C-26/76

METRO v COMMISSION

in addition, such conditions promote 8. The separation of the functions of

improved competition inasmuch as wholesaler and retailer whereby it relates to factors other than prices. wholesalers are prohibited from Commission in­ Nevertheless, the must supplying private customers, ensure that this structural rigidity is cluding large-scale consumers, is in not reinforced, as might happen if principle in accordance with the

there were an increase in the number requirement that competition shall

of selective distribution networks for not be distorted. marketing the same product. 9. Since the function of a wholesaler is 7. Any marketing system based upon not to promote the products of a

the selection of outlets necessarily particular manufacturer but rather to

obligations undertaken in connexion petition falling within the ambit of

with verification are intended to Article 85 (1). ensure respect for the conditions of 10. The obligation on non-specialist

appointment regarding the criteria as wholesalers to open a special

to technical qualifications, they do department is designed to guarantee

not in themselves constitute a the sale of the products concerned

restriction on competition but are under appropriate conditions and

Metro SB-GROSSMÄRKTE GMBH & Co. KG, Schluterstraße 3, Düsseldorf 4, represented by Mr von der Osten, of the Dusseldorf Bar, with an address for service in Luxembourg at the Chambers of Robert Elter, 11 Boulevard Royal,

applicant, supported by:

Verband des SB-GROSSHANDELS E.V., Theaterstraße 8, Hannover 3, represented

by Mr Bartholatus, of the Hamburg Bar, with an address for service in

Luxembourg at the Chambers of Robert Elter, 11 Boulevard Royal, intervener,

JUDGMENT OF 25. 10. 1977 - CASE 26/76

Application for the annulment of the Decision of the Commission of the

European Communities of 15 December 1975 relating to a procedure under

Article 85 of the EEC Treaty (IV/847 -

SABA, OJ L 28 of 3. 2. 1976, p. 19),

THE COURT

composed of: H. Kutscher, President, M. Sørensen and G. Bosco, Presidents of Chambers, A. M. Donner J. Mertens de Wilmars, P. Pescatore, Lord Mackenzie Stuart, A. O'Keeffe and A. Touffait, Judges,

arguments of the parties be The Schwarzwalder Ap­ may undertaking summarized as follows: parate-Bau-Anstalt August Schwer und

METRO v COMMISSION

Söhne (hereinafter referred to as (a) German wholesalers are appointed '­ 'SABA­ ) whose head office is in only if they agree to sign the three Villingen-Schwenningen in the Federal documents described beneath, and if they Republic of Germany, manufactures fulfil in addition the conditions set out

electronic equipment for the leisure under (4) below. market (radios, televisions and tape

recorders) and distributes it through a (1) A so-called 'cooperation agreement', network of contracts and agreements under which wholesalers undertake to

between it and sole distributors, conclude six-monthly supply contracts

(OJ, English Special Edition 1959-1962, (contested decision, paragraphs 14 and

p. 87) for certain specific features of that 40). system and granted it exemption within

(2) A Distribution Agreement for the meaning of Article 85 (3) of the EEC (Verpflichtungs­ SABA Wholesalers Treaty, to run until 21 July 1980, subject SABA-Groß­ to certain conditions regarding the schein Vertriebsbindung handler) which is in two parts. By the remaining parts of the system in first part wholesalers are obliged to question. restrict supplies within the territory of

the Federal Republic of Germany and After the distribution system had been West Berlin to other wholesalers and altered, following the intervention of the Commission, it constitutes, according to retailers appointed by SABA, which

the contested decision, a uniform implies that they fulfil a certain number

of qualitative conditions and are prepared distribution system for the entire territory to undertake to supply the services which of the Community and had the following are a condition of appointment by SABA salient features: to the status of a specialized wholesaler (1) cooperation between SABA and its or retailer. The obligations described in sole distributors and wholesalers; this first part correspond in essentials to (2) restriction of the number of dealers; those which SABA imposes through the and document described below at (3) upon its (3) the establishment by the manu­

JUDGMENT OF 25. 10. 1977 - CASE 26/76

industrial or commercial undertakings (c) participates in the service system'. which employ the products purchased

from wholesalers only for such For its part, SABA gives an undertaking commercial purposes as will promote the to each wholesaler that it will ensure that

efficiency of the business and which other wholesalers comply with its system agree to give a written undertaking to of distribution (decision, paragraph 17). that effect in terms of a document Furthermore, the system gives

known as a 'SABA-Sonderverpflichtungs­ distributors freedom with regard to schein' (special undertaking). Provision is prices, freedom to undertake supplies

made for checks. However, wholesalers throughout the Common Market as a 'cross'

as a whole. distributors are SABA subsidiaries. The sole distributors for Belgium, the Grand The agreement repeats for the Common Duchy of Luxembourg, Denmark and Market as a whole the undertaking to the Netherlands have signed sole

supply only other wholesalers or retailers distributorship agreements (decision, who fulfil the conditions prescribed by paragraph 13), which include the

SABA for their appointment and the essential features of the cooperation

obligation to carry out or permit checks. agreements and the distribution In this respect the document repeats the agreements and in particular incorporate essential points of the abovementioned the to supply only ap­ undertaking obligations with regard to the Federal pointed wholesalers and retailers.

Republic of Germany contained in the first part of the document described (c) Retailers both in the Federal above under (2). Republic of Germany and in the other Member States must, in order to become (4) SABA has informed the Com­ appointed dealers, sign a document mission (decision, paragraph 9) that 'in named an Agreement for SABA principle it is willing to supply any Specialist Retailers in the EEC wholesaler in the Federal Republic of (EWG-Verpflichtungsschein SABA-Fach­

Germany or West Berlin who: einzelhändler). By that agreement

network; as to permit a check to be carried out.

