A Subsidiary can have problems in case of competition disputes in the EU

The European Court has ruled in case C‑882/19 Sumal SL v Mercedes Benz Trucks España SL. This dispute has the following background:

Mercedes Benz Trucks España is a subsidiary company in the Daimler group, the parent company of which is Daimler. Between 1997 and 1999, Sumal acquired two trucks from Mercedes Benz Trucks España, via the intermediary Stern Motor SL, a dealership for the Daimler group.

On 19 July 2016, the Commission adopted Decision C(2016) 4673 final relating to proceedings under Article 101 [TFEU] and Article 53 of the EEA Agreement (Case AT.39824 – Trucks), a summary of which was published in the Official Journal of the European Union of 6 April 2017 (OJ 2017 C 108, p. 6) (‘the decision of 19 July 2016’).

According to that decision, 15 European truck producers, including Daimler, participated in a cartel that took the form of a single continuous infringement of Article 101 TFEU and Article 53 of the Agreement on the European Economic Area of 2 May 1992 (OJ 1994 L 1, p. 3), consisting of concluding collusive arrangements on pricing and gross price increases for trucks in the European Economic Area (EEA) and on the timing and the passing on of costs for the introduction of emission technologies for those trucks as required by the standards in force. For 3 of the participating companies, that infringement took place between 17 January 1997 and 20 September 2010 and, for the 12 other participating companies, including Daimler, between 17 January 1997 and 18 January 2011.

Following that decision, Sumal brought an action for damages before the Commercial Court n^o 07 of Barcelona, Spain seeking to obtain from Mercedes Benz Trucks España a payment of EUR 22 204.35, corresponding to the additional cost of acquisition that it bore due to the cartel in which Daimler, the parent company of Mercedes Benz Trucks España, had taken part.

By a judgment of 23 January 2019, that court rejected the action on the ground that Mercedes Benz Trucks España could not be sued by means of that action since Daimler, which alone is referred to in the Commission decision, must be regarded as solely responsible for the infringement concerned.

Sumal brought an appeal against that judgment before the referring court, which wonders whether the actions for damages following decisions of competition authorities making findings of anticompetitive practices may be brought against subsidiary companies which are not referred to in those decisions but which are wholly owned by the companies directly referred to in those decisions.

In that regard, it sets out the differences in the positions adopted by the Spanish courts. Whereas some of those courts accept that such actions may be brought against subsidiary companies, relying on the ‘doctrine of a single economic unit’, others reject such actions on the ground that that doctrine permits the civil liability of a subsidiary company to be attributed to a parent company but does not permit a subsidiary company to be sued as a result of the conduct of its parent company.

In those circumstances, the Provincial Court of Barcelona, Spain decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

‘(1)  Does the doctrine of the single economic unit developed by the [Court] itself provide grounds for extending liability from the parent company to the subsidiary, or does the doctrine apply solely in order to extend liability from subsidiaries to the parent company?

(2) In the context of intra-group relationships, should the concept of single economic unit be extended solely on the basis of issues of control, or can it also be extended on the basis of other criteria, including the possibility that the subsidiary may have benefited from the infringing acts?

(3) If it is possible to extend liability from the parent company to the subsidiary, what would be required in order for it to be possible?

(4) If the answers to the earlier questions support the extension of subsidiaries’ liability to cover acts of the parent company, would a provision of national law such as Article 71(2) of the [Law on the Protection of Competition], which provides only for liability incurred by the subsidiary to be extended to the parent company, and then only where the parent company exercises control over the subsidiary, be compatible with that line of the Court’s case‑law?’

The Court’s decision:

1. Article 101(1) TFEU must be interpreted as meaning that the victim of an anticompetitive practice by an undertaking may bring an action for damages, without distinction, either against a parent company who has been punished by the Commission for that practice in a decision or against a subsidiary of that company which is not referred to in that decision, where those companies together constitute a single economic unit. The subsidiary company concerned must be able effectively to rely on its rights of the defence in order to show that it does not belong to that undertaking and, where no decision has been adopted by the Commission under Article 101 TFEU, it is also entitled to dispute the very existence of the conduct alleged to amount to an infringement.
2. Article 101(1) TFEU must be interpreted as precluding a national law which provides for the possibility of imputing liability for one company’s conduct to another company only in circumstances where the second company controls the first company.

