Amazon plan to disrupt the car market

So, as reported in Auto Retail Network and lots of other places, Amazon are planning to enter the car market using the UK as a guinea pig (or, perhaps, proof of concept). Maybe the time is ripe with the country set to distance itself from the system of competition law that allows vehicle manufacturers and importers to restrict supplies to authorised dealers. The block exemption has not been popular in the UK, initially because it enabled suppliers to charge higher prices here than on the continent (something tells me that the sort of mindset that caused car buyers to head off to Belgium or The Netherlands back in the eighties might well have led them to vote leave in 2016 - but it's no more than a feeling). Maybe Brexit will be an opportunity to shake up what is seen by many as an unjustifiably privileged sector, insulated from normal competitive pressures.

Amazon have tried in a small way to sell cars before (Fiats in Italy: how could that go wrong?). Tesco have tried online car sales for a short time, and there have been other attempts to use ecommerce to cut out the middleman. Further back in history, there was Asdadrive, which emerged in the mid-eighties and made scarcely a ripple - and has disappeared so comprehensively that there's almost nothing to be found on the Internet save for some Companies House records.

It is trite to remark that selling cars is not like selling baked beans. You don't trade in your previous beans when you buy a new can, for a start. There is no continuing servicing and repair requirement, no market for spare parts, no way of adding accessories, no opportunity to sell financial services ("products", as they are weirdly called) as well. (Or, to put it another way, these days the cars are often ancillary to the financial services). For these reasons selective distribution remains the optimal way to service a complicated market, although those complications change over time as service intervals become longer, cars become more reliable, and the chances of effecting an economic repair when a prang occurs tend towards zero. (The bumper is supposed to save the car from damage, but the sensors now mounted in it make replacement prohibitively expensive.) So Amazon might find that they have bitten off more than they can chew, though with sales and service being separated by the block exemption the landscape is different from that which faced Asdadrive. Maybe, as Brexit approaches, this will be seen as an excuse to dispense with the block exemption - a  move that could be dressed up as consumer benefit, potentially a popularist aspect of leaving the EU. And another chicken that would come home to roost a few years later, I suspect.

'via Blog this'

IAAF calls guilty verdict against Kia a 'major victory' for IAM | Professional Motor Mechanic

Professional Motor Mechanic reports an appeal decision in Sweden which IAAF has hailed as a major victory for the independent sector. In December 2012, the Market Court in Sweden had ruled (MD 2012:13) that exclusivity clauses in Kia's 7-year warranty contracts breached competition rules. If the customer breached the terms, the warranty was not void - it was reduced to three years (although whether the terms remained the same is not clear). The company was ordered to allow its customers to choose independent repairers as well as authorised ones, and was fined SEK 5 million. Three years later the Supreme Court in Stockholm dismissed Kia's application for leave to appeal and for a retrial.

Manufacturers are generally prohibited from refusing to honour a vehicle's warranty on grounds only that it has been serviced by a non-authorised repairer or non-original parts have been fitted. Kia's warranty required servicing to be carried out by an authorised workshop. The Association of Swedish Car Parts Wholesalers (SBF), the Swedish member of FIGIEFA, reported the matter to the Competition Authority, which declined to take action. The SBF then took legal action against the manufacturer in the Market Court, which granted an injunction against Kia under Chapter 3, section 2 of the Competition Act - a provision which enables a party to obtain an injunction to bring an infringement to an end, when the Competition Authority has decided not to proceed. (Of course, that's a different matter from the Competition Authority deciding that no infringement has been committed: it might well decide not to proceed for other reasons, perhaps - I'm guessing here - because there is insufficient public interest, although this shouldn't have been a case where that was a good reason for not devoting resources to it.) In essence, it allows a private interest to take action where the public body hasn't.

Section 2 does not enable the party bringing the action to claim damages, but it does deal directly with the problem - and there remains the possibility of a follow-on action for damages anyway. The Market Court has decided a number of cases - 14, according to the CELEC report, which is now three years old: and the petitioner has been successful in "several" of them.

The Market Court took the view - unsurprisingly, I think - that the relevant market for servicing and repairs was a brand-specific one. It decided that the condition in the warranty had serious foreclosing effects because independents were excluded from competing: one of the objects of the condition was to restrict competition. It would be prohibited under Article 101 TFEU and the equivalent provision in the Swedish competition law.

