C-210/81

JUDGMENT OF 11. 10. 1983 — CASE 210/81

selective distribution system a request company's application of its selective for the establishment of an infringe­ distribution system is capable of ment, the Commission must examine distorting competition within the the facts put forward by the trader common market and of affecting in order to decide whether the trade between Member States.

In Case 210 / 81

OSWALD SCHMIDT , trading as DEMO-STUDIO SCHMIDT , 42 Platter Straße , D-6200 Wiesbaden , Federal Republic of Germany , represented by Wolfgang Bache , Rechtsanwalt and Notary , IIa Steubenstraße , D-6200 Wiesbaden , with an address for service in Luxembourg at the Chambers of Joseph Guill, Avocat-Avoué , 23 Rue Seimetz , applicant ,

v

COMMISSION OF THE EUROPEAN COMMUNITIES , represented by its Legal Adviser, Norbert Koch , assisted by Barbara Rapp-Jung , Rechtsanwältin , 43 Hochstraße , Frankfurt am Main , Federal Republic of Germany , with an address for service in Luxembourg in the office of Oreste Montako , a member of the Commission's Legal Department , Jean Monnet Building, Kirchberg , defendant ,

composed of: J. Mertens de Wilmars, President, T. Koopmans, K. Bahlmann and Y. Galmot (Presidents of Chambers), P. Pescatore, Lord Mackenzie Stuart, A. O'Keeffe, G. Bosco, O. Due, U. Everling and C. Kakouris, Judges,

Advocate General: S. Rozès Registrar: P. Heim

gives the following

JUDGMENT

Facts and Issues

The facts of the case, the course of employee, a business in the leisure the procedure and the conclusions, electronics sector. submissions and arguments of the parties may be summarized as follows: For that purpose, by letter of 20 April 1975 Mr Schmidt submitted his plan to the parent company, Revox Inter­ national, whose registered office is at I — Facts and written procedure Regensdorf bei Zürich, Swiss Con­ federation, stating the reasons for his wish žo open a distribution centre 1. The applicant's intended business ("Studio-Revox") for products bearing activity and the product in question the Revox trade mark in Wiesbaden.

Germany. Most of the products are 2. The applicant's business activity: his distributed by means of a selective distri­ relations with Revox bution system whereby certain dealers in Revox products are chosen on the basis of objective qualitative criteria, such as As from that date, Revox equipment quality of presentation and accessibility which was not subject to the selective of the business premises or sales depart­ distribution conditions was delivered by ment during normal opening hours, the Revox against advance payment. skills of the sales staff, the ability to advise customers, the ability to take delivery from the factory of the equipment intended for sale, and instal­ However, it soon became apparent to lation of the equipment sold at the Mr Schmidt that he could cover his premises of the purchasers and, finally, business expenses only by selling the so- technical skills for the provision of after- called second generation Revox products sales services. (the "B Series", which was subject to the selective distribution conditions) when they became available. On the other hand, the conditions for approval as a specialist retailer impose no obligation on the retailer to deal On 15 November 1976, Mr Schmidt exclusively in products of the brand in added to his sales range Sony television question. On the contrary, it is apparent sets and on 15 April 1977 Backes und from the file that the distribution policy Müller active loudspeakers. adopted by Revox is intended, in order to give customers a wider choice, to ensure that Revox products are presented During the first half of 1977, Revox together with those of other brands. notified its distributors of its intention to amend its sales conditions with a view to the introduction on 20 August 1977 of By letter of 7 October 1975, the Revox the new " EEC Dealership Agreement" sales department informed Oswald which would thenceforth govern sales of Schmidt of the conditions applicable to Revox products subject to the selective the sale and advertising of Revox distribution conditions, including the products and to the opening of a second generation products known as specialist retail business dealing in them. the "B Series". Subsequently, the dealer­ Since Mr Schmidt was unable to furnish ship agreement was amended by the sufficient security to enable him to introduction of a second version which obtain credit insurance, the sales entered into force on 10 February 1978. conditions offered to him included a clause requiring advance payment for orders placed. After various discussions with Revox's commercial department, Mr Schmidt was informed at a meeting with a repre­ On that basis, Mr Schmidt leased sentative of that company on 19 premises of some 15 square metres in September 1977 that he would not be Wiesbaden and on 20 October 1975 allowd to become a party to the EEC opened a shop under the name " Demo- Dealership Agreement and consequently Studio Schmidt" which was open to the it would be impossible for him to public on Saturday morning and from 4 distribute the B Series products. As is to 6 p.m. on other days. apparent from a letter from Revox to Mr