METRO v COMMISSION

Inter alia, Article 2 of that agreement effect appreciably to restrict

also shows clearly, albeit indirectly, that competition within the common

in order to be appointed a specialist market (decision, paragraph 24); SABA retailer it is necessary for retailers, (2) It is clear from the objective nature of in addition, (a) to run a specialized the qualitative criteria applied that, in business, that is to say one in which over so far as all distributors fulfilling such 50 % of the turnover relates to the sale criteria are in fact appointed no

of electronic products for leisure further restriction of competition

SABA products. subject to further specific conditions

which cannot be justified by the Like the wholesalers, retailers are free requirements of the sale under

with regard to prices, they may sell adequate conditions of the products

throughout the whole Community and concerned (adequate turnover, main­

they are entitled to distribute the tenance of corresponding stocks) equipment of competitors of SABA. (decision, paragraph 29); (4) Furthermore, the obligations imposed The system of distribution maintained upon distributors so that SABA can

thus has four essential features (decision, check that deliveries are not made to

permit stringent checks in order to traders who, although capable of

ensure that this undertaking is marketing electronic equipment for fulfilled; German wholesalers under­ leisure purposes, have not been take not to supply private customers appointed by SABA (decision, in the Federal Republic of Germany; paragraph 30); (3) Such wholesalers, retailers and dealers (5) Finallu, the last restriction on

undertake not to export SABA competition referred to in Article 85 equipment from the Community or (1): the fact that SABA delivers only to import it from third countries; to national distributors, and the

(4) Such wholesalers and retailers undertaking which sole distributors in undertake to achieve an adequate give the sole distributorship turnover and to keep a stock of SABA agreement to respect each other's

equipment. territories (decision, paragraph 32).

In the Decision of 15 December 1975 The contested decision adopts different the Commission considered that: procedures with regard to the various

supplying private customers), 35 (the 1973, pursuant to Article 3 of Regulation prohibition on exports from the No 17, claiming that the system of

Community) and 36 (the conditions of distribution agreements in force sale, covering most of the obligations infringed Articles 85 and 86 of the EEC undertaken by wholesalers and retailers Treaty and requested that such infringe­ in the so-called 'Distribution ment be terminated.

Agreements'). At first, Metro chiefly disputed the

Exemption under Article 85 (3) is prohibition, which resulted at that time

principally reserved for cooperation from SABA's distribution system, on

agreements and for certain parts of the 'direct supplies', that is to say, supplies to 'Distribution Agreements', namely the trade consumers in Germany. retailers'

supplying a reseller, whether he has been products to trade 'institutions' consumers and only appointed by SABA. supplies to such as military establishments, churches, hospitals and The applicant runs a self-service schools remained prohibited.

wholesale business on a cash and carry basis. By cutting out a certain number of At the Commission's instigation SABA services which in traditional trading in addition extended the definition of 'wholesaler'

benefit the purchaser (the grant of credit, to the self-service wholesale

delivery and advice to customers) general trade, so that Metro may be admitted to expenses are cut and more favourable SABA's network provided that it fulfils prices obtained. Access to Metro's the conditions for access thereto which

premises is granted only to retailers are applied to other wholesalers.

(resellers or trade consumers) and to Moreover, SABA stated that its institutions which, owing to their distributors are free either to provide

trade still existed, in that various Having heard the report of the Judge restrictions on competition were retained Rapporteur and the views of the

which were not necessary for the Advocate-General the Court decided that attainment of the objectives which justify it was unnecessary to undertake a

an exemption under Article 85 (3), preparatory inquiry. namely:

(1) The prohibition on supplies to trade II — Conclusions of the parties

consumers by wholesalers; (2) The requirement that products The applicant claims that the Court purchased by trade consumers from should:

wholesalers must be such as will — Declare to be void and annul the

(5) The obligation to sign a cooperation procedure.

agreement; — Order the defendant to bear the costs The proceedings.'

(6) obligation on all wholesalers to of the

participate in the consolidation of

SABA's distribution network, which The defendant contends that the Court is unacceptable to a self-service should:

wholesale trader. '— Dismiss that part of the application

5 1976 SABA The intervener Verband des SB-Groß­ By an order of May was

given leave to intervene in support of the handels e.V. supports the conclusions of conclusions of the defendant. the applicant.

By an order of 23 July 1976 the Court dismissed an application lodged by Metro III — Submissions and argu­

for the adoption of interim measures. ments of the parties

By an order of 30 November 1976 the A — Admissibility of the application Verband des SB-Großhandels e.V.

(Association of Self-Service Wholesale Metro maintains that the application is Traders) was given leave to intervene in admissible both with regard to the letter support of the conclusions of the of 14 January 1976 which was addressed applicant. to it and with regard to the Decision of

relates to the decision of 15 December linked by the agreement or concerted

1975 but that it is inadmissible in so far practice the opportunity of eliminating as it relates to the letter of 14 January competition in respect of a substantial 1976 rejecting the complaint lodged on part of the products in question. An 17 November 1975. The situation of exemption was granted in respect of

which the applicant complains was SABA's distribution system although at

brought about solely by the decision, and all events it does not comply with the

the letter of 14 January 1976 has had no second, third and fourth conditions. further effect upon the legal situation

following therefrom and accordingly it With regard to the second condition, does not constitute a decision within the Metro observes that consumers are

The applicant replies that the fact that it an objective choice.

participated in the administrative pro­

cedure shows that it was directly and With regard to the third condition, individually concerned, as is shown Metro observes that a number of

above all by the fact that SABA founds restrictive clauses are neither in­

on the contested decision in refusing to dispensable nor indeed necessary for sell its product to it. improving the distribution of SABA products. To meet the consumer's desire B — Substance for impeccable service it would be sufficient for the system to make

I — The applicant considers that the provision for sale only to distributors contested decision infringes Article 85 of who could clearly provide technical the EEC Treaty, especially paragraph (3) service, either themselves or by thereof. As the Court of Justice has held subcontracting to a workshop. The (judgment of 13 July 1966 in Joined system at issue far exceeds this need

excludes the self-service wholesale trade Decision of 13 December 1974, OJ L 29 by the imposition, in particular through of 3. 2. 1975, p. 1).

