block exemption - meant that multifranchising would be impossible to continue in the form the industry knew it: so they said it never really worked anyway. I don't think everyone agrees with that assessment, and the Commission's whole approach to the motor industry often looks like the work of people who trade in their Mercs or BMWs every couple of years and get their impression of the motor industry from that ...

So too a few years ago, when regulation 1/2003 was presented as a modernisation measure. Its most important feature was a switch from the old system under which you could only get exemption for a restrictive agreement from the Commission, which is what made block exemptions necessary. Since it came into operation on 1 May 2004 it has been for the parties to an agreement to decide whether it was caught by the competition rules, and if so whether it could be exempted. It became a matter for self-assessment - with the Commission and national competition authorities in the background, to keep the parties to the agreements honest.

Now, those of you with a penchant for modern European history will realise that 1 May 2004 was also the day on which the European Union expanded from 15 Member States to 25. Every previous enlargement had caused a flood - perhaps tsunami, or avalanche, would be a better word - of agreements to be sent to the Commission to get exemption. The old system not only gave the Commission the exclusive power to grant exemption (which for convenience it exercised in large part by promulgating block exemptions, permitting whole categories of agreements), it also said that once you send in your agreement with a request for exemption you are free to carry on operating it until the Commission says you can't. There were an awful lot of precautionary notifications, and the thought of all those agreements from the new members - and the languages they'd be written in! - left no alternative but to change the system. Or, as the Commission put it, "modernise".

That's not an arcane piece of knowledge, of interest only to competition law specialists. The block exemption is of central importance to everyone in the motor industry, and the modernisation regulation has a fundamental and far-reaching effect on the way in which it works (or, perhaps, doesn't). Remember, this change to the fundamentals of EC competition law came in while Regulation 1400/2002 was already in force, so the renewal process we're now going through is the first opportunity to judge how block exemption will work in this brave new world.

This is, of course, the fourth block exemption. The first two (in 1985 and 1995) were straitjackets: they told you exactly what you could do, what was not permitted was generally prohibited, and the block exemption was the right place to write prohibitions and conditions. Regulation 1400 took a radically different approach: what was not prohibited was permitted, which made it a lot harder to work out where you stood - and deprived dealers and authorised repairers (as well as independent repairers) of much of the protection that they'd previously had. (Leaving aside the fact that the protection often turned out to be an illusion, requiring as it did a complaint to the Commission and the will then for the bureaucrats to take it up.) But still, you needed to have the Commission's OK for your restrictive agreement, and if that were available merely by complying with the terms of a Regulation that wasn't too hard.

The new Regulations - the block exemption is now found in two separate instruments, the vertical restraints block exemption and the motor vehicle one - still offer what is now invariably, and trendily, referred to as a safe harbour for dealer and repairer agreements. The difference is that since modernisation the parties can decide, with the benefit of legal and economic advice, whether they need to seek shelter in the safe harbour or whether they can simply drop anchor in the open sea. The authorities can still tell them that they need to anchor elsewhere, and there are some heinous anticompetitive practices like price-fixing and export bans that will hardly ever be tolerated, but the block exemption has become very much an optional regime.

I recently reviewed an authorised repairer agreement for a dealer association. In previous years I'd been able to say whether each clause appeared to comply with the block exemption, and that was almost job done. Now, to do it properly, one would have to engage economic consultants, consider the state of the market and the vehicle manufacturer's position in it, and also the position of the network. It would be a massive job, and I bet it's never going to get done for any franchise.

Back in the mists of time, Commissioner Monti promised to put the consumer in the driving seat with regulation 1400. Regulation 1/2003 had effectively put the car manufacturers back in the driving seat long before regulations 330 and 461/2010 came along. The scope for taking issue with anything the manufacturers write into their agreements is negligible. Of course, commercially they don't enjoy freedom of action, but the additional constraints imposed on them by competition rules, so important for the protection of the networks in a hugely unequal relationship, have effectively been lifted.

