C-209/78

In Joined Cases 209 to 215 and 218/78

(1) 209/78: HEINTZ VAN LANDEWYCK SÀRL, Luxembourg, represented by Ernest Arendt, Avocat-avoué, with an address for service in Luxembourg at his Chambers, 34 Rue Philippe II;

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(2) 2 1 0 / 7 8 : FÉDÉRATION BELGO-LUXEMBOURGEOISE DES INDUSTRIES D U TABAC ASBL (FEDETAB), Brussels, represented by Léon Goff in a n d Antoine Braun of the Brussels Bar, with an address for service in Luxembourg at the Chambers of the said Ernest A r e n d t ;

(3) 2 1 1 / 7 8 : ÉTABLISSEMENTS GÖSSET SA, represented by Walter van Gerven of t h e Brussels Bar, with an address for service in Luxembourg at t h e Chambers of the said Ernest A r e n d t ;

(4) 2 1 2 / 7 8 : BAT BENELUX SA, Brussels, represented by Philippe-François Lebrun of the Brussels Bar, with an address for service in Luxembourg at the Chambers of the said Ernest Arendt;

A S S O C I A T I O N N A T I O N A L E D E S G R O S S I S T E S E N P R O D U I T S M A N U F A C T U R É S D U T A B A C

( A G R O T A B ) , Liège, a trade association, represented b y J e a n - M a r i e v a n Hille and N a d i n e François of the G h e n t Bar, with an address for service in

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Luxembourg at the Chambers of Fernand Entringer, 2 Rue du Palais de Justice;

and

FÉDÉRATION NATIONALE DES NÉGOCIANTS EN JOURNAUX, PUBLICATIONS, LIBRAIRIE ET ARTICLES CONNEXES ASBL (FNJ), Brussels, represented by Pierre Didier of the Brussels Bar, with an address for service in Luxembourg at the Chambers of the said Ernest Arendt, interveners, v

JUDGMENT OF 29. 10. 1980 — JOINED CASES 209 TO 215 AND 218/78

have committed one or more infringements of Article 85 of the EEC Treaty- is void, alternatively, in certain cases, that it be amended,

T H E COURT

composed of: H. Kutscher, President, P. Pescatore and T. Koopmans, (Presidents of Chambers), J. Mertens de Wilmars, Lord Mackenzie Stuart, A. O'Keeffe, G. Bosco, A. Touffait and O. Due, Judges,

Advocate General: G. Reischl Registrar: A. Van Houtte

gives the following

Itinérants en Produits Manufacturés en with the Commission pursuant to Article Tabac Asbl (hereinafter referred to as 3 (2) of Regulation No 17. "ANGIPMT"), an association of wholesalers founded following the dissolution of the FNCG in 1974. On 22 October 1975 there was a hearing of FEDETAB, certain of its members (that is to say in particular all the After FEDETAB, ATAB and ANGIPMT applicants) and GB. had made their observations on GB's complaint the Commission on 18 July 1975 forwarded to FEDETAB and to all its members a statement of the matters to In November 1975 the Commission which it had taken objection, stating that forwarded to Mestdagh and Huyghe- in its opinion certain agreements, baert a copy of its objections and of decisions and concerted practices of certain answers by the applicants and FEDETAB and of its members were forwarded to the applicants a copy of contrary to Article 85 of the Treaty. the complaint by Mestdagh and Huyghebaert for their comments.

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The other applicants, who are cigarette On 13 December 1977 the Advisory manufacturers and members of Committee on Restrictive Practices and FEDETAB, subsequently informed the Dominant Positions gave its opinion Commission that they intended to follow pursuant to Article 10 of Regulation the recommendation and wished to be No 17. party to its notification.

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ization of the distribution and sale of allocation to the latter of different tobacco products in Belgium and having profit margins; as their object: 2. the application to wholesalers and 1. the approval and classification of retailers of standard terms of wholesalers and retailers into different payment; and categories by FEDETAB in order to allocate different profit margins to such categories; 3. the granting to wholesalers and retailers of end-of-year rebates : 2. the maintenance of re-sale prices set by the manufacturers under the "constitutes an infringement of Article agreements of 22 May and 5 October 85 (1) of the Treaty establishing the 1967 between FEDETAB and FNCG European Economic Community and and the supplementary agreement of does not qualify for exemption under 29 December 1970; Article 85 (3) thereof".

3. the restrictions imposed by FEDETAB Article 3 (1) provides that the applicants on the approval of certain categories are required to terminate the in- of wholesalers; fringement referred to in Article 2 and in particular "they shall in future abstain from all acts whatsoever having the 4. the ban on re-sales to other same object as the FEDETAB wholesalers, under the joint measures recommendation". Article 3 (2) provides and the additional agreement of that FEDETAB is required forthwith to 22 March 1972; inform all its members to which the decision was not addressed of the 5. the application to wholesalers and contents thereof. retailers of standard terms of payment, under the joint measures of 23 December 1971; (b) Summary of the statement of reasons

After analysing the objects and structure of FEDETAB the Commission points out that the member firms produce or import roughly 95% of the cigarettes and The Commission observes that because between 75 and 80% of the cigars and of the tax arrangements applicable to cigarillos sold in Belgium. Ten manufactured tobacco products in the FEDETAB members also import foreign various EEC countries, wholesalers and branded products and in 1974 they retailers wishing to import without going imported 51% of the cigarettes and through the manufacturer or official 12 to 14% of the cigars imported into importer will in most cases be prevented Belgium, or about 5% of the cigarettes from doing so by the very fact that the and 10% of. the cigars sold there. They foreign wholesalers from whom they market the imported products through might wish to buy the products will only the same distribution networks as have stocks of products already bearing products they manufacture themselves. their national tax bands. That constitutes Nearly all the. tobacco products imported a source of serious technical obstacles of into Belgium and Luxembourg come a fiscal nature to their importation. from other EEC countries.

(cc) FEDETAB distribution arrange- (bb) Pricing and charging of tax on ments prior to 1 December 1975 manufactured tobacco products (paragraphs 19 to 57) in Belgium (paragraphs 11 to 18)

operating with the Belgian Ministry for to pass some of it on to their own Small Businesses. In 1973 those cat- retailer customers. egories were as follows: specialized itinerant wholesalers (366), handling about 65% of sales; specialized non- itinerant wholesalers (163), handling The Commission observes that the about 3.5% of sales; food and tobacco 80 000 retail outlets in Belgium were, wholesalers (33); "Horeca" wholesalers under an agreement betweed FEDETAB (those in the hotel, restaurant and café business) (14), handling together 3.6% and FNCG dated 29 December 1970, of sales; co-operatives, handling 3.4% of split up into "approved retailers" sales; and supermarkets and large stores (numbering some 2 000) and "non- (200 or 300 retail sales points), handling approved retailers". According to 9.3% of sales. whether the retailer was approved or not, the wholesaler passed on a proportion of the maximum margin which was 8.05 or 7.05% of the selling price of popular cigarettes and 8.25 or 7.25% of the price of cheaper and luxury The remaining 15% of sales were made cigarettes. direct by the manufacturers.

each retailer undertook to sell cigarettes to apply well before 1974 and could not at the retail price indicated on the tax have applied after the dissolution of the band without any reduction or benefits. FNCG. On 5 October 1967 FEDETAB and the FNCG, in an additional agreement for the interpretation of the 22 May 1967 agreement, stipulated that wholesalers also running retail outlets were regarded as having undertaken to refuse to supply — Objection relating to the other retailers who did not charge the FEDETAB decision not to approve selling prices indicated on the tax band. new businesses in certain cat- On 26 October 1967 the FNCG wrote to egories of wholesalers its members stating that the manufac- turers would not supply cigarettes to wholesalers who continued to supply retailers or distributors who persisted in giving any form of quantity discount when selling to consumers. On 30 The Commission observes that since 1 October 1967 FEDETAB wrote to all January 1971 FEDETAB had decided the cigarette wholesalers, asking them not to approve any new wholesalers, immediately to suspend deliveries to except in the categories of "specialist several large supermarkets including itinerant wholesaler" or "hotels/res- three companies which subsequently taurants/cafés", nor to approve new co- became part of GB Enterprises SA. operatives or supermarkets except in the categories of "large department stores" and "popular department stores". Applicants for approval in the categories still open had to undertake inter alia to FEDETAB and the FNCG signed a observe the set prices, to pay cash and to further amendment to the agreement on help with promoting all new brands. 29 December 1970, by which they agreed to operate a strict and methodical monitoring system to ensure that the agreements were honoured. On 30 June 1972 (the date when the agreement of 22 May 1967 would normally have expired) FEDETAB sent wholesalers a standard — Objection relating to the joint agreement entitled "Special agreement measures and the additional on cut-price selling", under which the agreement of 22 March 1972 wholesalers recognized the agreement of banning the re-sale of goods to 22 May 1967 and the additional other wholesalers agreements of 29 December 1970 and 22 March 1972 (see below) and agreed that from 1 July 1972 to 30 June 1977 they would sell manufactured tobacco products at the price indicated by their The Commission observes that on 22 suppliers without any rebate or bonus. March 1972 the FNCG, referring to the additional agreement with FEDETAB of 29 December 1970, informed its members that in future they were The Commission states that according to forbidden to sell manufactured tobacco FEDETAB, those agreements had ceased products (1) to food wholesalers and

other wholesalers not directly supplied — Objection relating to agreements by manufacturers, where the products and joint action by FEDETAB concerned were for re-sale to retailers; members to ensure that retailers (2) to wholesalers to whom the manufac- would stock a minimum range of turers had already allocated a quota and brands that supplies would be suspended if this ban were broken. Under the standard agreement which FEDETAB asked them The Commission observes iri particular to sign on 30 June 1972 — and which that when GB Enterprises cut the almost all did in fact sign — wholesalers number of brands of cigarettes it stocked committed themselves to observe the from 62 to 24 FEDETAB announced above requirements. that cigarette manufacturers would stop their supplies from 1 March 1972 unless GB Enterprises reverted to the number of brands that it had previously stocked. FNCG forbade its members to supply The Commission states that according to GB Enterprises and other large firms FEDETAB, no action was taken under which had also cut their range of the additional amendment of 22 March cigarettes and all such firms went back to 1972, or under the separate agreements their previous stocks of brands, and the made under it, and both had expired one refusal to supply them was ended. year after the standard agreement was signed, namely on 1 July 1973. (dd) The FEDETAB recommendation of 1 December 1975 (paragraphs 58 to 76) — Objection relating to collective measures on payment dates taken In its decision the Commission states that by certain FEDETAB members on this recommendation which was notified 23 December 1971 to it by FEDETAB on 1 December 1975 and which was intended to replace the above-mentioned measures concerned only distribution on the cigarette market. The Commission states that on 23 The other applicants informed the December 1971 a letter written on Commission that they intended to follow FEDETAB writing paper on behalf of the recommendation and wished to be nine tobacco manufacturers, who were party to the notification. members of FEDETAB, was sent to wholesalers and others who enjoyed The firms belonging to FEDETAB wholesale price terms, announcing that account for 80% of all Belgian cigarette following a strict time schedule also sales and their combination within described in the letter credit would be FEDETAB has very great influence on progressively cut back to a maximum of other manufacturers and importers and a fortnight. They also warned that if any on wholesalers and retailers. The of the addressees continued to be slow recommendation thus operates as a with their payments the signatories genuine mandatory rule of conduct for would act together in suspending all firms in the industry. deliveries. In the Commission's view those collective measures remained operative until December 1975, when the The Commission observes that from the recommendation came into effect. time the recommendation took effect,

may receive an extra discount on invoice Customers also satisfying the following of 1%, making a total discount of 10.2% requirements may receive an additional (9.27% since 15 October 1977). rebate :

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Any customer: — buying at least 150 million cigarettes per year to be distributed among all — selling at least 1.8 million cigarettes the retail outlets belonging or per year, affiliated to him,

— permanently stocking and regularly — arranging his shop and his display selling a range of at least 50 different area in such a way as to indicate brands of cigarettes, clearly that tobacco products are on sale there, may also receive an extra discount on invoice of 2.95%, making a total — permanently stocking and regularly discount of 10.2% (9.27% since 15 selling a range of at least 60 different October 1977). brands of cigarettes,

JUDGMENT OF 29. 10. 1980 — JOINED CASES 209 TO 215 AND 218/78

decisions by associations of undertakings came into force on 1 January 1971) and and also agreements between under- other excise provisions, compelled the takings; those concerning the main- ultimate retailer to sell his merchandise tenance of retail prices and terms of at the price indicated on the tax band payment constituted agreements between does not prevent the system imposed by undertakings; and the limitation by FEDETAB and its members on Belgian FEDETAB of access to certain categories wholesalers and retailers from being of wholesalers constituted a decision by caught by Article 85. In that respect the an association of undertakings. Commission points out that Article 58 of the VAT Code does not contain any clause governing wholesalers' selling prices. These agreements and decisions have as their object and effect the restriction of competition within the common market. The restriction placed on the number of wholesalers eligible for approval in The Commission gives the following certain categories constituted a barrier to reasons for that view: market entry for those who were not approved.

could obtain a bigger discount, but also Although the tax arrangements in force because they were forced to tie up part constituted a hindrance of parallel of their working capital in stocks of imports by wholesalers and retailers, the various slow-moving brands. fact remains that the alteration of trading conditions in Belgium was such as to divert the flow of trade from its normal course (that is, the course it would have followed in the absence of the restrictions of competition actually observed), and so to affect trade between the Member States. In answer to the claim of the applicants that such restrictions of competition were not significant because the Belgian Government levies heavy taxes and requires notification of the re-sale prices and profit margins for tobacco products (bb) The FEDETAB recommendation so that competition is already sub- of 1 December 1975 (paragraphs stantially restricted and uniform conduct 94 to 108) is imposed on all the firms operating in the market, the Commission points out that if legislation has the effect of restricting competition, the added effects of private arrangements restricting The Commission takes the view that the competition can only be the more recommendation is a decision by an significant. association of undertakings within the meaning of Article 85 (1) and also an agreement between the undertakings which have agreed to it. As evidence for its finding that the recommendation has the object and effect of restricting competition in the common market the Commission puts forward the following As regards affecting trade between reasons: Member States, the Commission maintains that the decisions and agreements in question were likely to affect trade between Member States not only in that the largest cigarette manu- Like the system operated by FEDETAB facturer in Luxembourg was a and its members before 1 December FEDETAB member, and hence all its 1976 the recommendation divides sales to Belgium were hit by the same Belgian wholesalers and retailers into restrictions on competition, but also several categories and specifies profit because a large proportion of the margins for each of them, which involves cigarettes (51% of imports, or 5% of all the same restraints on competition as sales) and cigars (12 to 14% of imports, before. or 10% of all sales) arriving in Belgium each year are imported via manufac- turers who are FEDETAB members and therefore distribute these imports under the same conditions as their own The end-of-year rebates system as finally products. brought in by the recommendation

In answer to the arguments put forward by FEDETAB and some of its members (aa) FEDETAB distribution arrange- that a certain amount of competition ments prior to 1 December 1975 continued to exist in the areas covered (paragraphs 109 to 112) by the recommendation in spite of its provisions, the Commission points out that, according to the information it has obtained, all the various manufacturers, none of whom, incidentally, has disclaimed the recommendation or The Commission alleges that in the indicated its intention to ignore it, have present case it is unable to consider adopted identical operating methods applying Article 85 (3) to the decisions which are in line with the and agreements relating to the period 13 recommendation. March 1962 to 1 December 1975, since the agreements and decisions were not notified to it in accordance with Article 4 (1) of Regulation No 17 although they did not belong to any of the categories of agreements and decisions exempted For the reasons already set out it cannot from notification by Article 4 (2), and be accepted that the restrictions on the last sentence of Article 4 (1) competition flowing from the expressly excludes the making of a recommendation were not appreciable by decision applying Article 85 (3) to a non- reason of the State intervention in the exempt agreement for such time as it has tobacco industry. not been notified.

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(bb) The FEDETAB recommendation retailers and consumers cannot fail to (paragraphs 113 to 134) give them their custom whatever the financial conditions.

The very great number of retail outlets Further, it is obvious that the protection in Belgium (80 000) must inevitably of specialist wholesalers cannot be increase the cost of distributing these adduced as a reason for the end-of-year products, since they must be perfectly rebates system, since such rebates are fresh when they reach the customer and granted indiscriminately to all categories therefore call for a rapid stock turnover. of wholesalers. Of these retail outlets, a very few are specialist retailers, and most offer their customers only a very limited range of brands of cigarettes. Finally the wholesalers and retailers who have the disadvantage of having to stock a large number of different brands find even more onerous the recommendation prohibiting terms of payment of longer than a fortnight, a prohibition which can If the services offered by specialized only increase overheads at every level of wholesalers and retailers are as valuable distribution with no advantage to the as FEDETAB and its members maintain, consumer.

JUDGMENT OF 29. 10. 1980 — JOINED CASES 209 TO 215 AND 218/78

The Commission observes that the of the Court pursuant to the second recommendation does not, therefore, paragraph of Articles 85 and 11 of the lead to improvements in distribution Rules of Procedure, ordered as an which would offset the inherent interim measure that the operation of restrictions of competition, or allow Articles 2 and 3 of the decision should be consumers a fair share of any benefit suspended pending final judgment by the which might result. Court. It was stated in particular in the grounds of the order that every member of FEDETAB was free to disregard at Mainly for the reasons set out above, the any time the rules agreed by the recommendation does not satisfy the FEDETAB recommendation of 1 tests for the application of Article 85 (3). December 1975.

By order dated 30 October 1978 the 1. The main or sole claim of all the President of the Second Chamber of the applicants is for a declaration that the Court, taking the place of the President decision as a whole is void.

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Weitab, the applicant in Case 214/78, — Dismiss the claims of the interveners, claims in the alternative that the Court ATAB and AGROTAB, as un- should refer the case back to the founded; Commission with an order to consider the applications for exemption under — Order the applicants to pay the costs; Article 85 (3) of the Treaty in respect of (a) the distribution systems of FEDETAB — Order the interveners, ATAB and before 1 December 1975 and (b) the AGROTAB, to pay the costs of their FEDETAB recommendation of 1 intervention. December 1975.

Jubilé, the applicant in Case 215/78, 2. ATAB and AGROTAB, interveners, claims in the alternative that there should support the claims of the applicants for a be a declaration that in so far as it declaration that the decision is void and provides that the FEDETAB rec- that the Commission should be ordered ommendation does not qualify for to pay the costs. exemption under Article 85 (3), Article 2 of the decision is void, as is, in In its observations on the pleadings of consequence, Article 3 (1). ATAB and AGROTAB the Commission contends that the claims of those Vander Elst, the applicant in Case interveners should be rejected as 218/78, claims that the Court should: unfounded and that they should be ordered to bear the costs of their in the alternative, intervention.

The FNJ, intervener, supports the claims views in writing within such time-limit as of the applicants and formally asks for a it shall fix. declaration that the decision is void and that the Commission should be ordered to pay the costs of the action including Summary of the defence the intervention. In answer the Commission states that it In its observations on the intervention of did not refuse to hear the above- the FNJ the Commission contends in mentioned associations but refused only particular that the submissions of the to invite them to take part in the second FNJ be rejected and that it be ordered to hearing on 22 September 1976 because pay the costs caused by its intervention. since they had not taken part in the recommendation they had no sufficient interest in taking part in that hearing. Those associations had ample oppor- tunity of making known their point of III — Submissions and argu- view during the administrative ments of the parties proceedings and had effectively made use of that opportunity primarily in writing. The Commission considered their observations in detail before taking A — Formal and procedural submissions its decision. made by most of the applicants jointly concerning in particular the rights of the defence Second submission: infringement of Article 19 (2) of Regulation No 17 and Article 3 (3) of Regulation No 99/63 First submission: infringement of Article and of the rights of the defence 19 (2) of Regulation No 17 and Article 5 inasmuch as the Commission refused to of Regulation No 99/63 inasmuch as the accede to the request by FEDETAB to Commission refused to hear the hear two associations of wholesalers associations of wholesalers and retailers concerned Summary of the applications

only where its exercise does not made for the purpose of having certain adversely affect the rights of the defence. facts put forward by FEDETAB corrob- orated but limits itself to asking the Commission to hear the above- On 30 June 1976 FEDETAB asked the mentioned undertakings " . . . so that the Commission to invite to the hearing two Commission may be put completely in associations of wholesalers, namely GT the picture . . . " . In view of its wording and the Nationale Vereniging van the request by FEDETAB could not be Familiale Groothandelsondernemingen regarded as a proposal based on Article 3 (hereinafter referred to as "NVFG"), (3) of Regulation No 99/63. Vrasene, a de facto association of wholesalers established after the dissolution of the FNCG. The reply by the Commission of 20 July 1976 shows quite clearly that the Commission was basing its answer on By a letter dated 20 July 1976, the Article 5 of Regulation No 99/63 Commission rejected that request and relating to the hearing of third parties gave as reasons the fact that "the and not on Article 3 (3) concerning the agreement... was and remains the act of corroboration of facts alleged. the manufacturers alone . . . and no wholesalers or retailers whatsoever have taken any part therein". Neither FEDETAB nor the two associations concerned gave sufficient evidence of the interest of the The facts which the associations were in associations in being heard. a position to corroborate related basically to whether there was an infringement and the grounds for In any event the Commission gave the exemption. two associations of wholesalers con- cerned a sufficient hearing during the administrative procedure. The Commission's refusal is all the more arbitrary in that the contested decision constantly refers to the alleged effects upon the wholesale and retail trade. It is Third submission: disregard of fun- patent from the decision itself that the damental principles of the rights of the Commission has acted outside its powers defence concerning the hearings as pre- or has even misused its powers by scribed by Regulations Nos 17 and depriving the applicant without legal jus- 99/63 inasmuch as persons delegated by tification of the opportunity of having the Commission to conduct the hearing the facts which it put forward corrob- on 22 October 1975 were not all present orated. The Commission has seriously during the whole of the hearing disregarded the rights of the defence.

