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Monday, 11 August 2014

Changing dealer margins does not breach EU competition rules

Our friends at Van Bael and Bellis in Brussels report in their newsletter, VBB on Competition Law (2014 no 6) that the Commission has rejected a rather optimistic-looking complaint from the Italian dealer association, Federauto, alleging that Volkswagen Group Italia's SEAT dealer agreements violated EU competition rules by reducing dealers' margins from 15.85 to 12.85 per cent, and converting part of the margin from fixed to variable. Typically the wholesale price is calculated by subtracting the dealer margin from the recommended retail price.

Federauto argued that this violated the rationale behind the dealer protection provisions of Regulation 1400 and of Regulation 330. It seems that they did not say that the letter of the regulation had been violated, but its spirit: and invoking dealer protection measures in Regulation 330 looks like a triumph of hope over experience. The Commission rejected the complaint, not apparently by reference to the block exemption but by reference to Article 101, which it thought had not been infringed - there was no evidence that competition was restricted, the clauses in the agreements complained of were not hardcore restrictions, and the application of the new margins was not resale price maintenance.

Perhaps more interesting is the complaint that the manufacturer did not have a code of conduct for relations with dealers. Of course, the Supplemental Guidelines say that having a code of conduct is a relevant factor in assessing a supplier's conduct in individual cases concerning pressure on dealers to achieve anti-competitive outcomes, and the lack of an agreed code of conduct remains a highly contentious issue. Here, though, it cut no ice, because there was no suggestion that the manufacturer had been applying pressure for such outcomes on the dealers - just because there is no code of conduct does not mean that there is a breach of the rules.

VBB opine that this is an important case, showing that dealer protection, eliminated with the expiry of Regulation 1400, is dead and buried. Indeed it is, as far as the block exemption is concerned: it remains possible that a dealer protection issue could have effects prohibited by the competition rules and not exempted by Regulation 330, and it also remains possible that some other legislation will fill the gap one day, even if the block exemption continues to maintain its laissez-faire approach.

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