Technical information, tools, training, and all that stuff

2010-07-02T10:13:00.002+01:00

Diagnostic information and special tools and training have been bones of contention in debates on the block exemption for years. The independent sector had secured a set of rules in the last block exemption regulation, which for the aftermarket has just expired: what does the new one do?
Actually, that’s almost the wrong question now: the new block exemption (Regulation 461/2010) is deliberately much less draconian than its predecessor. Instead of setting down strict conditions and prohibitions, it leaves most restrictions in (and outside) agreements to be scrutinised under basic competition rules.
Changes brought in a few years ago make the competition rules a matter for something like self-assessment. Block exemptions are safe harbours that can be used by those whose arrangements will fit within them, or who want certainly above all. The European Commission has trimmed off those parts of the old block exemption that seemed to serve no competition-law purpose – minimum notice periods, requirements for arbitration or mediation, and rules about diagnostic information, training and tools. The basic competition rules will apply if the treatment of these matters have a detrimental effect in the aftermarket: action can be taken, but it no longer says on the face of the Regulation that these practices are prohibited.
Suppliers to vehicle manufacturers of spare parts, tools, and diagnostic and other equipment do still have an express right under the new Regulation to sell direct to the independent aftermarket. But while vehicle manufacturers can decide that they don’t actually need to be in the safe harbour, it’s just possible that they could justify such restrictions anyway.
Nor does the regulation oblige those suppliers to sell to the independents. If they unilaterally choose not to, that could be an abuse of a dominant position which the competition rules prohibit, but that’s an extremely blunt instrument and one that independents would find prohibitively costly to use.
The block exemption regulation is supplemented by Guidelines, which explain among other things how restraints are to be assessed outside the cut and dried situations set out in the block exemption. While it’s permissible for vehicle makers to select their authorised, repairers, anything they do to prevent independents competing could be prohibited – the buzz-word is “foreclosure”. Independents who don’t have access to technical information suffer this fate.
Vehicle repair and maintenance information is now dealt with in type approval legislation. Regulation 715/2007 obliges manufacturers to make the information available for passenger cars marketed after 1 September 2009. (Another regulation does the same for CVs, from the end of 2012.) As for earlier vehicles – which is probably what the independent sector is worried about – the Guidelines say that the Commission will take these regulations into account when assessing cases of withholding of information. The Commission will consider whether the item in question is available to authorised repairers, whether the information will be used for repair or maintenance or another purpose (such as writing a DIY manual), and whether withholding it will have “an appreciable impact on the ability of independent operators to carry out their tasks and exercise a competitive constraint on the market”. The nature of the information will also be relevant: if it is commercial rather than technical it can probably legitimately be withheld.
Technical information will include software, fault codes and other parameters needed to work on CPUs. Regulation 715 defines vehicle repair and technical information to include all information required for diagnosis, servicing, inspection, periodic monitoring, repair, re-programming or re-initialising of the vehicle which the manufacturers provide for their authorised dealers and repairers, including all subsequent amendments and supplements. It also includes all information required for fitting parts or equipment on vehicles. According to the Guidelines, vehicle identification methods are also included, along with parts catalogues (that’ll be contentious) and recall notices. Independents must be able to get access without delay and on demand: anything less wouldn’t truly amount to “access”. They can be charged, but not so much that they are discouraged: the charge must take account of the use they will make of the information. Independents must have access at the same time as authorised repairers get it, and cannot be obliged to buy more than they need for the job they are trying to do.
The Guidelines treat tools and training in the same way. Tools include diagnostic and other repair tools, plus software for those tools, updates for the software, and aftersales service for the tools. So the Guidelines seem to cover the problem fairly comprehensively – the only problem being how to make these rules stick.
Previously, you could at least point to the block exemption and say its requirements were being broken. Morally, the party in breach of the rules would be in the wrong, even though legally no-one did anything about it. Now you’d have to be sure of your ground, whether the other party is acting anti-competitively, and that inevitably requires a lot of expensive economic and legal analysis. The documents say all the right things, but who will make them stick, and how?

