C-99/79

and

(1) ETOS BV, Zaandam (2) ALBERT HEYN SUPERMART BV, Zaandam

on the interpretation of Article 85 of the Treaty and of certain rules issued in implementation of that provision,

T H E COURT

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

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

2. In order to market its products, Dear Sirs, Lancôme has set up a selective sales organization which covers the whole of the EEC and is based in particular on Lancôme SA has organized in France exclusive distributorship agreements and in the other countries of the EEC a concluded between it and the general selective distribution network the main agents which it has appointed in the characteristic of which is a limited various Member States of the EEC and number of authorized retailers. on sales agreements concluded between Lancôme and retailers established in France. Lancôme notified the This sales organization is based on Commission on 30 January 1963 of a a standard exclusive distributorship standard exclusive dealing agreement agreement concluded by Lancôme with concluded with its general agents for the its general agents in the various countries Federal Republic of Germany, Italy, the of the EEC and on the uniform distribu- Netherlands, Belgium and Luxembourg. torship agreements concluded by the Subsequently, Lancôme also notified the latter and by Lancôme with their auth- Commission of the agreements which its orized retailers in their respective general agents or subsidiaries were territories. applying to their respective authorized retailers. The standard exclusive distributorship agreement and the uniform distribut- 3. After initiating the procedure on orship agreements contained provisions 27 April 1972, the Commission sent a considered by the Commission to be notice of complaints to Lancôme on 24 incompatible with Article 85 of the July 1972. As a result of that notice of Treaty of Rome. They involved in complaints, Lancôme amended its particular provisions aimed to prevent contracts so as to enable trade between authorized retailers from reselling Lancôme's authorized retailers estab- Lancôme products to or buying them lished in the various Member States and from general agents or authorized to prevent Lancôme products thus retailers in the other countries of the exported or imported from being made EEC as well as the obligation to abide by

the imposed prices, even in the case of exclusion does not constitute an indirect Lancôme products which they were re- means of hindering freedom of trade importing or re-exporting in the between authorized distributors. Common Market. For this reason your company was notified of complaints on 24 July 1972 pursuant to Article 19 (1) of Regulation No 17. As a result of that Yours faithfully notice your company amended the W. Schlieder" agreements which are the outcome of its sales organization in the EEC in such a way that authorized retailers are 4. The Ahold NV group to which Etos henceforth free to resell Lancôme BV and Albert Heyn Supermart BV, the products to or to buy them from any defendants in the main action, belong, general agent or authorized retailer controls a large chain of retail shops in established in the EEC and to fix their the Netherlands, principally in the sector selling prices where the products are re- of foodstuffs and large-scale consumer imported from or re-exported to other goods. At present Etos runs 59 chemist countries of the Common Market. shops in the Netherlands based on the discount sales formula and through this means sells a range of products including durgs, pharmaceutical products, beauty products and perfumes. I have the honour to inform you that in these circumstances, in view of the small share in the market in perfumery, beauty Before being taken over by the Albert products and toiletries held by your Heyn group (which has since become company in each of the countries of the Ahold), Etos had concluded with Common Market and in view of the Cosparfrance agreements whereby sev- fairly large number of competing under- eral shops run by Etos were authorized taking of comparable size on that market as stockists of Lancôme articles. These and because the financial links between agreements came to an end on your company and the Oréal group do 20 October 1975. not seem in this case likely to influence the volume of your turnover for the products in question, the Commission considers that there is no longer any The defendants in the main action asked need, on the basis of the facts known to Cosparfrance to supply Lancôme pro- it, for it to take action in respect of the ducts to all their Etos chemist shops and above-mentioned agreements under the discount drugstores but Cosparfrance provisions of Article 85 (1) of the Treaty refused on the ground that the discount of Rome. The file on this case may drugstores did not fulfil its qualitative therefore be closed. criteria and that moreover it would be contrary to its selective distribution system to supply all the shops in question.

