C-376/92

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OPINION OF MR TESAURO — CASE C-376/92

While Metro is not part of the official sales 5. Cartier's refusal to guarantee the watches network, it has managed to obtain Cartier sold by Metro gave rise to a lengthy and products (especially watches) on a regular complex dispute before the national courts, basis and to market them in its own stores. which is summarized in the Report for the Hearing. In particular, the Bundesgerichtshof — called upon to adjudicate for the second time on the appeal lodged against the deci­ sion of the lower court —· emphasized that the refusal to honour the guarantee would 4. In the national proceedings, it has not cease to be lawful if it were part of a selective been established where Metro obtains its distribution system that was not impervious, supplies. At the hearing, in reply to a ques­ in other words under a system in which tion from me, Metro stated that it obtained dealers outside the network — such as Metro Cartier watches in Switzerland, from inde­ — can lawfully obtain supplies of the prod­ pendent dealers who in turn obtain their uct covered by the contract. The supplies from authorized Swiss licensees Bundesgerichtshof accordingly referred the within the Cartier network, which is permit­ case back to the lower court, the ted by Swiss law. Oberlandesgericht Düsseldorf, in order to enable the latter to establish the facts.

In any event, it is common ground (both in the national proceedings and in the proceed­ ings before the Court) that the purchase and 6. In the light of those findings, the marketing of Cartier products by Metro is Oberlandesgericht Düsseldorf referred the lawful. In addition, it is apparent from the following question to the Court for a pre­ figures produced before the Court that sales liminary ruling: of Cartier products by Metro, especially in Germany, are by no means negligible (approximately 10% of the total volume of Cartier sales in one year).

Subject-matter of the proceedings answer, though one that is far from complete and is of limited use for the purpose of resolving the dispute before it. To do so, moreover, would be particularly unjustified 7. There is some difficulty in defining the in that the parties' arguments have focused, subject-matter of the proceedings. Strictly both in the written procedure and at the speaking, the Oberlandesgericht seeks a rul­ hearing, primarily on the question of the ing from the Court solely on the relevance of guarantee, thereby enabling the Court to the criterion of imperviousness for the pur­ glean all the information it needs to make an poses of the application of Article 85(1). It assessment in that regard. Accordingly, rea­ must be emphasized, however, that the sons of procedural economy also lend weight Oberlandesgericht is asking that question in to the view that the Court should examine ex order to be able to adjudicate on the real professo the question of the guarantee in the question which forms the subject-matter of context of these proceedings. the dispute in the main proceedings, that is to say whether Carder's refusal to honour the guarantee in respect of products sold outside the network is lawful. The national I therefore consider that, in this case, in view court considers that if the Cartier system is of the subject-matter of the dispute in the unlawful, in that it is not impervious, then main proceedings and in order to provide the by the same token the refusal to honour the national court with a ruling on the interpre­ guarantee is also unlawful. tation of Community law enabling it resolve the question of law before it, it is necessary to consider — as practically all the parties have done in the course of the proceedings It is quite clear, however, that the question of the guarantee can be considered on its own, — whether the restriction of the guarantee can constitute of itself a breach of Article and not only by reference to the legality of 85(1). the distribution system of which it forms part. In other words, it is legitimate to ask whether the refusal to honour the guarantee can constitute of itself, irrespective of the 8. In its pleadings, Metro maintains not only legality of the Cartier system, a breach of that Carder's distribution system is not Article 85(1). Those two approaches are impervious and that the refusal to honour closely connected, as confirmed moreover, the guarantee is unlawful, but it also raises a by the fact that (with the sole exception of series of further objections to the selective the Greek Government) all the parties which distribution agreements concluded between have submitted observations have considered Cartier and its licensees. In its view, the both aspects in depth. Carder system is in breach of Article 85(1) on four grounds:

