Exclusive distribution: Mind the trap!

On 9 January 2025, Advocate General Medina delivered her opinion in the Beevers Kaas case (C-581/23), following a reference for a preliminary ruling by a Belgian appeal court. The Opinion centres around the question of whether, in order to be exempted under the VBER, an active sales ban foreseen as part of an exclusive distribution scheme must apply to all distributors in the network (so-called ’parallel imposition requirement’). The Opinion also explains how this requirement should be implemented in practice. Though the case relates to the old VBER of 2010, the findings also have implications for the new VBER and the Vertical Guidelines of 2022.

The parallel imposition requirement

Restrictions in distribution agreements limiting the territory into which, or the customers to whom, a distributor can sell constitute hardcore restrictions. An exception applies for active sales restrictions relating to territories or customers reserved to the supplier or allocated to other distributors on an exclusive basis. Active sales bans constitute a common feature of exclusive distribution networks. Passive sales bans (prohibiting unsolicited sales) are, by contrast, not allowed.

Under the old regime, this exception was set out in Article 4(b)(i) 2010 VBER. Under the new regime, the exception has been split between different provisions (Article 4(b)(i), Article 4(c)(i)(1) and Article 4(d)(i) 2022 VBER) and combined with the new concept of shared exclusivity. According to the latter, the supplier can allocate the same territory or customer group on an exclusive basis to up to five distributors. 

Already in the past, practitioners tended to advise their clients that active sales bans foreseen in exclusivity arrangements could only benefit from the exception foreseen under Article 4(b)(i) 2010 VBER if an equivalent active sales ban was also imposed on the supplier’s other distributors. Under the old regime, this parallel imposition requirement was presumed to be implicit and derived from the definition of ‘exclusive distribution’ included in para. 51 of the 2010 Vertical Guidelines. 

Under the new vertical regime, this definition has been moved to Article 1.1(h) 2022 VBER. Most practitioners take the view that following this “codification”, the applicability of the parallel imposition criteria can no longer be contested. 

Failure to meet this condition means that the active sales ban would potentially not be enforceable (due to qualifying as a hardcore restriction), and other restrictions included in the agreements would also lose the benefit of the safe harbour. 

The underlying dispute

The proceedings before the Appeal Court relate to an injunction that Beevers Kaas, a Belgian distributor of dairy products, sought against the Dutch supermarket chain Albert Heijn. Beevers Kaas accused Albert Heijn of infringing honest market practices, by knowingly carrying out activities in Belgium that had the effect of infringing the exclusive distribution rights that Beevers Kaas had been granted in Belgium by the Dutch cheese producer Cono for its famous Beemster cheese. 

The dispute arose after Albert Heijn, which for many years had been distributing Beemster in the Netherlands, expanded into Belgium and also started selling Beemster through its Belgian outlets. Albert Heijn had prevailed at the lower court level.

The parties’ arguments before the Appeal Court 

By interim judgment, the Appeal Court concluded that the distribution agreement that Cono had concluded with Beevers Kaas required Cono to protect Beevers Kaas from active sales by other distributors in Belgium and that Albert Heijn had also agreed to this active sales ban.

Albert Heijn, however, contested the validity of the active sales ban. Given that the distribution agreements that Cono had signed with the other distributors did not explicitly contain an active sales ban for Belgium, Albert Heijn argued that the parallel imposition requirement was not satisfied and that the active sales ban should therefore be declared void. 

Beevers Kaas asserted that the remaining distributors had implicitly accepted the active sales ban, since none of them had sold Beemster into Belgium. Albert Heijn, however, argued that a tacit acceptance of an active sales ban could not be inferred from the mere absence of imports.

The questions referred to the CJEU

The Appeal Court took the view that the VBER could only apply if the parallel imposition requirement was met and asked the CJEU for guidance on how that requirement would need to be implemented in practice. 

• First, the Appeal Court wanted to know whether the mere absence of imports into Belgium by the other distributors was enough to conclude that the requirement was met. 
• Second, the Appeal Court asked whether the active sales bans had to be in place from the moment Cono had entered into an agreement with those other distributors, or whether it was enough to obtain their consent to the active sales ban at a later stage when they were about to start selling into Belgium. 

The Opinion

Advocate General Medina confirmed that, in her view, the Appeal Court had been right in taking the view that the parallel imposition requirement formed part of Article 4(b)(i) 2010 VBER, even though the provision did not explicitly refer to such condition. An active sales ban can thus, according to her, only benefit from the safe harbour under the old regime (allowing the exclusive distributor to enjoin active sales into its territory by other resellers) if it has been imposed on all other distributors. 

With regard to the Appeal Court’s first question, the Advocate General took the view that meeting that condition required an express or tacit agreement to this effect between the supplier and each of the other distributors. To demonstrate such agreement, it was necessary to establish, first, an explicit or implicit invitation by the supplier to accept the active sales ban and, second, at least the tacit acceptance by each distributor. The mere finding that other distributors did not engage in active sales into Belgium was not enough.