(v) most (if not all) other undertakings 6. The defendants claimed in their in the perfume sector apply selective defence that the plaintiffs' sales organi- distribution for selling their 'prestige zation is partially void because it is products' as described by the incompatible with Article 85 (1) of the Commission ,in its Fifth Report on EEC Treaty. They also maintained that Competition Policy, Nos 57-59; the above-mentioned letter of 16 December 1974 constituted merely the opinion of a head of department which is (vi) the publication provided for in not binding on the Commission. Article 19 (3) of Regulation No 17 has not been made; 7. In view of the controversy which has on the other, leaving aside the question arisen between the parties as to the whether circumstances referred to under applicability of Article 85 (1) to this case, Question 3 (a) and/or (b) exist here, the court making the reference submitted to the Court of Justice by order of 19 June 1979 a reference for a pre- Asks the Court of Justice of the European liminary ruling worded as follows : Communities to rule on the following questions: 'Whereas

In a situation in which, on the one hand: 1. What is the nature of the letter referred to under (iv) from the (i) an undertaking applies a selective Director-General for Competition in distribution system for marketing its particular from the following aspects : perfumes, beauty products and toilet preparations in the EEC; 1.1. Does it constitute a declaration that the Commission is of the (ii) the agreements on which the opinion that Article 85 (1) of the selective distribution system is based EEC Treaty is not applicable to

2. Is it possible that the agreements, to In accordance with Article 20 of the which the changes referred to under Protocol on the Statute of the Court of (iii) have been made, do not fall Justice of the EEC, written observations under the prohibition of Article 85 (1) were submitted by the plaintiffs in of the EEC Treaty because of the the main action, represented by relatively small share of the market W. Alexander, Advocate at The Hague held by the undertaking referred to Bar, the defendants in the main action, under (i), in spite of the fact that: represented by D. J. Gijlstra, Advocate at the Amsterdam Bar, and the Commission 2.1. they contain provisions which of the European Communities, represen- entail, on the one hand, a ted by its Legal Adviser, J. Temple Lang selection of so-called authorized and by J.-F. Verstrynge, member of the retailers and, on the other, a Commission's Legal Service, acting as prohibition on supplies to persons Agents. other than consumers or auth- orized retailers; After hearing the report of the Judge- Rapporteur and the views of the 2.2. the competitors of the under- Advocate General, the Court decided to taking referred to under (i) also open the oral procedure without any apply a system of selective distri- preparatory inquiry. bution;

2.3. until now selective distribution appeared to be possible only II — W r i t t e n o b s e r v a t i o n s s u b - pursuant to an exemption under m i t t e d u n d e r A r t i c l e 20 of Article 85 (3)? the P r o t o c o l on the S t a t u t e of the C o u r t of J u s t i c e of 3. If the Commission has granted an the E E C undertaking exemption under Article 85 (3) of the EEC Treaty for the application of a selective distribution A — Observations submitted by the system is that exemption invalid if it plaintiffs in the main action appears that:

