Legal Update February 2011

Cheating in a cartel does not prevent a competition law infringement

Introduction customers including delivery of goods or services to such customers outside the territory designated in the The great renaissance philosopher Nicholas Machiavelli distribution agreement. The Vertical Block Exemption said “It is double pleasure to deceive the deceiver” - Not Regulation (“VABE”) which was revised and published so, if you have to pay a fine for a competition law in 2010 allows for protection of exclusively allocated infringement. The European Court of Justice (Court) territories or customer groups. Such agreements must while dismissing an appeal filed by Activision Blizzard permit passive sales in the exclusively allocated territo- Germany (previously CD-Contact Data) yesterday ries or customer groups to be legal. found that the mere fact that an exclusive distributor resold products to customers outside its designated It was argued that factors which constitute sufficient area in breach of the terms of its agreement with the evidence of the existence of a horizontal agreement may supplier does not mean that there is no “concurrence of not be regarded as sufficient evidence of the participa- wills” with the supplier. tion of an undertaking in a vertical agreement. The Court while agreeing with this point because a certain measure of contact is lawful, disagreed that the Facts standard of proof required for establishing the exis- The European Commission (Commission) in 2002 tence of an anti-competitive agreement in a vertical found that CD-Contact Data (the exclusive distributor relationship is higher than that which is required in the for Belgium and Luxembourg) had entered into a context of a horizontal relationship. The Court also complex of agreements and concerted practices to refused to interfere with the interpretation of facts and restrict the parallel exports of Nintendo game consoles found that the General Court had neither distorted the and cartridges. A €1 million fine was imposed on evidence nor made a manifest error of assessment in CD-Contact Data by the Commission. On appeal the finding that the documents relied on by the General Court reduced the fine to €500,000 but upheld Commission constituted sufficient evidence of the the Commission’s decision that correspondence existence of concurrence of wills to restrict parallel between CD-Contact Data and Nintendo showed that trade between CD-Contact Data and Nintendo. there was a concurrence of wills to limit parallel trade As for the argument that CD-Contact Data had partici- to its territory. CD-Contact Data further appealed to pated in parallel trade by exporting to customers the European Court of Justice. outside its designated territory, the Court concluded that this alone was not capable of calling in question The Court’s Ruling the existence of a concurrence of wills. The Court found that an exclusive distributor may have an interest in The exclusive distribution agreement between entering into an agreement with the manufacturer to Nintendo and CD-Contact Data had prohibited active limit parallel trade as a means of protecting its own parallel trade whilst allowing for passive parallel trade distribution area but also in secretly making sales and this was found by the Court to be prima facie legal contrary to the agreement to use the agreement for its in the light of Article 101(1) EC. Passive sales mean own exclusive benefit. responding to unsolicited requests from individual Conclusion • arguments that distributors are dependant on supplies from the manufacturer and hence in a The fines in this case were not high in comparison with weaker position making it difficult not dissociate the latest statistics published for the European themselves overtly from the policy of the supplier Commission which reveal that fines have been going up may not hold water especially in cases when there is touching €3.05 billion in 2010 which is nearly double evidence that the distributor had tried to defend its the fine of €1.62 billion levied at the end of 2009. With territory from parallel trade. respect to exclusive distribution systems the following needs to be paid attention to by manufacturers/ Kiran S. Desai suppliers and distributors to distance themselves from Partner, Brussels any allegations of illegal conduct: Tel: +32 2 502 5517 • a new VABE came into force on 1 June 2010, along Nathalie Jalabert Doury with revised Commission guidelines on vertical Partner, Paris restraints (for more information, see our Legal Tel: +33 1 53 53 43 43 Update on that development) • parties to agreements that were covered by the Dr. Jens Peter Schmidt previous block exemption as at 31 May 2010, but Partner, Cologne are not covered by the new VABE, will benefit from Tel: +49 221 577 1100 a transitional period which will soon expire on 31 Gillian Sproul May 2011 Partner, London • businesses should review their distribution agree- Tel: +44 20 3130 3313. ments and, if necessary, adapt these to the new set of rules • suppliers should not adopt unilateral policies with an anti-competitive goal and invite distributors impliedly or expressly to join the pursuit of this goal • distributors if in receipt of such invitations should not engage in any activity which may reveal tacit acquiescence • suppliers and distributors should refrain from developing an information exchange system for monitoring passive parallel imports and/or use penalties in case of violations

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