3. Procedure By letter of 12 October 1980, Mr Schmidt stated that he adhered to his complaint, stating that he did not dispute Following Revox's refusal to allow Mr "either the legality or the propriety" of Schmidt to become one of its specialist the Revox EEC Dealership Agreement distributors, Mr Schmidt pursued the but that, on the contrary, he wished to matter with Revox both by appealing be made a party to it. directly to it and by means of legal proceedings against it (approaches to the By a letter of 11 May 1981 stating the Landesverband des Hessischen Einzel­ reasons on which it was based the handels [Hesse Retail Traders' Associ­ Commission notified Mr Schmidt of its ation], to the Hessischer Minister für definitive decision rejecting his complaint Wirtschaft und Technik [Hesse Minister against Revox. The Commission pointed for Economic Affairs and Technology] out in particular that there was nothing and the Bundeskartellamt [Federal Cartel to indicate that, by refusing to supply Mr Office], and actions before the Ober­ Schmidt, Revox had abused a dominant landesgericht [Higher Regional Court] position within the meaning of Article 86 Frankfurt am Main and before the of the EEC Treaty or that the distri­ Hessischer Verwaltungsgerichtshof [Hesse bution system used by Revox was Higher Administrative Court]. In none contrary to Article 85 (1) of the Treaty.

JUDGMENT OF 11. 10. 1983 — CASE 210/81

II — Conclusions of the parties According to the Commission, it is apparent from the terms of the application that the applicant seeks, on Oswald Schmidt, the applicant, claims the basis of the second paragraph of that the Court should : Article 173 of the EEC Treaty, a 1. Declare that the notice ("Bescheid") declaration that the "communication" of 11 May 1981 (Reference No SG ("Bescheid") from the Commission (81) D/6536) from the Commission rejecting his complaint is void and seeks of the European Communities concer­ in addition an order to the Commission ning Case IV/29495 is void; to reconsider his complaint.

2. Order the Commission of the According to the Commission, the European Communities to adopt a primary purpose of the application,

DEMO-STUDIO SCHMIDT v COMMISSION

EEC Treaty. However, the Commission comply with the judgment. However, the considers the application unfounded in Commission has a discretion in that that respect. regard and specific measures may not be imposed upon it. At the most, the person However, the Commission states that it concerned would be entitled to bring an leaves it to the Court to assess to what action against the Commission for its extent the applicant really has an interest failure to act or for a declaration that a in taking legal proceedings, in view of measure was void if he considered that the fact he is not the victim of discrimi the Commission had not fully complied nation arising from the application of with the judgment.

proceedings. 2. Oswald Schmidt, the applicant, considers his application to be ad As regards the second purpose of the missible. application — namely to compel the Commission to reconsider the applicant's He states in his reply that the purpose of complaint — the Commission considers his action is to have the "communi it inadmissible. It is clear from well- cation" ("Bescheid") of the Commission established case-law of the Court that a declared void so that the Commission judgment upholding an application for a will be obliged as a matter of substantive declaration that a measure is void may law, as a result of the legal hiatus created result in the nullity of the measure but by the Court's judgment declaring the the Court cannot prescribe the measures measure void, to give a fresh decision on to be adopted by the institution from his complaint against Revox. which the annulled measure emanated for the implementation of its judgment This claim is in every respect in (judgment of 20 March 1957 in Case conformity with the spirit and letter of 2/56 Mining undertakings of the Ruhr Article 173 of the Treaty whose purpose Basin [1957 and 1958] ECR 3 ; judgment is to give all citizens of the Communities of 23 February 1961 in Case 30/59 De full legal protection against all decisions,