in question. They stress in particular the The fact that the letter was not published importance of controlling the conditions as laid down in Article 19 (3) of Regu- in which prestige products, such as the lation No 17, the absence of the Lancôme products, are offered to the signature of the Director-General for public. It is in particular necessary to Competition and the fact that the letter ensure that only absolutely fresh was not published (as is customary) products are displayed and offered for within the meaning of Article 21 of sale, that the whole range (including Regulation No 17 indicates that the varieties sold less frequently) is always in Commission itself did not consider the stock, that customers can be advised by letter of 16 December 1974 to be a qualified staff, that the shop does not sell decision under either Article 2 or under goods or advertise in such a way as to Article 6 of Regulation No 17. However, compromise the luxury character and the according to the judgment in the CBR brand image of the product. A manu- case [1967] ECR 75, such a letter may facturer cannot neglect the factors upon nevertheless constitute a decision if it which depends the favour of the special contains a measure which, by bringing public at which the prestige products are about a considerable change in its legal aimed except at the price of a loss of position, has affected the interests of the custom. For this reason the plaintiffs in undertaking. However, it is necessary to the main action only agree to sell their point out that the above-mentioned letter products through selected retailers who has given rise in the case of Lancôme to agree to comply with undertakings the legitimate expectation that the relating to the sale and presentation of agreements in question are compatible the products in question. with Article 85 and that Lancôme has made every effort to maintain a distri- bution system in accordance with the principles approved by the Commission. On the question whether the above- After briefly recalling the facts which mentioned letter constitutes a decision, form the subject-matter of the dispute in the plaintiffs in the main action adopt the main action and the administrative the arguments put forward in this procedure followed by the Commission connexion by Parfums Rochas and Estée with regard to the Lancôme distribution Lauder in Cases 2/79 and 37/79. system, the plaintiffs in the main action submit the following observations on the three questions submitted to the Court by the court making the reference.

The third question In the alternative, if the Court does not share the view that the above-mentioned letter of 16 December 1974 constitutes a decision, the plaintiffs in the main action The third question is based on the claim that in that case the procedure for allegations made by the defendants in the the adoption of a favourable decision main action, the accuracy of which was with regard to the Lancôme agreements not established by the court making the has not yet been completed. As the reference itself. In this connexion, the Commission has not adopted a definitive plaintiffs in the main action observe that decision pursuant to Regulation No 17, it is inevitable that amongst the 10 000 the above-mentioned letter has not authorized Lancôme retailers in the therefore brought to an end the pro- Community there are some who are visional validity of the old agreements tempted to infringe their contracts. As duly notified (Case 59/77, De Bloos v soon as they are discovered, supplies Bonyer[1977] ECR 2372). cease to be delivered to them. As regards third parties who benefit from such breaches of contract, Lancôme is obliged to establish priorities before deciding against whom proceedings should be brought. Etos differs from the other traders outside the network by the fact The second question that it has progressively undermined Lancôme's selective sales organization by selling Lancôme products outside the Etos shops which had been authorized by Lancôme at the outset. In addition, The facts indicated by the court in its Etos differs by its systematic and question may constitute indications of aggressive attacks carried out on a large the applicability of Article 85 (1). If the scale against the Lancôme sales organi- letter of 16 December 1974 were not zation. There is nothing to indicate that considered to be a decision of the exemption granted to an undertaking exemption, it would be necessary to would be null and void if it appeared conclude that the Commission, having that the products in question were regard to the large number of competing offered for sale by wholesalers and undertakings of comparable size on the retailers not authorized by the under- market and to the amendments made to taking concerned. Such an allegation is the agreements, considered that the hypocritical coming from an undertaking conditions for the applicability of Article which takes pains to create breaches in 85 (1) were not fulfilled. If that the sales network in question. assessment of the agreements and of the economic context should prove wrong, the Lancôme sales system would in any In any event, the consequences of any case fulfil the conditions necessary for failure to observe the conditions the grant of an exemption under Article attaching to the exemption are governed 85 (3). In any case, until the Commission by Article 8 (3) (b) of Regulation No 17,

