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Thursday, 28 June 2012

Brussels conference session 2

Thomas Funke of Osborne Clarke had the task of talking about aftermarket competition and access to technical information. He wondered whether the automotive sector would become like the IT sector, especially as they become more like computers on wheels and the aftermarket becoming more valuable than vehicle sales. The French Autorité de la Concurrence (ADLC) has produced a draft report (having embarked on an investigation into the car market rather like the ones the Monopolies and Mergers Commission or Competition Commission used to do every few years) and it seems to confirm most of what the Commission's evaluation report found. It has a lot to say about the spares market ...
The ADLC's report  (the final version of which will be published in the Autumn) takes a detailed view of access to technical information. It considers, for example, the need for information to be aggregated - information about several marques being made available to authorised repairers handling more than one.
Remote diagnostic support is covered by the type approval framework, in the CV sector, and as vehicles become more and more like computers (internet-enabled ones, at that) remote data will be a more and more important issue. That's in the Euro IV system. What about Euro 5? There are some interesting topics here - service records, for one thing. If service records are kept electronically, you won't be able to hand it over when you sell the car - and in addition independent service providers won't have access to a vehicle's service record. Euro 5 is designed to deal with this, insisting that access must be given to the database containing all these data. The VM is also required to make available information about which parts are suitable for the car identified by a particular VIN. Interesting to see that the Commission takes the view that the definition of "database", missing from the type approval legislation, should be borrowed from the database directive!
Brand-specific tools are an emerging problem. They could have a significant impact on competition, given that buying multiple sets would be prohibitively expensive. Training can be expensive (he remarked that the same could be said of legal conferences: but he should have excluded the Motor Law conference from that generalisation). The growth of telematics poses new competition problems: they must not be allowed to limit the consumer's choice of service provider. They should be regarded as essential facilities, or perhaps in the same way as computer interfaces. The Microsoft decision, in which the Commission insisted that alternative browsers should be made available on a par with Internet Explorer, has lessons for this area. The Toll-Collect decision also has an impact on this area.
E-call also has ramifications for using this information to book a service for a vehicle - if the authorised network has exclusive access to this information it could be a major clog on competition. Likewise, the telematics might give early warning of a breakdown - valuable information for the authorised network if they alone had it. Commissioner Kroes has indicated that she is concerned to preserve consumer choice in this area.
The misuse of warranties remains a topical matter. The guidelines dealt with the subject a while back, and the Commission makes clear that it makes no difference whether it's a purchased warranty or the manufacturer's original offering. In the Saab case (2011) the Bundesgerichtshof analysed this from the consumer protection perspective, not the competition law perspective. It thought that only where inappropriate service behaviour was the reason for the failure should the warranty be voidable. There is a difference between mechanical and corrosion warranties as regards the need for inspection by an authorised person - but the BGH was unable to consider the full implications because competition points were not pleaded. We must await the Stockholm market Court judgment in the Kia case for further clarification (it is expected in October).
Joseph Vogel observed that the ADLC document is merely a preliminary report - it is more like a statement of objections, and VMs consider that they comply. VMs and dealers have appealed against it.
Anne Wegner, of the Luther law firm, spoke about distribution in the aftermarket. She began by casting the BGH as resisting the approach the Commission thinks it is taking to competition in the aftermarket, with its MAN judgment. Kia's approach in the Netherlands, imposing no restrictions, challenges the Commission's view that qualitative selection is the only way forward. They thought this would prevent them from having enough dealers. They realised that the only restriction that mattered was sales of parts to non-authorised resellers, and they could do without that. There is a lot of leakage anyway, partly because it was always necessary to supply independents for repair work but in practice one could never check that they weren't buying for resale. So Kia's agreement in the Netherlands contains no restrictions that require exemption, so there is no need to use qualitative selection.
She raised an interesting question about the refusal of an appointment to the network: that cannot be caught by Article 101(1) because there is no restrictive agreement. If the manufacturer were in a dominant position that would be relevant, but the application of Article 101 to refusals appears flawed. Interesting.