cooperation agreements and obligatory checks, of conditions incompatible with Those decisions have already resolved

the nature of this new method of two of the difficulties caused by systems marketing. Furthermore, it excludes of selective distribution. It is clear from small retailers by imposing over-stringent them, on the one hand, that exemption

conditions as to appointment (rep­ cannot be granted for provisions which

resentative displays and maintenance of have as their object or effect the

stocks). It is in fact the self-service partitioning of national markets and, on wholesale trade and small retail the other hand, that the obligation to sell businesses which provide the most only through specialized traders

II — In its statement of defence the obligation: in the present case, such

Commission considers that despite the obligations are those imposed under the

close links connecting producers to cooperation agreements and those

wholesalers and exclusive dealers, SABA's conditioning admission to the status of a

distribution system is an open one, to specialized retailer.

which in particular self-service

the origin of the dispute between SABA Commission deduces therefrom. The and Metro, has been relaxed and is Commission also emphasizes that the

restricted to preventing wholesalers from exemption requested was granted only supplying private customers, since trade for a relatively short period (until 21 July consumers may now be supplied. 1980).

The Commission refers to its previous The Commission considers that the

decisions in the sphere of selective complaints submitted with regard to the

distribution (Kodak, Decision of 30 June Decision of 15 December 1975 are

1970, OJ L 147 of 7. 7. 1970, p. 24; unfounded. SABA's distribution system

products provided that he complies with Germany varies from an average of 30 % the criteria for admission. up to 50 % or more.

Furthermore, self-service wholesalers, In its consideration of the clauses in the

such as the applicant, can fulfil the cooperation agreements the Commission conditions laid down by SABA without observes that the obligation to supply having to give up their activities as undertaken by wholesalers is for a fixed wholesalers. Although the limitation on period of six months and that, contrary the number of appointed distributors in to the applicant's statement, it does not relation to the total number of include an obligation on wholesalers to

distributors who are capable of marketing achieve a preponderant part, merely an SABA products can lead to the view that adequate part, of their turnover in SABA

the system falls under Article 85 (1) of products, having regard moreover to the the EEC Treaty, the beneficial effects criteria set out in paragraph 14 of the

which accompany this limitation on contested decision. Furthermore, that

wholesale trade, it calls in question to ensure in advance continuous supplies

certain of the applicant's statements of products under contract. The applicant regarding the benefits which ensue for has never maintained that it was unable

the consumer with regard to prices. Such to give such an undertaking. Finally, the savings in costs must be appraised in the relatively short period to which the light of the particular importance of delivery obligation relates and the criteria consumer information in the field of employed in calculating the volume of electronic equipment for leisure goods to be delivered do not provide a purposes. basis for maintaining that the

manufacturer no longer runs any risk in The Commission does not agree that distributing his products and that he is SABA's distribution system brings about relieved of the need to react flexibly to a paralysis in retail prices. In this matter alterations in the competitive situation.

it is impossible to draw conclusions, as The Commission considers that the

the applicant does, from purely local cooperation between SABA and its comparisons in relation to an area which wholesalers serves the interests of a

the need to carry out checks, which are requirements from wholesalers. This described by the applicant as 'a practical constitutes a very real risk in the case of

impossibility', the Commission points self-service wholesalers and indeed out that this prohibition does not oblige German case-law requires that German the wholesale trade to alter its economic wholesalers must ensure that this

structure and does not hamper one of its situation does not exceed certain

essential functions. With regard to tolerated limits.

checks, the applicant is already obliged, The Commission does not see why the in order to fulfil the conditions required need to sign the abovementioned pursuant to German case-law for declaration should be misunderstood by recognition of the status of wholesaler, to customers who in fact intend to use make provision for a system of checks equipment purchased for commercial sufficient, in its essentials, to exclude purposes. The declaration is wholly those institutions which are not appropriate and sufficiently concrete to authorized to receive supplies of SABA be checked without great difficulty by equipment. self-service wholesalers.

The applicant has further considered that The obligation on distributors to achieve it is unlawful to require trade consumers an appropriate turnover was exempted wishing to purchase SABA products to because it entails a rationalization of sign certain declarations or undertake distribution, a more intensive ex­ certain obligations relating to the use of ploitation of the market and the the products this clause is, purchased; promotion of sales. Figures for turnover however, directly related to the legal rules are assessed in terms of each distributor's governing the self-service wholesale trade capabilities and by comparing SABA's in the Federal Republic of Germany, approximate share of the market in the which, for reasons relating to area concerned with the volume of sales competition, separate the functions of

claim the status of wholesaler. Despite fierce the competition is between SABA what Metro states, it does not sell distributors.

exclusively to traders nor, in any case, does it stock only products which are IV — In its reply the applicant Metro purchased for commercial purposes. observes that its application is essentially based on two factors which it sets out as In the first place, the buyer's card for the follows: foodstuffs department is issued to A — When the Commission, on the

non-profit-making institutions which use basis of the facts found by it in the

it solely for private purposes. Further, contested decision, granted an

although Metro does indeed supply exemption under Article 85 (3) it traders, such traders approach Metro exercised its discretionary power in

essentially as private customers, to obtain a manner incompatible with the

Metro is furthermore infringing the exercise by the Commission of its

conditions attached by German discretionary power are as follows: legislation to the status of wholesaler and The Commission fails (1) to recognize

endeavouring by this application to ward that SABA's system of selective off threats to its system of marketing. distribution, under the guise of

qualitative criteria, in fact leads to a In considering whether the application is choice of distributors, both wholesalers well founded the intervener notes that and retailers, from whom appreciable Metro's complaints relate only to two of competition on prices is no longer to be the conditions placed upon exemption anticipated. This is brought about by by Article 85 (3): it claims that excluding self-service wholesalers and consumers do not obtain a fair share of those retailers who are most likely to sell the benefit resulting from the at cut prices. distribution system and that that system

affords the possibility of eliminating (2) The Commission is in wrong competition in respect of a substantial considering (at page 13 of its statement) part of the products in question. that the reduction in competition on

prices is offset by the fact that the In connexion with those two points competitive position of SABA dis­

competition from other producers in the This means that consumers are reluctant

same sector. Comparisons of prices to accept substitute products, which is

covering the entire territory show how why distributors are obliged to display a

METRO v COMMISSION

complete range of brands, including (4) The Commission is likewise in error

particularly SABA products. This need in maintaining that 'in comparison with

element of a system which is applied in a of DM 100 000 000 per year in electronic parallel fashion by the principal equipment for leisure purposes if its producers of electronic equipment for prices were not attractive.