"1. The above-mentioned letter of 16 1.3. deprived third parties of the December 1974 from the Director- possibility of drawing the General for Competition constitutes attention of the Commission to a decision by which the Commission: factors which prevent the adoption of a favourable decision in relation to those 1.1. applied Article 85 (3) of the agreements, EEC Treaty to the agreements to which the changes which it indicated have been made; or 1.4. put to an end the duty of the 1.2. (in the alternative) declared that courts before which proceedings Article 85 (1) of the EEC are brought relating to an old Treaty is not applicable to the agreement duly notified or' agreements to which the exempted from notification to changes which it indicated have give such an agreement the legal been made; effects attributed thereto under the law applicable to the 1.3. this decision is fully effective as contract, and those effects against third parties as long as it cannot be called in question by has not been annulled or any objection which may be declared null and void; raised concerning its compatibility with Article 85 (1) 1.4. this decision converted the prov- of the EEC Treaty". isional validity of the old agreements duly notified into definitive validity". If a reply to Questions 2 and/or 3 submitted by the Arrondissementsrecht- bank, Haarlem, is still necessary, the If the argument that the above- plaintiffs in the main action suggest they mentioned letter from the Director- should be answered as follows: General for Competition constitutes a decision is not accepted, the plaintiffs in "2. If they are not exempted on the basis the main action suggest that the of Article 85 (3) of the EEC Treaty, following reply should be given to the agreements by which an undertaking first question referred to the Court by selects authorized retailers with a the Arrondissementsrechtbank, Haarlem: view to selling its products and prohibits the delivery of supplies to "1. The above-mentioned letter of 16 persons other than consumers or December 1974 from the Director- authorized retailers may nevertheless General for Competition does not not fall under the prohibition laid constitute a decision by which the down in Article 85 (1) of the EEC Commission: Treaty even if the competitors of

that undertaking also apply a system of 16 December 1974 did not exhibit any of selective distribution if it proves of the characteristics which, according to that the undertakings in competition the case-law of the Court, are those of a on the market are fairly numerous decision. That letter cannot moreover and of comparable size and that a fortiori be considered as negative those agreements do not prevent re­ clearance or an exemption; in this exportation and importation by connexion, it is necessary to observe that authorized dealers within the in any case the conditions as to pub­ Common Market. lication laid down by Regulation No 17 with regard to the adoption of such measures have not been fulfilled in this 3. Neither the failure to comply with case. The letter of 16 December 1974 is the conditions or obligations to therefore no more than the expression of which the Commission has made an the opinion of a head of department exemption under Article 85 (3) of which is not binding upon the the EEC Treaty subject nor the fact Commission. Lancôme cannot rely upon that the products in question are that letter as against third parties for the offered for sale within the Common purpose of alleging that its selective Market by wholesalers and retailers distribution system has been accepted by who have not been selected by the the Commission. undertaking concerned is capable of making such an exemption relating to selective distribution agreements invalid". The defendants in the main action criticize next the informal solution adopted by the Commission for the perfumery sector. There is a specific means by which the Commission can B — Observations submitted by the draw up a uniform solution for a sector defendants in the main action of the economy within the Community system of competition. This is the block exemption granted by regulation which After a description of the facts which contains guarantees for third parties gavę rise to the main action and of the (preliminary publication and the oppor- characteristics of the market in question, tunity of submitting observations). The the defendants in the main action put Commission is acting in conflict with the forward the following observations on Community legal order when it reacts to the questions submitted to the Court by a request for negative clearance or the court making the reference. exemption by an unofficial letter which is not binding upon it. The Commission must in all cases adopt a formal decision so as to comply with the rules laid down The first question by Regulation No 17.

According to the defendants, this letter 2. Lancôme's sales system was amended contains a fundamental contradiction. If on important points after notification. in fact the undertakings in question were unable to trade and compete within the Community, they would not come within the scope of Article 85 and the fact that 3. It is unjust that the validity of the the fact that the agreements entered into distribution system cannot be contested by the undertakings contain elements so long as no formal decision has been (import and export ban) which might be adopted by the Commission. The incompatible with Article 85 (1) would adoption of such a decision is unlikely be irrelevant. Moreover, it is incorrect since the Commission has stated that the that the agreements in question are informal letters which it sent to the agreements of minor importance whereas undertakings enabled it to find a general Lancôme's turnover and that of the solution for the whole sector. 'Oréal group to which that undertaking belongs is well above the criteria indicated by the Commission in its notice of 19 December 1977. It is also necessary to take into account the cumulative 4. Lancôme's distribution system is not effect of the sales systems of the various "closed": Etos had no difficulty in perfumery undertakings which all apply obtaining ample supplies of Lancôme a form of qualitative and quantitative products outside the official network of selection of sales points. that company.

