Germany – Distribution agreements

24 mai 2016

  • Allemagne
  • Distribution

Manufacturers of brand-name products typically aim to ensure the same level of quality of distribution throughout all distribution channels, offline and online. To achieve this aim, they provide criteria how to resell their products. With the increase of internet sales, the use of such criteria has been increasing as well.

A total ban of online sales to end consumers within the EU is, however, hardly valid because online sales are considered as passive sales (cf. Guidelines on Vertical Restraints 2010, para. 52). Restrictions below a total ban are, however, commonplace (for examples, see the post “eCommerce: restrictions on distributors in Germany”). Yet, it is still not clear how far such restrictions are permissible.

For example, the luxury perfume manufacturer Coty’s German subsidiary Coty Germany GmbH has set up a selective distribution network and its distributors may sell via the Internet, under the following conditions. They shall

  • use their internet store as “electronic store window” of their brick and mortar store(s), thereby maintaining the products’ character as luxury goods, and
  • abstain insofar from engaging third parties as such cooperation is externally visible.

The court of first instance decided that tsuch ban of sales via third party platforms was an unlawful restriction of competition under art. 101 Treaty on the Functioning of the European Union (“TFEU”), namely a hardcore restriction under article 4 lit. c Regulation (EU) No. 330/2010 (Vertical Block Exemptions Regulation or “VBER”). The court of second instance, however, does obviously not see the answer that clear. Instead, the court requested the Court of Justice of the European Union (CJEU) to give a preliminary ruling on how European antitrust rules have to be interpreted, namely article 101 TFEU and article 4 lit. b and c VBER (decision of 19.04.2016, ref. no. 11 U 96/14 [Kart]) – see the previous post “eCommerce: restrictions on distributors in Germany”.

On 30 March 2017, the hearing took place before the CJEU:

  • Coty defended its platform ban, arguing it aimed at protecting the luxury image of brands such as Marc Jacobs, Calvin Klein or Chloe.
  • France – seat of several luxury brands such as Louis Vuitton, Chanel and Christian Dior –supported Coty.
  • The distributor instead argued that established platforms such as Amazon and eBay already sold various brand-name products, e.g. of L’Oréal. Accordingly, there was no reason for Coty to ban the resale via these marketplaces. Germany also supported this view by emphasizing the importance of online platforms for small and medium-sized enterprises (where, however, the share of distributors using online marketplaces is 62% much higher than in all other Member States, see the Staff Working Document, „Final report on the E-commerce Sector Inquiry“, para. 452).
  • Luxembourg – the seat of Amazon – considers a general platform ban to be disproportionate and therefore as anti-competitive (cf. Reuters’ article here).

Interest in the outcome of the Coty case is widespread, as the active participation of the various EU Member States illustrates (in addition to the abovementioned countries, also Italy, Sweden, the Netherlands and Austria). Simply put, the question is whether owners of luxury brands may generally or at least partially ban the resale via internet on third-party platforms.

Indications on how the court may decide have just appeared on 26 July 2017, with the Advocate General giving his opinion. The Advocate General proposes that the CJEU answers the questions referred to the court as follows:

“(1) Selective distribution systems relating to the distribution of luxury and prestige products and mainly intended to preserve the ‘luxury image’ of those products are an aspect of competition which is compatible with Article 101(1) TFEU provided that resellers are chosen on the basis of objective criteria of a qualitative nature which are determined uniformly for all and applied in a non-discriminatory manner for all potential resellers, that the nature of the product in question, including the prestige image, requires selective distribution in order to preserve the quality of the product and to ensure that it is correctly used, and that the criteria established do not go beyond what is necessary.

(2) In order to determine whether a contractual clause incorporating a prohibition on authorised distributors of a distribution network making use in a discernible manner of third-party platforms for online sales is compatible with Article 101(1) TFEU, it is for the referring court to examine whether that contractual clause is dependent on the nature of the product, whether it is determined in a uniform fashion and applied without distinction and whether it goes beyond what is necessary.

(3 The prohibition imposed on the members of a selective distribution system who operate as retailers on the market from making use in a discernible manner of third undertakings for internet sales does not constitute a restriction of the retailer’s customers within the meaning of Article 4(b) of Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) on the Treaty of the Functioning of the European Union to categories of vertical agreements and concerted practices.

(4) The prohibition imposed on the members of a selective distribution system, who operate as retailers on the market, from making use in a discernible manner of third undertakings for internet sales does not constitute a restriction of passive sales to end users within the meaning of Article 4(c) of Regulation No 330/2010.”

The Advocate General’s complete opinion can be found at CJEU’s website here.

The updated overview of the procedure can be found at CJEU’s website here.

Practical Conclusions

  1. The Coty case is extremely relevant to distribution in Europe because more than 70% of the world’s luxury items are sold here, many of them online now.
  2. The general ban to use price comparison tools shall be anti-competitive – according to the Bundeskartellamt, as confirmed by the Higher Regional Court of Düsseldorf on 5 April 2017. The last word is, however, still far from being said – see the post “Asics’ Distribution of Sporting Goods: Ban of Price Comparison Tools anti-competitive & void?!?”. Besides, also the Coty case’s outcome may influence how to see such bans.
  3. The Coty case is setting the course for future Internet sales. Depending on the decision of the CJEU, manufacturers of luxury or brand-name products can continue to ban the use of marketplaces like Amazon or eBay for the distribution of their products – or not any more or only under certain conditions. If the court follows the Advocate General’s conclusions, such platform bans appear possible, provided that the platform ban depends “on the nature of the product, whether it is determined in a uniform fashion and applied without distinction and whether it goes beyond what is necessary” (see above).
  4. For further trends in distribution online, see the EU Commission’s Final report on the E-commerce Sector Inquiry and details in the Staff Working Document, „Final report on the E-commerce Sector Inquiry“.
  5. For details on distribution networks and antitrust, please see my article „Plattformverbote im Selektivvertrieb – der EuGH-Vorlagebeschluss des OLG Frankfurt vom 19.4.2016“, in: Zeitschrift für Vertriebsrecht 2016, p. 278–283.

Manufacturers of brand-name products typically aim to ensure the same level of quality of distribution throughout all distribution channels. To achieve this aim, they provide criteria how to resell their products. With the increase of internet sales, the use of such criteria has been increasing as well.

Best example: Asics. Until 2010, the German subsidiary Asics Deutschland GmbH supplied its distributors in Germany without applying special criteria. In 2011, Asics launched a selective distribution system called « Distribution System 1.0« . It provided, inter alia, for a general ban on distributors to use price comparison tools in online sales:

« In addition, the authorized B … distributor is not supposed to … support the functionality of price-comparison tools by providing application-specific interfaces ( » API ») for these price comparison tools. » (translated]

The German Federal Antitrust Authority (“Bundeskartellamt”) has determined by decision of 26 August 2015 that the ban of price-comparison tools against distributors based in Germany was void because it infringed Article 101 (1) TFEU, sec. 1 Act on Restraints of Competition (see the 196-page decision here). Reason given was that such ban would primarily aim at controlling and limiting price competition at the expense of consumers. Asics, instead, filed a complaint before the Higher Regional Court of Düsseldorf to annul the Bundeskartellamt’s decision. Asics argued that this ban was a proportionate quality standard within its « Distribution System 1.0« , aiming at a uniform product presentation.

Now the Higher Regional Court of Düsseldorf on 5 April 2017 confirmed the Bundeskartellamt’s decision that within selective distribution systems the general ban to use price comparison tools was anti-competitive and therefore void (ref. no. VI-Kart 13/15 (V); see also the Bundeskartellamt’s press release in English):

  • In particular, the ban of price comparison tools was not exempt from Art. 101 (1) TFEU by way of teleological interpretation (“Tatbestandsreduktion”). According to the court, it was not necessary in order to protect the quality and the product image of the Asics brand (same argumentation as the Higher Regional Court of Frankfurt in its judgment of 22.12.2015, ref. no. 11 U 84/14 regarding Deuter’s functional back-up bags; the Federal Supreme Court will, however, still decide on this, ref. no. KZR 3/16). The court declared that the ban was intended to restrict the buyers, arguing that distributors would be restricted in entering into a price competition with others. The presentation of products in price comparison tools would not damage the quality or brand of Asics products. It would neither give a « flea market impression« , ostensibly also not from the simultaneous presentation of used products. Also, the ban of price comparison tools would not solve the problem of « free-riding« . In any event, the general ban of price comparison tools was not necessary and therefore unlawful.
  • The ban would also not be exempt under the Vertical Block Exemption Regulation. Instead, the court argued, the ban would limit passive sales (over the internet) to end customers, contrary to Art. 4 (c) Vertical Block Exemption Regulation (referring to the CJEU decision in the case of Pierre Fabre, 13 October 2011, ref. no. C-439/09). The “equivalence principle” (i.e. restrictions for offline as well as online sales should not be identical, but functionally equivalent) would not apply as there were no comparable functions to price comparison tools in the stationary trade.
  • Finally, the ban would also not benefit from the individual exemption under art. 101 (3) TFEU (“efficiency defence”).

 Conclusions:

  1. According to the Higher Regional Court of Düsseldorf, manufacturers might not generally prohibit their distributors from using price comparison tools. At the same time, the court also refused to grant leave to appeal against its decision – which, however, can be challenged separately by way of an appeal (sec. 74, 75 Act on Restraints of Competition).The future development of criteria limiting distributors in reselling online remains open, especially as (i) the Coty case is pending at the CJEU (see below) and (ii) the EU Commission in its sector enquiry into e-commerce currently appears to favour manufacturers of brand-name products (see below).
  2. The court has explicitly left open – arguing that they were not relevant for its decision – whether
  • the ban of search engines is anti-competitive (para. 44 et seq. of the decision);
  • the general ban of third-party platforms is anti-competitive (para. 7) – although Asics’ “Distribution System 1.0” also banned third-party platforms such as Amazon or eBay.
  1. Whether and how manufacturers of luxury or brand-name products can continue to ban their distributing via Amazon, eBay and other marketplaces in general in the future will likely be decided by the CJEU in the coming months – in the case of Coty (see our post “eCommerce: restrictions on distributors in Germany”) where a hearing has been just recently been held end of March 2017.
  2. Without prejudice to the Coty case, the EU Commission has however, in its sector enquiry into e-commerce of May 2017, declared that
  • “marketplace bans do not generally amount to a de facto prohibition on selling online or restrict the effective use of the internet as a sales channel irrespective of the markets concerned …,
  • the potential justification and efficiencies reported by manufacturers differ from one product to another …”,
  • (absolute) marketplace bans should not be considered as hardcore restrictions within the meaning of Article 4(b) and Article 4(c) of the VBER…,
  • the Commission or a national competition authority may decide to withdraw the protection of the VBER in particular cases when justified by the market situation”
    (41–43     Final Report on the e-commerce sector inquiry).

Hence, on the basis of the EU Commission’s most recent position, there is room for arguments and creative contract drafting since even general marketplace bans can be compatible with the EU competition rules. However, the courts may see this differently in the single case. Therefore, especially the CJEU with its Coty case (see above) will likely bring more clarity for future online distribution.

Companies can sell their products worldwide directly – through branches, subsidiaries or e-commerce – or indirectly – through agents, distributors, franchisees or commission agents.

The German Federal Court of Justice now ruled for the first time that commission agents may also claim indemnity at terminination of their contract (decision of 21 July 2016, ref. no. I ZR 229/15).

What are Commission Agents?

Commission agents are self-employed business persons who are constantly entrusted with the task of concluding transactions in their own name for the account of another company, i.e. the supplier. They differ from distributors insofar as distributors buy and sell products on their own behalf and consequently bear distribution risks themselves (for details, see the Legalmondo post on Distribution Agreements in Germany and the Legalmondo post on “German” Distributor Indemnity – How to avoid it).

What is new for Commission Agents?