leisure purposes. Intern' The publication 'Markt which

B — The Commission has failed to has been cited in particular by the

establish, or has insufficiendy estab­ intervener SABA in maintaining that

lished, the facts on the basis of which it Metro cannot describe itself as a

has proceeded. wholesaler (annexes 2, 4, 6 to 13 and 15 to the intervener's statement) has on

applicant.

(2) The Commission is wrong in

believing (statement of defence, pp. (5) It is untrue, or at any rate not

24-25) that the applicant, in checking the completely true, to maintain, as does the status of potential customers, merely Commission (defence, pp. 2 and 16), that requests from them a written statement SABA is competing with more than

confirming that the goods are purchased twenty other Geman manufacturers.

exclusively for the requirements of their

JUDGMENT OF 25. 10. 1977 - CASE 26/76

the representative nature of the table of the applicant are wrongly described by it prices submitted by SABA in its own as complaints regarding misuse of

interest In any event, the appropriate discretionary powers, fact they since in market for comparing prices is not the are complaints regarding infringement of territory of the Federal Republic of entire the Treaty, which must be examined as

Germany but rather the individual local such. It considers that these complaints

markets, since a customer in Düsseldorf may be summarized as follows: has no interest in the prices prevailing in

Frankfurt or in Oberammergau. If the The contested decision is said to infringe individual local markets are considered Article 85 (3) of the Treaty in that the

produces effects as far as the retail trade, consumers; they are not excessive and do not in fact result in the exclusion of competition on prices and paralysing from obtaining undertakings such as the applicant. The preventing the customer declaration is drafted in such a way that from the distributor unbiased and all the applicant's customers could sign it objective information on the qualities of

the products offered for sale. without difficulty provided that the

products purchased are in effect intended The applicant then submits its for use in their businesses. Moreover, it is observations on the statement of the wrong to claim that it is SABA's intervener SABA. It describes the distribution system which obliges Metro operation of its system of self-service to undertake a special check when goods

distribution and explains the checks are taken away. In addition to the checks which it carries out on the trade status of which must be carried out by the cashier purchasers. It raises objections in (verification of the prices, invoices and

documents documents) a 'final has check'

connexion with the various guarantee

problems or prevent either SABA With regard to the elimination of

SABA wholesalers'

or the applicant's effectively competition on prices amongst

carrying out an important function as distributors, the Commission maintains

wholesalers. Furthermore, institutions that there are no 'markets of local importance'

cannot be supplied by the applicant, where the level of prices is which has itself adopted the style of more or less uniform. The inquiry carried 'suppliers to resellers and trade out by the applicant in Düsseldorf and consumers', a status which the said produced during the procedure for an institutions clearly do not possess. interim measure is not conclusive since

regard to electronic products for leisure competition upon distributors in the

purposes. same locality.

There is likewise no justification for the Whilst it is true that the self-service criticisms directed in this connexion wholesale trade offers advantages with against the cooperation agreements and regard to competition, the Commission in particular the obligation which they nevertheless observes that it is necessary contain to conclude six-monthly supply to correct the applicant's allegations, contracts with SABA. which tend to create the impression that

if it were appointed a SABA wholesaler The aim of the cooperation between this would be sufficient to revolutionize SABA and its wholesalers is constantly to the entire structure of prices and adapt the planning and structure of the distributon costs of SABA products. manufacturing programme to the wishes

of consumers in order to follow market In the highly coveted market for developments more closely, thereby 'reac­ electronic leisure products the traditional reducing the manufacturer's tion-time'

wholesale trade is patterned upon certain should quantitative or any techniques and advantages, which the qualitative discrepancies arise. This has applicant has commended (the absence not excessively restricted the freedom of of a lower limit on supplies and the wholesalers since the period of validity of opportunity for the customer of the contract is relatively short and the

vantageous price to consumers. tained by the applicant in relation

JUDGMENT OF 25. 10. 1977 - CASE 26/76

to the traditional wholesale trade, since was precisely to establish criteria for the

traditional wholesalers can only obtain assessment with regard to the

such supplies from retailers. Community rules on competition of

distribution systems comparable to

As long as the present dispute remains wholesale trade. Furthermore, account

unsettled it is impossible to make such a should be taken of the fact that notonly comparison, since the applicant asserts SABA but all the other important that it cannot accept certain conditions manufacturers of electronic equipment

of SABA's distribution system which for leisure purposes exclude supplies to

have been exempted by the Commission. self-service wholesalers.

With regard to the relationship between The Commission has failed to recognize

competition amongst distributors of one that what is protected under Article 85 of brand (intra-brand), on the one hand, and the Treaty is freedom of competition for competition amongst such distributors the benefit of the consumer, not the

products of other manufacturers.

The Verband makes the following points The fact that large-scale distributors in particular:

make intensive efforts to sell the

products of one manufacturer does not (1) Self-service wholesalers cannot carry

distributors from dis­ preclude either out necessary checks inherent in the

playing products of other producers or SABA's system of distribution since they from properly advising their customers. so complicate business procedures that

to check on the use of the products).