Prof Henriksson of the Center [sic] for European Law and Economics (CELEC) questions whether it is correct to view the agreement between Kia and its authorised repairers as restricting competition because of the condition imposed on customers. It's an interesting point, although it might be answered by scrutinising the authorised repairer agreement. If Kia have been clever, though, I guess the agreement will be silent on the matter and the restriction will be imposed through the back door, by deterring consumers from going elsewhere. Perhaps the AR agreement says that dealers will not honour warranties in the prescribed circumstances - or in practice they will be prevented from doing so, within the framework of the AR agreement, by the fact that they won't get paid for their work.

Prof Henriksson also asks whether this is indicative of a difference of opinion between the competition authority and the court about what amounts to a breach of the prohibition. That seems unlikely: Christer Liljenberg, Chairman of SBF, is quoted by FIGIEFA as saying that the competition authority had indicated that it did seem to be a breach.

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.

Competition Law Challenges in the Motor Vehicle Sector 2014

This well-established annual event takes place on 24 June 2014, at the Sheraton Brussels Hotel, Brussels, Belgium.

Join IBC’s cutting-edge forum Competition Law Challenges in the Motor Vehicle Sector to analyse recent cases such as KIA, Jaguar Land Rover and BMW. Debate the wide-ranging consequences of recent policy developments for the motor vehicle sector, such as the Commission’s upcoming new Damages Actions Directive.

Key reasons to attend:

• Gain updates and insights into the most crucial competition law developments in the motor vehicle sector
• Examine practical challenges of recent cases in a unique collaborative atmosphere
• Review the impact of the changing rules and how best to master their implementation
• Discuss the current legal framework (or lack of it)

This high-level, must-attend forum will provide in-depth, but practical legal analysis of the main issues that confront vehicle manufacturers, dealers and repairers, parts manufacturers, parts distributors and the independent after-sales market.

Learn more, see the latest agenda and register with a 20% discount courtesy of Motor Law today at http://www.ibclegal.com/FKW82462MLAWB

Commission wants code of conduct between dealers and manufacturers before the end of the CARS 2020 discussions » Automotive World

So says a press release from CECRA:

During a meeting of the CARS 2020 Sherpa Group on 9 December 2013, the Commission reiterated its desire for dealers and manufacturers to reach an agreement on how to improve vertical relations in the sector.
The Commission informed CARS 2020 stakeholders that work still needs to be done on the issue of vertical agreements. The topic is very important for the dealers, who made it clear since the beginning of CARS21 discussions – now followed by CARS 2020 - that it is their priority to reach an agreement on this issue. In its CARS 2020 Action Plan, the Commission noted that:
The changes in the competition law framework for the distribution of motor vehicles in Europe (further to the expiry of the Motor Vehicle Block Exemption Regulation 1400/2002) may have an impact on the organisation of the vertical relations between vehicle manufacturers and distributors. In order to manage this transition in a balanced way, a self-regulatory initiative is encouraged by the Commission.
A majority of CARS 2020 stakeholders have expressed their strong support for a voluntary code of conduct in the field of vertical agreements. The Commission is currently examining different options to re-launch the dialogue between the parties concerned. At yesterday’s meeting, the Commission indicated that is has ‘other political tools’ at its disposal which could be used in case the dialogue is not successful. This is a clear message to the manufacturers, who have again been invited to reach an agreement with dealers on a code of conduct.
The European Car Dealers’ (ECD) division of CECRA welcomes this as a step forward in improving vertical relations in the automotive sector. The division has submitted concrete proposals to the manufacturers with regard to the self-regulatory approach promoted by the European Commission. In particular, the ECD and CECRA are asking for:

• the freedom to transfer the sales contract to a member of the authorised network
• the freedom to sell different brands at one site (multi-branding)
• the compensation of investments after termination of sales contract by the manufacturer which was not caused by dealer.

IBC's annual conference on competition law challenges in the motor vehicle sector (25 June)

For several years now, IBC Legal Conferences' annual event in Brussels has been almost compulsory for block exemption aficionados (or should that be aficionadi? Evidently not, according to the Bloomsbury Concise English Dictionary, which came most easily to hand when I reached towards my shelf of reference books, as it comes from Spanish rather than Italian. I am however disturbed to find that its original Spanish meaning was a devotee of bull-fighting, so notwithstanding the broader sense it has acquired in English I will use it carefully in future). I have been to the conference several times - once even to speak at it, and last year to blog extensively (here, et seq) - and it is invariably excellent. Not uniformly excellent: the conference organiser who assembles a programme with no duff session is lucky indeed, but IBC maintain a generally high standard across the whole day. Details of this year's edition can be found here.