With regard to the second question raised by the Appeal Court, the Advocate General concluded that it would not be possible to benefit from the safe harbour retroactively. As long as the supplier had not obtained the acquiescence from all the other distributors, the parallel imposition requirement was not met and the conditions for an exemption under the VBER were accordingly not fulfilled. 

Observations

The Advocate General’s reasoning, invoked to support the argument that the parallel imposition requirement constitutes a separate condition that needs to be fulfilled to benefit from the VBER, seems tenuous. 

Her view appears to be largely based on the assumption that the exclusivity granted to a distributor can only generate the efficiency gains needed to justify an exemption – in the form of incentives to invest in promotion and sales – if the distributor is protected from active sales by all other distributors. But is it really the case that “the possibility for a supplier to allocate, on an exclusive basis, a given territory to one of its distributors/buyers would be deprived of any effectiveness if the exclusive distributor/buyer were not protected against active sales in that territory by the supplier’s other buyers” as the Advocate General claims?

First, it remains unclear why the incentives to invest would fall away if an active sales ban has not been imposed on other distributors for which it may not be commercially viable to actively sell into the territory at stake (e.g., because of distance). 

Second, exclusive distribution schemes can generate enough efficiencies to justify an exemption, even where several distributors are entitled to actively sell into the relevant territory, as long as their total number remains small. This has at least implicitly been acknowledged by the Commission by the introduction of the concept of ‘shared exclusivity’ under the 2022 VBER (for up to five distributors). 

It is worth noting that, in her final remarks, Advocate General Medina seems to implicitly acknowledge the fragility of her recommended interpretation by recognising that when conducting the assessment under Article 101(3) TFEU, the Appeal Court should factor in “whether the protection against active sales by other distributors in that territory [was] necessary in order to stimulate such investments” by the exclusive distributor. So, in her view, Beevers Kaas may still prevail in front of the Appeal Court based on a proper effects analysis. No doubt that past investments made by Beevers Kaas would strengthen its case. 

Given that most practitioners have erred on the side of caution and have advised their clients in favour of the parallel imposition requirement, one can expect that most exclusive distribution schemes comply with that requirement. So, even if the CJEU follows the Advocate General, the practical implications of the judgment can be expected to be fairly limited. 

With regard to exclusive distribution schemes that may not meet this condition, the new concept of shared exclusivity introduced under the 2022 VBER could potentially serve as a basis to defend such schemes. 

The guidance provided in response to the Appeal Court’s questions concerning the implementation of the parallel imposition requirement will be equally relevant for the new vertical regime.

As regards its geographic scope, the Advocate General suggests that the parallel imposition requirement only applies to distributors in the EEA without, however, substantiating that view. While para. 51 of the 2010 Vertical Guidelines referred indeed to a protection against active selling “by all the other buyers of the supplier within the Union”, the corresponding definition now included in Article 1.1(h) 2022 VBER no longer contains this caveat. So, it remains to be seen whether the CJEU will clarify that point. 

Finally, the strict view expressed by the Advocate General, that it is only as from the moment that all other distributors have agreed to the active sales ban that the parallel imposition requirement is met, is difficult to reconcile with the view expressed at para. 122 of the 2022 Vertical Guidelines. The latter stipulates that a temporary breach of the parallel imposition requirement resulting from, for example, a modification to the distribution system should not matter. 

Tips 

The Beevers Kaas case is a wake-up call stressing the importance to clearly set out the scope and limits of distribution rights when setting up exclusive distribution schemes, and to pay attention to these details when assessing the enforceability of contractual protections in a due diligence context. 

Irrespective of the outcome of the Beevers Kaas case, given that the parallel imposition requirement has in the meantime been codified in Article 1.1(h) 2022 VBER, going forward, courts will most likely take the view that active sales bans can only be block-exempted if the parallel imposition condition is met (subject to the variations introduced by the new concept of shared exclusivity). To avoid pitfalls, we set out below a number of actions to consider when your company relies on exclusive schemes in the EEA: 

• Only use written distribution agreements. 
• Make sure they foresee that active sales, into territories or to customer groups reserved to the supplier or allocated on an exclusive basis to other distributors, are prohibited. 
• Include a clause allowing your company to unilaterally adjust the list of such countries or customer groups, so that at a later stage you can allocate additional territories or customers on an exclusive basis without the need to secure the consent of the remaining distributors. 
• Promptly inform all distributors in writing, each time there are adjustments to the distribution network that have an impact on the scope of the exclusivity (e.g., new territories allocated on an exclusive basis) and make sure active sales bans are adjusted accordingly. 
• If your company is part of a group that is active across several Member States, make sure that exclusivity rights granted in the distribution agreements signed by one entity are matched by corresponding active sales bans in the distribution agreements of its affiliates.