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OATLY lost a trademark dispute in the UK

The popular Swedish plant milk manufacturer OATLY lost a trademark dispute in the UK.

The case concerns a trademark application for PUREOATY for oat milk products filed by the family farm Glebe Farm.

Against this mark an opposition was filed by Swinish company based on several earlier marks OATLY for the same goods.

This case stirred up a lot of of negative comments for the company which was accused that of being bigger tries to block a smaller market competitor as the trademark applicant.

The Court dismissed the opposition in its entirety. Although finding some low level of similarity, the Court consider that from phonetic, visual and conceptual point of view both signs were not similar enough in order to create consumer confusion. The element PURE in the later mark was sufficient to overcome any possibility for such thing.

According to the Court, the common part OAT is descriptive for the relevant products and has not power to contribute to the potential similarity.

The claim that the mark tries to take unfair advantages from the established reputation of the earlier marks was dismissed too.

The claim for passing-off didn’t success either. The Court didn’t find any misrepresentation or misleading action by the Glebe Farm when using their PUREOATY mark.

This case is indicative how tricky could be a company to rely entirely or partially on descriptive terms for its trademarks. The Swedish company was successful before the EU Court regarding its slogan “It’s like milk but made for humans”  but in this new case failed. In addition, every attempt for monopolizing descriptive terms can cause negative public reaction that can even threaten the company’s sales. So managing such disputes can be really difficult. That’s why all of this has to be taken into account in the brand building strategy.

Source: Kilburn & Strode LLP – Ruby Vinsome за Lexology.

Perfume, competition and an EU Court decision

The European Court has ruled in Case C‑230/16 Coty Germany GmbH v Parfümerie Akzente GmbH. This case concerns the following:

Coty Germany sells luxury cosmetics in Germany. It markets certain brands in that sector via a selective distribution network, on the basis of a selective distribution contract also used by the undertakings affiliated to it. That contract is supplemented by various special contracts designed to organise that network.

Parfümerie Akzente has for many years distributed Coty Germany goods, as an authorised distributor, both at its brick-and-mortar locations and over the internet. Internet sales are carried out partly through its own online store and partly via the platform ‘amazon.de’.

It is apparent from the order for reference that, in its selective distribution contract, Coty Germany justifies its selective distribution system in the following terms: ‘the character of Coty Prestige’s brands requires selective distribution in order to support the luxury image of these brands’.

In this respect, as regards brick-and-mortar retail, the selective distribution contract provides that each of the distributor’s sales locations must be approved by Coty Germany, which implies compliance with a number of requirements, set out in Article 2 of that contract, relating to their environment, décor and furnishing.

In particular, in the words of Article 2(1)(3) of that contract, ‘the décor and furnishing of the sales location, the selection of goods, advertising and the sales presentation must highlight and promote the luxury character of Coty Prestige’s brands. Taken into account when evaluating this criterion are, in particular, the façade, interior décor, floor coverings, type of walls, ceilings and furniture, sales space and lighting, as well as an overall clean and orderly appearance’.

Article 2(1)(6) of the distribution contract states that ‘the signage for the sales location, including the name of the undertaking and any add-ons or company slogans, must not give the impression of a limited selection of goods, low-quality outfitting or inferior advice, and it must be mounted in such a way that it does not obscure the authorised retailer’s decorations and showrooms’.

Furthermore, the contractual framework linking the parties includes a supplemental agreement on internet sales which provides, in Article 1(3), that ‘the authorised retailer is not permitted to use a different name or to engage a third-party undertaking which has not been authorised’.