B — Whether the application is well founded (b) Moreover, he is in a position to satisfy the requirements as to skill in 1. Oswald Schmidt considers his action advising customers and in checking, to be well founded. presentation and installation of Revox Since in the applicant's opinion Revox's equipment and also after-sales service. commercial conduct is contrary to Article 85 (1) and possibly to Article 86 In that connection, the applicant claims of the Treaty, the Commission is, in view in the first place that in its letter of 13 of the formal complaint, under a legal October 1977 (Revox's reply to a protest obligation, by virtue of Article 3 of from Mr Schmidt regarding the refusal Regulation No 17, to undertake an to approve him), Revox did not dispute inquiry and to bring to an end the Mr Schmidt's technical qualifications but infringement complained of. only his opening hours. In the second place, he states that by contract of 15 A — The applicant considers that he November 1976 Sony approved him as a satisfied all the conditions laid down by specialist retailer, without raising any Revox for approval as a specialist objection regarding either his shop hours retailer, as promised orally by the latter's or his technical qualifications. That representatives. approval is an undeniable basis of proof In support of that statement, the in so far as the selection criteria and the applicant makes the following claims, technical requirements of Sony are very

DEMO-STUDIO SCHMIDT v COMMISSION

For those reasons, the applicant considers that, as he satisfies all the The applicant criticized the Commission objective conditions for approval as a for taking account, in its examination of specialist retailer, he has been the victim his complaint, of the factual circum­ of discriminatory conduct on the part of stances at the time of the complaint Revox, which has thus infringed the rather than those obtaining during the provisions of the Treaty regarding negotiations between him and Revox. competition.

salesman following Revox's refusal to Moreover, even if there were an make him a party to its EEC Dealership infringement of Article 85 (1), the Agreement. Commission could not intervene to compel an undertaking to supply or The applicant considers that the Com­ approve a retailer. mission, in dismissing his complaint, Finally, the Commission considers that placed considerable reliance on this action to bring to an end an infringe­ point. As a result the Commission's ment committed in the past does not fall decision, being based on an erroneous within its powers. assessment of the facts of the case and an incorrect statement of the reasons on It follows, according to the Commission, which it was based, must be declared that the application is devoid of purpose. void in so far as it reflects an infringement by the Commission of the (a) According to the Commission , the selective distribution system applied — EEC Treaty and of the implementing and notified to the Commission — by rules thereunder, and also a misuse of Revox does not constitute an infringe­ powers. ment of Article 85 (1) of the Treaty. Finally, the applicant points out that In fact, it is apparent from the judgment he still satisfies the objective criteria of the Court in Case 26/76 ([1977] ECR imposed by Revox — with the exception 1875) that selective distribution agree­ of opening hours, although in that ments do not constitute an infringement connection he is still willing to take on of the provisions governing competition specialist staff as soon as he obtains an in the Community if the qualitative assurance that he will be approved — criteria adopted for the choice of and that, in those circumstances, the resellers are objective, are laid down refusal to approve him constitutes uniformly with regard to potential discrimination which the Commission retailers and are not applied in a discrimi­ must bring to an end "even in cases natory fashion. In the Commission's other than those where undertakings opinion, that is the position in this case; occupy a dominant position on the Article 85 (1) is not therefore applicable market within the meaning of Article 86 to the case before the Court. of the EEC Treaty". Moreover, the Commission observes that the version of the Revox distribution 2. The Commission of the European agreement produced by the applicant Communities considers that the ap­ does not correspond to the text which has been applicable since 10 February plicant's claims should be rejected, 1978 and cannot therefore be considered contending that his application is by the Commission, since it has no unfounded. The Commission states as power to bring to an end any past follows : infringements.

and that he does not deny that his shop The Commission also refutes two is not open at the normal times. The arguments put forward by the applicant Commission considers however that in an attempt to demonstrate that fulfilment of the criterion regarding Revox's application of the criteria for opening hours is an integral part of the approval of its specialist retailers is very concept of a selective distribution discriminatory. The Commission states, system in so far as it relates to the in the first place, that the fact that the requirements of technical qualifications applicant was approved by Sony does not and quality of presentation which are in itself imply that Revox must also essential for providing customers with approve him.