The cast is pretty consistent, too. Looking over the list of speakers for this year's event, much of it is exactly the same as last year's - and why not? If it works, don't change it. The regular speakers are all excellent, and well-informed about the subject (which is why, apart from the fact that he's a friend, I invited one of them, Joseph Vogel, to speak at this year's Motor Law conference).

This year, the programme ranges a little wider than just the block exemption (as it did last year, too). There will be a session on the global parts cartel (which Alex Haffner of SNR Denton covered at our conference in February), another on information exchanges, and one on telematics, a subject which raises some fascinating competition problems.

I will preview the conference in more detail over the coming weeks, during which the block exemption will be very much in my mind. Of course, the date of this event is close to the long-awaited day on which the new regime comes fully into operation, although dealing with implementation of the legislation isn't a key area for discussion - everyone will have that sorted out by then, one hopes. We'll be presenting our own block exemption seminar in September, but the events will be complementary - no reason not to take in both. In previous years, we have been able to offer Motor Law subscribers a 10 per cent discount, and I hope we can do so again this year.

That other block exemption

There is, of course, more than one block exemption, though in the motor industry it is possible to lose sight of all but one of them. To many people, strange as it may seem, the most important one is on technology transfer agreements - the regulation which started off, many years ago, as the patent licensing block exemption and the related (but later) know-how licensing one, which were later merged.

Now the Commission is preparing a new TT block exemption, and guidelines. It won't be very different from the old one, which expires on 30 April, but there will be a change to the key definition which sets the regulation's scope, to include agreements that containg provisions relating to the purchase of products or the assignment of other intellectual property rights, provided that these are "directly and exclusively" related to the production of the contract products.

Also, the 20 per cent market share threshold will apply to agreements between non-competitors where the licensee owns technology which it only uses for inhouse production and which is substitutable for the licensed technology.

The Commission also proposes to revise the current excluded restrictions, to catch all exclusive grant-backs.

There is much more that could be said about this - but I'm working on the assumption that readers will either not be interested enough to read more, or will have found what they need elsewhere. A topic, I think, for my IP blog instead.

Related articles

• EU opens public consultation on revised Technology Transfer Block Exemption Regulation

Motor Law conference report

We are greatly obliged to Motor Law's good friend Steve Hamilton of Auto Retail Manager for writing this report of proceedings at Motor Law's 2013 conference, and to Frank Dumbleton for the photos ...

 

Block Exemption and the car market

Joseph Vogel, a French avocat specialising in competition and distribution law, said most manufacturers appeared to be sticking with the qualitative and quantitative system that has been dominant under the existing regime – at least for now, and partly due to the fragile nature of the economy. “Manufacturers recognise that now is not the time to be making major changes,” he said.

Looking at the new clauses and obligations that were likely to feature in new dealer agreements, he said that overall there was generally less protection for retailers. For example, he said, most agreements have retained the two-year notice period, but the need to give good reasons for termination has gone.

Obligations around the transfer of contract business (i.e. if a dealer wants to sell to another dealer) have gone from most contracts – and that is a good thing, Mr Vogel said. Similarly, the possibility of opening a secondary outlet no longer exists in most contracts.

The requirement for referring to arbitrators or independent experts is no longer a condition, but remains in most contracts – albeit often limited to disputes about objectives.

Brand exclusivity can be enforced if a network has less than a 30% market share, usually for a period of up to five years.

Many networks are currently in the transition phase towards setting up a new distribution system and one way of doing that, according to Mr Vogel, is to terminate all contracts with two years’ notice, simply on the grounds of the need to adapt. Alternatively, a manufacturer could propose a new contract, or an amendment to distributors, and only terminate if there is a refusal to accept the changes.

Block Exemption and the aftermarket

Should spare parts be treated as brand-specific? That was the question posed by Marjorie Holmes of Reed Smith, and the answer will determine the nature of the contract that manufacturers can write with their dealers and repairers.

If you take the brand-specific view, she said, you have automatically defined a narrow market and inevitably the vehicle manufacturer will be deemed to have a dominant position – which automatically gives rise to competition law problems.