Finally, the defendants contest the In the opinion of the defendants, if the argument that selection of sales points on Court held that the agreements notified the basis of qualitative creiteria is by Lancôme are still provisionally valid, necessary in this case. The products in it would be necessary to consider that, question are not of great technical the correspondence exchanged between complexity, do not require after-sales that company and the Commission must service and may be sold by unskilled be regarded as equivalent to the staff. The extent of Etos' sales of

The defendants state that plaintiffs For reasons of legal certainty, the letter discriminate against them. In 1974 Etos puts an end to the provisional validity of took pains, unsuccessfully, to obtain old agreements duly notified. from the plaintiffs a list of the objective conditions which the perfumery sales points should fulfil in order to be auth- If the letter has not put an end to the orized: these criteria are non-existent. provisional validity, the national court Relying on photographs in support of would be advised to stay the proceedings their argument, the defendants maintain in the main action and to prompt a that the "luxury" atmosphere is hardly decision by the Commission of the perceptible at the premises of a large European Communities, since the latter number of authorized stockists. In initiated against Lancôme by letter of particular, the duty-free shops at 24 July 1972 a procedure under Article 3 airports, ports and on board ship operate of Regulation No 17. in an atmosphere which is that of discount shops, do not offer qualified assistance or after-sales service and do The second question not sell the complete range of products. When an undertaking which has obtained an exemption from the An agreement which does not Commission does not comply with the appreciably affect trade between Member conditions attached thereto, that States and competition within the exemption becomes invalid. Common Market does not in any case fall within the scope of Article 85 (1) of the EEC Treaty. The same applies if it proves, as it appears in this case, that the distribution The cumulative effect of certain practices system exempted is not "closed". in the field of competition which, taken individually, do not appreciably affect competition and trade between Member In conclusion, the defendants in the main States, may nevertheless bring those action suggest that the following replies parctices within the scope of Article 85 should be given to the questions referred (1) of the EEC Treaty. to the Court:

trade between Member States. Selective C — Observations submitted by the distribution which, in addition to Commission selection based on qualitative criteria, also includes selection based on quantitative criteria, cannot in any case The Commission first of all submits be authorized within the context of the observations on the admissibility of the Community system of competition unless questions referred to the Court for a the undertaking in question is unable preliminary ruling and on the question appreciably to affect trade between whether Article 9 (1) of Regulation No Member States and competition within 17 limits the right of national courts to the Community. refer to the Court of Justice questions for a preliminary ruling on the interpret- By granting such an exemption, the ation of Article 85 (3) which are similar Commission must take into account the grosso modo to the observations which it cumulative effect of the existence of a submitted in Joined Cases 253/78 and 1 large number of sales systems organized to 3/79. The Commission then describes, in an identical manner within a single as it did in its observations in Joined sector of the economy. Cases 253/78 and 1 to 3/79, the action which it took as regards distributorship agreements in the perfumery sector. The third question

LANCÔME v ETOS

JUDGMENT OF 10. 7. 1980 — CASE 99/79

The fact mentioned by the national court be considered under Community law in point 2.3. of the questions referred to to be an application of Article 85 (3). the Court of Justice for a preliminary Such a letter is not effective as ruling is irrelevant to the present case against third parties. and to the agreements concerned. As each agreement is appraised in relation to Article 85 on the basis of its own 2. It can be considered, by virtue of economic effects, it is impossible to Community law, that the agreements interpret the Commission's decisions as concerned in this case may not fall establishing any prejudice whatever within the prohibition laid down in against a category of agreements Article 85 (1) in spite of the facts determined by its legal nature. In mentioned by the national court addition, it is possible to call in question where, taking into account all the the accuracy of the statement made in economic and legal factors involved point 2.3. of the question referred to the in these agreements, and in Court for a preliminary ruling since it particular the relatively small market follows already from paragraph 20 of the share, it is necessary to conclude that decision in the judgment in the Metro these agreements do not have an case, [1977] ECR 1875, that certain appreciable effect on competition". selective distribution systems may not fall within the prohibition laid down in Article 85 (1) with regard to certain sectors and in certain circumstances. III — Oral p r o c e d u r e

