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Antitrust Aspects of Exclusive Distribution

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Antitrust Aspects of Exclusive Distribution ANTITRUST ASPECTS OF EXCLUSIVE DISTRIBUTION AGREEMENTS By Dragan Gajin Submitted to Central European University Department of Legal Studies In partial fulfillment of the requirements for the degree of Doctor of Juridical Science CEU eTD Collection Supervisors: Professor Tibor Várady and Professor Jules Stuyck Budapest, Hungary 2011 © Central European University, 21 May 2011 ABSTRACT This paper analyzes the way in which the antitrust laws of the U.S. the EU assess the legality of exclusive distribution agreements. The main purpose it to evaluate the extent to which the laws of these two jurisdictions can be seen as being in line with the economic theory of exclusive territories. To this end, the paper first lays down what it considers as the most appropriate approach for judging the legality of exclusive territories, identifying a rule of reason as the optimal rule. Compared to this rule, the current U.S. approach, bordering with per se legality, is qualified as inappropriate. On the other hand, the paper praises the EU’s approach towards non-airtight exclusive distribution agreements, characterizing it as a structured rule of reason. Conversely, the paper criticizes the EU’s tough stance towards airtight exclusive distribution agreements, which borders with per se illegality. The paper also addresses some enforcement aspects with regards to exclusive distribution agreements. As for the U.S., the emphasis is on the way in which ideology and the existence of treble damages have contributed to the current state of the law of exclusive territories. Regarding the EU, the essential role of the Commission and its views is stressed. Further, the paper argues that, if not followed by a reconsideration of the fining policy, the trend towards facilitating private damages actions in the EU can lead to an inadequate outcome connected to the EU’s approach to exclusive territories. Finally, the paper addresses the relationship between exclusive distribution agreements and arbitration. In this respect the paper finds that antitrust issues arising out of an exclusive distribution agreement can be referred to arbitration both in the U.S. and the EU; that the court review of awards dealing with antitrust CEU eTD Collection issues is potentially stricter in the EU than in the U.S., in parallel with the approach that the two jurisdiction have towards the legality of exclusive territories; finally, the law of exclusive territories should be considered as mandatory law in both of the analyzed jurisdictions, with pertinent implications for the arbitral proceedings. ii ACKNOWLEDGMENTS I would like to thank Professor Várady for guiding me through the process of writing this dissertation; I have benefited a lot from his knowledge and experience. I would also like to thank Professor Stuyck; his comments on the earlier drafts significantly contributed to the final outlook of the paper. Finally, I would like to thank my colleagues for the support in the last three years. CEU eTD Collection iii SUMMARY OF CONTENTS 1 Introduction........................................................................................................................1 2 Theoretical Underpinnings.................................................................................................5 2.1 Modes of product distribution....................................................................................5 2.2 Introduction to exclusive territories.........................................................................31 2.3 Potential impact of exclusive territories ..................................................................47 2.4 Exclusive territories and efficiency .........................................................................89 2.5 Towards an appropriate rule for exclusive territories............................................101 3 Exclusive Distribution in U.S. Law ...............................................................................107 3.1 The legal framework..............................................................................................107 3.2 The early cases.......................................................................................................113 3.3 Sylvania..................................................................................................................121 3.4 Post-Sylvania developments ..................................................................................127 3.5 Allocation of exclusive territories through a joint venture ....................................141 3.6 Stare decisis in antitrust cases................................................................................147 3.7 Assessment.............................................................................................................151 4 Exclusive Distribution in EU Law.................................................................................154 4.1 The legal framework..............................................................................................154 4.2 The early cases.......................................................................................................164 4.3 Developments after Consten-Grundig ...................................................................176 4.4 Exceptions to the prohibition of absolute territorial protection.............................189 4.5 Horizontal cooperation and exclusive territories ...................................................196 4.6 Parallel trade and price discrimination ..................................................................201 4.7 Assessment.............................................................................................................204 5 Exclusive Distribution and Antitrust Enforcement........................................................207 5.1 Enforcement in the U.S..........................................................................................207 5.2 Enforcement in the EU...........................................................................................228 5.3 Social cost of enforcement.....................................................................................251 5.4 Assessment.............................................................................................................256 6 Exclusive Distribution and Arbitration..........................................................................259 6.1 Identifying the main problems...............................................................................259 6.2 Arbitrability of antitrust issues...............................................................................261 6.3 Court review of awards dealing with antitrust issues ............................................283 6.4 Mandatory character of the law of exclusive territories ........................................309 6.5 Assessment.............................................................................................................314 7 Conclusion .....................................................................................................................317 CEU eTD Collection 8 Sources...........................................................................................................................322 8.1 Books .....................................................................................................................322 8.2 Periodical materials and works in collection .........................................................326 8.3 Table of cases.........................................................................................................349 8.4 Table of legislative and related materials ..............................................................363 iv TABLE OF CONTENTS 1 Introduction........................................................................................................................1 2 Theoretical Underpinnings.................................................................................................5 2.1 Modes of product distribution....................................................................................5 2.1.1 Direct sales.........................................................................................................5 2.1.2 In-house distribution..........................................................................................6 2.1.2.1 Advantages of in-house distribution ..............................................................6 2.1.2.1.1 Transaction costs......................................................................................6 2.1.2.1.2 Control .....................................................................................................8 2.1.2.1.3 Double marginalization..........................................................................10 2.1.2.1.4 Legal considerations..............................................................................11 2.1.2.2 Disadvantages of in-house distribution........................................................12 2.1.2.2.1 In-house presence can be costly.............................................................12 2.1.2.2.2 Integrated manufacturers bear more risk ...............................................12 2.1.2.2.3 Outside representatives better equipped for distribution .......................13 2.1.2.2.4 Diseconomies of scale............................................................................14 2.1.2.2.5 Economies of scope...............................................................................15
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