The "dismiss" his salesman. The Commission Commission concludes from this that the emphasizes in that regard that the retailer must have obtained Revox question is not whether or not the products clandestinely and states that this applicant is prepared to engage a misuse of the selective distribution salesman but one of determining whether system cannot be attributed to the manu that question was resolved when the facturer and cannot justify a request for Commission issued the contested com approval by a retailer who does not munication. In any event, it states that satisfy the prescribed criteria.

JUDGMENT OF 11. 10. 1983 — CASE 210/81

In the second laid down by the manufacturer which a place, the Commission emphasizes that, reseller must meet in order to guarantee in its opinion, any infringement of the good reputation of the product and Article 85(1) deriving from such discrimi the quality of the sales service which the nation lies not in the discrimination reseller proposes to provide in the manu against the non-approved retailer but in facturer's name. the obligation imposed by the manu facturer on approved retailers to comply with the contract binding them to the manufacturer by not supplying a retailer The Commission concludes therefore who in fact fulfils all the conditions for that in the absence of any infringement approval. On the one hand the fact of of Article 85 (1) of the EEC Treaty by not approving a reseller does not restrict Revox, intervention by the Commission his competitive capacity.

It concludes that subject either to a legal obligation to even in such an event the action cannot approve a reseller or, having approved be successful because, in view of 'the very him, to a legal obligation not to treat nature of the alleged infringement, the him in a discriminatory manner. sanction could not have the effect of However, the Commission considers that requiring Revox to supply the applicant. if, in the latter case, the manufacturer discriminates between approved resellers he must admit that his contracts are

are merged. Nevertheless, the legal nation leads to a restriction of distinction is important for any analysis competition. The Commission considers of the nature of the obligations imposed that a refusal to supply an approved by Article 85(1). reseller does not in itself constitute a

restriction of competition: in fact an distribution system set up by Revox. approved reseller can always approach However, according to the Commission, another approved reseller in order to the applicant is not claiming the abolition obtain supplies of products sold by the of that system but, on the contrary, its manufacturer. It is therefore the refusal continuance and his right to participate to grant approval — if it is proved that it in it. derives from discriminatory application of the criteria for approval - which may constitute an infringement of Article 85 (1). Nevertheless, in the Commission's view, the infringement does not consist in the refusal to approve the retailer — In any event, the Commission reaffirms who, although not approved, retains his that there is no legal obligation under freedom of action — but in the fact that Article 85 (1) for a manufacturer to the other approved resellers have been approve a reseller even if the latter placed under an obligation not to supply satisfies its selection criteria. The same the retailer discriminated against. applies, according to the Commission, in cases where the selective distribution system is incompletely applied. As has been stated above, failure to approve a In fact, the Commission considers that seller who satisfies the conditions may, the prohibition contained in Article in certain circumstances, constitute an 85 (1) is intended to guarantee the infringement of Article 85 (1), giving rise freedom of action of undertakings to an order that the distribution system against restrictions resulting from be discontinued but not to an obligation coordination of their conduct, whether to approve the seller discriminated by contract or otherwise. It is therefore against. Likewise, in the event of the necessary, if Article 85 (1) is to be distribution system's being "incompletely applicable, for an agreement restricting applied", that is to say if certain resellers competition to have been entered into or infringe their obligations by supplying implemented. In the Commission's view, other resellers who are not approved, the that condition is not satisfied in the case other approved resellers are entitled to of discrimination against a retailer whom regard themselves as released from their the manufacturer refuses to approve, commitments to the manufacturer who whilst it is satisfied in the event of a tolerates such infringements. Such a manufacturer's compelling approved sequence of events, in the Commission's resellers to comply with the conditions of view, leads to the collapse of the distri­ the contract granting them approval so bution system but not to the approval of as to deny the non-approved retailer, a reseller from whom the manufacturer against whom the discrimination is has withheld approval. directed, access to the manufacturer's products.