The third question The plaintiffs in the main action, represented by W. Alexander, the defendants in the main action, In view of the preceding observations, represented by D.J. Gijlstra, and the the Commission considers that this Commission of the European Com- question is purposeless. munities, represented by J.-F. Ver- strynge, submitted oral argument at the sitting on 8 November 1979. In conclusion the Commission proposes that the following replies should be given to the questions submitted by the court The Advocate General delivered his making the reference: opinion at the sitting on 22 November 1979.

2. Written observations in reply to those questions were lodged by the parties to the main actions as well as the In the course of the 18 years which have British, Danish, French, Belgian, German passed the Commission, in a large and Netherlands Governments and the number of decisions, has settled its policy Commission. 2 in regard to many of the problems arising in the law of cartels. With many agreements it has thus become possible to predict whether such an agreement Question 1 will ever be allowed by the Commission and whether it is likely to be granted an exemption. Moreover, the decisions According to the defendants in the main which have been taken and the block action, the protection enjoyed by "old exemptions have greatly reduced the agreements" which were duly notified or problem of the number of agreements exempted from notification does not involved. prevent the application to such agreements of provisions of the national law of a Member State which may, in certain respects, be more rigorous than Is is accordingly opportune to reconsider Community law, provided that the the theory of "provisional validity". By application of that national law does not examining old agreements in the light of adversely affect the application of the policy developed by the Commission Community law and is confined to the during the past 18 years, a national court field of action proper to national law on may determine in any case whether an cartels. exemption under Article 85 (3) of the Treaty is possible. Likewise, should doubts be entertained in such cases there Question 2 is nothing to prevent the national court from staying the proceedings before it and calling for a decision from the According to the defendants in the main Commission or submitting a question to action, it was undoubtedly appropriate to the Court on the interpretation of Article protect agreements existing since before 85 (3). the introduction of the Community system during the first few years after the adoption of Regulation No 17 when it was still uncertain in which direction The different status of "old" and "new" agreements leads to discrimination in the perfume sector. Some "old" under- 1 — The text of the order is reproduced in the judgment of takings take advantage of the provisional the Court in Joined Cases 253/78 and 1 to 3/79. validity of their sales organization and 2 — The observations submitted by those Member States and the Commission are summarized in the judgment may apply a selective distribution system of the Court in Joined Cases 253/78 and 1 to 3/79. whereas new undertakings which have The observations submitted by the plaintiffs in the main action in the present case correspond to those new agreements do not enjoy the submitted by the defendants in the main actions in the protection and may not apply a selective above-mentioned joined cases and are summarized in the judgment of the Court in Joined Cases 253/78 and distribution system until an exemption is 1 to 3/79. granted.

Decision

1 By order of 19 June 1979, which was received at the Registry of the Court on 21 June 1979, the Arrondissementsrechtbank, Haarlem, submitted to the Court of Justice for a preliminary ruling under Article 177 of the Treaty questions on the interpretation of Article 85 and certain provisions of Regu- lation No 17 of the Council of 6 February 1962 (Official Journal, English Special Edition 1959-1962, p. 87).

2 Those questions are put in the context of a dispute between Lancôme and its subsidiary in the Netherlands, Cosparfrance Nederland, the plaintiffs in the main action, and two companies, Etos and Albert Heyn Supermart, the defendants in the main action, which operate a chain of retail shops in the

LANCÕME v ETOS

Netherlands. The plaintiffs brought proceedings against the latter before the Arrondissementsrechtbank, Haarlem, asking that court to order the defendants to cease selling Lancôme products in their shops which are not authorized to sell those products. The plaintiffs in the main action, who maintain that the defendants are guilty of an act of unfair competition by undermining their selective distribution system, in particular by provoking breaches of contract by authorized stockists, also claim compensation for the damage suffered by reason of that conduct.