HvL contends that in so far as the Summary of the defence decision takes account of the complaints by Mestdagh and Huyghebaert the rights of the defence were disregarded and there was an infringement of the The Commission points out that its provisions of Regulation No 99/63 and practice of delegating only the director in particular Article 4 thereof. who presides over the hearing is clearly shown in the note which accompanies the invitation to the hearings. Since the only person delegated to conduct the Summary of the defence hearing of 22 October 1975 was Mr Dennis Thompson, Director of the Restrictive Practices and Abuse of Dominant Positions Directorate, it is As far as the facts are concerned the therefore a matter of indifference that Commission points out inter alia that the some officials who were not delegated complaints made by Mestdagh and were absent for a few minutes from that Huyghebaert on 21 October 1975 relate hearing. solely to part of the proceedings initiated on 29 July 1974 following the complaint lodged by GB, during which the Commission communicated the com- Fourth submission: disregard of essential plaints to the applicants on 18 July 1975 formalities provided for by Regulations and made preparations to organize a Nos 17 and 99/63, of Article 190 of the hearing on 22 October 1975. Treaty and of the rights of the defence inasmuch as the Commission improperly joined the various cases and did not give The connexion between the three reasons therefor in its decision complaints lodged by GB, Mestdagh and Huyghebaert was recognized on various occasions by FEDETAB and by several other applicants as appears in particular Summary of the applications from their statements recorded in the minutes (pages 10 to 12) of the hearing of 22 October 1975 (Annex No 2 to the This submission has been made mainly defence). In any event mere perusal of or in part by all the applicants. the three complaints reveals that the new complaints have the same objective as that lodged by GB. FEDETAB and Vander Elst complain in particular that the hearing on 22 October 1975 took place and was concluded The Commission sent a copy of the new without their having been informed of complaints to the applicants by letter the complaints by Mestdagh and Huy- dated 13 November 1975. The applicants ghebaert on which, however, the made written observations thereon in contested decision is also based. In the December 1975 and January 1976. After

As regards the law, the Commission points out that there is no rule providing that the Commission must take decisions Summary of the replies "joining" cases of files. Since the concept of joining is alien to its administrative practice the decision did not have to state reasons on this subject. There was only one set of proceedings which led to FEDETAB alleges that the very frequent the decision of 20 July 1978. decision to join different proceedings is not simply an internal measure but a decision within the meaning of Article 189 of the Treaty especially when, as in this case, it directly affects the interests In the "sugar" cases (Joined Cases 40 to of those subject thereto. The reasons on 48, 50, 54 to 56, 111, 113 and 114/73, which it is based should therefore be Suiker Unie and Others v Commission stated pursuant to Article 190 of the [1975] ECR 1663) the Court stated (at Treaty. paragraph 111 on p. 1930) that there was no reason at all why the Commission should not make a single decision covering several infringements. A fortiori The Commission's fundamental error it should be possible for it to give a was to treat three distinct proceedings single decision in relation to one haphazardly in one decision without infringement which has been the subject having given prior notice to FEDETAB of several complaints even if they include thereof. In ' particular it is clearly fresh complaints lodged during the apparent from the Commission's letter of course of proceedings already initiated 13 November 1975 that the complaints by the Commission. by Mestdagh and Huyghebaert were the subject of separate proceedings. Although FEDETAB had the oppor- tunity of making written observations on In those circumstances and since it had those complaints, they were prior to the already, following the first complaints, notification of the recommendation of 1 opened the proceedings on 29 July 1974 December 1975 and could therefore and sent its objections on 18 July 1975, it relate only to the previous measures. was sufficient .for the Commission to Nevertheless the contested decision inform the applicants of the content of expressly states that Mestdagh and the new complaints and receive their Huyghebaert challenged certain pro- observations thereon without its having visions of the recommendation.

It follows that since the second opportunity of making known their proceedings did not follow a regular views. course and since there was no notification of objections and as the hearing which FEDETAB might have Although it is true that the applicant has obtained did not take place, FEDETAB twice expressed its views regarding the was unable to answer the objections complaints by Mestdagh and Huyghe- which were not particularized, which baert, it has never done so in respect of was in breach of the rights of the the objections by the Commission defence. because the Commission has never informed it of its objections in Case IV/ 29.127 (contrary to the position in Cases Jubilé stresses that this submission IV/28.852 and IV/29.149). The com- concerns the joinder of all the three plaints by Mestdagh and Huyghebaert proceedings and not only the Mestdagh cannot be regarded in that respect as and Huyghebaert proceedings; it objections and the applicant never concerns less the joinder in itself so considered them as such since the much as the fact that it was done 'at the Commission never said that it was last minute by the decision which adopting them as its own. terminated the proceedings. In the applicant's view the Commission is It disputes the fact, of which it states that mistaken in stating that in the circum- it was unaware, that the Commission stances of the case it was relieved of the decided on 10 May 1976 to "extend" duty to give formal notice of the Case IV/29.852 to cover Case IV/ objections. Article 2 of Regulation No 29.149. It stresses that a preliminary draft 99/63 is quite definite in that respect. of the decision still treated the proceedings as separate and asks that the Commission be invited to lodge that pre- Disregard of the rights of the defence liminary draft together with the draft arising from the secret joinder of the decision (the French versions). cases led to no hearing taking place in Case IV/29.127. How could the applicant have asked for a hearing when The Commission's conduct made the it was completely unaware that course of the proceedings irregular and proceedings had been initiated and a reduced the rights of the defence. fortiori of the existence of objections in respect thereof?

to the effect that there were three that the considerable powers of the separate proceedings with different Commission regarding practices re- objectives. stricting competition require that those concerned shall enjoy procedural guarantees. That implies that they must It admits that Mestdagh and Huyghe- have knowledge of the file on which by baert could obviously not challenge the implication or expressly the Commission "recommendation" dated 1 December bases its decision. 1975 in their requests dated 21 October 1975. Nevertheless the Commission considered in its decision that the fixing That is all the more so since the Court of of the maximum rebates to be granted on Justice in order to decide the present invoices to customers and the minimum cases must have knowledge of the criteria they had to fulfil in order to Commission's file and "it would infringe benefit as laid down in the rec- a basic principle of law to base a judicial ommendation were challenged by decision on facts and documents of Mestdagh and Huyghebaert during the which the parties... have not been able administrative proceedings. On the one to take cognizance and in relation to hand, those provisions of the rec- which they have not therefore been able ommendation basically adopt the to formulate an opinion" (Joined Cases previous system against which Mestdagh 42 and 49/59, Société Nouvelle des and Huyghebaert lodged a complaint Usines de Ponttien v High Authority and, on the other, Mestdagh and Huyg- [1961] ECR 53). hebaert wrote a letter dated 18 May 1976 on that subject (of which the applicants received a copy) maintaining their objections to the system after being On 8 June 1976 FEDETAB, through one notified thereof on 1 December 1975. of its advisers, could only take note of the fact that the Commission had no document to forward (minutes of As regards the law the Commission hearing of 22 September 1976, p. 19). refers to the arguments set out in its defence. The complaints by Mestdagh and Huy- ghebaert were not forwarded to the Fifth submission: disregard of the general applicants until after the hearing on 22 principle of the rights of the defence October 1975 which took place without inasmuch as the Commission refused to the applicants' having had knowledge of disclose the file on which the decision those complaints on which, however, the was based contested decision is also based.

Summary of the defence In the view of FEDETAB when infor- mation collected by the Commission is, by its nature, subject to business secrecy, The Commission observes that none of it may not be made known to third the applicants asked it to forward the parties, even complainants. That follows whole file before the decision was taken. from Article 20 (2) of Regulation No 17. The applicants received a copy of the A fortiori it is so when the undertaking in three complaints lodged by GB, question states expressly that the Mestdagh and Huyghebaert and were documents which it is producing are made aware of the facts on which the confidential. objections of the Commission were based when those objections were forwarded to them. FEDETAB received a copy of the letter by ANGIPMT which it had A table (Annex 11 to the application) requested, namely a letter sent to the tracing the trend in receipts during the Commission by ANGIPMT on 13 last five years from 160 brands of February 1976. In these circumstances it cigarettes was annexed to FEDETAB's was unnecessary for them to receive the statement of 22 September 1975. The whole of the file. same statement also contained a table of the number of cigarettes bought by the main specialist itinerant wholesalers and Before the decision was taken the a table showing the time the 25 main applicants made no request for in- customers of the principal Belgian spection of a specific document which cigarette manufacturers took to pay. the Commission did not satisfy.

September 1975 to the statement of collected pursuant to Regulation No 17 objections of 18 July 1975 which to be by its nature subject to business followed the complaint by GB of 2 April secrecy it was not sufficient for the 1975. applicants simply to say so, and further FEDETAB itself stated in its answer of 22 September 1975 that it was the manu- GB had asked to be heard and in facturers themselves who forwarded the particular to be invited to the hearing above-mentioned particulars, whereas and had moreover asked the Commission each manufacturer knew that each of the other applicants could find out par- by letter dated 22 September 1975 to be ticulars concerning its competitors able to have sight of the answers by the through their representatives on applicants to the objections of 18 July FEDETAB's board of administration. 1975. For that reason in particular it is obvious that the manufacturers themselves did not regard those particulars as being by It was in answer to that request by GB their nature subject to business secrecy and to fulfil the obligations under Article vis-à-vis their competitors. 19 (2) of Regulation No 17 that the Commission forwarded a copy of certain of those answers (including that from FEDETAB) to GB and invited it to the The Commission considers moreover hearing on 22 October 1975. that even if those matters were subject to business secrecy the provisions of Article 20 (2) gave it the right and Article 19 (2) The particulars contained in the tables the duty to forward them to GB. Any showing the trend in sales of certain other attitude than that which it adopted brands, the volume of purchases by would have been capable of disregarding certain wholesalers and the terms of GB's rights of the defence and in payment are essential parts of the answer particular its right to be fully and by FEDETAB. It was therefore proper properly heard. for the Commission to supply a copy to GB. That method of proceeding enabled GB to make known its point of view in detail on those essential issues. Further, and this is the main issue, the applicants have in no way shown how this manner of acting has in any way made the administrative proceedings As regards the law the Commission irregular. There is nothing in the file to observes that recourse to Article 21 (2) allow the presumption that the contested of Regulation No 17 may be dismissed at decision would not have been taken or the outset. It did not include particulars would have been different. of the three tables in its decision.

cost components" (Article 214 of the documents to enable GB to make known Treaty) and such as go beyond "general its point of view in detail. It was in fact information or surveys which do not quite unnecessary for the purpose of contain information relating to particular obtaining its opinion to give the detailed undertakings or associations of under- figures showing each manufacturer, takings" (Article 20 (3) of Regulation wholesaler and brand. To reveal that No 17) are by their nature subject to detailed information is a flagrant breach business secrecy. of business secrecy prohibited by Article 214 of the Treaty, Article 20 (1) and (2) of Regulation No 17 and not authorized It follows that the three tables are by in the circumstances of the case by their nature confidential. Further, a Article 19 of the Regulation properly manufacturer's business secret does not interpreted. lose its confidential nature when, in reliance on Article 20 (1) of Regulation No 17 which states that information Breach of secrecy by itself vitiates the acquired shall be used only for the whole inquiry and therefore the decision purpose of the relevant request or by a defect which must lead to its being investigation, the secret is notified to the declared void without its being necessary Commission by the trade association to for the applicant to show that the which the manufacturers belong. decision would have been different if the Whether or not it is known to all the breach had not been committed. manufacturers a secret is no less a secret in respect of the complainant GB. It was thus a breach of the legitimate expectation derived by FEDETAB from Summary of the rejoinder Article 20 (1) of Regulation No 17 for the Commission to forward to GB those confidential documents of which it might make commercial use. The Commission observes in particular that the applicants did not invoke the provisions relating to business secrecy (Articles 19 (3) and 21 (2) of Regulation It is apparent from Article 20 (2) of the No 17 and Articles 2 (2) and 9 (3) of Regulation that it is solely on the basis of Regulation No 99/63). Articles 19 and 21 that the Commission may refuse to recognize the character of documents which by their nature are confidential. Article 21 does not come As regards business secrecy the Com- into question in the present case. Article mission challenges the statement by 19 relating to the hearing does not FEDETAB to the effect that Article 20 dispense the Commission from having (3) of Regulation No 17 shows that "regard to the legitimate interest of everything that goes beyond "general undertakings in not having their business information or surveys which do not secrets divulged" (Thiesing, Schröter, contain information relating to particular Hochbaum, "Les ententes et les positions undertakings or associations of under- dominantes dans le droit de la CEE" takings" is by its nature subject to 1977, p. 66, No 8). business secrecy.

event not covered by the duty on the other applicants except Jubilé and part of the Commission's officers to Vander Elst. observe business secrecy but in no way implies that everything else is by its nature subject to such secrecy. FEDETAB complains that the Com- mission did not state reasons why, purely In its defence the Commission set out the by implication, it rejected the sub- facts, which were not challenged by the missions made by FEDETAB in its applicants, and which show that the statement of 22 September 1975 and at details in the three tables in question lost the hearing on 22 October 1975 to the their confidential nature by reason of the effect that the measures prior to the fact that they were divulged by the recommendation to which the Com- manufacturers themselves to their mission was objecting ought to have competitors. In those circumstances the received exemption under Article 4 (2) of tables must not therefore be regarded as Regulation No 17. protected by the duty to observe business secrecy which is incumbent upon the Commission's officers. It is unanimously accepted that where an agreement, decision or concerted practice is entitled to such exemption, B — Formal submissions common to most failure to notify does not deprive the of the applicants relating to Article parties thereto of the right subsequently 85 (3) of the Treaty to rely on Article 85 (3) and obtain exemption from Article 85 (1) with retroactive effect (Waelbroeck, "Le droit de la Communauté économique euro- Seventh submission: infringement of péenne", Vol. IV, p. 134, No 44 with Article 85 (1) and (3) of the Treaty, references). Article 4 (2) (1) and (2) (a), Articles 5 and 6 (1) and (2) of Regulation No 17, disregard of the rights of the defence and of the requirement to state the In the present case FEDETAB alleged reasons on which the decision was based that it was necessary to consider inasmuch as the Commission refused to separately the various agreements, apply Article 85 (3) of the Treaty to the decisions or concerted practices which measures prior to the recommendation of were the subject of the notification of 1 December 1975 on the ground that objections. those measures were not exempted from notification and since it did not state in answer to the submission by the parties the reasons on which its decision was It is therefore for the Commission to based in that respect analyse those various measures and to check in each case whether the conditions for applying Article 4 (2) of Regulation No 17 were satisfied. Summary of the applications

Summary of the defence FEDETAB's letter of 26 February 1971 and its enclosures as notification The Commission refers to the reasons set out in paragraphs 110 to 112 of the decision for the refusal to grant Summary of the applications exemption under Article 85 (3) to the distribution measures adopted by This submission was made to a greater FEDETAB prior to 1 December 1975. or lesser extent by FEDETAB and by all the other applicants except Jubilé and Vander Elst. It alleges in particular that a mere perusal of Article 4 (2) of Regulation No 17 to which it referred in paragraph 110 In FEDETAB's view it is common of the decision enables it to be ground that the letter dated 26 February understood, without its being possible 1971, including the enclosures, gave the for any doubt to remain in that respect, Commission full and detailed knowledge that the measures in question are not of all the measures which the Com- affected by that provision in view of the mission subsequently challenged and set fact that: out at the same time the reasons why those measures either did not fall, in the view of FEDETAB, under Article 85(1) — manufacturers from two Member or in any event were beneficial to the States (Belgium and the Grand organization of the market. Duchy of Luxembourg) were involved and several were subsidiaries of powerful groups from other Those documents were sent to the Member States; Commission by FEDETAB after a discussion between its Director and an official in the Directorate-General for — more than two undertakings, namely Competition and following a request for at least all the applicants, were information, but the Commission refused involved; . to recognize that they might constitute notifications within the meaning of Article 4 (1) and Article 5 of Regulation — they did not have as their sole object No 17 and put forward the following the matters listed in Article 4 (3) (and reasons: it has moreover never been alleged by any applicant that such was the case). — Notification was not spontaneous; The statement of the reasons on which the decision was based as regards the — It did not formally ask for question of exemption from notification exemption; is correct and sufficient. — It did not refer to the application of Articles 4 and 5 of Regulation Eighth submission: infringement of No 17; Article 85 (3) of the Treaty, Articles 4 (1) and (2), 5 (1) and (2) and 6 (1) and (2) of Regulation No 17 and Articles 2, — It was not made on Forms A and B 3 and 4 of Regulation No 27 inasmuch as prescribed by Regulation No 27, as the Commission refused to consider nor were ten copies thereof sent.

No provision of Regulations Nos 17 or 27 requires the formality to which the Commission seeks to subject the applicants in requiring that there should Summary of the defence be specific reference to Regulation No 17 and more particularly to Articles 4 and 5 thereof or that a request for exemption be made expressly. The Commission points out inter alia that when it first stated its objections on 18 July 1975, it expressed the view (on p. In its letter of 26 June 1971 FEDETAB 16) that the measures in question could moreover not only set out the reasons not be regarded as exempt so long as why it considered that the measures it they were not notified, since in particular had taken did not affect the principle of they were not exempt from notification. competition (which means that in its In its answer of 22 September 1975 (pp. view there was no ground for pros- 84 and 85) FEDETAB stated that the ecuting it under Article 85 (1)) but letter of 26 June 1971 could in its view further it set out in detail the reasons be treated as a valid notification. why its price and distribution policy appeared to it to be in the general interest, which implies that it considered that it could have the benefit of Article 85 (3) if it were held that Article 85 (1) The use of Form A/B prescribed by applied. Regulation No 27 which refers expressly to Articles 4 and 5 of Regulation No 17 was required principally because notification in that form has important legal consequences including the Although Regulation No 22 prescribes possibility of granting exemption and formalities for notifications for the immunity from fines.

Ninth submission: infringement of Article 85 (3) of the Treaty, disregard of the Summary of the applications duty to state the reasons on which the decision was based and disregard of the This submission was made to a greater rights of the defence inasmuch as the or lesser extent by all the applicants. Commission omitted to answer in the decision the main arguments put forward in relation to the application of Article FEDETAB points out that before taking 85 (3) a decision the Commission must give the undertakings concerned the opportunity of being heard on the matters to which the Commission has taken objection Summary of the applications (Article 19 (1) of Regulation No 17) and that it may deal only with those This submission was made to a greater objections in respect of which the under- or lesser extent by FEDETAB and by all taking has been afforded the opportunity the other applicants except Jubilé and of making known its views (Article 4 of Vander Elst. Regulation No 99/63).

FEDETAB complains that the contested In the second notification of its decision considers only certain of its objections the Commission refused to arguments (paragraphs 118 to 132) grant exemption under Article 85 (3) on whereas after referring to them itself in the sole ground that the recommendation the previous recitals (paragraphs 114 to did not satisfy the first of the four 117) the decision ought to have dealt conditions prescribed by that provision, with them individually. namely the improvement of production

VAN LANDEWYCK v COMMISSION

JUDGMENT OF 29. 10. 1980 — JOINED CASES 209 TO 215 AND 218/78

C — Observation common to the sub- trial laid down by Article 6 of the missions 1 to 6 and 10 Convention.

In its reply FEDETAB alleges that the The Commission refers in its rejoinder to seven above-mentioned submissions also the statements of the Court of Justice on constitute an infringement of Article 6 of the subject of fundamental rights in its the European Convention for the judgments in Internationale Handels- Protection of Human Rights. All the gesellschaft [1970] ECR 1125, paragraphs other applicants except Jubilé and 3 and 4 at p. 1134 and Nold [1974] ECR Vander Elst endorse the arguments 491, paragraph 13 at p. 507. which FEDETAB puts forward in that respect.