Following the entry into force of Regulation No 330/2010, Coty Germany revised the selective distribution network contracts as well as that supplemental agreement, by providing in the first subparagraph of Clause I(1) of that supplemental agreement that ‘the authorised retailer is entitled to offer and sell the products on the internet, provided, however, that that internet sales activity is conducted through an “electronic shop window” of the authorised store and the luxury character of the products is preserved’. In addition, Clause I(1)(3) of that supplemental agreement expressly prohibits the use of a different business name as well as the recognisable engagement of a third-party undertaking which is not an authorised retailer of Coty Prestige.

Parfümerie Akzente refused to sign the amendments to the selective distribution contract. Coty Germany brought an action before the national court of first instance, seeking an order prohibiting, in accordance with Clause I(1)(3), the defendant in the main proceedings from distributing products bearing the brand at issue via the platform ‘amazon.de’.

By judgment of 31 July 2014, that court dismissed that action on the ground that the contractual clause at issue was contrary to Paragraph 1 of the Gesetz gegen Wettbewerbsbeschränkungen (Law against restrictions of competition) or Article 101(1) TFEU. It found that the objective of maintaining a prestigious image of the mark could not, in accordance with the judgment of 13 October 2011, Pierre Fabre Dermo-Cosmétique (C‑439/09, EU:C:2011:649), justify the introduction of a selective distribution system which, by definition, restricted competition. That clause also constituted, in the view of that court, a hardcore restriction under Article 4(c) of Regulation No 330/2010.

Furthermore, the national court of first instance took the view that that clause did not meet the conditions for benefiting from an individual exemption either, since it had not been demonstrated that the general prohibition on internet sales via third-party platforms which it imposed resulted in efficiency gains of such a kind as to offset the disadvantages for competition that resulted from the restriction of the means of marketing. In any event, that court considered that such a general prohibition was unnecessary, since there were other means which were also appropriate but less restrictive of competition, such as the application of specific quality criteria for the third-party platforms.

Coty Germany brought an appeal against the judgment of the national court of first instance before the Oberlandesgericht Frankfurt am Main (Higher Regional Court, Frankfurt am Main, Germany). In that context, that court is uncertain as to whether the contractual arrangement existing between both parties to the dispute is lawful under EU competition law.

In those circumstances, the Oberlandesgericht Frankfurt am Main (Higher Regional Court, Frankfurt am Main) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

‘(1) Do selective distribution systems that have as their aim the distribution of luxury goods and primarily serve to ensure a “luxury image” for the goods constitute an aspect of competition that is compatible with Article 101(1) TFEU?

(2) Does it constitute an aspect of competition that is compatible with Article 101(1) TFEU if the members of a selective distribution system operating at the retail level of trade are prohibited generally from engaging third-party undertakings discernible to the public to handle internet sales, irrespective of whether the manufacturer’s legitimate quality standards are contravened in the specific case?

(3) Is Article 4(b) of Regulation No 330/2010 to be interpreted as meaning that a prohibition of engaging third-party undertakings discernible to the public to handle internet sales that is imposed on the members of a selective distribution system operating at the retail level of trade constitutes a restriction of the retailer’s customer group “by object”?

(4)  Is Article 4(c) of Regulation No 330/2010 to be interpreted as meaning that a prohibition of engaging third-party undertakings discernible to the public to handle internet sales that is imposed on the members of a selective distribution system operating at the retail level of trade constitutes a restriction of passive sales to end users “by object”?’

The Court decision is:

1. Article 101(1) TFEU must be interpreted as meaning that a selective distribution system for luxury goods designed, primarily, to preserve the luxury image of those goods complies with that provision to the extent that resellers are chosen on the basis of objective criteria of a qualitative nature that are laid down uniformly for all potential resellers and applied in a non-discriminatory fashion and that the criteria laid down do not go beyond what is necessary.