The Federal Court of Justice has clarified that – as is settled case law for distributors – also Commission Agents can claim indemnity at termination if two analogy requirements are met, namely if the commission agent

  • (i) is integrated into the supplier’s sales organization like a commercial agent; and
  • (ii) has to provide the customer data to the supplier so that the supplier continues to derive substantial benefits from the business with such customers after termination of the contract.

With regard to the second requirement (provision of customer data), the Federal Court points out that the prerequisite is – as a general rule – fulfilled because statutory law obliges the commission agent to provide the customer data (sec. 384 para. 2 German Commercial Code). As a result, the customers “belong” to the supplier by law, without any specific contractual obligation.

If distribution concerns “anonymous mass business” (i.e. where customers pay cash and the sales intermediary does not know customer names because of any CRM measures), it may be impossible for the commission agent to provide respective customer data. In such case, it shall according to the Federal Court suffice if the commission agent provides data « on the sale process per se » – so that the supplier can estimate which type of goods is in demand where (quite different from the requirements regarding distribution of high-quality products such as cars, fashion or electronics).

Can the parties contract out?

Yes, the obligation to provide customer data can be contracted out. Nevertheless, indemnity claims can currently not 100% safely excluded by doing so because the Federal Court leaves explicitly open whether commission agents may also claim indemnity if the supplier has the mere factual chance to use the customer data. Hence, to be on the safe side, one has to exclude also the chance to use the data (see “Practical information” below).

What about franchisees?

As regards franchisees as sales intermediaries, the Federal Court confirms that mere factual continuity of the customer base does not suffice to result into an indemnity claim (thus confirming the decision against the franchisee of the traditional bakery chain “Kamps” of 5 February 2015, ref. no. VII ZR 315/13).

Practical tips 

The provisions protecting self-employed commercial agents may apply analogously to commission agents.

As regards existing agreements under German law: if the two analogy requirements are met, indemnity claims at termination are quite likely.

As regards future agreements under German law:

  • In general, the claim for indemnity can likely be avoided by excluding the commission agent’s obligation to provide the customer data. Such exclusion should, however, be clearly formulated. Alternatively – or, to be on the safe side, additionally –, the supplier may oblige himself to block and or delete the customer data at terminaton of the contract with the commission agent.
  • Alternatively, the right to indemnity can be avoided by choosing another law and jurisdiction (taking into account the risk that the “German” indemnity claim might nevertheless be applied by as overriding mandatory provision in the sense of Article 9 of the Rome I Regulation).
  • Finally, if the commission agent acts outside the European Economic Area, the indemnity claim can be excluded by a simple waiver (according to analogue application of sec. 92c German Commercial Code).

In distribution contracts, manufacturers and suppliers tend to restrict distributors in selling the goods online (I.). Though this practice is quite common, there is no clearly established rule if and which restrictions are allowed by antitrust law (II.), especially in case of luxury goods within selective distribution networks (III.).

Now, it is up to the Court of Justice of the European Union (CJEU) to give a preliminary ruling on the internet sales restrictions (IV.). In the meantime, the question is: how to deal with resale restrictions now (V.).

Resale Restrictions in E-Commerce

E-Commerce keeps growing – worldwide and also in Germany, where it accounts for about 10% of total retail turnover (according to the 2016 figures from “Handelsverband Deutschland” [Trade Association of Germany]). Also manufacturers of renowned brands try to take advantage of the market opportunities of e-commerce, and at the same time try to preserve their brand’s image. Consequently, manufacturers have imposed several kinds of restrictions on their distributors, in particular:

  • total ban of internet sales,
  • prohibition of sales via third parties’ online platforms (especially “marketplaces”),
  • operation of a brick and mortar shops as a prerequisite for internet sales,
  • dual pricing, or
  • quality criteria for internet sales.

Antitrust limits to online resale restrictions 

Antitrust authorities, however, however, have lately put such restrictions under scrutiny and enforce antitrust rules in e-commerce as well. Accordingly, there have been quite a few court judgments and antitrust authorities’ decisions, both in favour of and against such restrictions, e.g. on:

  • bags (“Scout” re third party platforms),
  • sportswear (“Asics”re price comparisons, logo clause, “Adidas” re third party platforms),
  • electronics (“Sennheiser” and “Casio”both re third party platforms),
  • luxury cosmetics / perfumes (“Coty” re price comparisons, third platforms), or
  • software (“Google” requiring manufacturers of to pre-install apps, cf. European Commission’s press release of 20 April 2016).

Now, the luxury cosmetics case of Coty Germany has reached the European level.

The current Coty Case 

Facts of the case are as follows: The supplier (Coty Germany GmbH) has set up a selective distribution network. Distributors may sell via internet, under the following restrictions. They shall

  • use their internet store as “electronic store window” of their brick and mortar store(s), thereby maintaining the products’ character as luxury goods, and
  • abstain insofar from engaging third parties as such cooperation is externally visible.

The parties’ intentions: The supplier wants to enforce especially the last restriction, stopping a distributor (Parfümerie Akzente GmbH) from selling supplier’s products via Amazon’s marketplace. The distributor, obviously, intends to be free from such restrictions.

The court of first instance, the district court of Frankfurt, decided that the ban of sales via third party platforms is an unlawful restriction of competition under article 101 Treaty on the Functioning of the European Union (“TFEU”), namely a hardcore restriction under article 4 lit. c Regulation (EU) No. 330/2010 (Vertical Block Exemptions Regulation or “VBER”). The court of second instance, the Higher Regional Court of Frankfurt, however, does obviously not see the answer that clear. Therefore, the court has requested the Court of Justice of the European Union (CJEU) to give a preliminary ruling on how European antitrust rules have to be interpreted, namely article 101 TFEU and article 4 lit. b and c VBER (decision of 19.04.2016, ref. no. 11 U 96/14 [Kart]).

Questions referred to the CJEU

The CJEU has filed the case as “Coty Germany” (reference no. C-230/16). These are the four questions on which the CJEU is requested to answer:

  1. Do selective distribution systems that have as their aim the distribution of luxury goods and primarily serve to ensure a ‘luxury image’ for the goods constitute an aspect of competition that is compatible with Article 101(1) TFEU?

If the first question is answered in the affirmative:

  1. Does it constitute an aspect of competition that is compatible with Article 101(1) TFEU if the members of a selective distribution system operating at the retail level of trade are prohibited generally from engaging third-party undertakings discernible to the public to handle internet sales, irrespective of whether the manufacturer’s legitimate quality standards are contravened in the specific case?
  1. Is Article 4(b) of Regulation (EU) No 330/2010 to be interpreted as meaning that a prohibition of engaging thirdparty undertakings discernible to the public to handle internet sales that is imposed on the members of a selective distribution system operating at the retail level of trade constitutes a restriction of the retailer’s customer group ‘by object’?
  1. Is Article 4(c) of Regulation (EU) No 330/2010 to be interpreted as meaning that a prohibition of engaging third-party undertakings discernible to the public to handle internet sales that is imposed on the members of a selective distribution system operating at the retail level of trade constitutes a restriction of passive sales to end users ‘by object’?

How to deal with Restrictions now

There is quite some case law in Germany about the ban on online sales, some decisions in favour, some against. Online sales restrictions have lately also been under scrutiny of the German Bundeskartellamt (federal antitrust authority), which in general rather takes a critical position against such restrictions, including restrictions on selling via third-party platforms.

A decision of the highest German court is, however, still missing. Still missing is therefore also a clear answer to the question which restrictions suppliers and distributors can validly agree upon, especially in case of luxury goods. The CJEU’s preliminary ruling should provide such clarity.

Until the CJEU’s preliminary ruling, the current legal situation should be as follows – based especially on the Guidelines on Vertical Restraints 2010 (which do not have the quality of a law and do not bind the courts, but set out the principles which guide the European Commission’s assessment of vertical agreements and thus in principle bind the European Commission itself):

  1. A total ban of online sales is hardly valid because online sales are considered as passive sales (cf. Guidelines on Vertical Restraints 2010, para. 52). Hardly an option either is restricting the webstore’s language options because it does not change the passive character of such selling (cf. Guidelines on Vertical Restraints 2010, para. 52). The same goes for restrictions on the turnover made by sales via the internet.
  1. Allowed should, however, especially be
  • qualitative requirements for the design of e-commerce platform (without resulting in a total ban and without restricting the use of languages),
  • the restriction of active sales into the exclusive territory or to an exclusive customer group reserved to the supplier or allocated by the supplier to another buyer (article 4 lit. b (i) VBER), e.g. territory-based banners on third party websites, cf. Guidelines on Vertical Restraints 2010, para. 53),
  • general qualitative restrictions for becoming a member of the supplier’s selective distribution system, e.g. requiring that distributors have one or more brick and mortar shops or showrooms (Guidelines on Vertical Restraints 2010, para. 54, 176).

The CJEU’s decision will bring more clarity – Legalmondo will keep you updated on the Coty Case and possible implications on online distribution.

Agency agreements

Agency Agreements are regulated by the Agency Agreements Law 12/1992 (which has transposed Directive 86/653/EEC into Spanish law).

The main characteristic of the agency agreement is that through this an individual or a legal entity (the Agent) agrees with the Principal on a continuous or regular basis and against payment of a consideration to be agreed, to promote commercial acts or transactions for the account of such Principal not assuming the risk and hazard of such transactions, unless otherwise agreed.

Commercial relationship: Agents are independent intermediaries who do not act in their own name and behalf, but rather for and on behalf of one or more Principals.

There is no labour but commercial relationship between the Principal and the Agent.

It is presumed that the agency relationship is as a matter of fact. On the contrary, there is a labour relationship when the agent in not entitled to organize by his own his business activity nor to fix its own timetable.

Agents Obligations: Agents must, on his own or through his employees, negotiate and, if required by contract, conclude on behalf of the Principal, the business and transactions he is instructed to handle. Agents are subject to a number or obligations, including the following:

  • An agent cannot outsource his activities unless expressly authorized to do so.
  • An agent is authorized to negotiate agreements or transactions included in the agency agreements, but can only conclude them on behalf of its principal when expressly authorized to do so.
  • An agent may act on behalf of several principals, unless the related goods or services are similar or identical, in which case express consent is required.

Main obligations of the Principal are:

  • To act loyally and in good faith in its relations with the agent.
  • To provide the agent with all the documentation and the information which he may need to develop his activity.
  • To pay the agreed consideration.
  • To accept or reject transactions proposed by the agent.

The agency agreement must always be remunerated/paid. The consideration may consist of a fixed amount, a commission or a combination of both.

Indemnity: the agent is entitled to:

  1. A damages and prejudices indemnity if the contract is terminated by the Principal without cause (not to apply when the termination takes place at the end of the agreed Term).
  2. A compensation for clientele/goodwill if the contract is terminated without cause or terminated through expiration of the agreed term provided the agent has contributed with new clients to the Principal business or increased the transactions with the Principal client portfolio and provided that the Principal can benefit in the future of such activity from the agent. Such compensation cannot exceed the average of the payments/commissions received by the agent throughout the last five years or throughout the contract effectiveness if the duration has been below five years.

Non Competition:  non-competition provisions (i.e., provisions restricting or limiting the activities that can be carried out by the agent once the agency agreement has been terminated) have a maximum duration of two years from the termination of the agency agreement and must be: agreed in writing, limited to the geographical area where the agent has been trading and related to goods or services object of the agency agreement.

 

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Distribution / Concession agreements

There is not a specific regulation for distribution agreements; therefore the Civil Code general contract regulation applies. Through this type of contract the Distributor undertakes toward the Principal – on a continuous or regular basis and against payment of a consideration to be agreed – to promote commercial acts or transactions for the account of such Principal, but assuming the risk and hazard of such transactions.

In practice, distribution agreements are often confused with agency agreements. Nevertheless, they are different and have distinct regulations and characteristics.

  1. Under a distribution agreement, the distributor undertakes to purchase goods belonging to the other party for resale. While under the agency agreement the agent is paid a commission but not purchases and resales.
  2. Under the distribution agreement the Distributor assumes the entire risk of the transaction while under the agency agreement the risk remains with the Principal.