opinion of the applicant himself, Revox objective qualitative selection criteria for cannot be accused of such conduct and a specialist Revox dealer and, on the consequently Article 86 is not applicable other hand, that its selective distribution in this case. system, as defined in the EEC Dealership Agreement, infringes neither Article 85 For that reason the Commission (1) nor Article 86 of the Treaty, and concludes that the problem raised by the finally that it considers the action applicant — namely whether resellers unfounded. bound by an agreement may, in reliance upon a selective distribution agreement, A — Revox states that the applicant is claim that the manufacturer must apply incapable of satisfying the conditions for the criteria for specialist shops in approval as a specialist Revox reseller. accordance with the provisions of the agreement and consequently approve a trader who meets those criteria — is a (a) Revox states that the smallness of problem falling exclusively within the the premises and the restricted and purview of civil law and a solution to it disparate nature of the of the equipment may be sought only before the national offered for sale by Mr Schmidt prevent courts. him from satisfying the conditions regarding presentation and promotion of Revox equipment. In that regard, Revox (c) Finally, the Commission emphasizes states that, since customers wish to be that it is under no duty to intervene in able to compare the products available order to bring to an end past on the market when making a purchase, infringements. it was necessary for the applicant to display for sale a representative selection It observes that even if it were admitted of electronic leisure products and the that Revox had been guilty of an conditions under which they are infringement of Article 85 (1) by refusing presented must be good.

salesman. Since in any event the alleged Revox takes the opportunity to infringement has ceased, the Commission emphasize that it has always refused to can only note it and possibly impose a allow its equipment to be distributed in penalty, perhaps in the form of a fine, premises where competing products are but it cannot, by definition, bring it to an not marketed. In order to allow their end. customers a choice, both Revox and its parent company Revox International For those reasons, the Commission have always followed a policy of not considers that the applicant's action must supplying resellers who wish to specialize fail on this point too. exclusively in Revox products.

DEMO-STUDIO SCHMIDT v COMMISSION

JUDGMENT OF 11. 10. 1983 — CASE 210/81

if by not approving a retailer who does In general terms and in conclusion, not satisfy the qualitative criteria of the Revox states that it does not wish Mr contract it refuses to infringe the terms Schmidt to set up, against his wishes, a thereof. retail business marketing its products in circumstances which do not satisfy the qualitative criteria which it has imposed upon itself to ensure the good reputation C — As regards the question whether of its products. the application is well founded, Revox supports the contentions of the Com­ mission and states that the Commission is right in its assertion that it has no IV — Oral procedure authority to require Revox to supply the applicant. At the sitting on 16 March 1983 oral argument was presented by the applicant, represented by Wolfgang Bache, Rechts­ It states that the applicant cannot anwalt, the Commission of the European demonstrate any right to be approved Communities, represented by Norbert and that, even if he were approved, he Koch, acting as Agent, assisted by could not insist on being supplied by Barbara Rapp-Jung, Rechtsanwältin, and Revox directly, if only because of his Willi Studer Revox GmbH , intervening, insufficient credit cover. In such circum­ represented by Peter Schon, Rechts­ stances, it would be for Mr Schmidt, if anwalt. he were approved, to seek a trader among the other approved resellers who The Advocate General delivered her was prepared to resell equipment to him opinion at the sitting on 28 June 1983. on the basis of a private contract.

3 The applicant, who is employed as a design engineer in an engineering factory, decided during 1975 to set up, in addition to his employment, a business in the leisure electronics sector. For that purpose he notified Revox of his plan and opened a shop in Wiesbaden under the name "Demo-Studio Schmidt", which was open to the public on Saturday morning and on the other working days from 4 to 6 p.m. He was then supplied with Revox equipment which was not subject to selective distribution conditions. However, it soon became apparent to Mr Schmidt that he could not cover his business expenses except by selling B Series Revox products, which were subject to selective distribution conditions.