3 The selective distribution system set up by Lancôme is based in particular on exclusive distributorship agreements concluded with the general agents which it appointed in the various Member States and also on sales agreements concluded with retailers in France. The standard-form contract concluded with the general agents was notified to the Commission on 30 January 1963. The contracts concluded between the general agents or Lancôme's sub- sidiaries and the various authorized retailers were subsequently notified to the Commission.

5 The Arrondissementsrechtbank decided to stay the proceedings before it and to address to the Court of Justice a request for a preliminary ruling worded as follows:

"Whereas

In a situation in which, on the one hand :

(i) an undertaking applies a selective distribution system for marketing its perfumes, beauty products and toilet preparations in the EEC;

(ii) the agreements on which the selective distribution system is based were already in existence at the time of the entry into force of Regulation No 17 of the EEC and were notified to the Commission within the prescribed period by means of Form B pursuant to Article 5 (1) of Regu- lation No 17;

(iii) changes were made to those agreements as described by the Commission in its Fourth Report on Competition Policy, No 94;

1. "What is the nature of the letter referred to under (iv) from the Director- General for Competition in particular from the following aspects:

1.1. Does it constitute a declaration that the Commission is of the opinion that Article 85 (1) of the EEC Treaty is not applicable to agreements to which the changes referred to under (iii) have been made?

1.2. Does it constitute application of Article 85 (3) of the EEC Treaty?

1.3. Is it effective as against third parties?

1.4. Does it put an end to the provisional validity of old agreements which were notified in good time?

2. Is it possible that the agreements, to which the changes referred to under (iii) have been made, do not fall under the prohibition of Article 85 (1) of the EEC Treaty because of the relatively small share of the market held by the undertaking referred to under (i), in spite of the fact that:

(b) In practice the products in question are offered for sale within the common market by wholesalers and retailers who have not been selected by the undertaking concerned?"

T h e first q u e s t i o n

6 In the first question the Court is asked, first, to specify the legal nature of letters such as that which was sent to Lancôme by the Directorate-General for Competition and to state the effects which such letters produce as regards third parties. Secondly, it is asked whether such a letter puts an end to the "provisional validity" of old agreements which were notified in good time.

The legal nature of the letters in question

7 Article 87 (1) of the Treaty authorized the Council to adopt any appropriate regulations or directives to give effect to the principles set out in Articles 85 and 86. In accordance with that authorization the Council has adopted regu- lations, in particular Regulation N o 4 7 of 6 February 1962 (Official Journal, English Special Edition 1959-1962, p. 87), which gave the Commission power to adopt various categories of regulation, decision and re- commendation.

10 It is plain that a letter such as that which was sent to Lancôme by the Direc- torate-General for Competition, which was despatched without publication as laid down in Article 19 (3) of Regulation No 17 and which was not published pursuant to Article 21 (1) of the regulation, constitutes neither a decision granting negative clearance nor a decision in application of Article 85 (3) within the meaning of Articles 2 and 6 of Regulation No 17. As is stressed by the Comission itself, it is merely an administrative letter informing the undertaking concerned of the Commission's opinion that there is no need for it to take action in respect of the contract in question under the provisions of Article 85 (1) of the Treaty and that the file on the case may therefore be closed.

1 1 Such a letter, which is based only upon the facts in the Commission's possession, and which reflects the Commission's assessment and brings to an end the procedure of examination by the department of the Commission responsible for this, does not have the effect of preventing national courts before which the agreements in question are alleged to be incompatible with Article 85 from reaching a different finding as regards the agreements concerned on the basis of the information available to them. Whilst it does not bind the national courts, the opinion transmitted in such letters 'nevertheless constitutes a factor which the national courts may take into account in examining whether the agreements or conduct in question are in accordance with the provisions of Article 85.