2.  Article 101(1) TFEU must be interpreted as not precluding a contractual clause, such as that at issue in the main proceedings, which prohibits authorised distributors in a selective distribution system for luxury goods designed, primarily, to preserve the luxury image of those goods from using, in a discernible manner, third-party platforms for the internet sale of the contract goods, on condition that that clause has the objective of preserving the luxury image of those goods, that it is laid down uniformly and not applied in a discriminatory fashion, and that it is proportionate in the light of the objective pursued, these being matters to be determined by the referring court.

3.  Article 4 of Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices must be interpreted as meaning that, in circumstances such as those at issue in the main proceedings, the prohibition imposed on the members of a selective distribution system for luxury goods, which operate as distributors at the retail level of trade, of making use, in a discernible manner, of third-party undertakings for internet sales does not constitute a restriction of customers, within the meaning of Article 4(b) of that regulation, or a restriction of passive sales to end users, within the meaning of Article 4(c) of that regulation.

Prestige, trademarks, reputation and online sales – an Advocate General’s opinion

The Advocate General N. WAHL has given an opinion on case C‑230/16 Coty Germany GmbH v Parfümerie Akzente GmbH. The case concerns the following:

Coty Germany is one of Germany’s leading suppliers of luxury cosmetics. It sells certain luxury cosmetic brands via a selective distribution network, on the basis of a distribution contract employed uniformly throughout Europe by it and the undertakings affiliated to it. That contract is supplemented by various special contracts designed to organise that network.

Parfümerie Akzente has for many years distributed Coty Germany’s products as an authorised retailer, both at brick and mortar locations and over the internet. Internet sales are made partly through its own online store and partly via the platform ‘amazon.de’.

It is apparent from the decision for reference that, in the introduction to the selective distribution contract, Coty Germany justifies its selective distribution system in the following terms: ‘the character of Coty Prestige’s brands requires selective distribution in order to support the luxury image of these brands’.

In that regard, as regards brick and mortar retail, the selective distribution contract provides that each point of sale of the distributor must be authorised by Coty Germany, and must meet certain standards, set out in Article 2 of the contract, in terms of environment, décor and furnishing.

In particular, according to Article 2(1)(3) of the distribution contract, ‘the décor and furnishing of the sales location, the selection of goods, advertising and the sales presentation must highlight and promote the luxury character of Coty Prestige’s brands. Taken into account when evaluating this criterion are, in particular, the façade, interior décor, floor coverings, type of walls, ceilings and furniture, sales space and lighting, as well as an overall clean and orderly appearance’.

Article 2(1)(6) of the distribution contract states that ‘the signage for the sales location, including the name of the undertaking and any add-ons or company slogans, must not give the impression of a limited selection of goods, low-quality outfitting or inferior advice, and it must be mounted in such a way that does not obscure the authorised retailer’s decorations and showrooms’.

Furthermore, the contractual framework linking the parties includes a supplemental agreement on internet sales, which provides, in Article 1(3), that ‘the authorised retailer is not permitted to use a different name or to engage a third-party undertaking which has not been authorised’.

In March 2012, Coty Germany revised the selective distribution network contracts and also that supplemental agreement, and provided in Clause I(1) of that supplemental agreement that ‘the authorised retailer is entitled to offer and sell the products on the internet, provided, however, that that internet sales activity is conducted through an “electronic shop window” of the authorised store and the luxury character of the products is preserved’. In addition, Clause I(1)(3) of that supplemental agreement expressly prohibits the use of a different business name and also the recognisable engagement of a third-party undertaking which is not an authorised retailer of Coty Prestige. A footnote to that clause states that ‘accordingly, the authorised retailer is prohibited from collaborating with third parties if such collaboration is directed at the operation of the website and is effected in a manner that is discernible to the public’.

Parfümerie Akzente refused to approve those amendments to the distribution contract and Coty Germany brought an action before a national court of first instance, seeking an order prohibiting Parfümerie Akzente from distributing products bearing the brand at issue via the platform ‘amazon.de’, in application of Clause I(1)(3).