VAN LANDEWYCK v COMMISSION

case, judgment of 16 July 1971, Series A, — the wholesaler's margin (the No 13, paragraph 94 at p. 39) in view of difference between the wholesaler's the fact that the executive power of the purchase price and his sale price to Community is vested in it. the retailer);

Even assuming that it must be regarded — the retailer's margin (the difference as a "tribunal" within the meaning between the retailer's purchase price mentioned above it considers that the and the sale price to the consumer); applicants' observations must be rejected because it has in no way committed an infringement of that provision. and on the other hand tax items, namely:

— a specific excise duty which is a given D — Submissions relating to Article 85 amount in Belgian francs per item (1) of the Treaty and common to and a special excise duty calculated most of the applicants in the same way;

Preliminary remarks :— a proportional excise duty which is a given percentage of the retail sale price and a special excise duty calculated in the same way; In view of the fact that both the applicants and the Commission cite in their arguments a number of both — value-added tax calculated on the national and Community rules relating to value of the tobacco and on the manufactured tobacco products it is excise duty, at present 6% for appropriate to set out the following cigarettes. observations thereon.

Belgium has an almost exclusively pro- 1. Belgian tax rules portional system of excise duty (95% proportional excise; 5% specific excise — the minimum permitted by Council Manufactured tobacco and in particular Directive No 72/464/EEC of 19 cigarettes are subject in Belgium to an December 1972 on taxes other than excise system having ad valorem excise turnover taxes which affect the duty calculated on the retail sale price consumption of manufactured tobacco; including value-added tax. Official Journal L 303; (see 2 below).

The manufacturers and importers are in that harmonization, the Council first of general free to determine the retail sale all states as a principle that establishment price but subject to the Belgian system of of an economic union within which there maximum price control (see 3 below). is healthy competition and whose characteristics are similar tp those of a domestic market, as regards manu- Nevertheless it must be pointed out that factured tobacco, presupposes that the retailers are bound strictly to observe the application in the Member States of taxes prices shown on the bands. That affecting the consumption of products in requirement is imposed in the first place this sector does not distort conditions of by Article 58 of the VAT code which competition and does not impede their entered into force on 1 January 1971 and free movement within the Community provides that the price on the tax band (first recital). "must be the imposed price on sale to the consumer". After stating that "the taxes which at A Ministerial Order of 9 April 1974 present affect the consumption of manu- amended in the same way the regulation factured tobacco do not meet these annexed to the Ministerial Order of. 22 requirements" (second recital) the January 1948 governing the levying of Council states that it is in the interest of excise duty on tobacco so that that the common market that the rules for decree now also provides that manu- taxes affecting the consumption. of factured tobacco products must be sold manufactured tobacco should be to consumers at the price shown on the harmonized, in order progressively to band. eliminate from the present systems those factors which are likely to hinder free movement and distort the conditions of It thus follows from the above- competition, whether at national level or mentioned provisions that the retail sale at Community level (third recital). price which the manufacturer or Further, as far as excise duties are importer is free to choose automatically concerned, harmonization of structures becomes the imposed price on sale to the must, among other things, result in the consumer. opening of the national markets of the Member States and, as regards cigarettes, the tax imposed thereon should consist of a proportional excise 2. Community tax harmonization duty combined with a specific duty, the amount of which is fixed by each Member State in accordance with The Community harmonization of tax Community criteria (fifth and sixth on manufactured tobacco products is recitals). governed by Council Directive No 72/464 as amended by Council Directives Nos 74/318 (Official Journal L 180, p. 30), 75/786 (Official Journal Finally, the Council takes the view that L 330, p. 51), 76/911 (Official Journal the structures for excise duties on manu- L 354, p. 33) and 77/805 (Official factured tobacco should be harmonized Journal L 338; p. 22). by stages and that the imperative needs of competition imply a system of freely formed prices for all groups of manu- In the preamble to Directive No 72/464, factured tobacco (seventh and eighth which initiated the implementation of recitals).

Thus the directive states in Article 1 the 3. Price control measures in Belgium principle of harmonization of the structure of the excise duty in several stages and in Article 4 lays down a system of excise duty comprising a pro- portional part calculated on the Article 1 of the Ministerial Order of 22 maximum retail selling price and a December 1971 provides " . . . manufac- specific part calculated per unit of the turers and importers are required to product. During the first stage, that is to inform the Ministry of Economic Affairs say until 30 June 1978, the specific part, . . . at the latest three months before its as regards cigarettes, was to be not less application, of any price increase they than 5% of the aggregate amount of the propose to apply on the Belgian market excise duty levied on cigarettes in the in respect of all products, materials, most popular price category (Article 8). commodities or goods and all services". During the second stage the minimum Article 4 of the same Order provides that rate is not amended but the turnover tax the period of three months shall be must be included in the basis of calcu- lation (Article 10b (2) inserted in interrupted if the competent authorities Directive No 72/464 by Article 3 of find that the declaration of price increase Directive No 77/805). does not contain all the requisite infor- mation. In that case the waiting period begins to run from receipt of the sup- plemental information. Finally, Article 5 provides that the Minister of Economic Affairs may inform the undertaking making the declaration before the expiry It is nevertheless to be observed that of the waiting period "that for a Article 10 (subsequently Article 10 b) of maximum period of six months either Directive No 72/464 allows Member there should be no increase at all or it States to levy on cigarettes a minimum should be less than that notified ...". At excise duty, the amount of which may the end of the fixed period the under- not exceed 90% of the sum of the pro- taking which has notified the price portional excise duty and the specific increase may, however, apply the excise duty which they levy on the increase as notified. It is nevertheless cigarettes in the most popular price required to notify prices which it actually category. It is common ground that the charges (Article 5 (2) of the Ministerial Belgian State exercises that power to the Order of 20 April 1972 amending the full. Ministerial Order of 22 December 1971).

Summary of the applications or potential effect upon competition of a proportional or ad valorem system of excise duty. It describes the constraints This submission has been made to a and restrictions which in its view distort greater or lesser extent by all the competition in the cigarette market and applicants except Vander Elst, which for which neither it nor its members are does not make this submission separately responsible. in its application. Nevertheless in its reply it sets out certain matters under the heading to this submission. (i) For historical reasons excise duty has always been based either on the retail sale price or on the number of cigarettes 1. Application of FEDETAB manufactured or sold. In the first case the duty is defined by a rate (proportional or ad valorem) and in the second case by (a) Facts an invariable number of monetary units (specific duty). Those two duties are fundamentally different in conception FEDETAB complains in the first place and in the effect which they have on that numerous facts have been prices and conditions of competition. imperfectly appreciated by the Belgium has the proportional system of Commission, wrongly interpreted or not duty. accepted although they clearly affect the application of Article 85 (1). Those factual errors are set out in Annex 5 to the application. (ii) Community harmonization of taxation starts from this fundamental difference. Belgium fulfils the minimum Nevertheless FEDETAB considers the requirements as regards such harmon- most serious matter to be the enormous ization. omissions in the analysis of the health and fiscal constraints on the tobacco market and on cigarettes in particular, (iii) In a system of proportional excise which turn it into quite a special market duty each variation in cost price or in which is not to be compared with any one of its factors has an amplified effect other. Those omissions are all the more upon the resulting price. For the industry regrettable inasmuch as the Com- and trade that means that a variation in mission's attention was continually the "ex-factory" price or the profit drawn to such matters both in the margin has a multiple effect on the retail statements in answer to the notice of sale price which is directly proportional objections and at the hearings. to the multiplier.

price of the most popular cigarette was the State claims duty on the sum of all then exactly BFR 1 per cigarette or BFR those items. This requirement is peculiar 1 000 per 1 000. In the first example the to tobacco. excise duty would be 61.5% of the retail sale price and in the second it would be BFR 615 per 1 000 cigarettes. (vi) A manufacturer who increases his "share" creates between his competitors In the first example the increase in the and himself a difference of sale price manufacturer's share or in the "ex- directly proportional to the multiplier factory" price of BFR 5 would mean an and bearing no relation to the difference increase in the retail sale price of BFR between the "ex-factory" price and the 22. In the second case the increase of manufacturer's "share". That fact gives BFR 5 would mean an increase of BFR 6 rise to artificial conditions of competition at the retail level. and causes manufacturers to reduce their cost prices to such a point that it is no longer possible for the manufacturer's "share" to support a supplementary If those two examples are compared the distribution rebate. distortions produced by the proprtional excise duty are apparent. The multiplier is the value of the relationship between the retail sale price (taken as 1) and the The manufacturer's "share" is moreover sum of the non-proportional elements of controlled by the Belgian Price Board (in that price: the smaller that sum, the 1977 it represented only 18.21%). Those larger the multiplier. The multiplier thus circumstances place all Belgian manufac- increases in relation to the proportional turers in an identical position from the elements: as their rate increases so does point of view of competition, unaffected the multiplier. by the agreements, measures or recommendation. Those measures aim to maintain an effective distribution network.

horizontal competition on the maximum (bb) Influence of public health distribution margins. The Belgian Minister of Economic Affairs determines a maximum margin to be observed at each level of distribution. In the notice of The Commission has not taken into objections of 17 May 1975 the account the restrictions which the Commission moreover expressed itself protection of health places on the clearly on that subject. marketing of tobacco products. The Commission was informed of that factor and more particularly of the requirement The maximum margins are not imposed to place a notice on cigarette packets on each manufacturer individually but warning against the dangers of tobacco are applied to the whole cigarette sector. consumption (Belgian Law of 3 April It is therefore not the contested measure 1975) and the rules on advertising for but the legislation which is the origin cigarettes. and cause of the collective nature of the distribution margins.

(cc) Structure and role of FEDETAB (ix) Relying mainly on the previous considerations FEDETAB claims in conclusion that the Belgian proportional FEDETAB stresses that it comprises excise duty based on the retail sale price solely tobacco manufacturers. Neverthe- and the Belgian legislation on price less certain members of FEDETAB are control distort the conditions of affiliated as importers of manufactured competition because : tobacco by the Fédération des Impor- tateurs (Federation of Importers). FEDETAB has never done anything — a variation in one of the items in the which could in the least have adversely cost price produces an amplified affected imports or importers. effect on the retail price;

The standard agreement submitted on 22 May 1967 to the small distributors was FEDETAB classified wholesalers into never applied and lapsed as a result of eight categories based on those of the the FEDETAB decision of January 1968. Comité Belge de la Distribution (Belgian Trade Board). That classification was intended to give each wholsesaler an income consistent with his function and The interpretative supplement of 5 to avoid all discrimination. However, the October 1967 never had any practical supermarkets forced manufacturers to consequences. Nor was any penalty ever give them the same conditions as imposed. specialist wholesalers who alone deserved special remuneration. FEDETAB stresses that the two letters of 26 October 1967 and 8 May 1970 orig- inated with the FNCG which informed its members that they could not give other retailers a selling price less than Since the specialist wholesalers de- that laid down by their suppliers and that manded protective measures, FEDETAB they must not grant the terms reserved to on 21 December 1970 drafted a "approved retailers" save to retailers document entitled "Distribution policy officially recognized by FEDETAB. The from 1 January 1971". That document penalty for disregard of those rules was, made it more difficult for new applicants as far as wholesalers were concerned, the in certain categories, in particular loss of the wholesale terms. specialized food wholesalers, to obtain the maximum wholesale margins (the only ones which still apply). It was a Several wholesalers nevertheless con- non-binding working document. It is the tinued to grant approved retailer terms subject of the objection dealt with in to retailers not included in the paragraphs 40 to 44 of the contested FEDETAB lists. No wholesaler had ever decision. forfeited his wholesale terms.

— The agreements and recommen- dations banning the resale of goods to other wholesalers — Agreements and joint action by FEDETAB members to ensure that retailers would stock a minimum range of brands The recommendation sent on 22 March 1972 by the FNCG to its members had nothing to do with FEDETAB and moreover was not followed up. Those agreements and actions originated in the boycott of the products of Weitab und Jubilé in which GB and others engaged as retaliation against the refusal FEDETAB admits that on 30 June 1972 of an extension of credit. That also was it invited wholesalers to sign a standard legitimate defence. agreement according to which they undertook not to re-sell manufactured tobacco products to certain wholesalers and retailers (namely those referred to in paragraph 46 of the decision). Although (ii) The FEDETAB recommendation disregard of those undertakings could be of 1 December 1975 penalized by loss of wholesale terms, the agreements were nevertheless never implemented and expired in 1973. FEDETAB stresses that it is not a question, as in the past, of vertical agreements but of a recommendation sent solely to manufacturers, and thus on a — Collective measures on payment horizontal level. In so far as several dates taken by FEDETAB manufacturers followed the recommen- members on 23 December 1971 dation it was still only a horizontal agreement.

FEDETAB states that following a request by GB to allow credit terms of In the interests of sound distribution the 90 days from the end of the month, the recommendation varies, according to members of FEDETAB informed objective criteria, the maximum rebates wholesalers and others enjoying the to be granted to customers for services wholesale terms that they had decided to rendered. No uniform conduct is put an end to lengthy credit, which imposed on manufacturers, who retain would in future be reduced to a complete freedom of action.

The drawing-up of lists of retailers is statements and at hearings, that it would effected on the basis of objective criteria. involve discrimination to grant super- markets or non-specialized wholesalers the same margin as specialized wholesalers although they did not fulfil The provisions on cash payment are the same economic function. inspired by the same spirit. Any extension of the terms of payment risks having an unavoidable repercussion on prices to the detriment of the consumer Further FEDETAB drew the because of the cumulative effect of the Commission's attention to the social Belgian tax system on cigarettes. aspects of the case. The Commission's answer (paragraph 123 of the decision) is incompatible with a sound interpretation Manufacturers have recognized that the of Article 85 (1) as given by the Court in recommendation is justified and apply it the Metro case : with flexibility according to their own situation both in the choice of customer and in the grant of credit. "For specialist wholesalers and retailers the desire to maintain a certain price level, which corresponds to the desire to (b) FEDETAB's legal argument preserve, in the interests of consumers, the possibility of the continued existence of this channel of distribution in conjunction with new methods of distri- FEDETAB states that in its answer to bution based on a different type of the first notice of objections it had competition policy, forms one of the contended that the maintenance of fair objectives which may be pursued without and orderly competition is an essential necessarily falling under the prohibition condition for a policy of effective contained in Ariele 85 (1), and, if it does competition. If that principle, which was fall thereunder, either wholly or in part, moreover recognized by the Court in its coming within the framework of Article judgment of 25 October 1977 in Case 85 (3)" ([1977] ECR at p. 1905). 26/76 (Metro v Commission [1977] ECR 1875), is applied to the present case, then it is apparent that the Commission did not take into account the fact that the contested agreements did not come 2. Heintz Van Landewyck adopts the within the prohibition of Article 85 (1) arguments put forward by FEDETAB because of their beneficial effect on the against the Commissions's views on the structure of the market. applicability of Article 85 (1) to the measures taken before the date of the recommendation. The Commission saw in the re- commendation, including the part referring to the classification of As to the period after that date Heintz wholesalers and retailers to three Van Landewyck states that it followed objective criteria, only an infringement the recommendation, to which in its view of Article 85 (1). In particular it did not Article 85 (1) is not applicable, because have regard to the fact, which was in the Belgo-Luxembourg Economic frequently stated by the applicant in its Union the aim of the recommendation is

On the legal plan it contends that in the (a) Preliminary observations Metro case both the Commission and the Court accepted that a separation of functions in the distribution of products The Commission devotes certain intro- was justified and was compatible with a ductory observations to the national and system of sound competition. Community rules cited by the applicants.

As to the measures in relation to terms of (aa) The Belgian taxation rules and payment they are a reaction to the the cumulative effect attempts by supermarkets to obtain excessive advantages. A measure intended to prevent an abuse of The Commission admits that an economic power cannot be contrary to alteration in one of the cost items the Treaty since the existence of making up the "tobacco value" leads to undistorted and fair competition is one an alteration in the proportional part of of the fundamental objectives of the the tax burden. It adds that because of Treaty. the fact that in Belgium the major part of

VAN LANDEWCK v COMMISSION

JUDGMENT OF 29. 10. 1980 — JOINED CASES 209 TO 215 AND 218/78

It is therefore wrong to claim, as does (dd) The Belgian measures relating to FEDETAB in particular, that the rules public health force manufacturers and importers to fix the retail price . . . "and distribution margins" in advance. The Commission considers the Belgian health measures are not likely to exclude or substantially limit the opportunity for (bb) Community harmonization competition by manufacturers and importers (or traders) in the manu- factured tobacco sector. The Commission contends that the Community tax harmonization set up by Council Directive No 72/464 and the (b) Restriction on competition others in the series preserves the free formation of the retail price and does not rule out competition which the In its answer to this submission the manufacturers and importers (or traders) may engage in in relation to the manu- Commission distinguishes between the facturers' share (or trade margins) measures prior to 1 December 1975 and making up the retail price. the recommendation.

As regards the use by the Belgian State (aa) The measures prior to 1 Decem- :of the opportunity given by Article 10 ber 1975, namely: (subsequently 10b) of Directive No 72/464 allowing Member States to levy a minimum excise duty on cigarettes, the (i) Approval and classification of Commission maintains that that wholesalers and retailers by minimum limit concerns only one item FEDETAB and entitlement of the making up the retail, namely excise duty, various categories to different and in no way restricts cost fluctuations margins (paragraphs 19 to 27 and in that price, namely the manufacturer's 81 of the decision) ; share and the trade margins.

(vi) Agreements and joint action by As to (iii) This measure introduced an FEDETAB members to ensure that additional restrictive and discriminatory retailers would stock a minimum effect into the system of which Mestdagh range of brands (paragraphs 53 to and Huyghebaert in particular com- 57 and 87 of the decision). plained.

As to (iv) The letter of 22 March 1972 As to (i) The Commission alleges that from the FNCG referred to the sup- FEDETAB admitted fixing uniformly plementary agreement made on 29 and without objective justification the December 1970 by FNCG and margins of wholesalers other than FEDETAB. The measure of 22 March specialized wholesalers. However, 1972 which supported and supplemented FEDETAB also deprived wholesalers in that of 29 December 1970 in which the same category of the opportunity of FEDETAB participated and which was enjoying a different income as a result of subsequently made binding on competition (cf. paragraph 81 of the wholesalers on the initiative of decision) and removed all inducement FEDETAB on 30 June 1972 may thus be for the applicants to compete inter se in regarded as being part of the whole relation to the margins to be allowed system put into effect by FEDETAB and traders. the other applicants.

As to (ii) FEDETAB simply remarked As to (v) FEDETAB described that that it took those measures for the sole measure as legitimate defence and stated purpose of preventing "cut-price selling". that any delay in reacting would have In the Commission's view the measures caused the market to collapse. had a much wider aim and effect. Prior FEDETAB thus indirectly recognized to 1 January 1971 their effect was in that terms of payment were an important particular to force complete compliance means of competing between the various with the retail sale price and margins for undertakings active in the market. This wholesalers and retailers as laid down by is precisely what the Commission

The Commission challenges the argument of several applicants, in There is nothing in the Commission particular FEDETAB, based on the decision to prevent certain manufacturers Metro case (in particular paragraphs 20 from individually granting higher to 22 thereof) in support of the claim margins to particular specialized that " . . . the contested agreements do wholesalers for services rendered if the not fall within the prohibition of Article services are more numerous or better 85 (1) because of their beneficial than those of other wholesalers. What influence on the structure of the the decision on the other hand prohibits market". FEDETAB adds that the main- is that competing manufacturers should tenance of fair and orderly competition confer together on the size of the benefits is an essential condition of a policy of to be granted to specialized wholesalers effective competition. (or others) and prevent the market forces from determining the size, in particular in relation to the services which wholesalers may individually render. Such freedom means that wholesalers may cause manufacturers (and importers) In the Commission's view the Court's to compete inter se, which the applicants reasoning in the paragraphs cited obstinately refuse to contemplate. assumes the existence of effective Although it is true that the Court took competition between several competing the view at paragraph 29 of the

VAN LANDEWYCK v COMMISSION

As regards the classification of interme- diaries, contrary to what Jubilé in particular, states, the Commission did take account (paragraph 97 of the For all the benefits (margins, rebates and decision) of the new criteria of classi- terms of payment) which the manufac- fication laid down by the re- turers (and importers) may afford commendation and did not say that the traders, the applicants thus knowingly classification of the intermediaries substituted co-operation inter se on the constitutes in itself an infringement of measures contained in the recom- Article 85 (1). mendation for the risks of competition. The determination of the elements of the price of sale of the products by the manufacturers to the traders, even if it is simply a guideline, affects competition by the fact that it allows all the applicants to foresee with a reasonable degree of As regards stocking a minimum range of certainty what will be the policy pursued brands, the Commission observes that by their competitors in relation to the the manufacturers are substituting their benefits to be granted to traders. The own choice of the number of pres- Commission thus contends that its entations and brands of cigarettes (which decision rightly held that: the wholesalers must sell to enjoy the margins applying to each category) for the free individual choice of such number by each trader in relation to his own interests. The penalty for not observing the minimum number of 90 (1) the measures prior to 1 December presentations (from 220 at present 1975 had as their object and effect to marketed in Belgium) is the immediate restrict competition within the loss of the additional margin granted by common market between manufac- the applicant subject to that condition. turers and between wholesalers;

(a) By way of introductory observation It cites- paragraphs 20 and 21 of that to its arguments in relation to the present judgment in support of its case to the and subsequent submission, FEDETAB effect that having regard to the structure claims that the Commission misun- and particulars of the market in question derstands what influence the Belgian the organization of the distribution of rules on increases in prices have in fact on cigarettes resulting from the measures administrative practice and the economic which it has proposed and favouring position of cigarette manufacturers. the separation of the functions of wholesalers and retailers and the grant of The manufactured tobacco sector is the a small advantage to specialized one in which, for the purpose of those wholesalers and retailers to ensure their rules, the Minister of Finance mainly continued existence does not constitute a intervenes and this is the only sector restriction on competition within the where there is regular intervention. If the meaning of Article 85 (1). administration were to negotiate each brand of cigarette with every manu- As regards the social aspects of the facturer, importer or trader, it would not present case FEDETAB refers expressly be possible for the Minister to assess to the arguments put forward by the with the necessary precision the interveners ATAB and AGROTAB budgetary repercussions of any alteration which are in a good position to in the retail prices and thus of the excise appreciate the danger on which the duties. The negotiations are thus Commission decision would involve the conducted with the representatives of the financial position of their members if it various traders even if in theory the were to be upheld. actual wording of the rules allows individual opportunities of price increases. 2. The applicants Gösset, BAT, Cinta and Weitab adopt the arguments Moreover, the traders do not have the contained in the reply by FEDETAB as, margins available to allow them to in general, does HvL.