The legislative jigsaw

2010-06-29T11:29:00.005+01:00

Once upon a time, all there was to worry about was the block exemption regulation itself. The Commission produced a Notice setting out some detail about price differentials, and later one that expanded on how to recognise an intermediary, but essentially the rules that applied to the motor industry seemed pretty self-contained. Now the rules are split between two separate block exemption regulations, each of which comes with guidelines (items 1 to 4 in the list below), plus the manufacturers' concessions on dealer protection issues in the form of the code of good practice, while there are more guidelines and Notices that might be relevant to considering the application of the competition rules to motor vehicle agreements. And technical information is now dealt with in Regulation 715/2007. They can all be found through the Commission's website, but for ease of reference I'll post links here:

Commission Regulation (EU) 461/2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices in the motor vehicle sector.
Supplementary guidelines on vertical restraints in agreements for the sale and repair of motor vehicles and for the distribution of spare parts for motor vehicles.
Commission Regulation 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices.
Commission notice - Guidelines on Vertical Restraints (Official Journal C 130, 19.05.2010, p. 1).
Code of good practice regarding certain aspects of vertical agreements in the motor vehicle sector.
Commission notice on the definition of the relevant market for the purposes of Community competition law (Official Journal: OJ C 372 09.12.1997, p. 5-13).
Commission Notice on agreements of minor importance which do not appreciably restrict competition under Article 81(1) of the Treaty establishing the European Community (de minimis) ( Official Journal C 368, 22.12.2001, pages 13-15).
Communication from the Commission - Notice - Guidelines on the application of Article 81(3) of the Treaty (Official Journal C 101, 27.04.2004, pages 97-118).
Commission Notice - Guidelines on the effect on trade concept contained in Articles 81 and 82 of the Treaty (Official Journal C 101, 27.04.2004, pages 81-96)
Regulation (EC) No 715/2007 of the European Parliament and of the Council of 20 June 2007 on type approval of motor vehicles with respect to emissions from light passenger and commercial vehicles (Euro 5 and Euro 6) and on access to vehicle repair and maintenance information.

The demise of multifranchising: problems for small networks?

2010-06-29T10:00:00.000+01:00

One area where there are big differences between the new block exemption regime and the old one is in the treatment of multifranchising. In essence, the problem arises because of the different definitions of non-compete obligations in the old and new regulations. Under Regulation 1400, non-competes were permitted up to 30 per cent - meaning that a dealer or authorised repairer could be obliged to buy up to 30 per cent of its requirements from one source, which left room for them to have three sources (and a frustrating and useless bit to spare). That, you'll notice, is a rather liberal interpretation of "non-compete". Now, the vertical restraints block exemption (Regulation 330/2010)has become the relevant part of the patchwork of documents that now makes up the motor vehicle block exemption, and it takes a more logical but less helpful view of what amounts to a non-compete: it says 80 per cent is permissible.

The Commission has tried to justify this enormous change (and big step backwards, whether you approve of it or not, because it takes us back to the first motor vehicle block exemption which didn't permit multifranchising at all) by dismissing multifranchising (or multibranding, as they now like to call it) as something that never really worked anyway.

The idea of allowing dealers - by which I mean distributors and authorised repairers - to take on more than one marque is intended to prevent foreclosure of the market. A small manufacture, or a new entrant, needs to be able to get a toe-hold, and they can't expect to find lots of garages looking for a solus franchise. The only way competition can realistically be preserved in this area is by insisting that dealers be allowed to take on more than one franchise. So, for small manufacturers and their networks, as Automotive Management reports this week in connection with Hyundai, the changes are not good news.

Competition authorities will point out that if foreclosure is a problem the rules on competition can be brought to bear. It will be a breach of Article101 of the new Treaty, and if it is conduct that the block exemption permits, that permission can be withdrawn. True, but the Commission hasn't yet withdrawn exemption from a motor vehicle distribution agreeement and it's had 25 years in which to do so - and don't tell me there haven't been enough problems to justify it. Anyway, what dealer - especially the sort of dealer who's likely to be anxious about being able to multifranchise - is going to pick that sort of fight with a vehicle manufacturer?

Domestic legislation

2010-05-20T19:17:00.000+01:00

In all the talk about the block exemption, don't overlook UK legislation. The Supply of New Cars Order 2000 (SI no 2088) was the legislative response to the last Competition Commission investigation of the new car market and it remains in force.
An earlier statutory instrument, the Restrictions on Agreements (Manufacturers and Importers of Motor Cars) Order 1982 (SI 1982/1146) has been repealed - not before time, because it was defective when made, because it covered motor cars when it should have been limited to passenger cars. I asked a friendly backbench MP to oppose the SI in Parliament at the time: the government assured him that his fears (my fears, and therefore the fears of my employer the Society of Motor Manufacturers and Traders) were unfounded, and it became law in its defective state. So much for the negative resolution procedure. Or was it positive? I forget.