15 As the Court has observed in particular in its judgment of 9 July 1969 in Case 10/69 Portelange v Smith Corona Marchant International [1969] ECR 309, Article 85 of the Treaty is arranged in the form of a rule imposing a prohibition (paragraph (1)) with a statement of its effects (paragraph (2)) mitigated by the exercise of a power to grant exceptions to that rule (paragraph (3)). To treat a given agreement, or certain of its clauses, as auto- matically void presupposes that that agreement falls within the prohibition of paragraph (1) of the said article and that it may not benefit from the provisions of paragraph (3).

16 The exclusive power to apply Article 85 (3) which is conferred on the Commission by Article 9 (1) of Regulation No 17, considered in conjunction with the provisions laid down in favour of old agreements by Article 6 (2) and 7 of that regulation, has led the Court to conclude that, in the case of those old agreements, the principle of legal certainty in contractual, matters requires that, where the agreement has been notified in accordance with the provisions of Regulation No 17, a court may only declare it to be auto- matically void after the Commission has taken a decision by virtue of that regulation.

LANCÔME v ETOS

The second question

19 The second question put by the national court seeks to determine whether the agreements upon which a selective distribution system is based may escape the prohibition laid down in Article 85 (1) of the Treaty because of the relatively small market share held by the undertaking in question. In that regard the court making the reference draws attention to the fact that the competitors of the undertaking concerned also apply a system of selective distribution. That court also makes mention of its opinion that until now selective distribution appeared to be possible only pursuant to an exemption under Article 85 (3).

JUDGMENT OF 10. 7. 1980 — CASE 99/79

20 As the Court observed in its judgment of 25 October 1977 in Case 26/76, Metro v Commission [1977] ECR 1875, selective distribution systems constitute an aspect of competition which accords with Article 85 (1) provided that re-sellers are chosen on the basis of objective criteria of a qualitative nature relating to the technical qualifications of the re-seller and his staff and the suitability of his trading premises and that such conditions are laid down uniformly for all potential re-sellers and are not applied in a discriminatory fashion.

21 It follows that, in principle, a selective distribution network admission to which is made subject to conditions going beyond simple, objective qualitative selection falls within the prohibition laid down in Article 85 (1) especially when it is based on quantitative selection criteria.

22 However, as the Court observed in its judgment of 30 June 1966 in Case 56/65 Société Technique Minière v Maschinenbau Ulm GmbH [1966] ECR 235, in order to be prohibited as being incompatible with the common market under Article 85 (1) of the Treaty an agreement between under- takings must fulfil certain conditions depending less on the legal nature of the agreement than on its effects on "trade between Member States" and its effects on competition.

26 The answer to the second question should accordingly be that agreements on which a selective distribution system is based which relies on tests for admission which go beyond simple objective qualitative selection possess all the constituents making them incompatible with Article 85 (1) when those agreements, either individually or with others, in the economic and legal circumstances in which they are made and on the basis of a number of objective elements of law or of fact, may affect trade between Member States and have as their object or effect the prevention, restriction or distortion of competition.

The third question

27 Having regard to the answer given to the first question, the third question put by the court making the reference is purposeless.

Costs

28 The costs incurred by the Belgian Government, the Danish Government, the Netherlands Government, the French Government, the Government of the Federal Republic of Germany, the Government of the United Kingdom and the Commission of the European Communities, which have submitted obser- vations to the Court, are not recoverable. As these proceedings are, in so far as the parties to the main action are concerned, in the nature of a step in the action pending before the national court, the decision on costs is a matter for that court.

JUDGMENT OF 10. 7. 1980 — CASE 99/79

Mackenzie Stuart Bosco Koopmans Due

Delivered in open court in Luxembourg on 10 July 1980.

A. Van Houtte H. Kutscher Registrar President