3. Jubilé recalls the large number of reasonable degree of certainty what State measures in Belgium resulting from policy will be pursued by their the high proportion of the Belgian excise competitors with regard to the benefits duty on tobacco, the fixing of maximum to be granted to traders. But the retail prices, the levying of a minimum Commission by no means stated that excise duty, the State system of fixed those were the reasons on which its prices and finally the practice of price decision was based.

the applicants's view restricting prices within the tobacco sector in competition within the meaning of Belgium there remains scarcely any room Article 85 (1) for such co-operation is for the principle of independence in view substituted for the risks of competition of the fact that as a result of the distorted by the State. distortions caused by the State prices are in any event transparent throughout the The applicant states that it bases its whole sector. In so far as it is not the arguments on the value system of the taxation rules which cause such Treaty founded on a system of transparence it is a result of the system competition which is not distorted within of price control.

sector in Belgium. It simply means that The main thing for the present case in the measures in the recommendation, the legal assessment of the SABA distri- inasmuch as, or precisely because, they are bution system is that it allows a not mandatory, do not constitute distinction to be drawn between restrictions on competition. wholesalers and retailers according to their functions and recognizes that The applicant observes that the competition by means of prices does not Commission is now claiming that the have an absolute priority in that respect. measures in question affect competition It is precisely that distinction between in spite of the purely advisory nature of wholesalers and retailers according to the recommendation in that they allow their functions which is the subject of the all the applicants to foresee with a FEDETAB recommendation.

Mr Advocate General Reischl recognized (a) As regards the facts and in in his opinion in Case 13/77 Inno v particular the recommendation the ATAB [1977] at p. 2164 that it was Commission wishes to challenge in the reasonable in principle to make available first place the statement of several of the to the consumer a sufficiently tight applicants to the effect that the rates of distribution network with a com- the "cigarette scale" which the rec- prehensive selection. ommendation applied concern only direct sales by manufacturers (or importers) to traders whom they supply In conjunction with the rules relating to and not sales made by wholesalers to excise duties on manufactured tobacco retailers. Such a statement is contrary to such as fixed prices and the prohibition the whole conception and very wording on labels' being attached at a subsequent of the recommendation as notified level, the recommendation prevents the (defence, Annex 7), where it is stated cumulative effect from causing an abrupt "that the maintenance of this practice in effect at distribution level, which would a system of maximum rebates requires endanger the ubiquity and density of ceilings to be fixed also for intermediate distribution. rebates" (Annex III to the notification, p.l).

In the applicant's view the cumulative effect distorts competition not only between the various distribution channels The fact that the recommendation is not but also between the popular and less confined to direct sales is also apparent popular brands. The distribution costs at from the statements of FEDETAB, that level are higher per unit for less ANGIPMT and GT during the popular than for popular brands. The administrative proceedings. cumulative effect multiplies them and causes them to act as barriers to access to the market by less popular brands. The Commission therefore considers that it is established that the recommendation is intended to be applied also to sales by The recommendation is likely also to wholesalers to retailers. weaken the distortions arising from the cumulative effect.

the scope of the decision and a fundamen- in its decision considered that the tally erroneous view of what was decided specialized traders ought to disappear. by the Commission on 20 July 1978. The Commission decision does not in any way have the effect of preventing (aa) Justification of concertation by manufacturers from granting individually the need to separate the functions higher margins to specialized traders on of wholesaler and retailer account of the services they render. What the decision attacks is the In the Commission's view the problem of horizontal concertation by the applicants separating or not separating the in that respect. functions of wholesaler and retailer is not in issue here. The Commission (cc) Assessment of the restriction on confines itself to condemning concer- competition caused by the tation as established and practised by the applicants' concertation applicants. In a system of free competition each trader in the market must remain free to decide for himself The Commission cites the case-law of the way which appears to him best to the Court (Case 8/72 Cementhandelaren organize his activities individually. v Commission [1972] ECR 977 and Papier Peints v Commission [1975] ECR 1491 in support of its argument to the Moreover, the concertation between effect that the market rules, which the manufacturers practised by the applicants manufacturing members of FEDETAB in the present case is not solely concerned have observed and continue to observe with protecting the separation of and which concern horizontal concer- functions of wholesaler and retailer tation between the manufacturers (or but is a much vaster concertation importers) in relation to margins and encompassing the whole commercial other pecuniary benefits to be granted to policy in relation to margins and other traders, distorted and restricted pecuniary benefits which the manufac- competition within the meaning of turers (or importers) grant to traders. Article 85 (1) because the applicants as a result of that concerted practice knowingly substituted mutual co- The Commission therefore repeats with operation in relation to the measures the greatest insistence that the applicants contained in the recommendation for the are trying systematically to pretend that risks of competition and such co- there is no horizontal concertation operation leads to conditions of between them whereas that is at the very competition which do not correspond to root of the agreement and it is the effects the normal conditions of the market. of that horizontal concertation which are the most harmful. The fixing of the main items making up the sale price of products by manufac- (bb) Justification of the concertation turers (or importers) to traders, even if by the need to ensure the only a recommendation, affects continued existence of the competition by the fact that it allows all specialized trade the applicants to foresee with a reasonable degree of certainty the policy to be pursued by their competitors In this respect the Commission observes regarding the financial benefits to be that it has not at any time or in any way granted to traders.

This submission has been made to a greater or lesser extent, directly or indirectly, by all the applicants. When it adds "that the tobacco industry is not alone in being heavily taxed" (paragraph 88 of the decision), the FEDETAB alleges that the exceptional Commission shows that it has not constraints, which do not apply to any understood the basic difference between other product, imposed by the Belgian a system of specific excise duty and a legislation on taxation, price control and proportional system such as exists only in public health, in conjunction with the tobacco sector. constraints of the same kind in other Member States, are such as to exclude the application of Article 85 (1) because there was practically no competition in the sector covered by the contested If because of intervention by the auth- agreements (before 1 December 1975) orities and the very structure of the tax and by the recommendation of 1 involving the cumulative effect, December 1975. competition in relation to prices and margins is in fact practically excluded, any restriction in relation thereto by the manufacturers is of necessity hardly It is true that the Commission was forced appreciable. to recognize in paragraph 88 of the preamble to the decision that "if national legislation has the effect of restricting competition, the added effects of private arrangements restricting competition can It would be otherwise only if the only be the more significant." restrictions related to the factors which were still competitive. However, it has been shown both in the statements in However, in giving such reasons the answer to the statements of objections Commission has taken the contrary view and at the hearings that competition has to the Court of Justice in its judgment in remained extremely lively between manu- the Suiker Unie case : facturers in relation in particular to brands, the make-up of the cigarette packets, advertising and the quality of "Although, as has been indicated earlier, the product. the system of national quotas, by tending to partition national markets, only leaves a residual field for the operation of the rules of competition, that field is in turn Whilst recognizing that in other sectors to a great extent fundamentally restricted of the market conduct similar to that in its scope by the special organization of referred to by the recommendation the Italian market. might amount to restrictions on

competition, Vander Elst alleges that the of a private nature are added to Community and national rules applicable restrictions imposed by the State it is in Belgium in the cigarette sector have necessary to consider the effects of the such a decisive effect upon the conduct national rules on the systems laid down of Belgian cigarette manufacturers that by private persons in order to discover the objective and effect of the whether they allow at least a margin of recommendation, which would never workable competition which is not have been made in the absence of the distorted. Those considerations based on said rules, cannot be to restrict the concept of workable competition competition to an appreciable extent. were laid down by the Court in particular in the judgment in the Metro case ([1977] ECR paragraph 20 at p. The Commission has misunderstood the 1904). The argument concerning the concept of appreciable restriction on effects which "can only be the more competition which the Court laid down significant" put forward by the especially in its judgment in the Suiker Commission is incompatible with those

law. In any event no reasons are stated Centrafarm v Winthrop [1974] ECR on this vital issue. 1183; Commission Decision of 30 June 1970 Kodak, Journal Officiel L 147, p. Vander Elst complains in the first place 24). The influence of the Belgian State is that the Commission misunderstood in similar to that of a parent company paragraph 88 of the decision the concept within a group of companies which it of appreciable effect. The argument that controls. the effects are "the more significant" in conjunction with the words "has the effect of restricting competition" clearly Vander Elst then criticizes the shows the legal ideas of the Commission, Commission statement that manu- namely that when considering whether factured tobacco is not the only product private conduct restricts competition to be heavily taxed and subjected to appreciably, it ought to take no account governmental price controls (paragraphs of the influence exerted by the State on 105 and 88 of the decision).

JUDGMENT OF 29. 10. 1980 — JOINED CASES 209 TO 215 AND 218/78

significant effect and has thus infringed The system of fixed prices for the Article 190 of the Treaty. consumer established by Article 58 of the Belgian VAT Code means that traders In Vander Elst's view the said rules have too are unable to forego part of their an effect upon the competitive conduct margin for the benefit of consumers. of the Belgian cigarette manufacturers in the sense that in relation to the terms of Finally, the applicant stresses the effect sale to the retail trade there is no margin on competition of the system of price for effective competition which is not control in Belgium and the practice as . distorted. regards cigarettes.

VAN LANDEWYCK v COMMISSION

JUDGMENT OF 29. 10. 1980 — JOINED CASES 209 TO 215 AND 218/78

The price of cigarettes is too low and their distribution too intensive for it to be reasonable for It is impossible to understand why the intermediaries to confine their custom to keeping of a minimum range should particular manufacturers.· prevent the intermediary from pushing sales of a particular brand in preference to others, as the Commission states The necessity of maintaining a tight (paragraph 87 (f)). distribution network means that the full distribution costs in a country per brand and manufacturer are not proportional Keeping a minimum range guarantees to the quantities sold.

VAN LANDEWYCK v COMMISSION

That complaint cannot be made of the import roughly 95 % of the cigarettes applicant. By letter dated 18 December and between 75 'and 80 % of the cigars 1975 it informed the Commission that and cigarillos sold in Belgium . . . " and in " . . . cash payment has always been the paragraph 1 of the decision it said that rule with our company and . . . we shall almost all the Belgian and Luxembourg continue such practice independently of producers of manufactured tobacco the said recommendation". belonged to FEDETAB. Those facts and figures were not challenged by the applicants. Moreover, the applicant considers that a rule of immediate cash payment, The Commission decision then pointed assuming that it is kept by all the manu- out the legal considerations on the basis facturers, does not restrict competition, of which the Commission considers that but, on the contrary, prevents distortion the restrictions on competition had a of competition and discrimination. significant effect upon competition and Competition as regards terms of payment upon trade between Member States, involves, because of the effect of taxation namely at paragraphs 88 and 93 as provisions, distortion in competition to regards the measures prior to 1 the detriment of the manufacturers and December 1975 and paragraphs 102 to the traditional distribution network. 107 as regards the recommendation.

JUDGMENT OF 29. 10. 1980 — JOINED CASES 209 TO 215 AND 218/78

agreement it is necessary to take account wholesalers and retailers, since those of the position of those concerned on the rules mean that manufacturers do not market in addition to the actual compete against one another with regard framework within which the agreement to the advantages they are to give. operates.

VAN LANDEWYCK v COMMISSION

Finally the measures adopted by the Thus the Commission cites the percen- applicants and in particular the various tages of cigarette sales in Belgium. The measures in the recommendation are part applicant does not discuss those figures of a distribution system established by but only their relevance. It is not the the decision as an infringement of Article share of the market which is in issue but 85 (1) of the Treaty. It is therefore the scope left for free competition by the necessary to consider whether the revenue rules and other laws. measures adopted (especially by the recommendation) as a whole and, contrary to what certain applicants maintain, not some of those measures taken in isolation, significantly affected competition. The Commission persists in its erroneous application of Article 85 (1) in spite of the interpretation given by the Court in the Suiker Unie case, which should serve as a guide in this case. Although the rules in the two cases are obviously On the major issue of restriction of different the fact is that in both cases the competition FEDETAB observes in reply law is so restrictive that those concerned that this appears to be a debate between in the market have lost their freedom of the deaf as stressed by Mr van Gerven in action to such an extent that whatever his final speech at the second hearing: they do no longer has any significant "According to the Commission since effect upon the price trend on the market. residuary competition is limited every On the other hand competition between additional restriction by the manufac- manufacturers on the manufactured turers is all the more serious, whereas the tobacco market in Belgium has remained manufacturers' view is as follows: Since extremely keen as regards shops, make- competition has already to a very large up of cigarette packets, advertising, extent been prevented by the actions of choice of the best position on the shelves the authorities, any restriction by the and the quality of the product. manufacturers is necessarily of little significance" (transcript of 22 September 1976, Case IV/29.149, p. 139). The parties still cannot agree on that fundamental issue.

distorting the relationship between the law the basis is the retail sale price, costs of traders and the market price. which includes the usual costs (Article 7 of the 1948 Regulation on tobacco) and according to Article 4 (1) of Directive It further alleges that the fixing of the No 72/464 it is even the maximum retail retail sale price by the manufacturer or selling price. There is scarcely any doubt importer, whether it be a maximum price that a formula which allows a manu- as provided by the first sentence of facturer to fix any number of "maximum Article 5 (1) of Directive No 72/464 or prices" for one and the same product an imposed selling price as provided by using for that purpose any number of the second sentence of that paragraph, different bands has not much in common constitutes interference by the State in with taxation on the basis of the competition. Such fixing is for taxation maximum price. It would then no longer purposes and not a rule corresponding to be taxation on the basis of the maximum the requirements of free competition or price but of the actual consumer price. free price formation. That is, however, not what the directive lays down. Article 5 (1) of the directive is intended to ensure taxation on the basis of a single maximum price in accordance The minimum excise duty also represents with Article 4 (1). If the person liable for intervention in competition. It protects the duty is the only person to "determine the price categories which produce most the maximum retail selling prices of each revenue — the dearest — from the of his products" that would ensure cumulative effect of the price categories uniformity of the maximum price for which produce the least revenue, the each product of a given taxpayer. cheapest.

VAN LANDEWYCK v COMMISSION

market conditions but distorted Taxation of the maximum price, that is to conditions of competition contrary to the say the ban on sub-labelling: Treaty and in those circumstances the recommendation has no significant effect — prevents manufacturers, importers upon competition. and the trade from applying retail sale prices varying according to the The applicant gives figures for the product. influence which the tax rules have on competition. On the basis of its analysis The fixed price and the multiplier: it concludes that the effects of distortion of and restriction on competition caused — prevent the individual adjustment of by the tax rules as a whole may be remuneration for services rendered summarized as follows: by the trade and the fixing by the The multiplier, considered in isolation : trade of different retail sale prices.

JUDGMENT OF 29. 10. 1980 — JOINED CASES 209 TO 215 AND 218/78

The basis of taxation provided by On the one hand that argument is Community law, namely a fictitious mistaken in that it is not compatible with maximum price (rather than as at present the concept of workable competition an actual price — "Festpreis"), is also in according to which it is necessary to conflict with the principles of the Treaty know, in applying the rules on or other legal principles, namely that of competition, whether there is workable identical taxation of identical products competition, which means also and that of payment of a tax on competition which is not distorted. consumption by the consumer and not by the manufacturer. Further that argument is mistaken because the fiscal rules distort The applicant relies on the argument, competition for the sole purpose of which Jubilé also puts forward, to the maximizing the State's revenue. effect that the various tax rules call forth measures to correct the distortion of the differences in distribution costs at the level of the retail sale price. The In its rejoinder the Commission refers to recommendation is such a measure. what is said in its defence on the actual effect which the national and Community rules cited by the applicants may have had Further the recommendation does not on competition and, in the light of the replies, adds the following observations : significantly restrict competition since :

The Commission nevertheless wishes to stress that although the manufacturers or The Commission observes that the aim importers must take account of the of Directives Nos 72/464 and 77/805, traders' margins when the retail sale which are based on Articles 99 and 100 price is fixed in advance, the necessity of of the Treaty, is to abolish, as far as fixing it in advance does not make it required by the establishment and impossible for the margins granted to working of the common market, traders to vary individually, and that the distortions in competition which may manufacturers or importers have to take arise from the disparity in taxation laws them into account only in the aggregate. on the matter. The directive did not, however, establish that those disparities were or are likely to exclude all competition or to exclude the As for the Belgian tax policy the competition which the various manufac- Commission alleges that although it is turers and importers on the Belgian true that the Belgian State has increased market may engage in inter se on the the rates of taxation as stated, it does not subject of the benefits to be granted to nevertheless follow that such increases traders. have the effect of no longer allowing the make-up of the retail sale price, on which the taxation is based, to vary. Proof that the Belgian State when in- creasing the taxation leaves a large scope As regards the provisions of those for competition is shown by the fact that directives which allow Member States to it makes available to the undertakings a levy a minimum excise duty the amount whole range of tax bands corresponding of which may not be higher than 90% of to various retail prices (rejoinder, Annex the aggregate amount of the pro- 13), which allows undertakings to ensure portional excise duty and the specific that variations in the make-up of the excise duty which they charge on retail price, which their competitive cigarettes in the most popular price efforts might bring about, are reflected category, the Commission maintains that in the choice of price. such provisions do not exclude competition in view of the fact that the range of bands corresponding to the various retail prices will always include a The Commission alleges in conclusion certain number of bands corresponding that the applicants have not shown how to prices lower than those of cigarettes

3. The obligation to notify price increases in Belgium Such a claim cannot be accepted. The existence of distortion of competition can in no event justify traders in making The Commission challenges in particular an additional restriction on competition the claim by FEDETAB that the by measures of a private nature. The Commission ignored economic reality wording of Article 85 (1) clearly shows inasmuch as traders, in the view of that that provision applies to all FEDETAB, enjoy too low a margin to situations where competition is distorted allow them to pursue any other price or restricted to a significant extent by policy. concerted practices of traders and not only where it is established that competition is not in any way restricted or distorted by rules, especially tax rules, of a Member State. Although FEDETAB alleges that it submitted evidence to the Commission thereon, the Commission maintains that FEDETAB never showed that its members were unable to sell their products at prices less than the retail A restriction due to such rules can prices notified to the Ministère des therefore never justify an additional Affaires Économiques or that they had restriction by industry. That is moreover too small a margin for that purpose. also shown by the fact that in paragraph 34 of the judgment in Inno v ATAB the Court considered that Article 86 prohibited any .abuse by one or more The fact that there is a range of tax undertakings of a dominant position, bands corresponding to a whole range of even if such abuse were encouraged by a different retail sale prices suggests that national legislative provision. The even the Belgian authorities were Commission, as is evident from convinced of the contrary since, they paragraph 83 of the decision, considers allow prices to fluctuate within the range that such reasoning applies also to of bands corresponding to various prices. Article 85.