Commercial relationship: under the distribution agreement the link is completely commercial; the risk of a labour relationship being declared is much lower than under the agency agreement due to the fact of the Distributor higher independency and autonomy.

The distribution agreement may be granted under an exclusive or non-exclusive basis. The exclusive may work on both sides: the distributor could be contractually liable to only work with the principal (or not) and the Principal could be contractually bound to only work with the distributor on a given territory.

Parties Obligations: while the Agency Agreement is governed through the Agency Agreements Law (which includes mandatory rules), Distribution Agreements are subject to the Civil Code and therefore the “freedom principle” applies in order to set forth the parties obligations regime.

The Distributor is not paid by the Principal. He makes his benefit through the difference between purchase and sale price.

Indemnity: although the clientele/goodwill indemnity only applies to the agency agreements, the Supreme Court has in various sentences decided that the Distributor could have the right to be paid such an indemnity provided similar provisions as those stated at the Agency Agreements law (see above) where met on an analogy basis.

Non Competition:  non-competition provisions (i.e., provisions restricting or limiting the activities that can be carried out by the distributor once the distributor agreement has been terminated) are valid provided that they are expressly agreed through the agreement and its reasonability can be defended and sustained (in terms of territory, term and consideration).

Commission agency agreements

Through this type of contract, the commission agent undertakes to perform or to participate in a commercial act or agreement on behalf of the Principal.

Commission agents may act:

  • In their own name, acquiring rights against the contracting third parties and vice versa or
  • On behalf of their principal, who acquires rights against third parties and vice versa

Obligations of commission agents:

  1. To protect interests of the Principal as if they were their own and to perform their engagement personally. Commission agents may delegate their duties if authorized to do so and may use employees at their own liability.
  2. To account for amount that they have received as commission, to reimburse any excess amount and to return any unsold merchandise.
  3. Commission agents are barred from buying for their own account or for the account of others, without the consent of their principal, the goods that they have been instructed to buy.

Commission: The principal undertakes to pay a commission to the commission agent, usually linked and only accrued if the Transaction is closed.

Differences and similarities between agency agreements and commission agency agreements.

  • Main similarity: In both cases, and individual or legal entity undertakes to pay another compensation for arranging a business opportunity for the former to conclude a legal transaction with a third party, or for acting as the former’s intermediary in concluding the transaction.
  • Main difference: Agency agreements involve an engagement on a continuous or regular basis, whereas commission agency agreements involve occasional engagements.

Franchise Agreements

Franchise Agreements are governed through (i) the Law 7/1996, of January 15, regulations retail trade, regarding the basic conditions for the franchise activity and creating the Register of Franchisors; (ii) Royal Decree 201/2010, of February 26, regulating the exercise of the commercial activity under a franchise arrangement and the communication of information to the Register if Franchisors; and (iii) Royal Decree 378/2003, which refers to Regulations (EC) No. 2790/1999, of December 22, 1999, relating to the application of Article 81(3) of the Treaty to certain categories of vertical agreements. Through the Franchise Agreement the franchisor grants a right to, and imposes an obligation on, its individual franchisees, for a specific market, to pursue the business or commercial activity (sale of goods, services or technology) previously carried out by the Franchisor with sufficient experience and success, using the knowhow, system, trademarks, IP rights etc. defined by the Franchisor.

The Franchise Agreement entitles and obliges the Franchisee to use the brand name and/or trade or service mark for the goods and/or services, the know-how and the technical and business methods, which must be specific to the business, material and unique, the procedures and other intellectual property rights of the Franchisor, backed by the ongoing provision of commercial and technical assistance under, and during the term of, the relevant franchising agreement between the parties, all of the above regardless of any supervisory powers conferred on the Franchisor by contract.

Formalities: In Spain, prior to start franchising activities, Franchisors must register in a public administrative Register of Franchisors.

Although the very short regulation of the Franchise Agreement leaves ground for the freedom principle, usually the franchisee pays a royalty to the Franchisor (commonly linked to the volume of sales but could also be a fix royalty), and a publicity royalty (so as to contribute to the Principal publicity cost of which the franchisee benefits).

Non Competition: throughout the life of the agreement, non-competition clauses (reciprocally) are common and admissible; after the termination of the contract, the Spanish Court usually admits the validity of the one year non-competition clause but limited to the location where the franchise had been working.

There are two ways to enter and do business in the Dominican Republic: By establishing a separate Dominican business entity (“subsidiary”) or by registering a branch of a foreign company (“branch”). In addition, business relationships may be set up under a commercial contract in form of a joint venture, agency, distribution or similar agreements that comply with Dominican Republic legal and regulatory requirements, for the recognition and validity of business entities and commercial agreements.

Another option consists of a Consortium agreement between foreign and Dominican companies intended to execute projects in which the Dominican State participates.

ESTABLISHING A DOMINICAN SUBSIDIARY

Usually start-up and medium business entities in the Dominican Republic are incorporated as a Limited Liability Company or Sociedad de Responsabilidad Limitada (S.R.L.). The Sociedad de Responsabilidad Limitada or S.R.L. is the most common and efficient form of organizing a company in the Dominican Republic and is often chosen by large foreign companies as the legal form for their subsidiaries.

S.R.L.’s offer the following advantages: The partners receive limited liability, meaning that they only respond for company debts up to the limit of their contributed capital. Shareholders can be legal persons or individuals. SRL’s is manager managed with no board of directors required; managers must be individuals, and can be Dominicans or foreigners. Company can attract capital through the issuing of new shares which may be ordinary or preferred shares.

SRL’s may effectuate any type of activities that are legal in trade and there are no restrictions in the Dominican Republic on the legal currency. The United States Dollar is exchanged freely with the Dominican Peso, as well as any other currency.

SRL’s also serve as a holding company and may keep assets as their property, contributed by the partners or acquired by the same, both national and international, movable and real estate properties.

SRL can outlive their founders. Their quotas may be freely transferred among partners, by way of succession, in case of liquidation of marital community assets, among ascendants and descendants under the rules established in the By Laws.

The main steps in establishing a Dominican Limited Liability Company (SRL) are the following:

  1. Make a search before the Dominican Trademark Office, draft and file the request registration to obtain a trade name for the Dominican Company.
  2. Draft by-laws, minutes of incorporation meeting and related incorporation documents. These may be drafted as private documents or as a notary public act for signing by the partners and managers for legalization by notary public;
  3. Pay the incorporation taxes of one percent (1%) of the company’s registered capital before the corresponding Dominican Tax Administration (DGII);
  4. Prepare the business register application and file it along with the corresponding company incorporation documents after payment of business registration fee to obtain the company’s business registration certificate;
  5. Prepare and file the request to obtain the company’s Tax Identification Number (RNC);
  6. Register at DGII’s web page to obtain access and request fiscal invoice numbers (NCF);
  7. Enroll employees before the treasury of social security (TSS) and the ministry of labor.

The following schedule serves as a guidance of the time required to form a new Dominican Company:

Register of company trade name 5 to 7 days
Drafting incorporation documents plus 2 to 5 days
annexes (Incorporation Meeting, By-laws, Business Register application)
Paying incorporation taxes on capital less than 1/2 day
Incorporation Meeting of shareholders less than 1/2 day
Legalizations by Notary Public less than 1/2 day
Registration in Business Register 2 to 5 days
Registration as Tax Contributor (RNC) 10 to 15 days

The following founding documents are needed to form the company:

  1. Business Register request of registration form for Dominican Company, duly signed by the person that is authorized by the company or by an empowered attorney, for which a copy of the power of attorney shall be provided.
  2. By- Laws/Articles of Incorporation in private or notary act form containing the details required in legislation (including company name, registered domicile and purposes.
  3. Attendance List and Minutes of the Incorporation Meeting.
  4. Updated List of Partners/ Shareholders
  5. Report of the Commissary of Contributions, if applicable.
  6. Receipt of payment of the tax on the incorporation of legal entities.
  7. Photocopies of the Dominican Identity and Electoral Card and if foreign, Passport photo page or other official document with visible photo from the country of origin for the partners, managers and account commissary.
  8. Copy of the Trade Name Certificate issued by the Dominican Trademark Office.
  9. Declaration of acceptance of the appointments by the managers if this is not apparent from the by-laws and minutes of the incorporation meeting.

REGISTERING A DOMINICAN BRANCH

Foreign companies interested in doing business in the Dominican Republic (DR) may register a branch in the DR. Under Dominican law, a registered foreign company branch office can enter into contracts and execute and settle transactions in its own name, and can sue and be sued at its place of business.

In order to successfully complete a DR branch registration, the foreign company documents shall prove its valid incorporation and existence, contain all general and specific information as well as proper authorizations; corporate documents shall be certified, notarized and duly legalized by all applicable foreign and local authorities according to local and international law. The Dominican Republic is a member of the 1965 convention of The Hague or Apostille.

The registration of a foreign company branch before local authorities will enable the owners of the foreign entity to conduct business in a similar way and equal rights as a DR business entity.

Branches of foreign corporations are in general treated the same way as legal entities for tax purposes. They are however not subject to issuance stamp tax upon formation. Profits of a Dominican branch office are exempt from taxation (Dominican withholding tax) in the partner-nation under the double-taxation agreements which Dominican Republic has signed.

To register a branch in the DR, it is necessary to provide certified company incorporation, shareholder and manager verification and a power of attorney to qualified attorneys who will draft, prepare and file the request of branch registration at the business register and request a Taxpayer Identification Number (TIN) in the Dominican Republic.

Usually, the registration of a branch to pursue general, unregulated and taxed commercial activities may be accomplished by pursuing the following:

  1. a) Business Registry: The Company should be registered in the Business Registry of the Chamber of Commerce where its local domicile will be located. A registration fee is calculated based on the authorized capital. In order to obtain this registry, the company must file all documents which evidence its proper incorporation in the home country and that representatives are fully authorized to register the foreign company branch.
  2. b) TIN: Issued by the Tax Administration. It is a number that shall serve for identifying the business’s taxable activities and for the control of the duties and obligations derived therefrom. To obtain such registration, the company shall file copy of the Business Registry and the corporate documentation that may be required by such Tax Administration. It shall also present a valid corporate domicile in the DR which may be subject to verification.

USING DOMINICAN COMMERCIAL AGENTS AND DISTRIBUTORS

A foreign supplier of goods and services may choose to enter the Dominican market by selling his/her products through Dominican agents and distributors or representatives. The different channels of selling are subject to different legal frameworks.

Contracts involving Dominican agents and distributors are generally governed by the Civil Code of the Dominican Republic, whose freedom of contract principle allows the parties to choose freely the form, terms and conditions of their agreement as well as by the Code of Commerce and general commercial practices and rulings interpreting the scope of agency, unless said agreement is registered under Law 173 Protecting Importing Agents of Merchandises and Products of April 6, 1966, as amended (“Law 173”).

Local agents and distributors often want to register their Agreements with foreign enterprises under Law 173, while foreign companies that do not have a free trade agreement with the Dominican Republic, are often unaware of this possibility and without adequate previous legal counsel, may later find out a Law 173 registration has been made.

Once registration has been obtained, the relationship of the local licensee (a.k.a. “concessionaire”) with its grantor becomes governed by the provisions of Law 173 of 1966, which provides the local concessionaire with the following rights:

  • The right to initiate legal actions against the grantor or a third party for the purpose of preventing them from directly importing, promoting or distributing in Dominican Territory the registered products or services of the grantor;
  • The right to file suit for damages against both the grantor and any new appointee for substitution of the local concessionaire, including the right to be indemnified for unjust termination in accordance with the formula and for the concepts provided by Article 3 of Law 173.
  • The right to an automatic renewal of the contract or a mandate of continuation of the relationship existing thereof, even if the termination clause of a registered contract provides otherwise.
  • Unilateral termination by the grantor of the local concessionaire’s rights under Law 173 of 1966 is only possible if made for a “just cause”, pursuant to the definition of just cause provided by Law 173 of 1966.
  • The Law provides exclusive jurisdiction to the courts of the Dominican Republic.