(4) The Verband then states its views on The establishment of real price a series of questions put by the Court to competition by the annulment of the the parties to the dispute before it had decision conferring the exemption sought leave to intervene (see below at

enjoyed by SABA's distribution system point VIII). would not, as the Commission wrongly maintains, encourage specialist traders to VII — In reply to the observations of dissociate themselves from SABA's the Verband the Commission rejects the products in favour of the products of view that it disregarded the true object of competitors. A decision of annulment the protection provided by Article 85, would in fact constitute a ruling against that is, the interests of the consumer, and distribution systems identical to SABA's that it is protecting the interests of a

system which its competitors have set up. producer and of a given group of traders

Equal conditions of competition would in obtaining a specific price-level.

be ensured. As is clear from paragraphs 39 to 43 of

supplies on the market under the most whether the distribution system un­

advantageous conditions to offer them to der consideration guarantees active

consumers. competition on prices (decision, para­

graphs 43 and 53). Nevertheless, the

Self-service wholesalers cannot concern price is only one element amongst others themselves with the development of which benefit the consumer directly manufacturers'

distribution networks. (improved service to customers, better The obligation to accept delivery of adjustment to specific requirements, probable requirements for six months increase in the range of products offered) dis­ tends to stifle competition, particularly if or indirectly (rationalization of

A (SABA- intervener maintains. form various brands, both German and foreign. Sonderverpflichtungsschein) must be The effect on consumers of the costs

completed only when a sale is made to a involved in the obligations to purchase

trade consumer. No particular formalities and to maintain stocks is alleviated by are required in the case of the sale of the discounts which wholesalers grant in goods to a reseller. furtherance of inter-brand competition

(that is to say, competition relating to

(2) It is clear from a judgment of the products of different brands) to retailers

Oberlandesgericht Hamburg of 16 who, for their part, are not bound to buy December 1976 that the applicant, or certain types of equipment

products are put. Wholesalers are merely dispute is whether the Commission, in required to check whether the use stated its decision of 15 December 1975, by the purchaser falls within the specific wrongly interpreted Article 85 (3) and

business activity of the commercial in particular wrongly appraised the

undertaking in question, which can be competition existing amongst SABA done by means of the card which the distributors at the time of that decision, purchaser must present. that is to say in 1975.

(4) With regard to the cooperation VIII — Before the Verband submitted

agreements the Commission observes its application to intervene, the written

that SABA has recently modified their procedure between the other parties

are not so onerous that specialist traders Commission is of direct and individual are required to sacrifice sales of concern to it The conditions laid down competing products, thereby creating by Article 3 (2) (b) of Regulation No 17 'local monopolies'. Although wholesalers are also fulfilled. Metro is directly have cooperated with SABA for more concerned in so far as the decision of

than ten years, in practice those exemption entitles SABA to refuse to

wholesalers simultaneously distribute supply Metro. Furthermore, the contested

METRO v COMMISSION

decision exposes Metro to legal The Commission observes finally that it proceedings before the German courts if would be impossible in practice for the

it obtains supplies of SABA products. Court of Justice to review decisions of

Member States enabling or requiring provision for review of the decision. them to enact legislation. On the other

hand, the contested decision concerns a In order to assess whether the application measure relating exclusively to private is admissible in the present case it must

law, that is the determination of the sales be established whether the decision of

policy of an undertaking in the form of exemption is of direct and individual standard agreements concluded with its concern to the applicant, since that

trading partners. Decisions of this nature decision implies the partial rejection of

cannot be treated as equivalent to the application which it submitted

JUDGMENT OF 25. 10. 1977 - CASE 24/76

In all those cases the application related ments upon which SABA's distribution to the adoption either of measures which system is based. No particular provision

were not binding or of legislation, that is in the agreements referred to was granted to say to the adoption of measures which negative clearance or an exemption. Only could not be contested so that the the conditions of sale on the domestic applications were of necessity considered market, which do not constitute part of

inadmissible. SABA's distribution system properly so-called, were granted negative

In the present case the situation is clearance.

different The applicant has submitted an application on the basis of Article 3 (2) X — The Court asked the Commission

and thereby distinguishes it individually XI — The Court asked the Commission just as in the case of the person to state its point of view on the effect on

addressed. Since SABA has in fact begun competition of the application by other to operate its distribution system in the producers in the same sector of

form for which exemption was granted distribution systems similar to that this suffices for Metro to be considered to established by SABA. be directly concerned. The Commission considers that SABA's The intervener SABA considers that distribution system involves, first of all, Article 3 (2) (b) of Regulation No 17 the obligation to buy from specialist

cannot be relied upon to refute the traders, which means that distributors inadmissibility of the application, since must fulfil minimum requirements 'concerned'

Metro is not by the contested (technical skill, equipment of shops, decision. service to customers and participation in the development of the SABA network).

IX — In reply to the question as to Those points recur in almost all

products corresponding to that turnover), come about, and even if the result was a

do not recur so often in other more intensive specialization amongst manufacturers'

distribution systems. It is distributors, the Commission considers

thus untrue to say that the other that this would not necessarily lead to a principal manufacturers of electronic reduction in competition between products for the leisure market have products of different manufacturers at

established distribution systems similar distribution level and indeed it might

to that maintained by SABA. increase such competition, since

the public hearing on 10 May 1977. So far, in any event, the various manu­

facturers'

distribution systems display The Advocate-General delivered his considerable differences, being based on opinion at the hearing on 9 June 1977.

Decision

1 The first head of the application lodged by the undertaking Metro SB-Großmarkte GmbH & Co. KG (hereinafter referred to as 'Metro'), which was received at the Court Registry on 11 March 1976, is for the annulment of the Commission Decision of 15 December 1975 (OJ L 28 of 3. 2. 1976, p. 19) relating to a proceeding under Article 85 of the Treaty with regard to the selective distribution system established by the undertaking Schwarzwalder Apparate-Bau-Anstalt August Schwer und Sönne GmbH (hereinafter referred

JUDGMENT OF 25. 10. 1977 - CASE 26/76

entirety consideration of the submissions put forward indicates that the

lawfulness of Article 2 alone of that decision is thereby called in question.

Admissibility

(a) The letter of 14 January 1976

3 The Commission has contested the admissibility of the application in so far as it is directed against the refusal contained in its letter of 14 January 1976.