The Commission completes its rejoinder It is there that there are opportunities for in relation to the facts by the submission effective competition and it is precisely of a number of statistics relating to the there that the applicants eliminated them Belgian market in manufactured tobacco. by their concerted action to such an extent that the secretary of FEDETAB was able to say at the hearing on 22 October 1975 that he had "managed the As regards the law the Commission economy of that industry" (defence points out that the Court has on several Annex 2, p. 48). occasions (in particular in its judgment in the Metro case) stated that the competition which Article 3 (f) of the Treaty seeks to protect is workable Thirteenth submission: infringement of competition. The Commission maintains Articles 85 (1) and 190 of the Treaty that it properly took account of that inasmuch as the Commission decision requirement in its decision. wrongly concluded that the various measures adopted before the entry into force of the recommendation and the recommendation itself may have a direct or indirect, actual or potential influence On the one hand the action undertaken on trade between Member States or have by the complainants GB and Mestdagh significantly affected such trade and Huyghebaert shows in itself that workable competition remains possible in this sector and further if it were established, which the Commission That submission is made separately by denies, that the rules had already the applicants HvL, BAT, Jubilé and excluded the possibility of workable Vander Elst. competition, there would be no reason for the applicants to cling so tenaciously to their concerted action and show such desire to regulate with private measures Certain applicants including in particular the areas covered by the recommen- FEDETAB further allege, in support of dation. the twelfth submission, that the Commission did not satisfactorily answer the applicants' arguments in relation to the significance of the influence upon trade. It is easy on the other hand to understand that the applicants, who were confident that within the small group of manufacturing members of FEDETAB The applicant BAT alleges in particular which they constitute no trade war that the restrictions on trade between would break out in relation to their share Member States are the result of the as manufacturer or importer, would have legislation in force and not of the action liked to "freeze" competition which undertaken by FEDETAB and its might have arisen in relation to the other members (cf. the judgment in Inno v item in the retail sale prices (the profit ATAB and the opinion of Mr Advocate margins) and that would obviously not General Reischl which came to the be to the liking of traders (such as GB or conclusion that the various items of the Mestdagh and Huyghebaert) who are Belgian taxation system were such that undoubtedly more active than countless Article 58 of the VAT code would not wholesalers and retailers. affect trade between Member States).

That is all the more true of the difficult for newcomers to penetrate the agreements, practices or decisions of an market. The so-called "ubiquity of the association of undertakings, the subject brand" causes the newcomer generally to of the present action. forego, for reasons of cost, setting up an importing system of his own. The rebate with the clause relating to independent producers thus encourages the reduction of Further, because of the problems in costs by using the marketing channels which trade between Member States is already existing. involved as a result of the taxation system applied to manufactured tobacco products, the parallel importation of such In Vander Elst's view the statement of the products is effectively excluded. reasons on which the decision was based (paragraphs 106 and 107) is inadequate in several respects and in particular the The measures adopted or recommended question whether the recommendation, by FEDETAB were solely for the which is confined to the territory of purposes of survival in the face of ever- Belgium, affects trade between Member increasing taxation and to ensure the States. It is necessary properly to vital minimum necessary for the sectors consider "the economic context in which of the industry to survive. Those it exists" (paragraph 27 of the judgment measures therefore did not significantly in the Papiers Peints case) including influence trade between Member States obstacles arising from the taxation and the Commission in consequence system (cf. the judgment in Inno v committed an error adversely affecting ATAB). The Commission did not the applicant in asking its decision of 20 properly take cognizance of those July 1978 which should accordingly be obstacles. declared void. The Commission has not shown convincingly that the recommendation is Jubilé challenges in particular the likely to obstruct imports (no effect upon correctness of the Commission's export is alleged). Such proof is statement (paragraph 107 of the indispensable (cf. the judgment of Case decision) to the effect that the 19/77 Miller v Commission [1978] ECR, recommendation curtailed ,the oppor- paragraph 5 at p. 151). tunity, for example by large distribution undertakings, of creating channels for parallel imports. In view of the fact that The special system for calculating and the recommendation is in any event levying the duty on the smoking of concerned only with the relations of the cigarettes is, at the present stage of Belgian manufacturers with their direct harmonization of Community law, a customers (at the wholesale or retail basic obstacle to intra-Community trade. level) it leaves such a system of parallel . That is why the Court found that imports at the retail level quite because of the need to satisfy control unaffected. requirements the import and export of manufactured tobacco come up against inevitable obstacles and trade between Nor is it correct that with the end-of- States in this product requires year rebate the recommendation creates considerable resources and skill an artificial situation of competition and (judgment in Inno v ATAB at para- an additional obstacle making it more graph 15).

Apart from the case (omitted by the the views expounded by the Court in Commission) of a foreign manufacturer paragraph 15 of its judgment in Inno v setting up his own new distribution ATAB. The Commission therefore did network parallel to the established not deny that because of the tax network, the only possibility is that one provisions in force wholesalers and of the Belgian specialist wholesalers, retailers were subject to practical specialist retailers or supermarkets might difficulties in relation to so-called start importing. In so far as one of those parallel imports. traders also sells products which he has himself imported he will have the same freedom of action, within the limits laid down by the State, as if the The influence on the trade in question recommendation did not exist. here is not chiefly at the level of direct imports by traders (which the tax rules already make technically difficult) but Finally the Commission found that the rather at the level of trade for which fact that Members of FEDETAB, as manufacturers and importers are manufacturers, engaged in imports, responsible and they can easily overcome affected trade between Member States. such difficulties. In the cigarette sector it is the duty which makes import and export more difficult at marketing level whilst arti- ficially converting imports and exports It is obvious that the conditions under carried out by manufacturers into a which the applicants market products in normal pattern of trade. Belgium (including products which they have previously imported from other Member States) are likely indirectly to affect such trade and in particular the The Commission points out in its defence volume of products so imported by that the applicants have not challenged manufacturers and importers. the facts and figures relating to imports of manufactured tobacco products into Belgium (paragraph 8 et seq. of the decision). The assessment contained in The proportion of tobacco products the decision in relation to trade, imported into Belgium from other especially in paragraphs 91 to 93 and 106 Member States is far from negligible and and 107 thereof, is based on and refers the applicant firms are of a size to those facts. It moreover sets out sufficiently large for their conduct in clearly and explicitly the Commission's principle to be likely to affect trade reasoning thereon. according to the criterion in the judgment in the Miller case. As regards the law, the Commission considers that it is not bound to give reasons for rejecting all the submissions Jubilé denies in the reply that the put forward during the administrative measures of the recommendation are proceedings providing reasons are likely indirectly to affect the volume of properly stated for its decision. cigarettes imported by the manufac- turers. Even if that were so it would still be necessary to inquire whether that The Commission decision (paragraphs 16 indirect or potential effect is capable of to 18 and 93 and 106) moreover adopted "affecting" freedom of trade between

Member States "in a manner which normal inter-State trade having regard to might harm the attainment of the the need for the tax band. objectives of a single market between States" (judgment of the Court in Joined It is therefore apparent that there is no Cases 56 and 58/64 Consten and effect upon trade between Member Grundig v Commission [1966] ECR at States or at least no significant effect. p. 341). The Commission observes in its rejoinder In the applicant's opinion the measures that the conduct of the applicants who in the recommendation are not likely in control more than 95% of the total the circumstances of the present case production and import of cigarettes into adversely to affect the only import trade Belgium must of necessity be such as to possible, namely by manufacturers; that affect trade in those products between is, they are not likely to affect trade. Belgium and the other Member States (without mention of trade with the Grand Duchy of Luxembourg where in Vander Elst alleges in particular that view of the fact that the taxation system trade between Member States is not is common with that of Belgium, such affected by the market position of the trade is completely free). manufacturers because as a result solely of the differences in taxation of manu- The Commission cites the case-law of factured tobacco in the Member States the Court and in particular paragraph 5 the recommendation covers a purely of the judgment in Volk v Vervaecke domestic situation. ([1969] ECR at p. 302) to refute FEDETAB's argument that since the marketing conditions in Belgium apply In pursuing the aim of a single market in after import they do not have any cigarettes the recommendation in itself influence on normal inter-State trade in has no adverse influence going beyond view of the existence of the tax band. the obstacles caused by taxation. It is itself a consequence of that taxation. In the Commission's view it is obvious that the marketing conditions applicable The latter argument is also put forward to the products which the applicants sell by FEDETAB, which admits that the in Belgium (including the products which applicants are practically the only they have previously imported from cigarette importers into Belgium. Those other Member States) are such as cigarettes are mostly manufactured by indirectly to have an influence upon the large companies often belonging to the pattern of trade and in particular upon same multi-national groups as the the volume of products so imported by applicants. It is therefore logical that the the manufacturers and importers. imports should pass through the associated companies as in the case of It is easy to understand that when the the vast majority of products in question. applicants took concerted action upon the financial benefits to be granted to traders through whom they sell their Marketing conditions in Belgium products, that concerted action created through the specialized trade, the marketing conditions which are not the Horeca sector of the large distribution result of free competition and which in undertakings apply at a stage subsequent particular provided for a certain level of to import and have no influence on remuneration for such intermediaries;

The Commission considers in that respect that in any event that has well been established in its decision. 2. The intervener AGROTAB stresses as regards the facts the economic strength of supermarkets and food distri- bution chains. Such undertakings E — Summary of certain arguments of the aggregate the margins of wholesalers and interveners regarding submissions on of retailers since they buy wholesale and Article 85 (1); answers by the sell retail so that their total sales margin principal parties is far higher than that of retailers, which in turn is far higher than that of wholesalers. Specialized wholesalers guarantee their customers a range of extended service (supplying 80 000 sales 1. The internetter ÄTAB supports the outlets; extended range of stocks; submissions of the applicants to the regular visits to customers) whereas

JUDGMENT OF 29. 10. 1980 — JOINED CASES 209 TO 215 AND 218/78

supermarkets confine themselves to The Commission considers at paragraph selling a very restricted range of products 98 of the decision that such system on their own premises. restricts competition between manufac- turers and provides no incentive for intermediaries to make greater With the application of the recommen- competitive efforts. The rebate dation the sales margins are at present: corresponds to the sales margin to which the intermediary would be entitled under the legislation on prices. The fact that — 9.27% for large stores; the rebate is asked for by intermediaries and granted by manufacturers has thus nothing to do with the scope for — 8.36% for food distribution chains; competition between manufacturers on the one hand and intermediaries on the other. — 7.50% for approved retailers;

VAN LANDEWYCK v COMMISSION

Huyghebaert whereas derogations are In any event the recommendation is actually granted directly in favour of applied in an arbitrary fashion. others under the guise of "transitional measures".

As regards the actual impact of pro- As regards the number of sales outlets portional duty on competition, GB admits sewed, Mestdagh and Huyghebaert and that a result of the establishment of a the FCBA complain that rival manufac- proportional tax is that the retail price, turers are taking concerted action and including tax, varies absolutely by a sum deciding together the number of sales larger than the variation in the price outlets which merit this or that benefit. exclusive of tax. Nevertheless relatively

JUDGMENT OF 29. 10. 1980 — JOINED CASES 209 TO 215 AND 218/78

As regards the Belgian rules on statements First of all, as moreover FEDETAB of price increases, GB observes that the recognizes in its reply, the applicants "administrative realities" thereof cited by "almost always" enjoy exclusive rights the applicants do not concern only which are often granted to them by large products of the tobacco industry. Those companies often belonging to the same rules in fact apply "to all products, multi-national groups as the applicants materials, commodities or goods and all themselves. services" (Article 1 (1) of the Ministerial Order of 22 December 1971 on notification of price increases). Contrary to what the applicants say, those rules do not lead to the abolition of competition in prices since prices may fluctuate freely Finally, the obligations imposed by the below the price stated. Nor is it possible taxation systems of the Member States to see how those rules can restrict the make imports by importers other than freedom of manufacturers in the trade in members of FEDETAB practically fixing trade margins: the Minister is impossible. In the event of the export of obviously not interested in the extent of products placed on the market in a those margins but only in the price to the Member State it is not possible to obtain ultimate consumer and not in particular reimbursement of the duties already paid. variations in how that price is split up Having regard to the considerable effect

VAN LANDEWYCK v COMMISSION

Since almost all cigarettes sold in Belgium, including most imported cigarettes, are thus subject to the As respects the law, as regards the effect restrictions on competition established by upon trade between Member States, FEDETAB and its members, those which is the third condition for applying restrictions necessarily have an effect Article 85 (1) of the Treaty, FEDETAB upon intra-Community trade. cites the judgment of the Court of 31 May 1979 in Case 22/78 Hugin v Commission [1979] ECR 1869 in which the Court stated that "conduct the effects of which are confined to the It is therefore not possible to maintain, territory of a single Member State is as does Jubilé, that the Commission has governed by the national legal order" not shown in its decision how trade (paragraph 17).

JUDGMENT OF 29. 10. 1980 — JOINED CASES 209 TO 215 AND 218/78

In the Hugin case the Court said the the economic and technical factors question was whether it might be peculiar to the sector in question." assumed that trade between Member States in Hugin spare parts would exist if the market conditions were entirely free and not subject to restrictive practices Vander Elst claims in its observations on such as those applied by Hugin in that GB's statement that as regards the alleged instance (paragraph 22). That question residual margin of competition for the may be transposed for the purpose of the purpose of applying Article 85 et seq. GB, present case as follows: like the Commission, assumes a much wider margin of competition than actually exists.

"In those circumstances Hugin's conduct cannot be regarded as having the effect — Each trader "must determine of diverting the movement of goods from independently the policy which he its normal channels, taking account of intends to adopt on the common

VAN LANDEWYCK v COMMISSION

market" (Suiker Unie case, para- beyond what is necessary to attain the graph 173). aim sought by the taxation. The Community law on excise duty on manu- factured tobacco however allows — The price must bear a reasonable Member States to introduce rules which relationship to the economic value of limit those objectives more than is the service provided (Article 86 (a) necessary to attain the aim of the taxation. and United Brands case [1978], paragraphs 248 et seq. at p. 301). F — Fourteenth submission: infringe- ment of Articles 85 (3) and 190 of The tax rules have the effect of the Treaty and the rights of the restricting competition and trade defence inasmuch as the between Member States so that in Commission refused to exempt the comparison the recommendation in itself recommendation, did not deal with has no significant effect. the arguments put forward and made errors of fact in that respect

JUDGMENT OF 29. 10. 1980 — JOINED CASES 209 TO 215 AND 218/78

the products of the whole industry to be which would be unavoidable if a small distributed. Their existence makes it payment were not made to them for the unnecessary for manufacturers to above-mentioned reasons, would mean a establish their own distribution network. reduction in the opportunities available They thus allow an optimum spread of to customers. the distribution costs between the various manufacturers and so contribute to improving the general conditions of Maintenance of a specialized trade is in distribution in the market in question. the consumers' interest. The Commission But for them, the products of numerous peremptorily rejected that argument medium-scale and small manufacturers without stating reasons (paragraph 118 would find no sales outlets. of the decision) and in so doing disre- garded Article 190 of the Treaty and wrongly applied Article 85 (3). Specialized wholesalers also fulfil an irreplaceable function in so far as they are the only ones to visit customers in The improvement of distribution the most outlying parts of the country. resulting from the measures for Their assistance is therefore indispens- organizing the market adopted by the able so that the numerous sales outlets applicant would be of direct benefit to close to the customer may be satisfac- consumers. The second condition for the torily supplied. application of Article 85 (3) is thus fulfilled.

The slightly higher rebate granted to specialized wholesalers is justified by the The multiplication of sales outlets and greater services they render and by the the availability in each of them of a wide increased costs which they bear on that range of cigarettes are to the direct and account. sure advantage of the consumer.

As to the terms of payment FEDETAB observes that it has already been shown In attempting to channel the financial that any increase in the financial burdens conditions of competition between which would result from extending terms manufacturers the recommendation seeks of payment would have a repercussion to regulate rivalry in the direction of a on consumer prices. reduction in the cost price of the manu- facturer by reason of technical progress and sales promotion factors such as advertising. It is therefore in the interests of healthy distribution to provide for reasonable terms of payment for goods intended for very speedy cash sales to consumers where a large proportion of the price is The restriction of freedom of action of made up of duty which the manufacturer firms in financial matters (profit margins, himself must pay to the revenue with all terms of payment and end-of-year the risks that that implies. It is obviously rebate) is therefore indispensable for wrong to claim, as does the Commission attaining the objective of improving (paragraph 131 of the decision), that the production and the distribution of consumer has no benefit from a products. restriction on the terms of payment.

Vander Elst observes as regards the As regards the end-of-year rebate improvement of the distribution of FEDETAB states that the arguments put products that the number of sales outlets forward to show that Article 85 (1) does per inhabitant in Belgium is roughly not apply are also, in the alternative, average in relation to the number of valid to justify the application of Article retailers to be found in the other 85 (3). Member States.

normally put out of business. Because of As regards the improvement in the need for marketing "in every production, the applicant stresses the locality" it is of more concern to every social and economic consequences of the manufacturer and importer (as also to Commission's . reasoning if it were the consumer) to have available a distri- applied.' small firms (small shops and bution network which functions stores and so forth) would become throughout the whole territory, which unprofitable; the wholesale trade would stands up to the increasing competition almost completely disappear (as the from supermarkets and is not confined Commission seems at paragraph 124 of solely to the distribution of the most the decision to wish). As regards the popular brands of cigarettes but also condition that there shall be no provides an opportunity for the elimination of competition the applicant marketing and development of products challenges the Commission's statement at demanded by a more restricted clientèle. paragraph 133 of the decision to the That is why in the cigarette marketing effect that in view of the market share of sector specialist wholesalers are as FEDETAB and its members, "the "essential" as the Commission apparently agreements afford the undertakings finds supermarkets at paragraph 124 of concerned the possibility of eliminating the decision. competition in respect of a substantial part of the products in question". In the applicant's view the recommendation applies to only a very small fraction of The applicant repeats that the end-of- the parameters to which bidders may year rebate encourages competition, have recourse in competition; it allows especially competition by firms newly the adoption of individual competitive arrived on the market. It also refers to its behaviour and it counteracts the effects explanation of the need for very of State measures on the tobacco market restricted terms of payment. which distort competition.

specialist trade offers services which are The Commission observes that Jubilé and really appreciated, especially as regards Vander Elst complain that the decision prices, both by traders and consumers criticized the criteria in the there would be no reason to fear their recommendation for the classification of disappearance. wholesalers and retailers within the system. The Commission stresses that the statements in paragraphs 125 and 126 of the decision, which the applicants moreover have not challenged, aimed only at showing that the classification It is true that price competition does not system does not necessarily and always constitute the only effective form of reflect the different degree of services competition or that to which absolute actually provided by traders. That is, priority must in all circumstances be however, a supplementary consideration accorded. Vander Elst relies on that since, as has already been said regarding finding by the Court in the judgment in Article 85 (1) (eleventh submission), the the Metro case in claiming that the decision rejected the collective fixing of system is necessary for the maintenance common criteria intended to determine of that form of distribution and must profit margins. therefore enjoy exemption under Article 85 (3). In its observations on the eleventh submission the Commission has already shown that the position of the selective distribution system of SABA is in no way comparable to the collective system of As to the end-of-year rebate none of the the recommendation where the price applicants has put forward specific competition which manufacutrers are arguments concerning an assessment of able to engage in has a much greater the position under Article 85 (3). As significance than that of an isolated regards the terms of payment those of system of selective distribution. the applicants who claim that longer periods of credit would be reflected in the retail selling price have adduced no evidence in support of that claim.

its own motion and in the present case, was based were properly and which is not comparable with that of the adequately stated; SABA system, take account of those observations. — this submission must therefore be rejected. In the Commission's view the second condition for applying Article 83 (3) FEDETAB states in its reply that the is not satisfied either. The system of organization of distribution which it the recommendation does not allow recommended aims to preserve the consumers a fair share of the resulting existence of a specialist trade in tobacco benefit. products. That objective comes within the objectives protected by Article 85 (3). It cannot be seriously doubted that the On that issue Vander Elst has maintenance of a network of traders complained that the Commission did not specializing in the distribution of tobacco state sufficient reasons for refusing products constitutes an improvement in exemption. In its observations in relation distribution within the meaning of to the tenth submission the Commission Article 85 (3). has already explained that the issue concerning the consumer's share in any To rebut the contrary case put forward benefits from the system is of an by the Commission the applicant stresses altogether supplementary nature in view the following considerations. of the fact that the first condition for exemption, namely the improvement of The disappearance of the specialist trade the production or distribution of goods, would mean an impoverishment of the is not satisfied. In those circumstances choice available to customers. it was not necessary to discourse at greater length on that condition of Specialist intermediaries play an irre- Article 85 (3). placeable part in the promotion and distribution of imported products by thus encouraging the inter-penetration of The Commission therefore contends markets intended by the Treaty. that: Contrary to what the Commission — it rightly considered that the contends the manufacturers do not recommendation of 1 December 1975 impose the existence of a distribution does not involve improvements in channel (that of specialist interme- distribution sufficient to counteract diaries); it exists and the manufacturers the restrictive effects on competition respect it in the practical conviction that which it causes and that it is not it is irreplaceable in the specific circum- likely to allow consumers a fair share stances of the cigarette market. The of any resulting benefit; existence of a network of specialist distributors is for the benefit of the whole tobacco industry and not solely — the recommendation does not for "large" manufacturers. therefore satisfy the conditions for the application of Article 85 (3); The Commission did not put forward any serious argument in support of the statement that the system recommended — the reasons on which the by FEDETAB does not allow consumers Commission's decision on that issue a fair share of the resulting benefit.