Law 173 protects Dominican agents and distributors of foreign enterprises. Its objective is to protect exclusive and non-exclusive agents, distributors and representatives from being unilaterally substituted or terminated without just cause by foreign entities, after favorable market conditions have been created for them in DR.

Law 173 defines as grantor the individuals or legal entities who the Dominican agents and distributors (i.e. concessionaires) represent, who conduct business activities in the interest of the grantor or of its goods, products or services, whether the contract is granted directly by grantor, or by means of other persons or entities, acting in grantor’s representation or in their own name but always in its interest or of their goods, products or services.

The author of this post is Felipe Castillo.

When entering new markets, there are different distribution strategies to choose from (I.). In retail, car and wholesale trade, distributorship agreements are quite common (II.). In international distributorship agreements, the parties may choose the applicable law (III.). Whether chosen or not, the applicable law may contain unpleasant surprises like goodwill indemnity for distributors under German law (IV.). Such surprises can be avoided – the post shows how, considering the latest 2016 decisions by the German Federal Court of Justice (V.).

I.       Entering new Markets

When entering new markets, different structures exist. Which one to choose depends on the strategy desired: from direct sales with own employees or sales agents to indirect distribution via distributors, franchisees, commission agents, the sale of white label products or licensing with the scope of manufacture and sale by third parties. For details on distribution in Germany see the Legalmondo post on “Distribution agreements in Germany”.

II.      Distributorship Agreements

In retail (especially electronics, cosmetics, jewelery, and sometimes fashion), car and wholesale trade, distributorship systems are particularly common – regardless of whether the sales intermediary is referred to as a “distributor”, “trader”, “dealer”, “specialist retailer”, “concessionary” or “authorized dealer”. Distributors are self-employed, independent contractors who constantly sell and promote the products in their own name and on their own account. They bear the sales risk, for which – vice versa –manufacturers’ margins are rather low. Distributors are generally less protected than commercial agents (to whom within the European Union, the Directive on self-employed commercial agents of 1986 applies, as implemented in the national law of the respective EU Member State). Contrary to agreements with sales agents, distributorship agreements are restricted by antitrust law. Restrictions of competition are, in principal, prohibited, unless they do not appreciably restrict competition under Article 101 TFEU (Treaty on the Functioning of the European Union). For details on distribution online see the Legalmondo post on “Restrictions on Distributors in E-Commerce”.

III.     Distribution international and Choice of law

When a manufacturer distributes its products or services internationally, the manufacturer’s and the distributors’ national laws « collide ». Frequently, the parties will choose the applicable law in order to solve such collision and create legal certainty. Typically, each party will try to take its « own », and perhaps not more favourable, but at least well-known law abroad. Alternatively, the parties may agree on the law of a “neutral”, third country – e.g. Swiss law between an Italian manufacturer and a German distributor, which, by the way, also gives more freedom as regards standard form contracts. Even with a choice of law, there can nevertheless be unpleasant surprises in international trade – approximately as in the saying « different countries, different customs« :

  • First, because a choice of law may not be effective – as, for example, in some South American countries and in the Middle East.
  • Second, because there may be internationally mandatory provisions (“overriding mandatory provisions”, « lois des police » or « Eingriffsnormen« ) which are so important for safeguarding a country’s public interests that they practically « override » the choice of law, i.e. apply despite the otherwise effective choice of law.
  • Third, because the chosen law may contain unpleasant surprises, such as the German goodwill indemnity for distributors.

IV.     “German” Distributor Indemnity

Also German law may provide surprises – in particular in form of the distributor’s claim to goodwill indemnity at termination. Though there are no explicit rules on distributors under German law, there is extensive case law and various agency rules apply also to distributors if two conditions are given:

The distributor is

  • integrated into the supplier’s sales organisation; and
  • obliged (due to agreement or factually) to forward customer data during or at termination of contract.

If given, the distributor is basically also entitled to claim goodwill indemnity at termination (under the same conditions as an agent). The calculation of such goodwill indemnity is, in general, based on the distributor’s margin made in the last year with new customers brought by the distributor or with existing customers where the distributor has significantly increased the business. Details vary; different ways of calculation are accepted by German courts.

V.      How to avoid “German” Goodwill Indemnity for Distributors

For a long time, it was disputed whether the distributor’s goodwill indemnity under German law, granted in analogue application of agency law (sec. 89b German Commercial Code) could be excluded in advance (i.e. before termination of contract) when the distributor operates outside Germany, but in the European Economic Area (“EEA”).

The question was now put to the test before the German Federal Court (decision of 25/02/2016, ref. no. VII ZR 102/15). The defendant, established in Germany, manufactured equipment for the electrical industry. The plaintiff was operating as a distributor in Sweden and other EEA States. The distributorship agreement provided for German law; any postcontractual compensation or remuneration was excluded. After termination by the defendant, the plaintiff claimed goodwill indemnity as distributor. The plaintiff did not succeed in the lower courts, but the German Federal Court now decided in the plaintiff’s favour (as, by the way, in a similar matter did the Higher Regional Court of Frankfurt on 06/02/2016, ref. no. 11 U 136/14 [Kart]).

The decision focuses on the territorial scope of the provision on goodwill indemnity (sec. 89b of the German Commercial Code). Pursuant to that provision, the agent’s goodwill indemnity cannot be excluded in advance. In settled case law, this provision may apply analogously to distributors (see above). However, it was disputed whether the distributor’s goodwill indemnity is also mandatory if the distributor operates outside Germany, but within the EU / EEA. The German Federal Court has now confirmed that – arguing especially with (i) the historic development of agency law and (ii) its objective to protect the agent respectively the distributor: also distributors operating in other EEA countries than Germany were to be protected as those operating in Germany; the relevant provision was intended to protect against unfavorable agreements resulting from economic dependence on manufacturers / suppliers. Finally, the Federal Court of Justice deemed it not necessary to refer this question to the Court of Justice of the EU because it did not fall within the scope of the Directive on self-employed commercial agents of 1986.

The new decision is consistent with existing case-law: it was quite likely that the German Federal Court would continue on its way of largely applying agency law to distributors by analogy.

Five practical tips for contractual practice and future contract drafting:

  1. Goodwill indemnity is a cost which arises only in the wake of a distributorship agreement, but should be considered beforehand – and also, if such cost can be avoided or stipulated differently beforehand (e.g. stipulate entry payments).
  1. If the distributor operates outside the EEA, the claim for goodwill indemnity can be excluded at any time, i.e. already in the distributorship agreement itself (sec. 92c German Commercial Code; cf. Higher Regional Court of Munich, decision of 11/01/2002, ref. no. 23 U 4416/01).
  1. If the distributor operates in the EEA, German law applies and the two above conditions are met, the distributor’s claim to goodwill indemnity cannot be excluded before termination.
  1. Distributor’s German goodwill indemnity can be excluded beforehand especially if the parties

(i) exclude the transfer of the customer data; or

(ii) oblige the manufacturer to block, stop using and, if necessary, delete such customer data at termination (German Federal Court, decision of 05/02/2015, ref. no. VII ZR 315/13); or

(iii) chose another law (and, consequently, another jurisdiction or arbitration).

  1. Alternatively, the parties may cushion the claim for goodwill imdemnity by agreeing on “entry payments” (“Einstandszahlungen”) – which could even be deferred until termination and then offset against the claim for goodwill indemnity. However, such entry payment should not be unreasonably high (Federal Court of Justice, decision of 24/02/1983, ref. no. I ZR 14/81), respectively it should correspond to a value in return, e.g. a particularly high distributor discount or a very long contract term (Higher Regional Court of Munich, decision of 04/12/1996, ref. no. 7 U 3915/96, Higher Regional Court of Saarbrücken, decision of 30/08/2013, ref. no. 1 U 161/12). In short: the manufacturer must prove that the parties would not have agreed a higher commission, even without the entry payment (as just decided by the German Federal Court on 14 July 2016, ref. no. VII ZR 297/15).

Agency (regulations, duration, termination, indemnities – if any)

Instead of direct distribution (by setting up a branch, a subsidiary or via e-commerce), one can also distribute ones’ products and / or services indirectly. Indirect distribution especially includes agents, distributors, franchisees or commission agents.

Self-employed commercial agents solicit customers and can (but do not have to) have the authority to conclude a contract on supplier’s behalf. The supplier sells directly to end customers and bears the distribution risk, but may also control the margins. Contrary to employees, the agent’s remuneration (“commission”) can be exclusively profit-oriented, i.e. remunerated only in case of successfully soliciting customers, and in relation to the turnover. Commercial agents have to provide detailed market reports. If the commercial agent acts in the EU, protective agency law applies, including the indemnity claim.

An agent would be treated as a supplier’s employee if the agent does not act independently. An agent acts independently if the agent – according to the overall picture of contractual rules and factual activity – freely organizes his activities and working time (sec. 84 (1) 2 HGB). This goes mutatis mutandis for other types of distribution partners. The treatment as employee especially has the following consequences:

  • employee protection, e.g. limited right of termination under Dismissal Protection Act;
  • continued payment of salary during public holidays, illness and holidays;
  • minimum wage under Minimum Wage Act of 11 August 2014;
  • obligation to pay contributions to social security;
  • income tax on salary;
  • adherence to worker participation and collective bargaining agreements if applicable.
  • exclusive competence of labour courts if the employee has, during the last 6 months of activity, earned an average amount which does not exceed EUR 1,000 per month.

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Agency contracts are governed by sec. 84–92c German Commercial Code (HGB). The commercial agent is, next to the employee, strongly protected, e.g. by mandatory rules on remuneration, minimum notice periods, and goodwill indemnity. As regards remuneration, the agent is entitled to

      • “del credere commission” if the agent assumes liability for fulfilment of businesses (sec. 86b HGB);
      • an advance on commission once the principal has performed its obligation (sec. 87a para. 1 HGB);
      • accounting within maximum periods of three months (sec. 87c (1) HGB);
      • commission irrespective of delivery and payment, unless the principal is not responsible for non-delivery (sec. 87a ( 3) HGB);
      • request information, statements of account, an excerpt from the books, and inspection by an auditor (sec. 87c HGB).

These rules are mandatory and cannot be contracted out. Further details on the payment of commission (if not agreed otherwise) are set in sec. 86b et seq. HGB.

Besides, both parties have to safeguard each other’s interests (sec. 86, 86a, 90 HGB and sec. 242 BGB). Theagent is especially obliged to

    • check the customers’ creditworthiness,
    • inform the supplier immediately about any business procured,
    • keep confidential any information obtained during his activity, and
    • abstain from acting for the supplier’s competitors.

Agency agreements can be terminated without cause if contractually agreed. However, mandatory notice periods have to be observed, staggered pursuant to the contractual term: from one month in the first year to six months after five years (sec. 89 ( 1) HGB). The notice periods cannot be shortened, and, in case of extension, the supplier’s notice period must not be shorter than the agent’s one (sec. 89 (2) HGB). A cause is only required if the agreement is terminated without notice period (sec. 89a HGB). It is given if the terminating party cannot reasonably be expected to continue the relationship until ordinary termination (considering all circumstances of the single case and weighing the interests of both parties).

The agent is entitled to indemnity if the agent has brought new customers or has significantly increased the business volume with existing customers, which results in benefits for the principal, and if such payment of indemnity is equitable under the given circumstances (sec. 89b HGB). Indemnity is calculated on basis of the commission earned during the last 12 months of activity, earned with new customers, and existing customers towards whom the agent has substantially increased the sales. Indemnity is capped to a maximum of the past five year’s average annual commission (sec. 89b HGB). The claim cannot be waived before termination, but is excluded if the agent has not notified the principal within one year following termination. Indemnity is not payable if

  • the agent terminated the contract (unless justified by circumstances attributable to the principal or because of the agent’s age or illness),
  • the principle has terminated the contract because of default attributable to the agent (which would justify immediate termination for cause), or
  • the agent, with the principal’s agreement, assigns and transfers its rights and duties under the agency contract to another person.