However, if you take a more generous view of spare parts and include all the generic manufacturers in the market as well, then the vehicle manufacturer’s position is much smaller.

Block Exemption FAQs

Barrister Jonathan Turner looked at the EC’s FAQ document on Block Exemption, noting where they go further than the competition regulations (such as the supply of parts to independent repairers), and where they are perhaps more lenient (for example on making bonuses or rebates for captive parts conditional on the sourcing of captive parts).

On the subject of supplying technical data to tool manufacturers, he said he would be nervous about restricting the supply of information about a new multi-brand tool on the market. And while the FAQs say a requirement to use specified electronic tools or equipment for servicing or repairs would be unlikely to lead to a breach of EU competition rules, Mr Turner said he was unsure about this – if it is more than five years it is probably anti-competitive, he said.

However he warned that the courts could take a different view on some issues, given that judges tend to operate based on the merits of the parties involved and not necessarily on the best interests of consumers.

Cartel investigations in the parts market

The world’s biggest ever competition law investigation is focused on the parts industry right now, Alex Haffner of SNR Denton said, involving a co-ordinated approach across different jurisdictions.  Australia is the latest country to come on board with regard to the supply of wire harnesses, and others are expected to join.

Ultimately, Mr Haffner said, it could lead to lower Original Equipment prices.

Japanese executives have already admitted that procurement processes have been rigged for more than the past ten years. Most manufacturers will have been affected, and follow-on actions for damages have already started.

In the USA for example, total fines of more than $800 million have been levied (including $471m against Yazaki) against suppliers of wire harnesses, thermal system controls, instrument panels and automotive bearings, and a number of executives have been jailed. There are also various investigations pending, in the areas of safety equipment, brakes, bearings and fuel systems.

Within the EU, no formal sanctions have yet been imposed, but formal proceedings have been instigated against some wire harness makers. There have also been some ‘dawn raids’ in relation to other car parts, including safety systems, ball bearings and thermal systems. Leon AG, for example, has confirmed that it is under investigation.

Mr Haffner suggested that, within Europe, the UK could become the forum of choice for would-be complainants – and that while the big losers in all this have been the car makers, because their procurement processes were rigged, potentially anyone who has bought a car in the past ten years could be in line for damages.

Summing up, he highlighted the risks involved in exchanging information, for example in collaborative ventures. Even bilaterally exchanged information between two suppliers could be enough for the authorities to take an interest, he said, adding that car makers would have to look at how they run their procurement processes. We could see non-price comparators like quality and innovation playing a larger role.

The return of copyright protection for car parts?

Patent attorney David Musker (Jenkins), a long-standing conference favourite, took as the title of his talk "Section 52 and all that", reviewing the history of copyright protection in designs for car parts from the Morris Marina to the recent Star Wars case in the Supreme Court (Lucasfilms v Ainsworth). Section 52 of the Copyright, Designs and Patents Act 1988 would be repealed when the Enterprise and Regulatory Reform Bill becomes law - a reform required by EU designs law. It would not mean the return of copyright to the car spares industry, because section 51 is the provision that prevents BL v Armstrong coming back to haunt us - but there is no guarantee that it will not fall victim to some similar tidying-up exercise. Meanwhile, the so-called "repair clause" (Article 110 of the Community Designs Regulation) has been considered by the courts, in BMW v Round, and found wanting, leaving the UK's "must match" clause still governing designs for replacement parts and the old Ford case still good law.

The connected car

IHS Automotive recently predicted that by the end of next year, for some of the bigger brands, “every vehicle they sell will offer some sort of connectivity” via internet screens installed on the dashboard, and looking further ahead several companies are working on driverless vehicles.

Adam Aldred of Addleshaw Goddard predicted that not only will we soon be able to stream movies from the web to the car, but that car promotions would start focusing on the apps that are available to go with certain models, for instance to aid the driver or to keep other passengers entertained. 

Given that today’s smartphones, for example, are out of date within a few months, marrying what’s happening technologically with the lifespan of the typical car will be a big challenge for manufacturers, Mr Aldred said. But rather than create an environment in which the technology could be updated for subsequent owners, he said it might be in the manufacturers’ interest for their products to become obsolete within a few years – potentially eliminating the used vehicle market.