She then turned to the MAN decision. The new block exemption is unspecific on market definition, unlike Regulation 1400 - which had expired before this case came along. The Commisssion takes the view that the manufacturer's market share in the aftermarket includes supplier-owned repair shops and authorised repair shops. But the Commission's information on this is old, predating 2002, and fails to take account of differences between premium and volume brands which will be significant.
In the MAN case the repair shop claimed a right to be appointed based on German dominance rules, which apply a one-third market share rule.
The BGH said that where the end customer buys services is not the important thing for assessing dominance or market share. The important thing is whether the repairer really needs the contract in order to be active on the market. What is the market? It's all the goods and services needed to provide the services - and the authorised repairer contract is not one of them. As for the assumption that the market is brand-specific, because you are looking at it from the repairer's perspective, the market is not brand-specific. relevant market is upstream from consumer, which is what the Commission usually looks at.
Consequently, quantitative selective distribution is permissible, the block exemption applies, single branding is permitted - the whole model of the aftermarket posited by the Commission falls apart.
So is there an argument for saying that the market share for new vehicles and repair services should be aggregated? In the truck market, buyer's take whole life costs into account but they don't in the car market. This raises interesting questions about how to account for guarantee costs, which is likely to reduce the market share - even within the Commission's view of the matter.
Joseph Vogel addressed the matter of the aftermarket from the point of view of vehicle manufacturers and suppliers (consistent with the nature of his clientele). He spoke more about ADLC investigation - an own-initiative one - and its consultation document (rather different from a draft report!). It has been working on the matter for a year - and it has identified a number of issues, including protection for spare parts designs. However, although the issues in a market study might be more important than those in a competition infringement, the enterprises being investigated have far fewer rights - even though the economic impact of the proceeding might be more damaging to them than a formal penalty for a breach of competition rules. He explained why the manufacturers were so opposed to the investigation, including the point that given that European Union law reigns here there is no place for a national investigation.
The new block exemption regime raises seven points of importance when drafting contracts. It weakens the separation between sales and aftersales activities. It is permissible to ask distributors to do maintenance and repair work but no longer mandatory.
It is now accepted that warranties cannot be conditional on repair and maintenance within the network, but in France it has also been decided that the customer cannot be required to prove that a defect is not the fault of the independent repairer. The competition authority also takes the view that the same principles should apply to warranty extension. French consumer law also has to be borne in mind here: the law states that a "loss of warranty" clause has to be regarded as an unfair provision. Other countries (Germany,for example) has implemented the relevant directive in a different way.
What about the use of alternative tools and equipment? Can the manufacturer prohibit this? This coud be an abuse of a dominant position if there is no objective justification.
As for non-compete restrictions, which are not exempted under the new regulations, it seems in principle that they cannot be exempted individually, as far as the Commission is concerned.
The ADLC considers that there are too many price restrictions (maximum and minimum recommendations). But the VMs say they serve a useful purpose, and protect consumers from over-charging by dealers. The ADLC thinks that this leads to uniformity of pricing, though.
Recommended prices are also given for packages, and the practice has not previously been questioned. It gives consumers certainty and saves repairers time. But in practice contracts may not contain fixed or minimum prices, only recommended maximum prices.
Audit and inspection clauses in the contract are regulated quite differently from one country to another. Termination for fraud uncovered by such an audit can be a problem: it might be necessary (as it is in France) to allow the dealer to defend itself.
Incentive schemes are a complicated issue. they may constitute a vertical restriction if they have foreclosure effects. They have to be assessed on a case-by-case basis as the Commission acknowledged in its evaluation report. 1475 required different "baskets" to be created, to prevent full-line forcing, but that is watered down now. Captive and competitive parts must still be distinguished, and more falilies or baskets is better. there shoud be no fidelity-enhancing effect.

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