Indemnity cannot be contracted out, unless the agent acts outside EEA (sec. 92c HGB).

Antitrust law does generally not apply to the agent-relationship, provided that the principal bears the commercial and financial risks related to selling and purchasing the products or services (Guidelines on Vertical Restraints of 10/05/2010, para. 12 et seq., 18, 49). Therefore, suppliers can control the price for which they sell the products / services via agents. Special limits apply only to post-contractual non-compete-obligations if concluded before termination. They must be limited to a two-year-maximum, to the agent’s territory or customers, and to the contractual products or services. Further, they must be done in writing and delivered to the agent. The principal has to pay an indemnity for the non-compete obligation’s term (sec. 90a HGB).

Generally, the parties are free to choose the applicable law (art. 3 Rome-I-Regulation). If, however, all elements relevant for the choice of law are located in another country than that of the chosen law, the choice of law shall not prejudice the provisions which cannot be derogated from by agreement (art. 3 (3) and (4) Rome-I-Regulation).

Overriding mandatory provisions of the forum’s law cannot be avoided by choosing another law. The courts may also give effect to overriding mandatory provisions of the country where the contractual obligations have to be performed (cf. art. 9 Rome-I-Regulation). Overriding mandatory rules are especially most of the protective agency law provisions. If, therefore, the agent acts within the EU, the agent’s claim for goodwill indemnity (based on the EU Directive on self-employed commercial agents of 1986) can hardly be contracted out – even if the parties choose a foreign law (cf. European Court of Justice, decision of 09/11/2000 [“Ingmar”], concerning, however, the former Rome Convention on Law Applicable to Contractual Obligations of 1980). Arguments against applying the same principles under the Rome-I-Regulation exist, but there is yet no case law which favors such interpretation.

Generally, the parties are free to choose a court, especially if

Besides, the parties may also choose arbitration (sec. 1029 et seq. ZPO, and art. 1 (2)d Brussels-Ia-Regulationand art. 1 (2)d Lugano-II-Convention).

However, a choice of court or arbitration can hardly avoid overriding mandatory provisions, as ruled by the Higher Regional Court in Munich (decision of 17/05/2006), and confirmed by the BGH (decision of 05/09/2012).

Suppliers and distribution partners are free to use any means of dispute resolution, especially out-of-court-negotiation, mediation, arbitration, litigation. Restrictions exist only insofar as overriding mandatory provisions can hardly be avoided by means of dispute resolution (see above). Suppliers and distribution partners can expect fair treatment in German courts since the judges are well-trained, have been determined beforehand, and the parties are entitled to due process of law (art. 101, 103 German Constitution). Advantages of resolving disputes in Germany are (inter alia) that court rulings are quite foreseeable and that court proceedings are quite quick (8.2 months for proceedings in the district courts according to the latest statistics).

Distribution or Concession of sale

Distributors buy and sell products on their own behalf. Consequently, they bear distribution risks, and, in return, gain profit from the difference between purchase and resale price, while suppliers’ margins are rather low. The distributor is obliged to market and distribute the supplier’s products, and to safeguard the supplier’s interests. Distributors are less protected than commercial agents (exceptions: see below). The supplier is obliged to assist and take care of his distribution partner, subject, however, to the supplier’s economic freedom.

Distributorship contracts are – as in most EU member states – not explicitly regulated by statutory law. However, there is extensive case law, e.g. whether the supplier has to take back products unsold at termination of contract. Agency law applies by analogy if the distributor is:

  • integrated into the supplier’s sales organization; and
  • obliged (due to agreement or factually) to forward customer data during or at termination of contract.

Further, distributorship contracts have to conform to antitrust law. Generally, the antitrust law of any affected market applies (art. 6 (3a) Rome-II-Regulation). Agreements which aim at or result in restraints of competition are prohibited by antitrust law, namely by the German Act Against Restraints of Competition (“GWB”) andart. 101, 102 Treaty on the Functioning of the EU (“TFEU”). Unless agreements contain hardcore restrictions, asafe harbor is provided by the De Minimis Notice of 30/08/2014 and the Vertical Block Exemption Regulation no. 330/2010 [“VBER”]). Hardcore restrictions are generally prohibited, regardless of the parties’ market shares, especially price fixing, restricting the geographic areas or categories of customers, or cross-supplies between distributors within a selective distribution system. If one party’s market share exceeds 30%, any restriction of competition can only benefit from the individual exemption under the strict criteria of art. 101 (3) TFEU(“efficiency defense”). Here are the most relevant types of clauses.

As regards non-compete-obligations, they are enforceable if they conform to antitrust law:

  • Such agreements between non-competitors are safe if each party’s market share does not exceed 15% on any relevant market affected. If one party’s market share exceeds 15%, but none exceeds 30%, a non-compete-obligation during the contractual term is valid if limited up to 5 years at most. Where products are sold on premises owned or leased by supplier from third parties, the five-year maximum does not apply. However, the non-compete obligation cannot exceed the term the buyer is occupying the premises.
  • After the contractual term, a non-compete obligation where one party’s market share exceeds 15%, but none exceeds 30%, is valid if it is necessary to protect know-how transferred to the distributor, and if limited to competing products, the concrete distributor’s premises, and a 1-year-term.

A supplier can generally not fix a resale price or price level at which its distributors or franchisees resell (except for suppliers that manufacture newspapers, magazines and books, sec. 30 GWB). An agreement or behaviour that aims at establishing such resale price maintenance is treated as hardcore restriction and thereforegenerally void (cf. Guidelines on Vertical Restraints of 10/05/2010, para. 48, 223). By way of – rare – exception, the supplier can plead the efficiency defense (e.g. when introducing a new product or a coordinated short term low price campaign).

However, resale prices can be influenced by recommending resale prices or setting maximum resale prices:Recommending resale prices or setting maximum resale prices is exempt from antitrust law if the parties’ market shares do not exceed 30% (beyond, there is only room for the efficiency defense), and only if it does not result in a minimum or fixed sale price because of pressure or incentives from one party (art. 101 (1) TFEU andart. 4 (a) VBER).

Establishing a minimum advertised price policy is exempt if it works as mere recommendation. If, however, it results in minimum resale prices or a fixed or minimum price level, it can only be exempt under the efficiency defense.

By contrast, a supplier shall not announce not to deal with distributors or franchisees that do not follow its pricing policy because it will be treated as fixing the selling prices (see above).

Most-favored nation or most-favored customer clauses are those which specify that the supplier’s price to the distributor will be no higher than its lowest price to other customer. Such clauses are enforceable if agreed between non-competitors and if none of the parties’ market shares exceeds 30% (beyond, there is only room for the efficiency defense).

The distributor on its side can generally charge different prices to different customers because of freedom of contract. However, a seller

  • may have to charge the same prices if it holds a dominant or similarly strong market position(sec. 19, 20 GWB and art. 102 TFEU);
  • may generally not charge different prices on grounds of race or ethnic origin. The same goes ongrounds of sex, religion, disability, age or sexual orientation if the respective sales contract is typically concluded without or with low importance of the buyer’s person, especially in “bulk business”. An exception exists if different treatment is based on objective grounds, especially where it serves to avoid threats, prevent damage etc. (sec. 19, 20 Anti-Discrimination Act, “AGG”).

A supplier may not restrict the territory into which, or the customers to whom its distribution partner sells (art. 101 (1) b TFEU). Exempt are, however, restrictions of:

  • active sales into the exclusive territory or an exclusive customer group reserved to the supplier or another distribution partner;
  • sales to end users if the distribution partner operates at wholesale level;
  • sales from members of a selective distribution system to unauthorised distributors in the system’s territory; and
  • selling components, supplied for incorporation, to customers who would use them to manufacture the same kind of products (art. 4 (b) VBER).

Active sales mean actively approaching individual customers (e.g. by direct, unsolicited mail, e-mail, visits) or a customer group in a specific territory trough promotions specifically targeted at that group. Passive sales mean responding to unsolicited requests from individual customers, including general advertising which reaches customers in other exclusive territories or customer groups if done reasonably. This also applies to the internet: sales via webshops cannot be excluded. A supplier may only, however, require its distribution partner to fulfil certain quality standards, especially in selective distribution (Guidelines on Vertical Restraints of 10/05/2010, para. 51, 54).

At the end of the distribution chain, consumer protection laws apply, namely between the seller and the buying consumer. Statutory law grants a 2-year-warranty that products are free from defects at the passing of risk. In case of defect, the buyer is entitled to claim subsequent performance (remedy of defect or delivery of a defect-free product), alternatively price reduction or withdrawal (all regardless of fault), and, damages, provided that the seller has acted with fault (sec. 437, 280 et seq. BGB). Though fault is generally assumed by law, the seller can exculpate itself, especially if the seller has not manufactured the good (but its sub-supplier). Towards consumers, these rights cannot be contracted out (sec. 474, 475 BGB). Each seller within the distribution chain is entitled to have recourse against its own supplier if the product has already been defective at the respective delivery (sec. 478, 479 BGB). In order to maintain these rights, however, the buyer (unless consumer) already has to check at delivery if products are defective, and inform the seller accordingly (sec. 377, 378 HGB).

Besides, special information duties towards consumers exist in:

Statutory law also limits the fees which the consumer shall pay beyond for means of payment or consumer hotlines etc. (sec. 312a (3–5) BGB). Finally, the consumer has a right of withdrawal regarding distance and off-premises contracts (sec. 312g, 355 BGB).

These consumer rights are similar throughout the EU because they are influenced by the EU Directives 1999/44/EC on the sale of consumer goods and 2011/83/EU on consumer rights.

A supplier may limit the warranty rights granted by statutory law towards its distribution partners. In general, there are few limits to individual agreements: they must not contradict statutory prohibitions (sec. 134 BGB) and public policy (sec. 138 BGB), and must not limit or exclude liability for willful intent, fraudulently concealing defects, where a guarantee has been given, or according to product liability law (sec. 202, 276, 444, 639 BGB). If the product has been found defective at the consumer, and the defect has already been existing between the distribution partners, a limitation of warranty can only be enforced if the supplier provides another compensation of equal value (sec. 478 (4) BGB).

In standard business terms, however, one may hardly deviate from statutory law – even in B2B-contracts (sec. 310 (1) and 307 BGB). One may only

    •  modify the rules of subsequent performance (time, place, number of attempts);
    • exclude liability for slightly negligent breaches of non-cardinal duties; and
    • limit liability for slightly negligent breaches of cardinal duties to the typical damages foreseeable at conclusion of contract.

The same goes for warranties provided to each downstream customer, unless the customer is a consumer because a consumer’s statutory rights cannot be contracted out.As regards product recalls, statutory law does not set any requirements. According to case law, a manufacturer must keep its products under surveillance and, when detecting risks for legally protected goods (as health), adopt the necessary preventive measures.Extent and time of such measures depends on the single case, especially the good at risk and the extent of possible damage (BGH, decision of 16/12/2008). Distribution agreements can delineate which party isresponsible for a recall and its costs. Individual agreements are not subject to specific limits. Standard business terms, however, are subject to a strict review in court: they can be unenforceable if they are incompatible with essential statutory principles, if they limit essential contractual rights and duties, if they are surprising or ambiguous (sec. 310 (1), 307, 305c BGB). Therefore, such terms should consider who would typically be responsible for recall and costs, depending on the product (ready-made, or not, etc.).

Distributor agreements with indefinite term can be terminated (sec. 314, 573, 620 (2), 723 BGB); the notice period depends, however, on the single case, considering also the distributor’s investments. E.g., one-year periods have been accepted in automotive distribution (BGH, decision of 21/02/1995 [Citroën]). In rare cases, antitrust law may demand a renewal of the relationship.

The distributor can claim indemnity only by analogue application of agency law (see above). The distributor’s indemnity can amount to the distributor’s average annual net margin.As regards applicable law / choice of lawand details on dispute resolution (choice of court, choice of arbitration / mediation), please see above in the section on agents.