By judgment of 31 July 2014, the competent national court of first instance, namely the Landgericht Frankfurt am Main (Regional Court, Frankfurt am Main, Germany) dismissed the application, on the ground that the contractual clause in question was contrary to Article 101(1) TFEU and to Paragraph 1 of the Gesetz gegen Wettbewerbsbeschränkungen (Law against restrictions of competition).

That court considered, in particular, that, in accordance with the judgment of 13 October 2011, Pierre Fabre Dermo-Cosmétique (C‑439/09, EU:C:2011:649), the objective of preserving a prestige brand image does not justify the introduction of a selective distribution system which by definition restricts competition. According to the national court of first instance, the contractual clause at issue is also a hardcore restriction, within the meaning of Article 4(c) of Regulation No 330/2010, and cannot therefore benefit from a block exemption on the basis of that regulation.

Nor — still according to the national court of first instance — are the conditions for an individual exemption met, since it has not been shown that the general exclusion of internet sales via third-party platforms entails efficiency gains of such a kind as to offset the disadvantages for competition that result from the clause at issue. That court considers that the general prohibition provided for in that clause is not necessary, since there are other equally appropriate means that are less restrictive of competition, such as the application of specific quality criteria for the third-party platforms.

It was in those circumstances, and in the context of Coty Germany’s appeal against the decision of the national first-instance court, that the Oberlandesgericht Frankfurt am Main (Higher Regional Court, Frankfurt am Main) decided to stay proceedings and to refer the following questions to the Court for a preliminary ruling:

‘(1) Do selective distribution systems that have as their aim the distribution of luxury goods and primarily serve to ensure a “luxury image” for the goods constitute an aspect of competition that is compatible with Article 101(1) TFEU?

(2) If the first question is answered in the affirmative:

Does it constitute an aspect of competition that is compatible with Article 101(1) TFEU if the members of a selective distribution system operating at the retail level of trade are prohibited generally from engaging third-party undertakings discernible to the public to handle internet sales, irrespective of whether the manufacturer’s legitimate quality standards are contravened in the specific case?

(3) Is Article 4(b) of Regulation [No 330/2010] to be interpreted as meaning that a prohibition of engaging third-party undertakings discernible to the public to handle internet sales that is imposed on the members of a selective distribution system operating at the retail level of trade constitutes a restriction of the retailer’s customer group “by object”?

(4) Is Article 4(c) of Regulation [No 330/2010] to be interpreted as meaning that a prohibition of engaging third-party undertakings discernible to the public to handle internet sales that is imposed on the members of a selective distribution system operating at the retail level of trade constitutes a restriction of passive sales to end users “by object”?’

The Advocate General’s opinion is:

(1) Selective distribution systems relating to the distribution of luxury and prestige products and mainly intended to preserve the ‘luxury image’ of those products are an aspect of competition which is compatible with Article 101(1) TFEU provided that resellers are chosen on the basis of objective criteria of a qualitative nature which are determined uniformly for all and applied in a non-discriminatory manner for all potential resellers, that the nature of the product in question, including the prestige image, requires selective distribution in order to preserve the quality of the product and to ensure that it is correctly used, and that the criteria established do not go beyond what is necessary.

(2) In order to determine whether a contractual clause incorporating a prohibition on authorised distributors of a distribution network making use in a discernible manner of third-party platforms for online sales is compatible with Article 101(1) TFEU, it is for the referring court to examine whether that contractual clause is dependent on the nature of the product, whether it is determined in a uniform fashion and applied without distinction and whether it goes beyond what is necessary.

(3) The prohibition imposed on the members of a selective distribution system who operate as retailers on the market from making use in a discernible manner of third undertakings for internet sales does not constitute a restriction of the retailer’s customers within the meaning of Article 4(b) of Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) on the Treaty of the Functioning of the European Union to categories of vertical agreements and concerted practices.

(4) The prohibition imposed on the members of a selective distribution system, who operate as retailers on the market, from making use in a discernible manner of third undertakings for internet sales does not constitute a restriction of passive sales to end users within the meaning of Article 4(c) of Regulation No 330/2010.