4 That refusal is merely a confirmation of the decision of 15 December 1975 and annulment of the refusal would follow from annulment of the decision so

6 The second paragraph of Article 173 of the Treaty states: 'Any natural or legal person may... institute proceedings against a decision addressed to that

person or against a decision which, although in the form of a regulation or a

decision addressed to another person, is of direct and individual concern to former.'

the

Since the contested decision was not addressed to Metro it is necessary to consider whether it is of direct and individual concern to it.

7 Metro is a so-called self-service wholesale trading undertaking having some 30 establishments in the Federal Republic of Germany and in certain other

Metro distributes these products through the so-called 'cash carry'

and system

whereby purchasers serve themselves in sales areas where the goods are stored in such a way that they may be removed easily by the customers themselves, aredisplayed simply and are paid for in cash, which results in lower prices

and makes it possible to operate satisfactorily on lower profit margins than

those of the traditional wholesale trade.

This form of marketing is thus characterized both by special sales methods

Specific instances of this are the prohibition on SABA wholesalers regarding the supply of SABA equipment to trade consumers, that is to say to dealers or judgment of 25. 10. 1977 - case 26/76

small businesses outside the trade in electrical goods but using the equipment purchased for commercial purposes within their business, likewise the 'institutional'

prohibition on supplies to consumers and the obligations

imposed upon wholesalers under the cooperation agreements linking them with SABA.

The intervener SABA, on the other hand, maintains that those conditions are with Metro's business compatible activity and that its refusal to appoint the latter as wholesaler stems instead from Metro's sales policy, which is intended to combine in one unit the roles of wholesaler and retailer and to which

SABA cannot agree in view of the structure of its distribution system whereby a clear distinction is maintained between those two operations in accordance, as SABA maintains, with the requirements of Federal German legislation.

1972 its conditions of sale for the domestic market, the sole distributorship agreements concluded with undertakings established in other Member States, the 'distribution agreements'

which SABA distributors, wholesalers and

retailers in the Federal Republic of Germany are required to sign and the

agreements for SABA wholesalers in the EEC and for SABA specialist

retailers.

On 22 July 1974, after Metro had submitted its complaint, SABA also notified the model cooperation agreement which it requires its appointed wholesalers

the submission of those comments by the applicant and upon hearing the latter and required SABA to discontinue the undertakings whereby it obliged

wholesalers inter alia to prohibit sales to trade consumers.

After SABA had agreed to this amendment amongst others the Commission

adopted the contested decision, which nevertheless upholds a number of

aspects of the distribution system which the applicant had criticized in the course of the administrative procedure.

12 Since Metro considered that the distribution system thereby approved

Commission to find an infringement of Articles 85 and 86 should be able, if their request is not complied with either wholly or in part, to institute proceedings in order to protect their legitimate interests.

In those circumstances the applicant must be considered to be directly and individually concerned, within themeaning of the second paragraph of

Article 173, by the contested decision and the application is accordingly admissible.

Substance

14 The applicant maintains that the adoption by the Commission of the contested decision infringed both Article 85 (3) of the Treaty, by declaring that the prohibition contained in Article 85 (1) was inapplicable when the

conditions for that declaration were not fulfilled, and Article 86 of the Treaty,

which, however, command shares which together constitute the major part of the market, among them being SABA which, with a daily production of 1 000 sets, has an above-average share of the market in colour televisions.

The applicant adds that although SABA equipment is expensive customers

demand it because of its high quality so that all distributors must include SABA equipment in the range of products which they offer or suffer a

disadvantage in competition.

17 The evidence produced by the Commission, which the applicant has not

disputed, shows that there are 26 German producers in the market in electronic equipment for leisure purposes of which eight, including SABA, control some 90 % of the market, SABA's share being between 5 and 10 %.

necessarily constitute the sole criterion for the existence of a dominant position it is however proper to conclude that in a market in highly technical products which nevertheless appear to the majority of consumers to be readily interchangeable, shares of the market as insignificant as that held by SABA rule out the existence of a dominant position unless exceptional

circumstances obtain.

METRO v COMMISSION

This view is strengthened by the fact that lively competition is acknowledged to prevail between the various producers.

The fact that the quality of the product in question should encourage distributors to include it in the range which they offer does not in itself constitute a factor capable of permitting the producer to operate to any great extent without having to take account of the attitude of his competitors and, consequently, to secure a dominant position; rather, it constitutes one means

of competition amongst others.

Article 86 of the EEC Treaty, that provision does not apply to it, so that in so far as the application is based upon infringement thereof it must be dismissed.

II — The application of Article 85

19 The applicant maintains that Article 2 of the contested decision is vitiated by misuse of powers inasmuch as the Commission has failed to recognize 'what is protected under Article 85 (namely) freedom of competition for the benefit of the consumer, not the coincident interests of a manufacturer and a given

group of traders who wish to secure selling prices which are considered to be satisfactory by the latter'.

Furthermore, if it were to be considered that an exemption from the

prohibition might be granted in respect of the distribution system in dispute pursuant to Article 85 (3), the applicant maintains that the Commission has misapplied that provision by granting an exemption in respect of restrictions

objectives of the Treaty, in particular the creation of a single market achieving conditions similar to those of a domestic market.

In accordance with this requirement the nature and intensiveness of

competition may vary to an extent dictated by the products or services in question and the economic structure of the relevant market sectors.

In the sector covering the production of high quality and technically large- advanced consumer durables, where a relatively small number of and

medium-scale producers offer a varied range of items which, or so consumers

may consider, are readily interchangeable, the structure of the market does not preclude the existence of a variety of channels of distribution adapted to

potential resellers and are not applied in a discriminatory fashion.

21 It is true that in such systems of distribution price competition is not

generally emphasized either as an exclusive or indeed as a principal factor.

This is particularly so when, as in the present case, access to the distribution network is subject to conditions exceeding the requirements of an appropriate distribution of the products.