He also said that, because of concerns about hacking, manufacturers would have to ensure that the multi-media element was separate from the vehicle’s critical systems, and that the issue of driver errors due to distractions would have to be addressed. It is a criminal offence to use a mobile phone while driving (unless it is hands-free) so where, he mused, will the law draw the line with in-vehicle infotainment?

On the subject of location-based services such as remote diagnostics/repairs provided in future by OEMs and roadside assistance operators, Mr Aldred said that data protection could be a sensitive issue.

The changing face of motor finance

Responsibility for the regulation of consumer credit will move from the OFT to a new regulator, the Financial Conduct Authority, from April 2014, although there will be a transition period that runs into 2016. The initial consultation runs from April to June this year.

The licensing regime will change and businesses will need to re-apply, Stephen Dawson of Shoosmiths said, adding that although there was very little detail at present the deadlines are set in stone and that the Treating Customers Fairly guidelines give a good indication of the regulator’s expectations.

He said retailers needed to look at the aspects of their business that might be affected, and at the relationship with their captive finance house. Are your policies and procedures up to date, for example?

The FCA will be a very pro-active body and will be able to move much more quickly than the OFT has in the past, Mr Dawson stressed.

He also had some good news for the industry with regard to electronic signatures on finance documents. “By 2014, every captive will be doing it,” he said. “From a legal point of view, they need to be no less effective than a handwritten signature and I am certain they pose no issue or risk.”

He said the best method of capture would be software solutions based around an electronic pad with a stylus in the showroom. Not only is it quicker and more convenient for customers, it also means a faster payout and lower costs for retailers. “It’s the future for sure,” he said.

Consumer law update

Adrian Watts of WattsLegal brought the conference to a close with an overview of some significant trends and cases in consumer law over the past 12 months.

These included FSA v Digital Satellite Warranty Co, where the Supreme Court affirmed that FSMA authorisation was required for contracts assuming ‘risk of loss attributable to insured person’ (regardless of whether it is an obligation to repair/replace or reimbursing the cost of doing so); and R v Derby Car & Van Contracts, concerning the sale of pre-registered vehicles. A car was initially registered in the name of a third party to obtain a fleet discount, but was not registered in the customer’s name until up to six months later. Because this information was not disclosed, it left the customer exposed to offences under the Vehicle Excise Act and could also prejudice any insurance claim they made.

A delegate asked whether there would be any scope in writing conditional contracts, but according to the DVLA, Mr Watts said, “de-registration is not an option”.

He also addressed the log-awaited implementation of the Consumer Rights Directive, and the Consumer Bill of Rights which will introduce individual recourse and refunds for misleading statements and high-pressure sales tactics. 

Referring to the creation of a new raft of enforcement bodies this year and next, he said a lot more people would start representing themselves in person but that they would be given less leeway in court than perhaps they are today.

Auto 24 case: final decision from the French courts

The Auto 24 case, which I wrote about here, came back to the French courts from its short trip to Luxembourg and on 15 January 2013 the Cour de Cassation ruled that Jaguar Land Rover France was entitled to limit the number of dealers appointed to its selective distribution network in France.

The Cour de Cassation followed the Court of Justice's ruling, rejecting Auto 24's argument that JLR's limit on the number of its distributors restricted competition. The court stated that no legislation or regulation, national or EU, requires a manufacturer to justify its decision to draw up a numerus clausus as a criterion for quantitative selection. The clause in suit expressly limited the netwok to 72 dealership contracts for 109 sites, so it constituted a specified criterion whose content could be verified - which is what the Court of Justice said was needed. The supplier's freedom to define the scope and composition of its network therefore seems to be safe.

More details from Van Bael and Bellis via Mondaq (for which you might need a free subscription) here.

US: Tesla licensed in Massachusets

Tesla wins license to sell cars near Boston, says Automotive World. Not a matter of direct concern to us in Europe, but another illustration of the way dealers are protected in the United States. Tesla's approach to selling cars, which has been compared to Apple's retail operation, cuts right across dealer protection and licensing legislation, and is proving highly contentious (though I can't help feeling that the dealers are trying to stop an incoming tide). Hard to imagine having to obtain a licence to sell cars - hard also for Americans to imagine a manufacturer getting such a licence, as they are supposed to be there to protect dealers ...