Franchising

Franchisees buy and sell products on their own behalf. The franchisee acquires licences of intellectual property rights (trademarks and know-how) from the supplier (franchisor) for using and distributing the products or services. The franchisee is entitled and obliged to design its shop according to the franchisor’s concept and corporate design, and use the management-/system-specific know-how. In return, the franchisee pays royalties. The franchisor is precontractually obliged to disclose the key risks and issues for running the franchise, and subsequently often provides assistance on know-how and business.

Franchise contracts are not explicitly governed by statutory law (unlike e.g. in Italy). They combine elements of licensing, sales, and management of another’s affairs. Generally, agency law applies by analogy (cf. German Federal Court of Justice [“BGH”], decision of 17/07/2002).

Within franchisee relationships, the same antitrust rules apply as within distributor relationships: generally, agreements which aim at or result in restraints of competition are prohibited by antitrust law, namely by the German Act Against Restraints of Competition (“GWB”) and art. 101, 102 Treaty on the Functioning of the EU (“TFEU”). For details, please see above in the section on distributors.

Franchise agreements can be terminated according to agency law (mutatis mutandis). However, longer periods can apply in the specific case, e.g. if the franchisee made considerable investments due to the supplier’s product.

The franchisee can likely claim indemnity based on analogue application of agency law, but this has not yet been ruled out (BGH, decision of 23 July 1997, Benetton). No indemnity, however, can be claimed where the franchise concerns anonymous bulk business and customers continue to be regular customers only de facto (BGH, decision of 5 February 2015).

Trademark license

If a company owns a brand or design, such trademark owner can also distribute the product or service bygranting a trademark license to another party (“licensee”). By way of such license agreement, the trademark owner (“licensor”) allows the licensee to make use of its trademark.

The license agreement should especially cover:

  • the trademark;
  • the goods and/or services which the licensee is entitled to offer under the trademark and details on the use of the trademark (with or on the goods and/or services, promotion material);
  • the territory where the licensee is entitled to use the trademark;
  • any exclusivity of the license (if applicable);
  • royalty (in return for the license);
  • quality control (e.g. approval of samples prior to mass production and audit rights as regards the licensee’s facilities, the raw materials used and the final products);
  • the license’s term; and

the usual boilerplate clauses (written form, no waiver, severability, choice of law, choice of court etc.).

Selling via e-commerce (required licences, if any)

Selling via e-commerce does not require special licenses in Germany. However, certain requirements have to be observed as regards the webshop, especially providing clearly

  • the basic information about the entity behind the webshop (“Contact“, “Imprint” or “Legal Notes”);
  • the terms and conditions of sale; and
  • the privacy policy (it should mention which kind of personal identifiable data [“data”] is stored, how data, cookies and web-tracking are used, and explain the customer’s right to inform about, correct and delete data, cf. sec. 13 German Telemedia Act).

Relevant anti-trust regulations

According to the effects doctrine, the antitrust law of any affected market applies (art. 6 (3a) Rome-II-Regulation). Within the European Economic Area (“EEA”), Agreements which aim at or result in restraints of competition are prohibited by antitrust law, namely by art. 101, 102 Treaty on the Functioning of the EU (“TFEU”) and in Germany also by the German Act Against Restraints of Competition (“GWB”). Unlessagreements contain hardcore restrictions, a safe harbor is provided by the De Minimis Notice of 30/08/2014 and the Vertical Block Exemption Regulation no. 330/2010 [“VBER”]). Hardcore restrictions are generally prohibited, regardless of the parties’ market shares, especially price fixing, restricting the geographic areas or categories of customers, or cross-supplies between distributors within a selective distribution system.

Details are explained above with each kind of distribution channel.

Benedikt Rohrssen

Domaines d'intervention

  • Agence
  • Distribution
  • e-commerce
  • Franchise
  • Investissements
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    Spain – Distribution Agreements

    17 mai 2016

    • Espagne
    • Distribution

    Manufacturers of brand-name products typically aim to ensure the same level of quality of distribution throughout all distribution channels, offline and online. To achieve this aim, they provide criteria how to resell their products. With the increase of internet sales, the use of such criteria has been increasing as well.

    A total ban of online sales to end consumers within the EU is, however, hardly valid because online sales are considered as passive sales (cf. Guidelines on Vertical Restraints 2010, para. 52). Restrictions below a total ban are, however, commonplace (for examples, see the post “eCommerce: restrictions on distributors in Germany”). Yet, it is still not clear how far such restrictions are permissible.

    For example, the luxury perfume manufacturer Coty’s German subsidiary Coty Germany GmbH has set up a selective distribution network and its distributors may sell via the Internet, under the following conditions. They shall

    • use their internet store as “electronic store window” of their brick and mortar store(s), thereby maintaining the products’ character as luxury goods, and
    • abstain insofar from engaging third parties as such cooperation is externally visible.

    The court of first instance decided that tsuch ban of sales via third party platforms was an unlawful restriction of competition under art. 101 Treaty on the Functioning of the European Union (“TFEU”), namely a hardcore restriction under article 4 lit. c Regulation (EU) No. 330/2010 (Vertical Block Exemptions Regulation or “VBER”). The court of second instance, however, does obviously not see the answer that clear. Instead, the court requested the Court of Justice of the European Union (CJEU) to give a preliminary ruling on how European antitrust rules have to be interpreted, namely article 101 TFEU and article 4 lit. b and c VBER (decision of 19.04.2016, ref. no. 11 U 96/14 [Kart]) – see the previous post “eCommerce: restrictions on distributors in Germany”.

    On 30 March 2017, the hearing took place before the CJEU:

    • Coty defended its platform ban, arguing it aimed at protecting the luxury image of brands such as Marc Jacobs, Calvin Klein or Chloe.
    • France – seat of several luxury brands such as Louis Vuitton, Chanel and Christian Dior –supported Coty.
    • The distributor instead argued that established platforms such as Amazon and eBay already sold various brand-name products, e.g. of L’Oréal. Accordingly, there was no reason for Coty to ban the resale via these marketplaces. Germany also supported this view by emphasizing the importance of online platforms for small and medium-sized enterprises (where, however, the share of distributors using online marketplaces is 62% much higher than in all other Member States, see the Staff Working Document, „Final report on the E-commerce Sector Inquiry“, para. 452).
    • Luxembourg – the seat of Amazon – considers a general platform ban to be disproportionate and therefore as anti-competitive (cf. Reuters’ article here).

    Interest in the outcome of the Coty case is widespread, as the active participation of the various EU Member States illustrates (in addition to the abovementioned countries, also Italy, Sweden, the Netherlands and Austria). Simply put, the question is whether owners of luxury brands may generally or at least partially ban the resale via internet on third-party platforms.

    Indications on how the court may decide have just appeared on 26 July 2017, with the Advocate General giving his opinion. The Advocate General proposes that the CJEU answers the questions referred to the court as follows:

    “(1) Selective distribution systems relating to the distribution of luxury and prestige products and mainly intended to preserve the ‘luxury image’ of those products are an aspect of competition which is compatible with Article 101(1) TFEU provided that resellers are chosen on the basis of objective criteria of a qualitative nature which are determined uniformly for all and applied in a non-discriminatory manner for all potential resellers, that the nature of the product in question, including the prestige image, requires selective distribution in order to preserve the quality of the product and to ensure that it is correctly used, and that the criteria established do not go beyond what is necessary.

    (2) In order to determine whether a contractual clause incorporating a prohibition on authorised distributors of a distribution network making use in a discernible manner of third-party platforms for online sales is compatible with Article 101(1) TFEU, it is for the referring court to examine whether that contractual clause is dependent on the nature of the product, whether it is determined in a uniform fashion and applied without distinction and whether it goes beyond what is necessary.

    (3 The prohibition imposed on the members of a selective distribution system who operate as retailers on the market from making use in a discernible manner of third undertakings for internet sales does not constitute a restriction of the retailer’s customers within the meaning of Article 4(b) of Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) on the Treaty of the Functioning of the European Union to categories of vertical agreements and concerted practices.

    (4) The prohibition imposed on the members of a selective distribution system, who operate as retailers on the market, from making use in a discernible manner of third undertakings for internet sales does not constitute a restriction of passive sales to end users within the meaning of Article 4(c) of Regulation No 330/2010.”

    The Advocate General’s complete opinion can be found at CJEU’s website here.

    The updated overview of the procedure can be found at CJEU’s website here.

    Practical Conclusions

    1. The Coty case is extremely relevant to distribution in Europe because more than 70% of the world’s luxury items are sold here, many of them online now.
    2. The general ban to use price comparison tools shall be anti-competitive – according to the Bundeskartellamt, as confirmed by the Higher Regional Court of Düsseldorf on 5 April 2017. The last word is, however, still far from being said – see the post “Asics’ Distribution of Sporting Goods: Ban of Price Comparison Tools anti-competitive & void?!?”. Besides, also the Coty case’s outcome may influence how to see such bans.
    3. The Coty case is setting the course for future Internet sales. Depending on the decision of the CJEU, manufacturers of luxury or brand-name products can continue to ban the use of marketplaces like Amazon or eBay for the distribution of their products – or not any more or only under certain conditions. If the court follows the Advocate General’s conclusions, such platform bans appear possible, provided that the platform ban depends “on the nature of the product, whether it is determined in a uniform fashion and applied without distinction and whether it goes beyond what is necessary” (see above).
    4. For further trends in distribution online, see the EU Commission’s Final report on the E-commerce Sector Inquiry and details in the Staff Working Document, „Final report on the E-commerce Sector Inquiry“.
    5. For details on distribution networks and antitrust, please see my article „Plattformverbote im Selektivvertrieb – der EuGH-Vorlagebeschluss des OLG Frankfurt vom 19.4.2016“, in: Zeitschrift für Vertriebsrecht 2016, p. 278–283.

    Manufacturers of brand-name products typically aim to ensure the same level of quality of distribution throughout all distribution channels. To achieve this aim, they provide criteria how to resell their products. With the increase of internet sales, the use of such criteria has been increasing as well.

    Best example: Asics. Until 2010, the German subsidiary Asics Deutschland GmbH supplied its distributors in Germany without applying special criteria. In 2011, Asics launched a selective distribution system called « Distribution System 1.0« . It provided, inter alia, for a general ban on distributors to use price comparison tools in online sales:

    « In addition, the authorized B … distributor is not supposed to … support the functionality of price-comparison tools by providing application-specific interfaces ( » API ») for these price comparison tools. » (translated]

    The German Federal Antitrust Authority (“Bundeskartellamt”) has determined by decision of 26 August 2015 that the ban of price-comparison tools against distributors based in Germany was void because it infringed Article 101 (1) TFEU, sec. 1 Act on Restraints of Competition (see the 196-page decision here). Reason given was that such ban would primarily aim at controlling and limiting price competition at the expense of consumers. Asics, instead, filed a complaint before the Higher Regional Court of Düsseldorf to annul the Bundeskartellamt’s decision. Asics argued that this ban was a proportionate quality standard within its « Distribution System 1.0« , aiming at a uniform product presentation.