Tobacco products meet needs which are factual conditions in Article 85 (3) may felt all day and every day. They are be all the more satisfied "in so far as bought by consumers in small quantities. such conditions contribute in addition to That is why it is important that the sales a strengthening of competition in sectors outlets should be as numerous as possible other than prices". In its defence the and as close as possible to the consumer Commission has not considered the and that the range of brands sold there recommendation from that angle. be as wide as possible. A reduction in the sales outlets and the choice of products would mean an appreciable loss to the As regards the criteria of classification well-being of the consumer. applied by the recommendation the Commission says that the statements in paragraphs 125 and 126 of the decision All the conditions are thus satisfied for are intended only "to show" that the granting the recommendation exemption. classification system "does not necessarily and always" reflect the different degrees of services actually As regards the improvement in the distri- provided by traders. bution of products Vander Elst observes that the Commission now appears "to doubt" that cancellation of the The Commission has never considered recommendation would mean the disap- the applicant's claim to the effect that pearance or reduction in numbers of the recommendation does not prevent a specialist wholesalers and retailers and manufacturer/importer from granting relies on a new ground based on its own certain intermediaries other benefits for doubts. The Commission now considers special individual services. The that each manufacturer could grant Commission has always contented itself certain wholesalers and retailers special simply with informing the parties to the advantages in the form of a lower retail proceedings that it was the "principle" selling price in exchange for the traders' which counted with it. distributing all the products of such manufacturer. In its rejoinder the Commission denies having abandoned the reasoning of its Apart from the fact that the Belgian decision on the issue of improvement of revenue law does not allow several retail distribution and having replaced it by a selling prices to be fixed for the same new statement of reasons. On the brands of a product, the type of trader contrary the Commission declares it invented and recommended by the maintains what is said in the decision, Commission would have no chance on namely that the specialist trader is not the market. threatened if the services which he provides are really appreciated by consumers. As regards the judgment in the Metro case, the applicant stresses that contrary to what the Commission appears to think Referring to the possibility mentioned in that judgment expresses in fact a general the defence that the individual grant by legal principle the validity of which is not manufacturers of certain financial confined to the distribution system of a advantages to the specialist trade might single manufacturer. In the applicant's allow lower retail sale prices, the view, the Court is pointing out that the Commission alleges that it is for the

As regards allowing consumers a fair share of any benefit of the distribution system Such collective restriction on competition in question the Commission maintains its in relation to the benefits to be allowed argument that a reduction in the sales to traders, contrary to what Vander Elst outlets may lead to a reduction in distri- thinks, is not at all capable of being bution costs. considered in the same light as the selective distribution system in the Metro case. It is not possible to infer from that judgment that on the one hand the main- tenance of an existing form of distri- As for the consumer's preference in the bution always constitutes an choice of sales outlet where he buys his "improvement in distribution" and on cigarettes the Commission stresses that it the other hand that every means used to is for free enterprise to determine who maintain the distribution system in should be so favoured. The fact that question must enjoy exemption under supermarkets increasingly sell more Article 85 (3). It is difficult to see how cigarettes does not correlate solely with a the recommendation, which eliminates reduction in small food traders. For competition between the applicants and example, from 1967 to 1973 GB's to a lesser extent between wholesalers, cigarette sales increased by 360 %. That promotes "improved competition trend is thus the expression of a change inasmuch as it relates to factors other in habits by the consumer. than prices" (Metro case, paragraph 21). It in no way improves the opportunities for competition between products either of the same brand or of different brands.

generally known as "newsagents". It The newsagents are surprised that there represents them before the Belgian auth- is argument about the alleged distinction orities and in particular negotiates the between approved and non-approved revenue due on the retail sale of tobacco. retailers. In their view such a distinction It collaborates with ATAB which groups has no substance because (a) wholesalers together tobacco retailers other than grant rebates without any regard to the newsagents. classification made by FEDETAB; and (b) the revenue burdens (cf. Annex II to the observations) weigh more heavily on approved retailers than on others which cancels any difference which might have existed. There are some 4 500 newsagents in Belgium. They account for about 60 % of the national cigarette sales. Although important in the aggregate they are individually generally very small-scale The continued existence of specialist retailers. 90 % of them are family wholesalers is necessary if newsagents businesses. are to continue in business and therefore to render service to the public. The continued existence of specialist wholesalers requires the maintenance of two vital matters in the FEDETAB recommendation namely a preferential margin and maximum margins With variations according to regions and commonly accepted. shops some 50 % of the turnover of newsagents is in tobacco and the remaining 50 % in newspapers, stationery, toys and so forth. Although the sale of tobacco is less profitable it is essential to the continued existence of The preferential margin allows those newsagents. wholesalers to incur expenses, render services and allow the rebates necessary for newsagents to continue in business. That margin is a return for services which other wholesalers or supermarkets do not provide. Newsagents usually obtain supplies from so-called "specialist" wholesalers from whom they demand a flexibility almost without parallel in other sectors. That flexibility would not be possible without, Without a system of maximum margins on the one hand, preferential terms commonly accepted competition between granted to specialist wholesalers and manufacturers in relation to margins and without their co-operation and that of, premiums might in the short term lead on the other hand, a large number of the strongest manufacturers to increase specialist wholesalers who are also family the benefits granted both to specialist businesses. That co-operation takes place wholesalers and to others. In view of the both in respect of services (very frequent fact that the final price is fixed, such a deliveries, credit facilities, variety of policy could be pursued only by reducing brands) and prices (rebates). the manufacturers' profit (which appears

unlikely) and/or by reducing the cost of level the quality of the service provided the service provided at distribution level. depends on the maintenance of The increase in the margin granted to numerous specialist undertakings. At the certain wholesalers is necessarily carried retail level it is true that there are too out by a reduction in the margin granted many sales outlets in Belgium. to others thereby eliminating any Nevertheless by eliminating from the difference which there might have been. market the specialist wholesalers the Commission decision would mean the As regards the usefulness of newsagents, disappearance of a large fraction of the they claim that their service is so much in 4 500 newsagents who are responsible demand by the consumer that they are for some 60 % of sales. On the other responsible for some 60 % of national hand the Commission decision would in sales in cigarettes against 17 to 18 % for no way affect the existence of the supermarkets in spite of the allowances, roughly 75 000 other sales outlets in reductions and other promotion devices groceries, cafés, draperies and so forth, directly or indirectly granted by the which are generally supplied with certain latter. brands by food wholesalers or Horeca. The rationalization sought by the Finally the newsagents would like to Commission could therefore not be recall that the sale of tobacco is achieved by the means which it necessarily associated with that of advocates. newspapers. In this micro-economic sector loss of a quarter of the profit would not permit survival. Their disap- The end of a structure favourable to the pearance as tobacco retailers would traditional trade would mean its necessarily mean their disappearance as replacement by the system of super- news-vendors. In distributing' newspapers markets. With their purchasing power to the public in a way which would be they would obtain unparalleled rebates difficult to replace they consider that thus reinforcing the process of they are contributing as far as they are concentration in the distribution trade. able to the protection of democratic The ultimate consumer would be doubly freedoms. penalized by losing the service without being sure of any reduction in price. As regards the law the FNJ observes that from the point of view of improving As for allowing consumers a fair share of distribution the size of the turnover for the benefit, the FNJ maintains that the which newsagents are collectively recommendation is to the advantage of responsible depends on the particular newsagents (as a result of the benefits service which they provide consumers. granted to specialist wholesalers) and to That in turn depends on the service and consumers (numerous sales outlets, wide benefits allowed by specialist wholesalers. range of brands and fresh products). Having regard to the rigidity of the retail sale price (due to the Belgian revenue legislation in force) the only possible As for the absence of inessential remuneration for the services rendered restrictions, the need to maintain all the by such wholesalers is in an appropriate provisions of the recommendation is differentiation in the margins and apparent from the facts already set out. benefits allowed by manufacturers.

The Commission sees in the various statements made in the summary of facts by FNJ corroboration as regards in particular the significance of the effects In conclusion, the FNJ observes that in so which the concerted practice by the far as the Court is induced to consider manufacturers has been able to have and the lawfulness of the decision on the which the restrictions applied have basis of Article 85 (3) it will be induced, caused. perhaps in spite of itself, to go beyond considering the matter strictly from the legal point of view. The direction that its judgment takes will then depend on its choice of society and its vision of the qualitative setting for human relation- ships. As regards the refusal to grant exemption under Article 85 (3) the Commission challenges the argument of the FNJ to the effect that only the service provided by the specialist wholesalers allows the public to be offered through numerous sales outlets a wide range of brands and The general concerted action on the part fresh products. of the distribution trade on the one hand and the necessary anti-inflationary squeezing of prices by the public auth- orities on the other require that the independent retail trade as a whole be protected if it is not to disappear. In that respect the Commission says that a small number of brands (at the maximum 30) would allow almost the whole cigarette consumption to be covered and that the high minima imposed by the recommendation In its observations on the statement by therefore involved only an obligation the FNJ the Commission stresses that the intended to cover a minute additional agreement condemned by its decision is fraction of that consumption. The mainly a horizontal one between the number of retail sales outlets on which the main manufacturers (the majority of recommendation imposes a minimum whom are in addition importers and number of brands is very limited (2 500 belong to multi-national groups) out of 80 000). The direct sales by manu-

In that respect it points out that the If the laws of competition actually protection of such trade by the applied between tobacco manufacturers application of a uniform system of trade it ought normally to be expected in the margins would not lead to an present case that the manufacturers of "improvement" in distribution to the the popular brands should try to increase benefit of the consumer but to the pre- their individual sales to the detriment of servation of an entrenched position. To those of their rivals rather than to show that the maintenance of that concern themselves with maintaining on situation may be described as the market less popular brands and less improvement capable of having profitable manufacturers. Nevertheless in exemption under Article 85 (3) it would the context of the Belgian rules where be necessary to show: applications for price increases are made jointly by the tobacco products sector and justified by it on the basis of the cost items of all manufacturers, that policy has advantages. It allows the price (1) that the protection of the specialist increases requested to be justified on the trade is justified by the alleged basis of the costs of the less efficient benefits; manufacturers, which guarantees that the

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structure of the distribution network recently provided the best evidence of and, within it, by the obligation to carry the indispensable nature of the specialist a minimum range, are not the specialist trade: At the beginning of March 1979 retailers who obtain supplies directly from the applicant introduced the new brand manufacturers and importers (they are Belga Légère Bleu to the market; until relatively few) but the specialist wholesale the end of July GB refused to distribute trade which distributes 80 % of the that brand and included it in its range cigarettes sold in Belgium. only when as a result of distribution by the specialist wholesale trade there was GB then assumes that the rec- the certainty that the brand was a ommendation stipulates that almost all success. the brands of cigarettes must be offered to the ultimate consumer. It must That cigarette with its especially low however know that the obligation to nicotine and tar content could not have have a specific range can apply only to been marketed in Belgium under a distri- direct customers of the manufacturers bution system such as that advocated by and importers. the intervener.

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(a) no implementing decrees to the Law The Commission cannot decide arbi- No 724 of 10 December 1975 in trarily whether or not to take Italy adjusting the monopoly; proceedings for an infringement of the Treaty committed by a State or an undertaking. It is bound by the general principles of Community law. (b) maintenance of the manufacturing monopoly;

It is generally recognized that the Treaty (c) prices for domestic and imported applies without distinction to public and products are fixed by brand and so private undertakings (with the sole low that imports are obstructed; exception of Article 90 (2)). The Commission cannot therefore be more tolerant towards a public undertaking (d) the artificial maintenance of simply because it is public. considerable disparities between the prices of domestic products and comparable imported products, the losses of the monopoly being borne In the case of infringement by a Member by the State; State the Commission is bound to start proceedings under Article 169. On the other hand as regards infringements of (e) maintenance in fact of the exclusive the Treaty by undertakings the distribution network of the Commission has a discretion and is not monopolies and the complete bound to start proceedings (cf. Gleiss, absence of any network, of Hirsch, "Kommentar zum EWG-Kartell- independent wholesalers; recht", Note 5 to Article 3 of Regulation No 17). It follows that proceedings in relation to infringements by a Member (f) maintenance of the monopoly of State must have priority over proceedings tobacconists involving a restriction in relation to infringements by under- on sales outlets and the complete takings. exclusion of supermarkets;

The Commission denies in its defence start proceedings and adopt a decision that it is tolerating "undoubted prohibiting such conduct. restrictions on competition in two monopoly countries", namely France and Italy. It has required the adjustment pursuant to Article 37 of the Treaty of In reference to the explanations provided the monopolies of a commercial by the Commission FEDETAB alleges in character which those two Member its reply that it is still of the conviction States have. It gives a summary of the that the Commission has not respected proceedings which it has conducted for the limits of its discretion placed on it by the adjustment of those monopolies. the principle of equality of undertakings vis-à-vis the Treaty. The proceedings recently commenced by the Commission in no way alter the matter. They do not Moreover since 1976 it has started seek the adjustment of the monopoly so proceedings for presumed infringement as to exclude all discrimination. of Articles 85 and 86 in respect of exclusive rights contracts concluded by SEITA and AAMS with the majority of foreign manufacturers of tobacco The Commission specifies in its rejoinder products (including companies controlled the actions which it has commenced by certain groups to which the applicants against Belgium, France, Italy and the belong). Netherlands for the purpose of liberalizing the manufactured tobacco sector.

By letter dated 19 January 1979 the has exceeded such limit. The applicants French Government replied to the are seeking an excuse to escape from the Commission's notice of 5 December prohibition in Article 85 by alleging 1978. Those proceedings are continuing. infringements committed by other under- takings or Member States. One infringement however can never justify On 26 October 1978 the Commission another. also sent a letter to the French Government asking for an explanation of the fixing of retail selling prices. The government has not yet replied to that I — Submissions made by only some of letter. the applicants

As regards Italy, after the Commission Sixteenth submission: infringement of commenced proceedings in January 1979 Articles 85 and 190 of the Treaty for infringement of Articles 37 and 30 inasmuch as the Commission wrongly the Italian authorities submitted to the regarded the recommendation of 1 Commission a draft decree implementing December 1975 as an extension of the the Law terminating the importation and measures adopted before that date and wholesale marketing monopoly. Those therefore did not correctly appreciate the proceedings are continuing. recommendation

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The obligations imposed under the previous measures and Article 2 for the former agreements (cf. Article 1 (2)-(6) recommendation. of the contested decision) are not contained in the recommendation. The recommendation no longer fixes specific profit margins but recommends It is on that basis that the legal maximum margins. It leaves complete assessment in the decision should also be freedom to the manufacturers to provide read; it deals with the measures for other individual rebates, it no longer separately, namely paragraphs 77 to 93 binds wholesalers in any way in respect and 110 and 112 (previous measures) of their conditions of resale and and paragraphs 94 to 108 and 113 to 134 therefore no longer contains any item (recommendation). giving rise to a vertical restriction on competition.

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(b) The Commission is asked to give further particulars of its contention On 18 January 1980 the Court invited "that the marketing conditions as the Belgian Government pursuant to regards the products which the Article 21 (2) of the Statute of the Court applicants sell in Belgium (including to answer in writing before 20 February the products which they have pre- 1980 the following question: viously imported from other Member

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(e) What other benefits and At the hearing the Commission and the compensation can the manufacturers applicants answered the written questions give their customers apart from the put by the Court. Their answers may be. profit margins and end-of-year summarized as follows: rebates (cf. in particular the application in Case 215/78, p. 16, and the reply in Case 218/78 at pp. 9 and 67)? A — Answers to the written questions

1. Answers of the Commission . VI — Oral procedure

(a) In answer to the first question put At the sitting on 6 and 7 May 1980 the by the Court the Commission gave a following parties made oral observations: summary of the present position of the

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proceedings which it brought against the the above-mentioned difficulties the French Republic and the Italian Republic alteration in the marketing conditions in under Article 169 of the Treaty for Belgium was likely to distort trade from failure to perform their obligations. In its its natural course, that is to say from that answers the Commission also dealt with which it would have been in the absence the obstacles to opening up the French of the restrictions on competition and Italian markets mentioned by observed, as the Court pointed out in its FEDETAB in its application (cf. above judgment of 15 May 1975 in Case under the heading "Submissions relating 71/74, Frubo [1975] ECR 563. to a general legal principle"). The Commission denied avoiding those issues.

In the absence of the concerted action some might have been able to import It is therefore not surprising that the more while others might have imported Commission considered that in spite of less so that in any event the concerted

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action by the applicants is likely to affect figures in support that in so far as trade between Member States. Belgian manufacturers are at the same time importers, the cigarettes concerned are almost solely made by foreign under- takings belonging to the same group as the importer. 2. Answers of the applicants

1. In answer to a request to comment on the . argument to the effect that (c) In answer to the third question put although the recommendation provides by the Court FEDETAB confirmed with for distribution margins and more parti-

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Decision

I — General considerations

1 These actions seek a declaration that Commission Decision No 78/670/EEC of 20 July 1978 relating to a proceeding under Article 85 of the EEC Treaty (IV/28.852 — GB-Inno-BM/FEDETAB, ĪV/29.127 — Mestdagh-Huy- ghebaert — FEDETAB; IV/29.149 — FEDETAB recommendation, Official Journal L 224, p. 29), which found that the applicants had committed various infringements of the said article, is void.

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2 The applicants who include all the addressees of that decision listed in Article 4 thereof are the non-profit-making Fédération Belgo-Luxem- bourgeoise des Industries du Tabac, Brussels, (hereinafter referred to as "FEDETAB"), a trade association containing almost all the Belgian and Luxembourg tobacco manufacturers and on an individual basis seven of the more important members, namely: — Cinta SA (hereinafter referred to as "Cinta"), Brussels, — Éts. Gösset SA (hereinafter referred to as "Gosset"), Brussels, — Jubilé SA, (hereinafter referred to as "Jubilé"), Liège, — Vander Elst SA (hereinafter referred to as "Vander Elst"), Antwerp, — Weitab SA (hereinafter referred to as "Weitab"), Brussels, — BAT Benelux SA (hereinafter referred to as "BAT"), Brussels, — Heintz van Landewyck Sàri (hereinafter referred to as "HvL"), Luxem- bourg.

3 The measures condemned by the contested decision and described below relate to the distribution of manufactured tobacco products in Belgium and may be divided into two groups. There are on the one hand certain decisions taken by FEDETAB and certain agreements made by it with other trade associations in the tobacco sector during the period from 1 February 1962 to 1 December 1975 and on the other hand provisions of a "recommendation" made by FEDETAB in relation to the sale of cigarettes on the Belgian market and notified by it to the Commission on 1 December 1975.

7 The hearing took place as arranged on 22 October 1975, but subsequently the proceedings were extended to the recommendation in relation to the sale of cigarettes on the Belgian market adopted by FEDETAB and notified by it on 1 December 1975 pursuant to Articles 2 and 4 of Regulation No 17. On 17 May 1976 the Commission sent FEDETAB and the other applicants who had also given notice of the recommendation a second notice of objections which related to the said recommendation and which was the subject on 22 September 1976 of a second hearing of the applicants.

8 After sending the applicants final requests for information and obtaining the opinion of the Advisory Committee on Restrictive Practices and Dominant Positions the Commission on 20 July 1978 adopted the contested decision concerning both the complaints by GB and Mestdagh and Huyghebaert and the FEDETAB recommendation of 1 December 1975.

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9 According to Article 1 of the decision, the agreements between the addressees thereof and the decisions by an association of undertakings taken by FEDETAB concerning the organization of the distribution and sale of tobacco products in Belgium and having as their object:

(1) the approval and classification of wholesalers and retailers into different categories by FEDETAB, Brussels, in order to allocate different profit margins to such categories;

(2) the maintenance of resale prices set by the manufacturers, under the agreement of 22 May and 5 October 1967 between FEDETAB and FNCG and the supplementary agreement of 29 December 1970;

(1) the division of Belgian wholesalers and retailers into categories and the allocation to the latter of different profit margins;

(2) the application to wholesalers and retailers of standard terms of payment; and

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(3) the grant to wholesalers and retailers of end-of-year rebates:

"constitutes an infringement of Article 85 (1) of the Treaty establishing the European Economic Community and does not qualify for exemption under Article 85 (3) thereof."

1 1 Article 3 (1) provides that the addressees of the decision are required to terminate without delay the infringement referred to in Article 2 and in particular in future to abstain from all acts whatsoever having the same object as the FEDETAB recommendation. According to Article 3 (2) FEDETAB is required forthwith to inform all its members to which the decision was not addressed of the contents thereof.