4 After numerous negotiations with Revox, the applicant was informed by Revox on 19 September 1977 that he would not be allowed to accede to the EEC Dealership Agreement and consequently he would be unable to deal in B Series products; that decision was confirmed to him, on the last occasion, by letter of 27 December 1979. The reason for the refusals was stated to be the fact that Demo-Studio Schmidt did not satisfy the qualitative criteria imposed by Revox on its distributors, in particular the condition that the sales premises must be open during normal business hours.

5 In those circumstances the applicant lodged the aforementioned complaint with the Commission on 7 June 1980, expressly requesting that Revox should be compelled to supply him with B Series products.

JUDGMENT OF 11. 1O. 1983 — CASE 210/81

6 By letter of 18 September 1980, the Commission, acting in accordance with Article 6 of Regulation No 99/63 of the Commission of 25 July 1963 (Official Journal, English Special Edition 1963-1964, p. 47), notified the applicant of its intention, at that stage of its inquiries, not to follow up his complaint and asked him to submit his comments on that assessment of the situation within a period of one month.

DEMO-STUDIO SCHMIDT v COMMISSION

(2) Those entitled to make application are:

(b) natural or legal persons who claim a legitimate interest".

11 Although the formal complaint lodged by the applicant on 7 June 1980 sought an order that Revox should supply him immediately, it must be interpreted — as indeed it was interpreted by the Commission during the phase prior to these proceedings and as is apparent from an analysis of the pleadings submitted to the Court — as a request for the Commission to establish an infringement of the provisions of Articles 85 and 86 of the Treaty, in accordance with Article 3 (1) and (2) (b) of Regulation No 17 and, by decision, to require Revox to bring the infringement to an end.

12 The Commission does not dispute the fact that its decision on the applicant's complaint does constitute a measure which the Court may be called upon to declare void, since a "notice" or "communication" of that kind is definitive.

13 However, the Commission states that it leaves it to the Court to assess to what extent the applicant really has an interest in taking legal proceedings, regard being had in particular to the fact that, in the Commission's opinion, the powers vested in it by Article 85 do not include the power to compel a company to approve a dealer as a specialized distributor or to supply him with products.

is In reply, the Commission states in the first place that Revox has not applied its selective distribution system in a discriminatory manner to the detriment of Mr Schmidt since, in particular, Mr Schmidt has never satisfied the essential condition regarding opening hours. In this case therefore there is no infringement of Article 85 (1) for which it could have imposed a penalty. Moreover, the Commission emphasizes that only if Revox abused a dominant position within the meaning of Article 86 of the Treaty would it have the power to take decisions compelling Revox to accord equal treatment to traders in the market in question. It points out, however, that Revox cannot be stated to have committed any infringement of Article 86 of the Treaty.

DEMO-STUDIO SCHMIDT v COMMISSION

19 As regards the alleged infringement of the competition rules of the Treaty, the Court considers that the Commission, having received the applicant's complaint, was under a duty to examine the facts put forward by the applicant in order to decide whether Revox's application of its selective distribution system was capable of distorting competition within the common market and of affecting trade between Member States.

22 It follows from the foregoing that Mr Schmidt's complaint contains no factor capable of supporting the view that the application to the applicant by Revox

JUDGMENT OF 11. 10. 1983 — CASE 210/81

of the rules of its distribution system infringes the competition rules of the Community or that the Commission has failed in the duty of vigilance imposed upon it by the Treaty and by Regulation No 17. The action must therefore be dismissed.

Costs

23 Pursuant to Article 69 (2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been asked for in the successful party's pleading. Since the applicant has failed in his submissions, he must be ordered to pay the costs, including those of the party intervening in support of the defendant.

On those grounds

Bosco Due Everling Kakouris

Delivered in open court in Luxembourg on 11 October 1983.

P. Heim J. Mertens de Wilmars Registrar President