— the criteria for selecting licensees are not justified and are therefore excessively restrictive; 11. Metro claims that the Cartier system is anything but impervious. A large volume of Cartier products is marketed by independent dealers, that is to say dealers not belonging — the system lacks objectivity and leads to to the official network. The result is a distor­ selection on the basis of criteria which tion of competition between official dealers and independent dealers: both the former are not 'purely qualitative'. and the latter sell the same products on the same markets, although the former are sub­ ject to burdens (arising from the fact that their stock range and their dealings are 9. Does the Court have to consider those centred on the products covered by the con­ criticisms in substance? In my view, that tract) which are not borne by the latter. question is to be answered in the negative. The grounds outlined above are only indi­ rectly concerned with the subject-matter of the dispute in the main proceedings, as described earlier. Furthermore, it would seem that those grounds have never been assessed by the national courts at any stage 12. Cartier contends, on the other hand, that of the proceedings. Finally, they have not its distribution system is impervious both in really been discussed by the parties in the theory and in practice. The marketing of the procedure before the Court either: in the products is entrusted worldwide to a net­ written procedure, only Metro put forward work of selected dealers who are contractu­ observations in that regard while, at the hear­ ally bound to resell the products themselves ing, those grounds were essentially disre­ either to final consumers or to dealers form- garded. ing part of the official network. In the latter case, moreover, sales are subject to a special system of registration. Accordingly, the sys­ tem is organized in such a way as to ensure 10. In my view, therefore, those grounds are that the products are handled exclusively unconnected with these proceedings. That within the official network and not through solution, moreover, is clearly wholly without independent dealers. According to Cartier, prejudice to Metro's right to raise its objec­ the only instance of independent sales on the tions to Cartier's distribution system European market is the case of Metro, which whether before the national court, which is avails itself of the substantial resources at its competent to assess their substance in the disposal in order to obtain in non-member light of Article 85(1) and (2), or before the countries small quantities of Cartier prod­ Commission, in the form of a complaint ucts, which are on each occasion stocked in under Article 3 of Council Regulation the Metro group's various stores. It must be No 17/62. emphasized, however, that Cartier has

As pointed out earlier, moreover, Cartier, in the case which it is defending, has not con­ 15. As a matter of principle, the establish­ tended that the acquisition and marketing of ment of a selective distribution system is its products by Metro constitute unlawful undoubtedly justified in the case of products acts and, in particular, unfair competition. — such as Cartier watches — which fall within the category of high-quality luxury goods. In that sector, the channelling of dis­ tribution through selected dealers engaged in brand sales is an important requirement for the promotion of the image and commercial 13. Cartier — supported by the French and reputation of the product. Greek Governments and, with some reserva­ tions, by the Commission — goes on to assert that, in any event, the imperviousness of a selective distribution system is not a fundamental prerequisite for the legality of 16. Since the establishment of a selective dis­ the system itself. In fact, a degree of open­ tribution system for products such as Cartier ness — reflected in the existence on the mar­ watches is justified in principle, we must ket of one or more Member States of a given determine whether the lack of imperviousness volume of sales of products covered by the of the system itself is capable of invalidating contract by independent dealers — must be its legality. regarded as a factor which stimulates compe­ tition and therefore militates in favour of the compatibility, as opposed to the incompat­ ibility, of the system itself with Article 85(1). 17. In that regard, it must be pointed out first of all that imperviousness is a criterion of national law. It is clear from the docu­ ments before the Court that its significance under German law is twofold. In the first 14. In that regard, it must be pointed out place, in procedural terms, that criterion first of all that, as the Court has consistently serves to reverse the burden of proof in pro­ held, selective distribution systems are con­ ceedings for unfair competition brought by a sidered compatible with Article 85(1), pro­ producer who has established a selective dis­ vided that the selection of dealers is justified tribution system against third parties, being by requirements relating to the nature of the dealers outside the network, who have mar­ product in question and is made on the basis keted his products. In that situation, if the of objective criteria of a qualitative nature distribution system is impervious, the out­ relating to the technical qualifications of the sider is presumed to have acted unfairly, reseller and his staff and the suitability of his either by inducing an authorized licensee to trading premises; furthermore, those criteria commit a breach of contract or simply by

19. In that regard, it has been pointed out that neither the Commission nor the Court Secondly, in substantive terms, the criterion have ever considered imperviousness to be of imperviousness constitutes a condition for one of the conditions for the legality of a the effectiveness of such clauses of the selec­ selective distribution system. It is clear, how­ tive distribution contract as they impose on ever, that this observation is not decisive in the licensee certain obligations such as, spe­ itself. What matters, instead, is the consider­ cifically, the obligation not to sell the prod­ ation that the transposition of that criterion ucts covered by the contract at a price below within the framework of Article 85 of the the minimum price imposed by the manufac­ Treaty would not seem to be justified by any turer, or not to sell the products to dealers real requirement for safeguarding competi­ outside the network. If the system is not tion. impervious, and the authorized licensee is therefore faced with competition on the part of independent third parties, the licensee will be able to avoid compliance with those obli­ gations by relying, in relation to the pro­ ducer, on the unlawful exercise of the right, an objection which deprives the contractual 20. On that point, it is advisable in my view clauses relied upon by the producer of any to start from a factual premiss. As Cartier legal effects. Accordingly, the system, found has rightly emphasized, it is quite normal for not to be impervious, essentially loses any distribution systems not to be impervious to binding force in relation to the licensees. a greater or lesser extent. It is sufficient to bear in mind that such systems are in prac­ tice established gradually: initially, they may cover certain geographical areas and only subsequently be extended to other areas. That may occur, in particular, on the Euro­ Moreover, as I believe was made clear during pean market: in that market, a producer may the oral procedure, the criterion of impervi­ well succeed in setting up a selective distri­ ousness is not directly relevant under the bution network only in certain countries, German system either for the purposes of where his products are better known to and the application of national cartel law. more highly regarded by consumers and where, consequently, it is easier to find deal­ ers willing to assume the burdens and obliga­ tions of a selective distribution contract, while in other countries distribution is 18. In any event, whatever the relevance of effected through independent dealers, at least that criterion internally, the question to be for a time. In that situation, it is quite nor­ answered is whether at Community level the mal, provided the economic prerequisites are