First submission: Refusal by the Commission to hear certain interested associations of wholesalers and retailers

16 All the applicants except Vander Elst complain that the Commission refused to accede to the request of the associations ANGIPMT and ATAB and the Consortium Tabacs-Groep Tabak (hereinafter referred to as "GT"), a de facto association containing certain of the former members of ANGIPMT, to be heard during the administrative proceedings. That refusal is said to be an infringement of the provisions of Article 19 (2) of Regulation No 17 and Article 5 of Regulation No 99/63.

17 Article 19 (2) of Regulation No 17 provides that applications to be heard on the part of natural or legal persons shall, where they show a sufficient interest, be granted. For that purpose the Commission is required, pursuant to Article 5 of Regulation No 99/63, to afford them the opportunity of making known their views in writing within such time-limit as it may fix.

18 It appears from the file that the Commission's conduct is criticized solely in so far as it refused to invite the above-mentioned associations to the second hearing on 22 September 1976 in relation to the FEDETAB recommendation. On the other hand it is also apparent from the file that during the proceedings those associations sent the Commission their written observations on the recommendation. It follows that the Commission did not refuse to hear the said associations in breach of the provisions of the above- mentioned regulations since, pursuant to Article 5 of Regulation No 99/63, the Commission afforded them the opportunity of making known their views in writing and they made use of that opportunity.

22 In FEDETAB's view the letter of 30 June 1976 was an application under Article 3 (3) of Regulation No 99/63 which provides that undertakings and associations of undertakings against which proceedings are commenced "may . . . propose that the Commission hear persons who may corroborate" the facts set out in their written observations on the objections raised against them.

23 On the other hand the Commission maintains that according to the wording of the letter of 30 June 1976 which dealt on an equal footing with the request of ANGIPMT and the request made by FEDETAB on behalf of the NVFG and GT, it was a request to hear third parties within the meaning of Article 5 of Regulation No 99/63 and not a proposal pursuant to Article 3 (3) that witnesses be heard to corroborate certain facts. It was in the context of Article 5 that the Commission made its answer on 20 July 1976.

24 It is clear from Article 3 (1) and (2) of Regulation No 99/63 that under- takings and associations of undertakings against which proceedings are

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commenced may set out all matters relevant to their defence in their written observations concerning the objections raised against them. Article 3 (3) allows undertakings and associations to propose that the Commission hear persons who may corroborate those facts. When FEDĘTAB sent its letter of 30 June 1976 to the Commission it had not yet given its written answer to the second notice of objections so that that letter could not in any event have constituted a valid proposal within the meaning of Article 3 (3). Moreover, it must be pointed out that the written answer by FEDETAB of 12 July 1976 contained no proposal to that effect and that the letter from the Commission of 20 July 1976 brought no reaction by FEDETAB in support of such a proposal.

29 This submission is mainly based on the statement that the Commission had commenced three separate proceedings which it subsequently decided to join

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by a decision not accompanied by a statement of the reasons on which it was based; each proceeding was distinguished from the others by a separate administrative number. The Commission however omitted to send a separate notice of objections concerning the complaints by Mestdagh and Huy- ghebaert, in breach of Article 2 of Regulation No 99/63 so that the applicants were deprived, in breach of Article 4 of the said regulation, of the opportunity of making known either orally or in writing their views concerning the Commission's objections, of the nature of which they were unaware.

30 The Commission maintains that there was only a single proceeding which led to the decision of 20 July 1978. There are no rules stipulating that the Commission must make formal decisions joining cases and the concept of joinder is unknown to its administrative practice. In this case it conducted the administrative proceedings and gave a ruling in a single decision on one and the same infringement the subject of successive complaints having the same subject-matter and it did so without adversely affecting the rights of the defence and without distorting the course of the proceedings.

31 Regarding this submission it must be observed that on 10 and 13 October 1975 Mestdagh and Huyghebaert both sent a letter to the Commission asking to be joined to the complaint by GB. On 20 October 1975 the Commission informed FEDETAB that the complaint by Mestdagh would be joined to that of GB and that it had been decided to allow Mestdagh to attend the hearing on 22 October 1975. It must nevertheless be observed that as a result of the applicant's objection Mestdagh and Huyghebaert were not heard at that hearing. Further by letter dated 13 November 1975 the Commission forwarded a copy of the complaints by Mestdagh and Huy- ghebaert to the applicants. In December 1975 and January 1976 the applicants submitted written observations on the said complaints.

34 In those circumstances it must be observed that the complaint by Mestdagh and Huyghebaert did not make it necessary, for the purposes of respecting the rights of the defence, either to commence separate proceedings or to give an additional notice of objections. By informing the applicants of the complaint by Mestdagh and Huyghebaert and receiving their written obser- vations thereon the Commission ensured respect for those rights.

35 It follows from the aforesaid considerations that the submission must be rejected.

Fifth submission: Refusal to disclose the file

36 This submission, which is made by all the applicants except Jubilé, is based on infringement of the general principle of the rights of the defence in that the Commission refused to disclose the file on which the contested decision was based.

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37 By letter dated 21 March 1976 FEDETAB requested the Commission to forward it a letter sent to the Commission by ANGIPMT supposedly dated 13 February 1976 "together with all other documents on which the Commission based the complaints and to which it might refer at the hearing at present fixed for 29 June next". In answer to that request the Commission on 26 May 1976 forwarded to FEDETAB without any other documents the above-mentioned letter in fact dated 2 March 1976.

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Sixth submission: Disclosure of confidential information

41 This submission, which is made by FEDETAB and all the other applicants except Jubilé and Vander Elst, is based on the claim by FEDETAB that the Commission forwarded to GB information which by its very nature was a trade secret and was sent to the Commission as such. In answer to the first notice of objections FEDETAB annexed to its statement of 22 September 1975 three tables the first of which showed the trend in receipts during the previous five years for 160 brands of cigarettes, the second set out the number of cigarettes purchased by the main specialists and the third showed the terms of payment of 25 main customers of the principal Belgian cigarette manufacturers. In its statement it stressed the confidential nature of those tables. The Commission nevertheless forwarded to the complainant GB the whole of FEDETAB's answer including the said tables. In so doing it infringed Article 20 (2) of Regulation No 17 which provides that "without prejudice to the provisions of Articles 19 and 21, the Commission and the competent authorities of the Member States, their officials and other servants shall not disclose information acquired by them as a result of the application of this regulation and of the kind covered by the obligation of professional secrecy". That disregard of a principle of a Community public policy is alleged to vitiate the Commission's decision.

42 The Commission does not deny that on 2 October 1975 it forwarded to GB the whole of FEDETAB's answer including the tables. That was done, according to the Commission, following a request by GB which had asked to be heard, to be summoned to the hearing and to see the answers of the applicants to the first notice of objections. In justification of this attitude the Commission puts forward the following arguments.

47 Nevertheless it must be observed in this case that even assuming that the three tables amounted to trade secrets and were therefore wrongly disclosed by the Commission to GB, that procedural irregularity would involve the annulment in whole or in part of the decision only if it were shown that in the absence of such irregularity the contested decision might have been different. Consideration of the file has shown that the disclosures in question supplied GB with no argument likely to have had an influence on the content of the decision in question.

Seventh submission: Exemption from notification

48 According to this submission made by FEDETAB and by all the applicants except Jubilé and Vander Elst, based on FEDETAB's argument, the Commission infringed Article 85 (1) and (3) of the Treaty and Article 4 of Regulation N o 17 by refusing to apply Article 85 (3)'of the Treaty to the measures prior to the recommendation of 1 December 1975 on the ground

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that those measures were not notified albeit they were not exempt from notification. Further the Commission's statement of the reasons on which the decision was based on that issue is incorrect and inadequate.

49 FEDETAB alleges in support of that argument that all the previous measures or at least the larger part of them fulfilled the conditions for exemption from notification provided for by Article 4 (2) (a) of the regulation in the following terms :

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52 T h e standard agreements signed by several distributors at the invitation of FEDETAB and containing an undertaking to observe the ban on resale to certain wholesalers are in fact only unilateral undertakings by those dis- tributors so that such standard agreements may, according to FEDETAB, enjoy the exemption provided for in Article 4 (2) (a) of the regulation.

53 As regards the collective measures adopted on 23 December 1971 in relation to terms of payment FEDETAB alleges that they were not decisions by undertakings o r agreements between several undertakings but rather agreements made by each manufacturer with each of his customers. Such agreements are, it is claimed, obviously not subject to notification.

54 T h e Commission states at paragraph 110 of the decision that it was unable to consider applying Article 85 (3) to the measures adopted in relation to dis- tribution for the period 13 March 1962 to 1 December 1975 (described in paragraphs 19 to 57 of the decision), since they were n o t notified to the Commission in accordance with Article 4 (1) of Regulation N o 17 although they did not belong to any of the categories of agreements and decisions exempted from notification by Article 4 (2).

55 It must be observed that in adopting the measures in question FEDETAB was acting in fact in the name of its members, that is to say the majority of the Belgian tobacco manufacturers and a Luxembourg manufacturer (the applicant HvL). T h a t appears particularly clear from Article 8 (2) of the statutes of FEDETAB according to which the requirements for membership of FEDETAB are that applicant firms must suscribe to the statutes and all decisions taken under them and satisfy all obligations flowing from them.

Eighth submission: Refusal to consider the letter from FEDETAB dated 26 January 1971 as a notification

57 According to this submission made by FEDETAB and by all the other applicants except Jubilé and Vander Elst the Commission wrongly refused to consider as a valid notification of the arrangements in relation to the dis- tribution of manufactured tobacco products the above-mentioned letter from FEDETAB of 26 January 1971, although that letter including its annexes informed the Commission of the arrangements which were subsequently condemned by the Commission and set out the reasons why those arrangements either did not come within Article 85 (1) of the Treaty or in any event were beneficial to the organization of the market.

58 In the decision (paragraph 111) the Commission points out that that letter sent to the Commission in answer to a formal request for information under Article 11 of Regulation No 17 contained no application for exemption under Article 85 (3) of the Treaty and made no mention of the application of Articles 4 and 5 of Regulation No 17. Further FEDETAB did not use the

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notification forms prescribed by Commission Regulation No 27 (Official Journal, English Special Edition 1959-1962, p. 132).

59 In the defence the Commission also contends that in the first notification of objections of 18 July 1975 it had stated that the measures in question could not have exemption so long as notification of them had not been given.

64 According to this submission made by FEDETAB and by all the other applicants except Jubilé and Vander Elst the Commission, instead of taking account of its decision of all the arguments of FEDETAB regarding the applicability of Article 85 (3) to the provisions of the recommendation, considered only some of those arguments and thus disregarded the requirement contained in Article 190 of the Treaty to state reasons on which its decision was based. •

65 It is apparent from the decision that the Commission, after referring (paragraphs 114 to 117) to certain arguments of the parties, set out (paragraphs 118 to 132) its views regarding the application of Article 85 (3) to the recommendation. Although they contain answers to some of the said arguments, the views constitute not a detailed refutation of them but an independent argument setting out in general terms the reasons why there could be no exemption under Article 85 (3) in this case.

66 Although pursuant to Article 190 of the Treaty the Commission is bound to state the reasons on which its decisions are based, mentioning the facts, law and considerations which have led it to adopt them, it is not required to discuss all the issues of fact and law which have been raised by every party during the administrative proceedings. This submission, which is based on the assumption that there is such a requirement, must therefore be rejected.

Tenth submission: Allegation that the Commission took into account objections of which it had not given notice

67 This submission, made by all the applicants, alleges that the Commission infringed the provisions of Article 19 (1) of Regulation No 17 and Article 4 of Regulation No 99/63 inasmuch as it omitted to give the applicants the opportunity to express their points of view regarding objections which the Commission took into account in the contested decision. In the second notification of objections the Commission is said to have refused to exempt the recommendation under Article 85 (3) on the sole ground that it did not satisfy the first of the four conditions contained in that article, namely

71 The Commission observes in the first place that the applicants had already to a large extent given their views regarding the four conditions of Article 85

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(3) during the administrative proceedings and in particular on notification of the recommendation. The second condition (allowing consumers a fair share of the resulting benefit) had been mentioned in the first notification of objections. Further the Commission summarized in its decision the statements of the applicants regarding that condition (in particular at paragraphs 114 to 117) and also answered certain of their arguments (at paragraphs 119, 121, 122, 125, 126 and 131).

72 Since what the Commission says is correct, the Court finds that having regard to the fact that the two notifications of objections must be regarded as a whole and that the second condition is referred to in the first notification, the objection put forward in relation to it in paragraph 131 of the decision cannot constitute an infringement óf Article 4 of Regulation No 99/63.

73 As regards the reference in paragraph 133 of the decision to the fourth condition in Article 85 (3) of the Treaty the Commission claims that it merely supplements its arguments in law in support of the refusal to grant exemption and its main arguments relate to the first condition.

74 It is common ground that the two notices of objections contained no express mention of any objection relating to the fourth condition in the context of the applicability of the provisions of Article 85 (3). Since however the question of how far the recommendation gives the applicants the opportunity of eliminating competition constitutes the very basis of the second notice of objections, on which the applicants expressed their views, its introduction into the part of the decision relating to the applicability of Article 85 (3) to the recommendation cannot constitute an infringement of the rights of the defence under Article 4 of Regulation No 99/63. For that reason this submission must be rejected.

77 As the Court stated in its judgment of 16 December 1975 in Joined Cases 40 to 48, 50, 54 to 56, 111, 113 and 114/73 (Suiker Unie and Others v Commission [1975] ECR 1663 at p. 1930, paragraph 111), there is no reason at all why the Commission should not make a single decision covering several infringements provided that the decision permits each addressee to obtain a clear picture of the complaints made against it. Because of its structure the decision allows a clear picture of distinction between the various measures, even if it is true that at various places in the legal assessment of the recommendation, objectives and effects similar or identical to those characteristic of certain former measures are attributed to it.

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78 It follows that the Commission has not infringed the provisions of Article 190 of the Treaty by reason of the inadequacy or lack of the statement of reasons. It will be appropriate to examine the various factual inaccuracies and resulting errors of law cited by the applicants when the submissions on the substance of the case are considered.

III — The first six submissions and the tenth submission in relation to Article 6 of the European Convention for the Protection of Human Rights

79 In its reply FEDETAB maintains that the conduct of the Commission which is the subject of the above seven submissions is also an infringement of Article 6 (1) of the European Convention for the Protection of Human Rights, which provides that in the determination of his civil rights and obligations everyone is entitled to a fair hearing by an independent and impartial tribunal. Citing the case-law of the European Court of Human Rights in support (in particular its judgment in the case of König of 31 May 1978, Series A, No 27, p. 30, paragraph 90), FEDETAB alleges that the rights defined in Article 85 et seq. of the Treaty in relation to competition and by the implementing regulation are civil rights within the meaning of the provisions of Article 6 (1) of the Convention.

84 That argument must be rejected. It is apparent from the file that various actions have been commenced by the Commission against the above- mentioned Member States so that in fact the argument is incorrect. In any event even on the assumption that the Commission has failed to fulfil certain of its obligations under Article 155 of the Treaty by failing to ensure the application of the Community law on competition and the adjustment of State monopolies in the manufactured tobacco sector, that fact cannot justify any infringements of the Community law on competition committed in the same sector in the present cases by the applicants.

V — Substantive submissions on Article 85 (1) of the Treaty

A — Wrong assessment of the nature and scope of the recommendation

85 Jubilé and Vander Elst maintain that the Commission infringed Articles 85 and 190 of the Treaty by wrongly regarding the recommendation as having constituted an agreement between undertakings or a decision of an association of undertakings or as having imposed obligations on the

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applicants. To constitute such an agreement the recommendation would have had to involve features making it a binding contract under national law. In the present case it is not such a contract since the binding element is lacking.

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who control a substantial part of the total cigarette sales in Belgium, has a profound influence on competition in the market in question.

B — Wrong assessment alleged by the applicant HvL

90 The applicant HvL, a Luxembourg cigarette manufacturer, complains of infringement of Articles 85 and 190 of the Treaty with regard to it, inasmuch as the Commission wrongly considered that HvL took concerted action with the other parties in respect of the measures prior to 1 December 1975. In that respect the applicant observes that as regards the period prior to 1 December it dit not sign any of the agreements referred to in the decision except the letter of 23 December 1971 laying down the maximum periods allowed for payment. It follows that only the measures referred to in that letter can be held against it. Because of pressure from the Belgian market it fell into line with the conduct of the other Belgian manufacturers and importers, but that did not mean that there could be assumed to be an agreement or concerted practice.

91 That argument cannot be accepted. The applicant has been a member of FEDETAB since 1947 and pursuant to Article 8 of the statutes of FEDETAB the applicant had to comply with all the decisions taken pursuant to the said statutes. Further, as has already been observed in relation to the previous measures, FEDETAB acted in the name of its members, who took part in the adoption and observance of the said measures through the intermediary of their trade association.

C — Submissions relating to the effect upon competition

94 As has already been stated, in Article 1 of the decision the Commission lists the measures which it condemns as constituting infringements of Article 85 (1) prior to 1 December 1975.

95 In the first place there is the approval and classification by FEDETAB of wholesalers and retailers into different categories according to a classification made by the Belgian Committee for Distribution and the allocation to those categories of different fixed profit margins including in particular a direct rebate representing the maximum margin allowed by the Belgian Minister for Economic Affairs under the system of notification of price increases. According to the Commission, that rebate was retained only by co-operatives and supermarkets which acted also as retailers since wholesalers properly so called had to allow part of it to the retailers to whom they resold their products. The retailers, numbering 80 000 in Belgium, were according to the Commission divided pursuant to an agreement made on 29 December 1970 between FEDETAB and the FNCG into "approved retailers" (numbering some 2 000) and "non-approved retailers", the latter receiving from the wholesaler a lesser proportion of the rebate than that allowed to approved retailers.

96 The Commission then points to a number of measures adopted by FEDETAB and the FNCG in relation to resale prices. It draws attention in particular to the agreement of 22 May 1967 made between FEDETAB and the FNCG according to which wholesalers undertook to resell the manu- factured tobacco products at the prices indicated by the suppliers without any rebate or benefit other than the retailers' margin. Pursuant to the same agreement wholesalers having retail shops undertook to resell the cigarettes at the retail prices stated on the tax band without any allowance to the consumer. Approved retailers signed a standard agreement submitted to them by FEDETAB containing a similar undertaking. By an interpretative supplement dated 5 October 1967 to the above-mentioned agreement

98 The Commission moreover refers to an additional interpretative agreement of 22 March 1972 whereby the FNCG, referring to the additional agreement of 29 December 1970, informed its members that in future they were strictly forbidden to sell manufactured tobacco products to food-wholesalers and other wholesalers not directly supplied by manufacturers, where the products concerned were for resale to retailers and to wholesalers to whom the manu- facturers had already allocated a quota. Supplies would be suspended if the ban were broken. That agreement was reinforced according to the Commission by the terms of a standard agreement signed by almost all wholesalers after being invited by FEDETAB on 30 June 1972 to do so and according to which the wholesalers undertook to observe in particular the above-mentioned ban. Failure to honour these commitments, according to the Commission, would result in the withdrawal of end-of-year rebates and wholesale terms.

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99 Collective measures on terms of payment adopted by certain members of FEDETAB are also the subject of an objection made by the Commission against the applicants. By letter dated 23 December 1971 on FEDETAB letter paper nine manufacturing members thereof informed all those enjoying wholesale terms that terms of payment would be reduced to a maximum of a fortnight and that manufacturers would suspend supplies of those time-limits were not observed. According to the Commission those measures were applied until the entry into force of the recommendation of 1 December 1975.

103 Under the recommendation the organization of cigarette distribution in Belgium is governed by the following three principles:

— The classification of wholesalers and retailers into categories and the laying down both for wholesale and retail trade of maximum graded rebates to be granted on invoices to customers and the minimum requirements (degree of specialization in tobacco products, volume of sales, number of brands offered and number of sales outlets served) for entitlement;

— The payment by FEDETAB to the wholesaler or retailer of an end-of- year rebate calculated on the basis of his cigarette purchases of all brands made during the year from any Belgian or foreign manufacturer whether or not a member of FEDETAB;

— The principle of cash payment with the opportunity of granting special periods of credit not exceeding a fortnight from the date of the invoice.

104 It is apparent from that analysis that the various measures adopted prior to 1 December 1975 and those contained in the recommendation, even though differing in certain respects, had basically similar aims concerning the profit margins of wholesalers and retailers (hereinafter referred to as "trade margins"), end-of-year rebates and terms of payment.

105 For the purpose of considering the question whether the object or effect of the contested measures is to prevent, restrict or distort competition within the common market it is as well to consider separately first of all the

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108 During the proceedings before the Court the Commission stressed that the essence of the measures in question is the horizontal concerted practice of the applicants regarding the profit margins and other financial advantages which the manufacturers and importers allow traders. In the Commission's view to make those margins and bonuses uniform is strictly equivalent to an agreement on prices between manufacturers and importers governing the price to be paid for the service of intermediaries. It constitutes a serious breach of the competitive system intended by the Treaty.