METRO v COMMISSION

However, although price competition is so important that it can never be eliminated it does not constitute the only effective form of competition or

consumers, the possibility of the continued existence of this channel of

distribution in conjunction with new methods of distribution based on a

different type of competition policy, forms one of the objectives which may be pursued without necessarily falling under the prohibition contained in Article 85 (1), and, if it does fall thereunder, either wholly or in part, coming within the framework of Article 85 (3).

This argument is strengthened if, in addition, such conditions promote

improved competition inasmuch as it relates to factors other than prices.

22 Although the figures submitted by both sides concerning the existence of price competition amongst SABA distributors ultimately indicate that the

expiring on 21 July 1980 it retains the possibility of reconsidering within a

reasonable time the consequences of this aspect of its decision.

In those circumstances the submission based on the existence of a misuse of

powers must be rejected.

JUDGMENT OP 25. 10. 1977 - CASE 26/76

B — The application of Article 85 (3)

'trade'

(c) The obligation on such wholesalers when supplying so-called

consumers to ensure that they apply the equipment purchased only for such purposes as will promote the efficiency of the business, to the

exclusion of all private use;

(d) The obligation imposed upon wholesalers to participate in the

development of the SABA network by agreeing with SABA on

that, according to the Commission, provisions of whilst the selective the

distribution system referred to in Article 2 of the contested decision have as a

whole been granted an exemption pursuant to Article 85 (3), it does not, however, follow that every element of that system is incompatible with the prohibition contained in Article 85 (1).

On the contrary, both the statement of reasons for the contested decision and the further information provided in the course of the oral procedure make it clear that only certain of those elements constitute restrictions on

competition for which the grant of an exemption was necessary.

The defendant maintains that the following do not constitute restrictions on competition: (a) those conditions for appointment as a distributor which

decision).

25 It must be considered whether all the elements contested by the applicant have been correctly classified by the Commission with regard to the

applicability or otherwise of the prohibition under Article 85 (1) and, if they fall within the terms of that prohibition, whether the Commission's exemption of them pursuant to Article 85 (3) constitutes a proper application of that provision.

(1) The obligation imposed upon SABA distributors to supply for resale only to appointed wholesalers or retailers

26 The applicant claims that the obligation imposed upon wholesalers to check

personally before delivering supplies to a reseller whether the latter has in fact been appointed a SABA dealer, in particular by recording in a register and

do not exceed the objective in view they do not in themselves constitute a

JUDGMENT OF 25. 10. 1977 - CASE 26/76

restriction on competition but are the corollary of the principal obligation

and contribute to its fulfilment.

The Commission considered that the obligations imposed in this connexion

under the agreement do not exceed what is necessary for an adequate control and constitute a normal duty for a wholesaler since, in the case of consumer durables, the identification of the retailers supplied and of the goods delivered constitutes a normal requirement in running a wholesale business.

Whether the abovementioned obligations are in accordance with the Treaty therefore depends upon the appraisal which must be made of the other

elements which the applicant has criticized.

(2) The prohibition on direct supplies to institutional consumers

28 Whilst the Commission required SABA to refrain from imposing upon

wholesalers the prohibition on supplies to trade consumers it permitted that

to maintain the prohibition on supplies to private customers, undertaking 'institutional'

separation of the functions of wholesaler and retailer and because if such a

separation did not obtain former would enjoy an the unjustified competitive

advantage over the latter which, since it would not correspond to benefits

supplied, would not be protected under Article 85.

29 It is established that various Member States have enacted legislation entailing obligations and charges, in particular in the field of social security and

METRO v COMMISSION

that competition shall not be distorted.

Furthermore, the applicant does not dispute this view and indeed states that the organization of its marketing system is such as to respect that distinction, whilst maintaining that the provision of direct supplies to large-scale, so-called 'institutional', consumers constitutes one of the functions of a

wholesaler.

In this connexion it relies upon the wording of Article 2 (2) of the Council Directive of 25 February 1964 concerning the attainment of freedom of

establishment and freedom to provide services in respect of activities in

wholesale trade, according to which: 'For the purpose of this directive, "wholesale trade by any natural person, or activities"

Whilst it is indeed the case with numerous products, such as foodstuffs, that certain private customers, such as institutions, purchase in large quantities,

their institutional nature does not imply that they have the status of

large-scale customers for products of every kind.

When the Commission considered that with regard to the products

manufactured by SABA it was unnecessary to distinguish between the

different kinds of consumers other than trade or professional consumers the

31 Paragraph 15 of the contested decision reads: 'Under the Distribution Agreement for SABA Wholesalers (Clause 2 (2)), SABA wholesalers in the

Federal Republic are also obliged to refrain from supplying SABA products to

consumers in the Federal Republic, including West Berlin, except where the consumer

— can prove he is engaged in trade;

— uses the SABA products only for such commercial purposes as will

promote the efficiency of the business; and

Accordingly, the producer may properly check on the fulfilment of this obligation, which is necessary for the maintenance of the structure of his two-stage marketing system, as he would otherwise be unable to require

appointed retailers to provide the services to the efficient necessary functioning of a selective distribution system.

METRO v COMMISSION

The applicant makes the however statement, without adducing any convincing evidence therefor, that the obligations concerning checks which

are required in this connexion under the cooperation agreements are

incompatible with the requirements of the self-service wholesale trade and

department, a check is made before the goods are removed in order to ascertain whether they have been bought for resale or for trade or

commercial use in the purchaser's undertaking and not for his private

requirements.

The check required under the cooperation agreement has substantially the

same scope, except that that agreement obliges the wholesaler to require the

purchaser to sign a declaration to the effect that the purchase was made for trade or professional purposes.