    Now the Higher Regional Court of Düsseldorf on 5 April 2017 confirmed the Bundeskartellamt’s decision that within selective distribution systems the general ban to use price comparison tools was anti-competitive and therefore void (ref. no. VI-Kart 13/15 (V); see also the Bundeskartellamt’s press release in English):

    • In particular, the ban of price comparison tools was not exempt from Art. 101 (1) TFEU by way of teleological interpretation (“Tatbestandsreduktion”). According to the court, it was not necessary in order to protect the quality and the product image of the Asics brand (same argumentation as the Higher Regional Court of Frankfurt in its judgment of 22.12.2015, ref. no. 11 U 84/14 regarding Deuter’s functional back-up bags; the Federal Supreme Court will, however, still decide on this, ref. no. KZR 3/16). The court declared that the ban was intended to restrict the buyers, arguing that distributors would be restricted in entering into a price competition with others. The presentation of products in price comparison tools would not damage the quality or brand of Asics products. It would neither give a « flea market impression« , ostensibly also not from the simultaneous presentation of used products. Also, the ban of price comparison tools would not solve the problem of « free-riding« . In any event, the general ban of price comparison tools was not necessary and therefore unlawful.
    • The ban would also not be exempt under the Vertical Block Exemption Regulation. Instead, the court argued, the ban would limit passive sales (over the internet) to end customers, contrary to Art. 4 (c) Vertical Block Exemption Regulation (referring to the CJEU decision in the case of Pierre Fabre, 13 October 2011, ref. no. C-439/09). The “equivalence principle” (i.e. restrictions for offline as well as online sales should not be identical, but functionally equivalent) would not apply as there were no comparable functions to price comparison tools in the stationary trade.
    • Finally, the ban would also not benefit from the individual exemption under art. 101 (3) TFEU (“efficiency defence”).

     Conclusions:

    1. According to the Higher Regional Court of Düsseldorf, manufacturers might not generally prohibit their distributors from using price comparison tools. At the same time, the court also refused to grant leave to appeal against its decision – which, however, can be challenged separately by way of an appeal (sec. 74, 75 Act on Restraints of Competition).The future development of criteria limiting distributors in reselling online remains open, especially as (i) the Coty case is pending at the CJEU (see below) and (ii) the EU Commission in its sector enquiry into e-commerce currently appears to favour manufacturers of brand-name products (see below).
    2. The court has explicitly left open – arguing that they were not relevant for its decision – whether
    • the ban of search engines is anti-competitive (para. 44 et seq. of the decision);
    • the general ban of third-party platforms is anti-competitive (para. 7) – although Asics’ “Distribution System 1.0” also banned third-party platforms such as Amazon or eBay.
    1. Whether and how manufacturers of luxury or brand-name products can continue to ban their distributing via Amazon, eBay and other marketplaces in general in the future will likely be decided by the CJEU in the coming months – in the case of Coty (see our post “eCommerce: restrictions on distributors in Germany”) where a hearing has been just recently been held end of March 2017.
    2. Without prejudice to the Coty case, the EU Commission has however, in its sector enquiry into e-commerce of May 2017, declared that
    • “marketplace bans do not generally amount to a de facto prohibition on selling online or restrict the effective use of the internet as a sales channel irrespective of the markets concerned …,
    • the potential justification and efficiencies reported by manufacturers differ from one product to another …”,
    • (absolute) marketplace bans should not be considered as hardcore restrictions within the meaning of Article 4(b) and Article 4(c) of the VBER…,
    • the Commission or a national competition authority may decide to withdraw the protection of the VBER in particular cases when justified by the market situation”
      (41–43       Final Report on the e-commerce sector inquiry).

    Hence, on the basis of the EU Commission’s most recent position, there is room for arguments and creative contract drafting since even general marketplace bans can be compatible with the EU competition rules. However, the courts may see this differently in the single case. Therefore, especially the CJEU with its Coty case (see above) will likely bring more clarity for future online distribution.

    Companies can sell their products worldwide directly – through branches, subsidiaries or e-commerce – or indirectly – through agents, distributors, franchisees or commission agents.

    The German Federal Court of Justice now ruled for the first time that commission agents may also claim indemnity at terminination of their contract (decision of 21 July 2016, ref. no. I ZR 229/15).

    What are Commission Agents?

    Commission agents are self-employed business persons who are constantly entrusted with the task of concluding transactions in their own name for the account of another company, i.e. the supplier. They differ from distributors insofar as distributors buy and sell products on their own behalf and consequently bear distribution risks themselves (for details, see the Legalmondo post on Distribution Agreements in Germany and the Legalmondo post on “German” Distributor Indemnity – How to avoid it).

    What is new for Commission Agents?

    The Federal Court of Justice has clarified that – as is settled case law for distributors – also Commission Agents can claim indemnity at termination if two analogy requirements are met, namely if the commission agent

    • (i) is integrated into the supplier’s sales organization like a commercial agent; and
    • (ii) has to provide the customer data to the supplier so that the supplier continues to derive substantial benefits from the business with such customers after termination of the contract.

    With regard to the second requirement (provision of customer data), the Federal Court points out that the prerequisite is – as a general rule – fulfilled because statutory law obliges the commission agent to provide the customer data (sec. 384 para. 2 German Commercial Code). As a result, the customers “belong” to the supplier by law, without any specific contractual obligation.

    If distribution concerns “anonymous mass business” (i.e. where customers pay cash and the sales intermediary does not know customer names because of any CRM measures), it may be impossible for the commission agent to provide respective customer data. In such case, it shall according to the Federal Court suffice if the commission agent provides data « on the sale process per se » – so that the supplier can estimate which type of goods is in demand where (quite different from the requirements regarding distribution of high-quality products such as cars, fashion or electronics).

    Can the parties contract out?

    Yes, the obligation to provide customer data can be contracted out. Nevertheless, indemnity claims can currently not 100% safely excluded by doing so because the Federal Court leaves explicitly open whether commission agents may also claim indemnity if the supplier has the mere factual chance to use the customer data. Hence, to be on the safe side, one has to exclude also the chance to use the data (see “Practical information” below).

    What about franchisees?

    As regards franchisees as sales intermediaries, the Federal Court confirms that mere factual continuity of the customer base does not suffice to result into an indemnity claim (thus confirming the decision against the franchisee of the traditional bakery chain “Kamps” of 5 February 2015, ref. no. VII ZR 315/13).

    Practical tips 

    The provisions protecting self-employed commercial agents may apply analogously to commission agents.

    As regards existing agreements under German law: if the two analogy requirements are met, indemnity claims at termination are quite likely.

    As regards future agreements under German law:

    • In general, the claim for indemnity can likely be avoided by excluding the commission agent’s obligation to provide the customer data. Such exclusion should, however, be clearly formulated. Alternatively – or, to be on the safe side, additionally –, the supplier may oblige himself to block and or delete the customer data at terminaton of the contract with the commission agent.
    • Alternatively, the right to indemnity can be avoided by choosing another law and jurisdiction (taking into account the risk that the “German” indemnity claim might nevertheless be applied by as overriding mandatory provision in the sense of Article 9 of the Rome I Regulation).
    • Finally, if the commission agent acts outside the European Economic Area, the indemnity claim can be excluded by a simple waiver (according to analogue application of sec. 92c German Commercial Code).

    In distribution contracts, manufacturers and suppliers tend to restrict distributors in selling the goods online (I.). Though this practice is quite common, there is no clearly established rule if and which restrictions are allowed by antitrust law (II.), especially in case of luxury goods within selective distribution networks (III.).

    Now, it is up to the Court of Justice of the European Union (CJEU) to give a preliminary ruling on the internet sales restrictions (IV.). In the meantime, the question is: how to deal with resale restrictions now (V.).

    Resale Restrictions in E-Commerce

    E-Commerce keeps growing – worldwide and also in Germany, where it accounts for about 10% of total retail turnover (according to the 2016 figures from “Handelsverband Deutschland” [Trade Association of Germany]). Also manufacturers of renowned brands try to take advantage of the market opportunities of e-commerce, and at the same time try to preserve their brand’s image. Consequently, manufacturers have imposed several kinds of restrictions on their distributors, in particular:

    • total ban of internet sales,
    • prohibition of sales via third parties’ online platforms (especially “marketplaces”),
    • operation of a brick and mortar shops as a prerequisite for internet sales,
    • dual pricing, or
    • quality criteria for internet sales.

    Antitrust limits to online resale restrictions 

    Antitrust authorities, however, however, have lately put such restrictions under scrutiny and enforce antitrust rules in e-commerce as well. Accordingly, there have been quite a few court judgments and antitrust authorities’ decisions, both in favour of and against such restrictions, e.g. on:

    • bags (“Scout” re third party platforms),
    • sportswear (“Asics”re price comparisons, logo clause, “Adidas” re third party platforms),
    • electronics (“Sennheiser” and “Casio”both re third party platforms),
    • luxury cosmetics / perfumes (“Coty” re price comparisons, third platforms), or
    • software (“Google” requiring manufacturers of to pre-install apps, cf. European Commission’s press release of 20 April 2016).

    Now, the luxury cosmetics case of Coty Germany has reached the European level.

    The current Coty Case 

    Facts of the case are as follows: The supplier (Coty Germany GmbH) has set up a selective distribution network. Distributors may sell via internet, under the following restrictions. They shall

    • use their internet store as “electronic store window” of their brick and mortar store(s), thereby maintaining the products’ character as luxury goods, and
    • abstain insofar from engaging third parties as such cooperation is externally visible.

    The parties’ intentions: The supplier wants to enforce especially the last restriction, stopping a distributor (Parfümerie Akzente GmbH) from selling supplier’s products via Amazon’s marketplace. The distributor, obviously, intends to be free from such restrictions.

    The court of first instance, the district court of Frankfurt, decided that the ban of sales via third party platforms is an unlawful restriction of competition under article 101 Treaty on the Functioning of the European Union (“TFEU”), namely a hardcore restriction under article 4 lit. c Regulation (EU) No. 330/2010 (Vertical Block Exemptions Regulation or “VBER”). The court of second instance, the Higher Regional Court of Frankfurt, however, does obviously not see the answer that clear. Therefore, the court has requested the Court of Justice of the European Union (CJEU) to give a preliminary ruling on how European antitrust rules have to be interpreted, namely article 101 TFEU and article 4 lit. b and c VBER (decision of 19.04.2016, ref. no. 11 U 96/14 [Kart]).

    Questions referred to the CJEU

    The CJEU has filed the case as “Coty Germany” (reference no. C-230/16). These are the four questions on which the CJEU is requested to answer:

    1. Do selective distribution systems that have as their aim the distribution of luxury goods and primarily serve to ensure a ‘luxury image’ for the goods constitute an aspect of competition that is compatible with Article 101(1) TFEU?

    If the first question is answered in the affirmative:

    1. Does it constitute an aspect of competition that is compatible with Article 101(1) TFEU if the members of a selective distribution system operating at the retail level of trade are prohibited generally from engaging third-party undertakings discernible to the public to handle internet sales, irrespective of whether the manufacturer’s legitimate quality standards are contravened in the specific case?
    1. Is Article 4(b) of Regulation (EU) No 330/2010 to be interpreted as meaning that a prohibition of engaging thirdparty undertakings discernible to the public to handle internet sales that is imposed on the members of a selective distribution system operating at the retail level of trade constitutes a restriction of the retailer’s customer group ‘by object’?
    1. Is Article 4(c) of Regulation (EU) No 330/2010 to be interpreted as meaning that a prohibition of engaging third-party undertakings discernible to the public to handle internet sales that is imposed on the members of a selective distribution system operating at the retail level of trade constitutes a restriction of passive sales to end users ‘by object’?

    How to deal with Restrictions now

    There is quite some case law in Germany about the ban on online sales, some decisions in favour, some against. Online sales restrictions have lately also been under scrutiny of the German Bundeskartellamt (federal antitrust authority), which in general rather takes a critical position against such restrictions, including restrictions on selling via third-party platforms.

    A decision of the highest German court is, however, still missing. Still missing is therefore also a clear answer to the question which restrictions suppliers and distributors can validly agree upon, especially in case of luxury goods. The CJEU’s preliminary ruling should provide such clarity.