Netherlands: Court rules on refusal to appoint repairers

Although it happened in July (on the 25th to be precise , reports of the decision of the Court of First Instance in Amsterdam have been slow to reach me. Brussels law firm Van Bael and Bellis, who have fingers in every interesting EU competition law case affecting the motor industry, and probably every other industry too, publicised it in their imaginatively-titled newsletter VBB on Competition Law in September, so it will be covered in the next Motor Law newsletter - but meanwhile you can follow the link to the horse's mouth.

The story is that three former authorised repairers brought an action against Kia Motors Nederland BV, which took over from the bankrupt former importer, claiming that it had unlawfully refused to reappoint them as repairers. The President of the Court ordered their temporary reappointment on 3 December 2009, and the case came before the Court on the merits this year.

In Case T-19/92, Groupement d'Achat Édouard Leclerc v Commission [1996] ECR II-1851, [1997] 4 CMLR 995 and Case T-88/92 Groupement d'Achat Édouard Leclerc v Commission  [1996] ECR II-1961, [1997] 4 CMLR 995 the Court of First Instance (now the General Court), referring to earlier cases, held that a selective distribution system is compatible with Article 85 (now Article 101 TFEU) if:

1. The characteristics of the product in question necessitate a selective distribution system, in the sense that such a system constitutes a legitimate requirement having regard to the nature of the product concerned, in particular its high quality or technical sophistication, in order to preserve its quality and ensure its proper use;
2. Resellers are chosen on the basis of objective criteria of a qualitative nature which are laid down uniformly for all potential resellers and are not applied in a discriminatory fashion;
3. The system in question seeks to achieve a result which enhances competition and thus counterbalances the restriction of competition inherent in selective distribution systems, in particular as regards price; and
4. The criteria laid down do not go beyond what is necessary.

Both parties, oddly, agreed that Kia Motors' system did not meet these criteria - Kia conceding that they did not admit to the system all repairers who met the qualitative criteria - but they differed about the consequences. The excluded repairers argued that the system was automatically illegal, whereas the manufacturer contended that it was still necessary to consider the compatibility of the system with the competition rules before coming to a conclusion. The Court agreed with Kia that just because it did not apply the criteria in a non-discriminatory fashion did not mean that it automatically infringed the competition rules.

The next question for the court was whether Kia had refused to appoint applicants who were not also dealers as authorised repairers. This was not a hard-core restriction under the relevant version of the block exemption, but if it had happened the system would be likely to be in breach of the rules. However, the facts showed that Kia did not restrict admission to the repairer network to applicants that were also dealers, so the question of whether there was a breach did not arise.

The would-be authorised repairers also tried to argue that Kia's warranties breached competition rules, because they required vehicles to be serviced by authorised repairers: but the court found no evidence to show that a warranty would in fact be invalidated if the vehicle were serviced by an independent.

There was also an argument that Kia were abusing their dominant position in the repair market, and the court agreed that Kia were in such a position. However, they were free to choose with whom to contract. It was inherent in the system that authorised and unauthorised repairers would be treated differently, and the court was satisfied that the unauthorised ones were quite capable of competing.

Commission publishes Frequently Asked Questions

The long-awaited FAQs on the block exemption have been published today, perhaps as a late birthday present for me: the press release is at http://europa.eu/rapid/pressReleasesAction.do?reference=IP/12/915&format=HTML&aged=0&language=EN&guiLanguage=en.

I'll post a commentary on them as soon as I have a chance to get my head round them. Only 12 pages, 18 questions, not including the most frequently-asked question of all ("When will the FAQs be published?") which they nevertheless answer ... There must be a lot of questions that have not been asked sufficiently often, as I'm sure there are more than 18 questions calling for answers.

Competition Law Challenges in the Motor Sector

IBC Legal Conferences hold what seems to be an annual conference on competition law in the automotive sector. In previous years it's been in February, but this year it's in June - next Thursday (28th) to be precise, in Brussels. You can read all about it here. The speaker panel seems to be a constant (although I have only ever been invited to speak once - did I say something wrong?): I have heard the same line-up in previous years and they are pretty good. I'm interested to see who the Commission speaker is ...

If you are interested in going, but haven't booked yet, Motor Law subscribers can enjoy (I use the word advisedly) a 10 per cent discount - drop me an email or give me a call if you wish to take advantage of this.