34 According to paragraph 9 of the decision appointment as a SABA wholesaler in the Federal Republic of Germany or West Berlin is subject to the following

conditions: 'SABA has informed the Commission that in principle it is

JUDGMENT OF 25. 10. 1977 - CASE 26/76

willing to supply any wholesaler in the Federal Republic of Germany or West Berlin who:

(a) Keeps a specialized shop, i.e. one where over 50 % of the turnover relates to the sale of radio, television, tape-recording or other electrical

equipment, or

(e) Signs the SABA agreements and complies with the provisions of the

distribution for area.'

agreement relevant their

35 The applicant maintains that the obligations mentioned at points (a) (relating to a specializedshop or department), (b) (consolidation of the SABA network) and (d) (cooperation agreements) constitute restrictions on competition which

are prohibited pursuant to Article 85 (1) and that the Commission was not empowered to grant an exemption pursuant to Article 85 (3) since the

conditions for such an exemption were not fulfilled.

when Metro's complaint was being investigated, in particular in a letter from SABA dated 20 February 1975 the contents of which were notified to the

applicant on 5 March 1975.

METRO v COMMISSION

It follows from this that it constitutes a condition placed upon appointment

as SABA distributors in the case of wholesalers who are not specialized in the field of electronic equipment and forms part of the general distribution system approved by the Commission.

It is therefore necessary to examine the scope of that condition with regard

criteria inherent in a selective distribution system and it must accordingly be appraised in the light of Article 85 (3).

38 Nevertheless, that obligation is linked in the present case to the obligation, repeated in the cooperation agreements, to achieve an adequate turnover, so

that it must be considered in conjunction with the said agreements.

(b) The obligations mentioned at points (b) (to participate in the consolidation of the sales network) and (d) (to sign cooperation agreements)

39 The obligations mentioned at point (b), namely to participate in the creation and consolidation of the sales network, and at point (d), namely to sign

cooperation agreements under which the wholesaler undertakes to achieve a

establishment of outlets.

JUDGMENT OF 25. 10. 1977 - CASE 26/76

Accordingly, they can be exempted from the prohibition contained in Article 85 (1) only if the conditions contained in Article 85 (3) are fulfilled.

40 However, the Commission maintains (paragraph 28 of the decision) that the obligation upon wholesalers to participate 'in the creation of a distribution network'

does not constitute a restriction on competition coming within the

ambit of Article 85 (1).

SABA distribution network is in fact connected with the obligations listed in the cooperation agreement which the Commission considered to constitute a

restriction on competition permissible only under Article 85 (3).

It is accordingly necessary to consider whether those conditions have been fulfilled.

41 The 'cooperation agreement'

to be concluded between SABA and the

wholesaler stipulates:

METRO v COMMISSION

appropriate for both parties, as well as obligations regarding the maintenance

of stocks.

'adequate'

Furthermore, the SABA wholesaler undertakes to achieve an

turnover [ein angemessener Umsatz] in SABA products.

condition that the supply contact based on such estimates is executed.

42 Article 85 (3) renders exemption from the prohibition pursuant to Article 85 (1) subject to the following conditions: (i) the agreement must contribute to improving the production or distribution of goods or to promoting technical or economic progress, (ii) it must allow consumers a fair share of the resulting benefit, (iii) it must not impose restrictions which are not indispensable to the attainment of these objectives and (iv) it must not afford the undertakings

concerned the possibility of eliminating competition in respect of a

substantial part of the products in question.

43 With regard to the first condition set out above, the conclusion of supply

contracts for six months taking account of the probable growth of the market should make it possible to ensure both a certain stability in the supply of the relevant which should allow the requirements of persons products, obtaining supplies from the wholesaler to be more fully satisfied, and, since such supply contracts are of relatively short duration, a certain flexibility, enabling production to be adapted to the changing requirements of the market.

JUDGMENT OP 25. 10. 1977 - CASE 26/76

performed under guarantee and to supply spare parts necessary for repairs

under guarantee.

Furthermore, the establishment of supply forecasts for a reasonable period

constitutes a stabilizing factor with regard to the provision of employment

which, since it improves the general conditions of production, especially when market conditions are unfavourable, comes within the framework of the objectives to which reference may be had pursuant to Article 85 (3).

In considering that the cooperation agreement, by restricting the period

covered by the supply contract to six months, remained within the limits of what is necessary the Commission clearly did not exceed the margin of

discretion which it possesses in this sphere.

46 According to Article 85 (3) agreements restricting competition must, in order to qualify for exemption, not only improve the distribution of goods but also allow consumers a fair share of the resulting benefit.

47 According to the contested decision the conditions of supply for wholesalers under the cooperation agreement are such as to provide direct benefit for

consumers in that they ensure continued supplies and the provision of a

48 In the circumstances of the present case regular supplies represent a sufficient advantage to consumers for them to be considered to constitute a fair share of the benefit resulting from the improvement brought about by the restriction

on competition permitted by the Commission.

Even if it is doubtful whether the requirement in this connexion of Article 85

(3) can be said to be satisfied by the assumption that the pressure of

competition will be sufficient to induce SABA and the wholesalers to pass on to consumers a part of the benefit derived from the rationalization of the

distribution network, the grant of exemption may, however, in the present

inconvenience by self-service wholesale undertakings.

Nevertheless, although the supply estimates which wholesalers are obliged to sign under the cooperation agreements in all probability constitute an

element foreign to the methods appropriate to that distribution channel, it does not appear that, in weighing up, in the context of the electronic leisure equipment sector, the relative importance of the need for cooperation

agreements, giving sufficient coherence to SABA's marketing network,

especially with regard to specialist wholesalers, on the one hand, and the

surmountable difficulties which that involves for self-service wholesale traders, on the other, and deciding in favour of the former, the Commission exceeded its discretionary power in this sphere.

Costs

52 Under Article 69 (2) of the Rules of Procedure the unsuccessful party shall be ordered to pay the costs.

Pursuant to the second subparagraph of that provision, where there are several unsuccessful parties the Court shall decide how the costs are to be shared.

Since the applicant has failed in its submissions it must be ordered to pay the costs and the intervener, the SB-Verband, must bear the costs occasioned by its intervention.

On those grounds,

THE COURT

Pescatore Mackenzie Stuart O'Keeffe Touffait

Delivered in open court in Luxembourg on 25 October 1977.

A. Van Houtte H. Kutscher

Registrar President