satisfied, for independent dealers established element of rigidity in commercial relations, in countries with a selective distribution net preventing the parties from determining work to obtain supplies also from indepen freely, and in accordance with their own dent dealers established in countries in which judgment, the optimum distribution struc there is no selective sales network. ture. In so far as in some sectors •— such as that at issue — it is precisely the integrated distribution structure which is an important tool for the promotion of the products in Furthermore, in general, the practice of sales question, to prevent the producer from outside the network is more difficult to avoid resorting to selective distribution solely on in the case of products marketed through a the ground that a certain volume of sales large number of resellers. Thus, while the outside the network is unavoidable may possibility cannot be ruled out of controlling unduly deprive him of an important advan and ensuring the maintenance of a selective tage with regard to inter-brand competition. distribution system in the case of luxury products, which are usually distributed through a somewhat smaller network (although Metro's example would in fact seem to demonstrate the contrary), it is Secondly, a point not to be overlooked is surely more difficult to prevent gaps from that in those sectors of the economy in arising in the distribution structure for prod which all major producers have recourse for ucts that are widely sold, such as electronic marketing purposes to selective distribution products for enthusiasts or small electric systems, the possibility of sales outside the household appliances, in respect of which network may even be beneficial; that possi recourse is had as a rule to marketing on a bility acts as a safety valve, in so far as, with far larger scale. out calling in question the legality of the selective networks, it serves in any event to temper excessive rigidity, especially as regards prices, by maintaining a narrow

They are producer and his commercial partners would best placed to establish whether the volume be placed before a drastic choice in many of sales outside the network is such as to call cases entirely divorced from economic real in question the cohesion of the selective dis ity: either to establish everywhere a system tribution system. If so, it is in the interest of which is entirely impervious or abandon all concerned to review the marketing struc selective distribution altogether. In practice, ture and switch over from specialized distri that would be tantamount to introducing an bution to unrestricted distribution.

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OPINION OF MR TESAURO — CASE C-376/92

doing, the parties can obviously terminate 23. I therefore propose that the Court the selective distribution contract by mutual answer the question by stating that, under a agreement and, in the event of a conflict of selective distribution system, the mere fact interests, avail themselves of the other rem­ that the products covered by the contract are edies available to them under national con­ lawfully brought on to the same markets not tract law. only by the official licensees but also by dealers not forming part of the selective dis­ tribution network is not such as to render the system itself incompatible with Article 85(1) of the Treaty.

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METRO SB-GROßMARKTE v CARTIER

network assumes under the selective distri­ substance of being 'excluded' from the mar­ bution contract. In addition, only products ket, with the result that the exclusive right sold through the official network undergo already conferred by the producer on his lic­ the checks necessary to guarantee their ensee, which is merely relative to start with, authenticity. That is borne out by instances tends to become virtually absolute. in which the products sold by Metro were counterfeit. Hence it is lawful for the pro­ ducer to restrict the guarantee solely to products sold through the official network. In cases of (qualitative) selective distribution, all resellers who meet the requirements laid down have, in theory, the possibility of obtaining authorization and of marketing the 26. If we consider the matter, it is necessary products. It follows that, within a given area, first of all to assess the effects of the restric­ there may be a variable and even substantial tion of the guarantee on competitive rela­ number of authorized resellers, none of tions. In general, dealers who are unable to whom has a territorially exclusive right con­ supply the products with the guarantee nor­ ferred by contract. In cases of selective dis­ mally provided by the manufacturer are at a tribution, therefore, the refusal to grant the serious disadvantage in commercial terms. guarantee in respect of products sold outside Faced with the choice between a product the system does not strengthen a pre-existing which is guaranteed and one which is not, a territorial exclusivity, but is aimed merely at consumer is bound to prefer the former, also protecting authorized dealers against compe­ because the absence of a guarantee may instil tition from unauthorized dealers. in the consumer doubts as to the quality (or even the authenticity) of the product offered for sale.