Court of Justice on criteria for choice of dealer in selective system

The Court of Justice handed down judgment today in Case C-158/11, Auto 24 SARL v Jaguar Land Rover France SAS, a reference from the Cour de cassation. It's an important decision on the application of Regulation 1400/2002 which will remain relevant after the new rules come into force this time next year. While I read and digest the judgment, here's an extract from the press release to be going on with:

The present case concerns the quantitative selective distribution system established by Jaguar Land Rover France (JLR), which refused to appoint the French company Auto 24 as an authorised distributor of new Land Rover  motor vehicles in Périgueux (France).  JLR’s distribution system provided for the possibility of concluding 72 dealership agreements for 109 sites, set out in a table in which the town of Périgueux does not feature. 

Auto 24 brought an appeal before the Cour de cassation (France) seeking, in essence, compensation for the loss resulting from the refusal to appoint it as an authorised JLR distributor in Périgueux. That court asks the Court of Justice to interpret the term ‘specified criteria’ [found in Article 1(1)(f) of the block exemption]. In essence, the question is whether, in order to benefit from that regulation, a quantitative selective distribution system must be based on criteria which are objectively justified and applied in a uniform manner in respect of all applicants for authorisation. 

... [T]he Court explains that it refers to criteria whose precise content may  be verified. It states that  it is not necessary that the selection criteria used be published, at the risk  of compromising business secrets, or even facilitating possible collusive behaviour.  

The Court  points out that  the exemption regulation lays down distinct conditions for application according to  whether the system in question is classified as ‘quantitative selective distribution’ or ‘qualitative selective distribution’. Therefore, if, in the context of the regulation, the quantitative selection criteria had to be objective and non-discriminatory, that would result in a conflation of the conditions required by the regulation for the application of the exemption regulation to qualitative selective  distribution  systems and those required for the application of the exemption to quantitative selective distribution systems. 

Consequently, the Court's answer is that, in order to benefit from the exemption regulation, a quantitative selective distribution system must be based, inter alia, on criteria whose precise content may be verified, but it is not necessary for such a system to be based on criteria which are objectively justified and applied in a uniform and non-differentiated manner in respect of all applicants for authorisation. 

The emphasis is in the original.

Should the block exemption be less generous to independent spares?

An article from law firm Reed Smith here argues that the way the block exemption deals with independent spares is out of step with the realities of a market in which people hold on to their cars for longer. In particular, because the Commission starts from the (rebuttable) assumption that authorised networks will have more than 30 per cent of the market, because the markets for spares and repairs are brand-specific, the block exemption will never apply. The article calls this "favouritism" towards the independent sector, and argues that manufacturers and their networks need to be able to recoup from the aftermarket what they don't make on the primary market when they sell vehicles.

Twas ever thus, wasn't it? I remember a few years ago hearing Prof Garel Rhys explaining how cross-subsidisation between was never a good idea: vehicle sales, parts sales and maintenance and repair have to stand on their own feet, and that is what the Commission is trying, with the blunt instruments at their disposal, to achieve.

Selling franchised dealerships

In addition to motor industry legal news here, I maintain a blog on the Block Exemption - not as frequently as I would like, but today I have posted a piece about the rules on transferring franchised dealerships and posting it on this blog as well seems unnecessary when a link will do just as well. I'll continue to use The Blog Exemption for block exemption news and comments.

Code of Conduct latest

The latest edition of Motor Law reports on developments on the much-vaunted Code of Conduct, intended to supplement the block exemption and re-establish a degree of dealer protection. The last word when the newsletter went to print was that the Commission had pressed ACEA to reach agreement with CECRA, with the threat that the Commission would impose something if the parties were unable to agree by November. Although ACEA, which has proposed a limited Code of Conduct, finds itself portrayed as the "baddie" (the inverted commas are to indicate that what's right and what's wrong in this situation depends almost entirely on where you are standing) it is important to remember that CECRA's original stance was to oppose a code and stick out instead for protective measures in the new block exemption - which of course were not forthcoming.

We now understand that ACEA has announced that it will not participate in further discussions about the content of a Code, which might well mean that the manufacturers will unilaterally promulgate their own Code without the additional protection sought by CECRA. Or maybe it's just another move in the perpetual game of horsetrading that goes on in Brussels ...

We also hear that the Q&A document on the new block exemption, promised by the Commission for July, will now not appear before September. Given the imminence of the summer holidays, that is no great surprise - perhaps any promise by the Commission that involves the delivery of something in July should instantly be discounted.

Block exemption effect on property market

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.