109 From that point of view it is necessary to consider whether, in so far as the contested measures relate to trade margins and other financial benefits, they have as their object or effect, contrary to Article 85 (1) of the Treaty, the prevention, restriction or appreciable distortion of competition in the sector of the products in question within the common market.

1 1 0Prima facie it appears from the actual substance of the contested measures that their object is in particular to exclude the possibility of manufacturers and importers negotiating with wholesalers individual margins and more advantageous benefits according to the market situation. That is confirmed by the fact that the applicants admitted complying with the system, established both by the recommendation and the measures in force prior thereto, in relation to margins.

1 1 1The applicants maintain however that various national rules and administrative practices in force in Belgium in the sector of manufactured tobacco products have such decisive effect upon conduct of the Belgian manufacturers and importers of those products both as regards the margins and other financial benefits allowable to traders and the sale prices to consumers that the object or effect of the contested measures cannot be to restrict competition, at least to an appreciable extent.

us It is common ground.¡that during the whole period during which the measures in question have applied and in any event from 13 March 1962, the date when Regulation No. 17 of the Council of 6 February 1962 entered into force, manufactured tobacco products have been and still are subject to a high proportional excise duty.

1 1 6It is apparent from the file that the proportion of the retail price represented by taxation is made up as follows: a specific excise duty of a given amount in Belgian francs per article; a proportional excise duty; amounting to a given percentage of the retail price; value-added tax calculated on the non-tax items of the retail price and on the total excise duty. That excise duty is almost wholly proportional, since the ratio between the specific excise duty

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and the proportional excise duty is 5 :95. It appears from a table of figures supplied by the Commission in its rejoinder, the accuracy of which has not been challenged by the applicants, that at 1 January 1979 excise duties represented 65.65% and value-added tax 5.66% of a packet of 25 cigarettes in the most popular price category in Belgium (BFR 41) so that tax represented some 71.31% of the retail sale price. In paragraph 11 of the Commission decision it is said that in aggregate tax accounts for approxi- mately 70% of the retail selling price. It follows that the non-tax part of the retail price, made up on the one hand of the manufacturers' or importers' share of the retail price and on the other hand the trade margins, represents some 30% of the retail price.

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— Price control measures in Belgium and Belgian taxation policy

119 The Ministerial Order of 22 December 1971 provides that not later than three months before it is to take effect manufacturers and importers are required to inform the Minister for Economic Affairs of every intended price increase in the Belgian market in respect of all products, materials, commodities, goods and services. Before the expiry of the aforementioned period the Minister for Economic Affairs may inform the undertaking giving notice that the intended price increase may not take effect either in whole or in part for a maximum period of six months. On the expiry of the period laid down by the Minister the undertaking may charge the increase of which it has given notice but it must notify the prices which it in fact charges.

120 It must however be observed that although in the manufactured tobacco sector individual notifications by separate undertakings are possible, it nevertheless appears that in practice negotiations in relation to price increases are conducted in the majority of cases by the trade associations of the various branches of the sector. It also appears that during those joint negotiations all the items of the retail price, including the various maximum trade margins, are subject to careful examination both by the Minister for Economic Affairs and the Minister for Finance who exercises considerable influence on the amount of the increase in the price.

121 Since manufactured tobacco is a very important source of revenue, the Government ensures that the revenue is not reduced by reason of a too sharp increase in retail price, which might lead to a reduction in consumption. The applicants have cited certain examples of Government intervention the effect of which has been to prevent such an increase.

125 In paragraph 105 of the decision the Commission cites the same reasoning to reject the argument that "the restrictions on competition flowing from the recommendation were not appreciable by reason of State intervention in the tobacco industry".

126 It is therefore necessary to consider in the first place whether, contrary to the Commission's argument, the Belgian rules and their application, as described above, have as their effect either to exclude, as the applicants maintain, the opportunity for manufacturers and importers to compete significantly in

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relation to the margins to be allowed to the trade or to cast serious doubt on the existence of such an opportunity. In both cases the Court would be led to find that the contested Commission decision did not correctly or sufficiently take account of the effect of the said rules and their application by the competent Belgian authorities on the opportunities for competition by those in the industry.

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in the case of the introduction of a new brand. During such negotiations great influence on the fixing of the' retail price is exercised by the revenue authorities whose concern is above all to guarantee the revenue arising from the taxation of the products in question. It also appeared during the proceedings that the Belgian State is able by using the range of tax bands to restrict the freedom of undertakings as regards the choice of the retail prices for their products. In that respect the applicant BAT stated that after intro- ducing a new brand of cigarettes it was forced to increase the price by Bfr 6 per packet in order to market them at a price corresponding to the lowest tax band available from the authorities, who had abolished the tax bands for lower prices.

1 3 0It follows from all the considerations set forth above that in the manu- factured tobacco sector the Belgian rules on consumer taxes and price controls and their application pursuant to the revenue policy pursued by the State have the effect of making it practically impossible for manufacturers and importers to compete in such a way that there would be an effect upon the amount of the retail selling price.

1 3 1On the other hand it is necessary to point out that it has by no means been shown that the said rules or their application prevent the manufacturer or importer from allowing particular wholesalers on an individual basis a larger profit margin out of the manufacturers' or importers' share of the retail price. In taking concerted action regarding the maximum level of profit margins which they allow wholesalers the applicants jointly prevent themselves from so competing and at the same time discourage those intermediaries from pursuing a sales policy which would benefit the products of the manufacturer or importer from whom they obtain or hope to obtain a more advantageous profit margin.

1 3 5 In the latter respect the applicants rely on the judgment of the Court of 25 October 1977 in Case 26/76 (Metro SB-Großmärkte GmbH v Commission [1977] ECR 1875) and allege that in view of its beneficial influence on the structure of the market the aim of ensuring a certain level of income for the specialized trade does not necessarily fall under the prohibition in Article 85 (1). The Court recognized in that judgment that measures which serve to maintain traditional trade by distinguishing between the functions of the wholesale and retail trades are not necessarily restrictive of competition or that if they are they may qualify for exemption under Article 85 (3). Above all the Court recognized that price competition does not have absolute priority over all other effective forms of competition.

136 The applicants complain that the Commission did not properly take account of those factors in assessing the distribution system which is the subject of the above-mentioned measures.

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137 It is right, however, to observe that the Commission does not criticize the principle of the separation of functions between intermediaries but rather the concerted action between manufacturers and importers in relation to the financial benefits to be allowed to intermediaries.

138 Moreover, although it is true that the Court in its judgment in the Metro case gave some consideration to the question whether a selective distribution system may be compatible with Article 85 (1) of the Treaty, that case was concerned with a system conceived, as distinct from that in question in the present cases, for the purpose of distributing highly technical, durable consumer goods so that traders had to be selected on the basis of qualitative criteria.

143 In that respect it is common ground, as the Commission has pointed out in paragraph 74 of'the decision, that every direct customer, wholesaler or retailer, may receive from FEDETAB that rebate, the scale of which is set out in the recommendation and is based on cigarette purchases of all brands made during the year from any Belgian or foreign manufacturer, whether or not a member of FEDETAB. It appears from the file that the rebate is only a fraction of 1% of the purchase price. The necessary information for calcu- lating the rebates on cigarettes due to each customer are collected centrally by FEDETAB or by a body appointed for the purpose.

144 In the Commission's view the end-of-year rebate system as finally brought in by the recommendation effectively stifled all competition in this field between the manufacturers who had signed it inasmuch as it removed the incentive for intermediaries to make greater competitive efforts with a view to obtaining improved benefits or to take their custom exclusively to a given manufacturer and made it more difficult for manufacturers desirous of penetrating the market to do so.

1 4 5The applicant FEDETAB maintains on the other hand that competitive effort is stimulated by the difference in the rates of return according to the quantities sold. It further claims that the sum of the direct margins and the end-of-year rebates is precisely the maximum authorized by the Minister for

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Economic Affairs pursuant to the negotiations on price increases. The rebate is not formally imposed on anyone but it is vigorously demanded by wholesalers so that no supplier can escape paying it. Having regard to its very small amount it cannot in any case constitute a heavy burden on the manufacturer whatever the proportion of purchases made from him by the trader.

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from the end of the month which was part of a policy of pressure by all supermarkets. It adds that "to give all the necessary weight to the letter from FEDETAB" the main manufacturing members of FEDETAB decided to sign the letter. That answer was a legitimate defence. Any considerable extension of credit would inevitably have a repercussion upon 'prices to the detriment of the consumer by reason in particular of the multipler effect of the Belgian taxation system on cigarettes. In those circumstances any delay would, in FEDETAB's view, have caused the market to collapse.

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restrictions on competition resulting from the other measures adopted in relation to profit margins and end-of-year rebates. The Commission also insists in paragraphs 101 and 102 of the decision that according to its infor- mation credit periods are in practice tending to settle down at a fortnight or less and contrary to what FEDETAB and some of its members say the conduct of the various manufacturers, none of whom has rejected the recommendation, complies with the provisions thereof.

152 During the proceedings in the present cases certain applicants have challenged those latter statements of the Commission and have maintained that the application of the terms of payment is flexible and not uniform. For their part the applicants Jubilé and Vander Elst draw attention to the fact that the respective letters from each of them dated 18 December 1975 informing the Commission of their decision to follow the recommendation they stated that cash payment had always been the rule with their companies and that they would continue to make it their practice independently of the recommendation. They therefore contend that if it is necessary to consider approval of the recommendation as an agreement within the meaning of Article 85 of the Treaty they are not in any event a party to that agreement as regards the terms of payment and in that respect the decision was wrongly addressed to them.

156 As regards the statement by the applicants Jubilé and Vander Elst to the effect that cash payment has always been strictly required by them and that they would continue their practice independently of the recommendation, it is right to say that such a manifestation of intent cannot be taken into account in view of the fact that it has been reiterated several times that according to Article 8 of the statutes of FEDETAB the members thereof must abide by its decisions taken pursuant to the statutes.

3. The previous measures on observance by wholesalers and certain retailers of selling prices laid down by manufacturers, the restriction on the approval of wholesalers in certain categories, the ban on approved wholesalers' supplying certain other wholesalers and the requirement on stocking a minimum range of brands

157 The agreement of 22 May 1967 made between FEDETAB and the FNCG for a period of five years, reinforced both by the standard agreement submitted by FEDETAB to approved retailers and signed by them, and by the additional interpretative agreements of 5 October 1967 and 29 December 1970 contained a set of joint measures to which the applicants were parties and had as object on the one hand to prevent wholesalers from selling to

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retailers manufactured tobacco products at prices differing from those indicated by the suppliers without any reduction or benefit other than the retailers' margin and further to ensure that retailers strictly observed the price stated on the tax band on the ultimate sale to the consumer.

160 On the other hand it is admitted that as regards wholesalers the above- mentioned measures were renewed by the standard agreement, referred to as "special agreement on cut-price selling" submitted by FEDETAB to wholesalers on 30 June 1972 and signed by almost all of them. Pursuant to that agreement and for a period of five years wholesalers undertook on resale of the products in question not only to observe the prices indicated by the suppliers without any reduction or bonus but also to observe the ban on resale of manufactured tobacco products on the one hand to wholesalers to whom the manufacturers had already allocated a quota and to food wholesalers and other wholesalers not directly supplied by manufacturers, where the products concerned were for resale to retailers and on the other hand to retailers where the delivery was manifestly not intended to be sold to the retailer's normal customers. That ban reinforced the terms of the notice of 22 March 1972 referred to above which the FNCG had sent to its members and which, as regards the wholesalers referred to above, was to the same effect.

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161 It is apparent from the actual substance of the measures described above that their aim was essentially to prevent competition from arising between the manufacturing and importing members of FEDETAB with regard to the resale prices of their products both at the wholesale level and, at least before 1 January 1971 when Article 58 of the VAT code entered into force, at the retail level.

166 T h e Commission alleges in the contested decision that the measures prior t o the recommendation w e r e likely t o affect trade between M e m b e r States because certain manufacturing members of F E D E T A B were responsible for a very substantial part of the manufactured tobacco imported into Belgium and distributed it o n the same anti-competitive terms as their o w n products. Moreover, Belgian importers and manufacturers or those of other M e m b e r States w h o h a d n o t subscribed t o the restrictive rules drawn u p by F E D E T A B a n d the F N C G with regard t o distribution w e r e subject to the application of those rules w h e n they resold their products, including those originating in other M e m b e r States, t o a wholesaler o r retailer w h o observed the rules laid d o w n by those t w o associations, which, having regard to the strong position of the t w o associations on the market, was the general rule.

167 In view of those considerations the Commission found in paragraph 93 of the decision that although the tax arrangements in force created practical difficulties with regard to parallel imports by wholesalers and retailers, the fact remains that the alteration of trading conditions in Belgium was such as to divert the flow of trade from its normal course (that is, from the course which it would have followed in the absence of the restrictions of competition found by the Commission), and so to affect trade between Member States.

168 The Commission alleges in paragraph 106 of the decision that the measures in the recommendation are liable to affect trade between Member States for the same reasons as those put forward as regards the previous measures.

171 In that respect it is right to observe that it is common ground, that as was said in paragraphs 8 and 91 of the decision, a substantial part of the manu- factured tobacco products sold in Belgium are imported through manufac- turing members of FEDETAB who market them using the same distribution networks as for the products which they manufacture themselves. By way of example, in 1974 they imported 51% of the cigarettes and 12 to 14% of the cigars arriving in Belgium, that is some 5% of the cigarettes and 10% of the cigars sold there.

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174 The applicants allege in substance that the Commission infringed the provisions of Article 85 (3) of the Treaty and the rights of the defence inasmuch as it wrongly refused to grant exemption to the recommendation, did not take account of the submissions made by the applicants and committed errors of fact in that respect.

175 Before considering the arguments of the parties with regard to the application to the recommendation of Article 85 (3) it is necessary to recall that an agreement which is found to be contrary to the provisions of Article

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85 (1) cannot have exemption under Article 85 (3) unless it satisfies the following conditions namely that it:

— contributes to improving the production or distribution of goods or to promoting technical or economic progress;

— allows consumers a fair share of the resulting benefit;

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to direct customers of the members of FEDETAB and buyers from such customers more benefits than they would receive from normal competition which would allow the consumer a free choice. While recognizing that by the indirect means of the very large number of wholesalers and retailers the system allows the consumer a wide choice of brands, the Commission maintains that such choice is available only from specialist retailers who represent only a small share of the 80 000 sales outlets a large majority of which offer customers only a very restricted range of brands. The multiplicity of sales outlets can moreover only increase distribution costs.

179 The Commission also challenges the argument to the effect that the disap- pearance of the collective system established by the recommendation would inevitably involve the disappearance of the specialist trade. That trade would not be threatened even if it no longer enjoyed from FEDETAB and its members financial terms more favourable than those allowed to the non- specialist trade if their services are actually appreciated by the users thereof and consumers. Whilst expressing doubts regarding the danger allegedly threatening the survival of specialist wholesalers who are responsible for some 80% of cigarette sales on the Belgian market, the Commission considers that to grant them more favourable conditions is an attempt arti- ficially to keep firms on the market when the ultimate buyer is not convinced that they are so essential and the normal forces of competition would have put them out of business.

183 In the first place it must be observed in that respect that the recommendation no doubt contains certain benefits in relation to production and distribution of cigarettes both for the consumer and for numerous small retailers including in particular the Belgian newsagents and tobacconists who, as is apparent from the file, are responsible for some 60% of national cigarette sales. The existence of a very large number of sales outlets in Belgium undoubtedly facilitates the purchase of cigarettes by the consumer even though it must be observed that there is a very wide range of brands only from a limited number of specialist or semi-specialist retailers who constitute an outlet in particular for new brands or those with a small turnover.

184 Nevertheless the number of intermediaries and brands is not necessarily an essential criterion for improving distribution within the meaning of Article 85 (3). The quality of a distribution sector may be judged above all by its commercial flexibility and capacity to react to stimuli both from manufac- turers and consumers. As regards the latter the effectiveness of distribution implies that it can concentrate its activities on products which have the greatest performance in the eyes of consumers and is to be judged also

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according to its adaptability to new purchasing habits which may become apparent. It is clear from the figures supplied by the Commission, the accuracy of which has not been challenged by the other parties to the present cases, that the cigarette sales made by supermarkets have increased much more than those made by other retailers and that is so in spite of the fact that supermarkets offer only a restricted number of the complete range of brands of cigarettes sold on the Belgian market.

cigarette sales in Belgium are represented by some ten brands only, largely marketed by one or more of the applicant companies.

189 As has already been stated, the provisions of the recommendation to which the applicant companies agreed have as their object, by means of a collective agreement, the restriction on competition in which those companies might engage between themselves. Having regard to the very large share of the Belgian cigarette market held by the FEDETAB members and in particular by the applicant companies, there must be a finding that the recommendation has the effect of affording the applicants the possibility of eliminating competition in respect of a substantial part of the products in question. It follows that the recommendation cannot in any event have exemption under Article 85 (3).

VII — Conclusion

190 It follows from all the considerations set out above that the applications as a whole must be.rejected as unfounded.

Costs

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

1. Dismisses the applications;

2. Orders the applicants jointly and severally to pay the Commission's costs including those relating to the application for the adoption of interim measures, and the intervention of Eugène Huyghebaert SA, GB-Inno-BM and the Fédération Belge du Commerce Alimentaire;

3. Orders the Association des Détaillants en Tabac, the Association Nationale des Grossistes en Produits Manufacturés du Tabac and the Fédération Nationale des Négociants en Journaux, Publications, Librairie et Articles Connexes, interveners, to bear their own costs.

Kutscher Pescatore Koopmans Mertens de Wilmars Mackenzie Stuart

O'Keeffe Bosco Touffait Due

Delivered in open court in Luxembourg on 29 October 1980.

II — Conclusions of the parties 3144

III — Submissions and arguments of the parties 3146 A — Formal and procedural submissions made by most of the applicants concerning in particular the rights of the defence 3146 First submission: infringement of Article 19 (2) of Regulation No 17 and Article 5 of Regulation No 99/63 (refusal to hear certain associations of wholesalers and retailers) 3146

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E — Summary of certain arguments of the interveners regarding submissions on Article 85 (1); answers by the principal parties 3197 F —Fourteenth submission: refusal of exemption under Article 85 (3) 3203 G — Summary of certain arguments put forward by the interveners in relation to the fourteenth submission; answers of the main parties 3210 H —Submissions relating to a general legal principle 3216 Fifteenth submission: infringement of the general legal principle of equality of public and private undertakings vis-à-vis the Treaty 3216 I — Submissions made by only some of the applicants 3219 Sixteenth submission: infringement of Articles 85 and 190 of the Treaty (wrong assessment of the nature of the recommendation) 3219 Seventeenth submission: infringement of Articles 85 and 190 of the Treaty (wrong view of the recommendation) 3221 Eighteenth submission: infringement of Articles 85 and 190 of the Treaty

(wrong assessment of the conduct of the applicant Heintz van Landewyck) 3222

IV — Question put by the Court tolhe Belgian Government and its reply . . . . . . 3223

V — Questions put by the Court to the parties '. 3223 1. Questions put to the Commission 3223 2. Questions to the applicants 3224 VI — Oral procedure 3224 A — Answers to the written questions 3224 1. Answers of the Commission 3224 2. Answers of the applicants 3226 B — Answers of questions put by the Court at the hearing 3226

Decision I — General considerations 3227

V — Substantive submissions on Article 85 (1) of the Treaty 3249 A — Wrong assessment of the nature and scope of the recommendation 3249 B — Wrong assessment alleged by the applicant HvL 3251 C — Submissions relating to the effect upon competition 3251 1. Introductory observations 3251 (a) The contested measures 3252 (i) The period prior to 1 December 1975 3252 (ii) The FEDETAB recommendation of 1 December 1975 3254 2. Measures relating to the trade margins, end-of-year rebate and maximum terms of payment 3256 (a) Trade margins 3256 (i) Belgian rules and administrative practices 3258 — The Belgian rules regarding excise duties on tobacco . . . . 3258 — Price control measures in Belgium and Belgian taxation policy 3260 (ii) Assessment of the effects upon competition caused by the rules and practices referred to under (i) 3261 (b) End-of-year rebate 3266 (c) Rules on terms of payment 3267 3. The previous measures on observance by wholesalers and certain retailers of selling prices laid down by manufacturers, the restriction on the approval of wholesalers in certain categories, the ban on approved wholesalers' supplying certain other wholesalers and the requirement on stocking a minimum range of brands 3270 4. Effect upon trade between Member States 3272

VI — Basic submission relating to Article 85 (3) of the Treaty 3275

VII — Conclusion 3280