28. To begin with, let me point out, albeit in sales made outside the network by indepen­ passing, that qualitative selection is a bril­ dent dealers such as Metro are lawful. If that liant theoretical construction, though it is by were not the case, for instance if the prod­ no means certain of being strictly observed ucts concerned were counterfeit, it is clear in practical terms. Notwithstanding all the that the problem of the guarantee would not precautions taken by the Commission — even arise, given that the producer could use which, moreover, are wholly lacking in the other remedies, far more incisive than a case of the Carder contract — it is possible refusal to honour the guarantee, in challeng­ that systems which are in theory qualitative, ing unlawful sales of its products. Moreover, and are therefore open to any reseller who and in general terms, it is clear that the meets the conditions laid down, may subse­ manufacturer's guarantee applies only to quently prove, when tested against the facts, original products and certainly not to coun­ to be far more impenetrable, or in any event terfeit products. more inflexible, than they are stated to be. That could happen, in particular, in the case of products such as luxury products, a sector where distribution is in any event somewhat concentrated and where it is difficult to establish whether the system is not in fact In this case, as pointed out earlier, Cartier based on quantitative selection. does not dispute that the products sold by Metro, in respect of which no guarantee has been granted, were lawfully marketed, that is to say were not counterfeit.

Community cartel law recognizes and pro­ damage to a minimum. On the other hand, tects the producer's right to establish selec­ the obligation to guarantee products sold tive systems and to impose on his own lic­ outside the network as well would lay the ensees an obligation to sell the products producer open to risks, and consequently covered by the contract only to other autho­ burdens, which are unsustainable. Cartier rized dealers (as well as to final consumers). has pointed out that the specific contribution If, however, for whatever reason (a made by authorized licensees for the optimal territorially-limited extension of the official preservation of the products consists essen­ network, other national laws which do not tially in the prompt and timely replacement allow contractual clauses prohibiting sales to of the quartz components, in the use to that dealers outside the network, impossibility of end of specific batteries and, in certain cir­ ensuring that the system is watertight and so cumstances, in the replacement of the water­ on), there is a lawful development of trade proof casing. outside the network, it is difficult to see why that commercial activity should not be pro­ tected in the same way as any other, in terms of the guarantee as well.

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OPINION OF MR TESAURO — CASE C-376/92

that are not also available to a large number been marketed through the official network. of other retailers of watches or specialized On the other, the interest of independent departments of large stores which employ dealers and their customers in the absence, so appropriate staff'. far as the guarantee is concerned, of undue discrimination in relation to products sold outside the network: such discrimination would undoubtedly arise if the producer 36. Having regard to those observations, it is were able to refuse to honour the guarantee questionable whether the sale of Cartier also in respect of defects for which an inde­ watches by Metro entails technical risks such pendent dealer absolutely cannot be held as to jeopardize the operation of the guaran­ responsible. tee system established by the manufacturer.

37. Even if we leave that aspect aside, how­ ever, there is another consideration which I consider to be fundamental. Let us acknowl­ Thus, in this case, Cartier — if its conten­ edge that authorized licensees provide tions were justified — could refuse to sophisticated services which unauthorized honour the guarantee in respect of damage dealers are unable to offer and that, in addi­ connected with failure to replace (correctly) tion, such services are crucial for the preven­ the batteries or waterproof casing, but could tion of certain technical problems and faults; not refuse to guarantee damage arising, for that is a purely factual aspect which it is evi­ instance, from a defect in the production dently for the national court to clarify. materials.

Conclusion

41. In the light of those considerations, I propose that the Court rule as follows:

'1 . Under a selective distribution system, the mere fact that the products covered by the contract are lawfully offered for sale on the same markets, not only by the official licensees but also by dealers not forming part of the selective dis­ tribution network, is not such as to render the system itself incompatible with Article 85(1) of the Treaty.

2. Article 85(1) of the Treaty precludes a producer, in the context of a selective distribution system, from refusing with the agreement of his authorized licensees to grant the guarantee for manufacturing defects in respect of products lawfully offered for sale by unauthorized dealers. That guarantee, however, may not be relied upon by the purchaser in relation to defects or damage to the product resulting from the failure of an unauthorized dealer to provide, or correctly to perform, services which are normally carried out by authorized licensees.'

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