    Until the CJEU’s preliminary ruling, the current legal situation should be as follows – based especially on the Guidelines on Vertical Restraints 2010 (which do not have the quality of a law and do not bind the courts, but set out the principles which guide the European Commission’s assessment of vertical agreements and thus in principle bind the European Commission itself):

    1. A total ban of online sales is hardly valid because online sales are considered as passive sales (cf. Guidelines on Vertical Restraints 2010, para. 52). Hardly an option either is restricting the webstore’s language options because it does not change the passive character of such selling (cf. Guidelines on Vertical Restraints 2010, para. 52). The same goes for restrictions on the turnover made by sales via the internet.
    1. Allowed should, however, especially be
    • qualitative requirements for the design of e-commerce platform (without resulting in a total ban and without restricting the use of languages),
    • the restriction of active sales into the exclusive territory or to an exclusive customer group reserved to the supplier or allocated by the supplier to another buyer (article 4 lit. b (i) VBER), e.g. territory-based banners on third party websites, cf. Guidelines on Vertical Restraints 2010, para. 53),
    • general qualitative restrictions for becoming a member of the supplier’s selective distribution system, e.g. requiring that distributors have one or more brick and mortar shops or showrooms (Guidelines on Vertical Restraints 2010, para. 54, 176).

    The CJEU’s decision will bring more clarity – Legalmondo will keep you updated on the Coty Case and possible implications on online distribution.

    Agency agreements

    Agency Agreements are regulated by the Agency Agreements Law 12/1992 (which has transposed Directive 86/653/EEC into Spanish law).

    The main characteristic of the agency agreement is that through this an individual or a legal entity (the Agent) agrees with the Principal on a continuous or regular basis and against payment of a consideration to be agreed, to promote commercial acts or transactions for the account of such Principal not assuming the risk and hazard of such transactions, unless otherwise agreed.

    Commercial relationship: Agents are independent intermediaries who do not act in their own name and behalf, but rather for and on behalf of one or more Principals.

    There is no labour but commercial relationship between the Principal and the Agent.

    It is presumed that the agency relationship is as a matter of fact. On the contrary, there is a labour relationship when the agent in not entitled to organize by his own his business activity nor to fix its own timetable.

    Agents Obligations: Agents must, on his own or through his employees, negotiate and, if required by contract, conclude on behalf of the Principal, the business and transactions he is instructed to handle. Agents are subject to a number or obligations, including the following:

    • An agent cannot outsource his activities unless expressly authorized to do so.
    • An agent is authorized to negotiate agreements or transactions included in the agency agreements, but can only conclude them on behalf of its principal when expressly authorized to do so.
    • An agent may act on behalf of several principals, unless the related goods or services are similar or identical, in which case express consent is required.

    Main obligations of the Principal are:

    • To act loyally and in good faith in its relations with the agent.
    • To provide the agent with all the documentation and the information which he may need to develop his activity.
    • To pay the agreed consideration.
    • To accept or reject transactions proposed by the agent.

    The agency agreement must always be remunerated/paid. The consideration may consist of a fixed amount, a commission or a combination of both.

    Indemnity: the agent is entitled to:

    1. A damages and prejudices indemnity if the contract is terminated by the Principal without cause (not to apply when the termination takes place at the end of the agreed Term).
    2. A compensation for clientele/goodwill if the contract is terminated without cause or terminated through expiration of the agreed term provided the agent has contributed with new clients to the Principal business or increased the transactions with the Principal client portfolio and provided that the Principal can benefit in the future of such activity from the agent. Such compensation cannot exceed the average of the payments/commissions received by the agent throughout the last five years or throughout the contract effectiveness if the duration has been below five years.

    Non Competition:  non-competition provisions (i.e., provisions restricting or limiting the activities that can be carried out by the agent once the agency agreement has been terminated) have a maximum duration of two years from the termination of the agency agreement and must be: agreed in writing, limited to the geographical area where the agent has been trading and related to goods or services object of the agency agreement.

     

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    Distribution / Concession agreements

    There is not a specific regulation for distribution agreements; therefore the Civil Code general contract regulation applies. Through this type of contract the Distributor undertakes toward the Principal – on a continuous or regular basis and against payment of a consideration to be agreed – to promote commercial acts or transactions for the account of such Principal, but assuming the risk and hazard of such transactions.

    In practice, distribution agreements are often confused with agency agreements. Nevertheless, they are different and have distinct regulations and characteristics.

    1. Under a distribution agreement, the distributor undertakes to purchase goods belonging to the other party for resale. While under the agency agreement the agent is paid a commission but not purchases and resales.
    2. Under the distribution agreement the Distributor assumes the entire risk of the transaction while under the agency agreement the risk remains with the Principal.

    Commercial relationship: under the distribution agreement the link is completely commercial; the risk of a labour relationship being declared is much lower than under the agency agreement due to the fact of the Distributor higher independency and autonomy.

    The distribution agreement may be granted under an exclusive or non-exclusive basis. The exclusive may work on both sides: the distributor could be contractually liable to only work with the principal (or not) and the Principal could be contractually bound to only work with the distributor on a given territory.

    Parties Obligations: while the Agency Agreement is governed through the Agency Agreements Law (which includes mandatory rules), Distribution Agreements are subject to the Civil Code and therefore the “freedom principle” applies in order to set forth the parties obligations regime.

    The Distributor is not paid by the Principal. He makes his benefit through the difference between purchase and sale price.

    Indemnity: although the clientele/goodwill indemnity only applies to the agency agreements, the Supreme Court has in various sentences decided that the Distributor could have the right to be paid such an indemnity provided similar provisions as those stated at the Agency Agreements law (see above) where met on an analogy basis.

    Non Competition:  non-competition provisions (i.e., provisions restricting or limiting the activities that can be carried out by the distributor once the distributor agreement has been terminated) are valid provided that they are expressly agreed through the agreement and its reasonability can be defended and sustained (in terms of territory, term and consideration).

    Commission agency agreements

    Through this type of contract, the commission agent undertakes to perform or to participate in a commercial act or agreement on behalf of the Principal.

    Commission agents may act:

    • In their own name, acquiring rights against the contracting third parties and vice versa or
    • On behalf of their principal, who acquires rights against third parties and vice versa

    Obligations of commission agents:

    1. To protect interests of the Principal as if they were their own and to perform their engagement personally. Commission agents may delegate their duties if authorized to do so and may use employees at their own liability.
    2. To account for amount that they have received as commission, to reimburse any excess amount and to return any unsold merchandise.
    3. Commission agents are barred from buying for their own account or for the account of others, without the consent of their principal, the goods that they have been instructed to buy.

    Commission: The principal undertakes to pay a commission to the commission agent, usually linked and only accrued if the Transaction is closed.

    Differences and similarities between agency agreements and commission agency agreements.

    • Main similarity: In both cases, and individual or legal entity undertakes to pay another compensation for arranging a business opportunity for the former to conclude a legal transaction with a third party, or for acting as the former’s intermediary in concluding the transaction.
    • Main difference: Agency agreements involve an engagement on a continuous or regular basis, whereas commission agency agreements involve occasional engagements.

    Franchise Agreements

    Franchise Agreements are governed through (i) the Law 7/1996, of January 15, regulations retail trade, regarding the basic conditions for the franchise activity and creating the Register of Franchisors; (ii) Royal Decree 201/2010, of February 26, regulating the exercise of the commercial activity under a franchise arrangement and the communication of information to the Register if Franchisors; and (iii) Royal Decree 378/2003, which refers to Regulations (EC) No. 2790/1999, of December 22, 1999, relating to the application of Article 81(3) of the Treaty to certain categories of vertical agreements. Through the Franchise Agreement the franchisor grants a right to, and imposes an obligation on, its individual franchisees, for a specific market, to pursue the business or commercial activity (sale of goods, services or technology) previously carried out by the Franchisor with sufficient experience and success, using the knowhow, system, trademarks, IP rights etc. defined by the Franchisor.

    The Franchise Agreement entitles and obliges the Franchisee to use the brand name and/or trade or service mark for the goods and/or services, the know-how and the technical and business methods, which must be specific to the business, material and unique, the procedures and other intellectual property rights of the Franchisor, backed by the ongoing provision of commercial and technical assistance under, and during the term of, the relevant franchising agreement between the parties, all of the above regardless of any supervisory powers conferred on the Franchisor by contract.

    Formalities: In Spain, prior to start franchising activities, Franchisors must register in a public administrative Register of Franchisors.

    Although the very short regulation of the Franchise Agreement leaves ground for the freedom principle, usually the franchisee pays a royalty to the Franchisor (commonly linked to the volume of sales but could also be a fix royalty), and a publicity royalty (so as to contribute to the Principal publicity cost of which the franchisee benefits).

    Non Competition: throughout the life of the agreement, non-competition clauses (reciprocally) are common and admissible; after the termination of the contract, the Spanish Court usually admits the validity of the one year non-competition clause but limited to the location where the franchise had been working.

    There are two ways to enter and do business in the Dominican Republic: By establishing a separate Dominican business entity (“subsidiary”) or by registering a branch of a foreign company (“branch”). In addition, business relationships may be set up under a commercial contract in form of a joint venture, agency, distribution or similar agreements that comply with Dominican Republic legal and regulatory requirements, for the recognition and validity of business entities and commercial agreements.

    Another option consists of a Consortium agreement between foreign and Dominican companies intended to execute projects in which the Dominican State participates.

    ESTABLISHING A DOMINICAN SUBSIDIARY

    Usually start-up and medium business entities in the Dominican Republic are incorporated as a Limited Liability Company or Sociedad de Responsabilidad Limitada (S.R.L.). The Sociedad de Responsabilidad Limitada or S.R.L. is the most common and efficient form of organizing a company in the Dominican Republic and is often chosen by large foreign companies as the legal form for their subsidiaries.

    S.R.L.’s offer the following advantages: The partners receive limited liability, meaning that they only respond for company debts up to the limit of their contributed capital. Shareholders can be legal persons or individuals. SRL’s is manager managed with no board of directors required; managers must be individuals, and can be Dominicans or foreigners. Company can attract capital through the issuing of new shares which may be ordinary or preferred shares.

    SRL’s may effectuate any type of activities that are legal in trade and there are no restrictions in the Dominican Republic on the legal currency. The United States Dollar is exchanged freely with the Dominican Peso, as well as any other currency.

    SRL’s also serve as a holding company and may keep assets as their property, contributed by the partners or acquired by the same, both national and international, movable and real estate properties.

    SRL can outlive their founders. Their quotas may be freely transferred among partners, by way of succession, in case of liquidation of marital community assets, among ascendants and descendants under the rules established in the By Laws.

    The main steps in establishing a Dominican Limited Liability Company (SRL) are the following:

    1. Make a search before the Dominican Trademark Office, draft and file the request registration to obtain a trade name for the Dominican Company.
    2. Draft by-laws, minutes of incorporation meeting and related incorporation documents. These may be drafted as private documents or as a notary public act for signing by the partners and managers for legalization by notary public;
    3. Pay the incorporation taxes of one percent (1%) of the company’s registered capital before the corresponding Dominican Tax Administration (DGII);
    4. Prepare the business register application and file it along with the corresponding company incorporation documents after payment of business registration fee to obtain the company’s business registration certificate;
    5. Prepare and file the request to obtain the company’s Tax Identification Number (RNC);
    6. Register at DGII’s web page to obtain access and request fiscal invoice numbers (NCF);
    7. Enroll employees before the treasury of social security (TSS) and the ministry of labor.

    The following schedule serves as a guidance of the time required to form a new Dominican Company:

    Register of company trade name 5 to 7 days
    Drafting incorporation documents plus 2 to 5 days
    annexes (Incorporation Meeting, By-laws, Business Register application)
    Paying incorporation taxes on capital less than 1/2 day
    Incorporation Meeting of shareholders less than 1/2 day
    Legalizations by Notary Public less than 1/2 day
    Registration in Business Register 2 to 5 days
    Registration as Tax Contributor (RNC) 10 to 15 days

    The following founding documents are needed to form the company:

    1. Business Register request of registration form for Dominican Company, duly signed by the person that is authorized by the company or by an empowered attorney, for which a copy of the power of attorney shall be provided.
    2. By- Laws/Articles of Incorporation in private or notary act form containing the details required in legislation (including company name, registered domicile and purposes.
    3. Attendance List and Minutes of the Incorporation Meeting.
    4. Updated List of Partners/ Shareholders
    5. Report of the Commissary of Contributions, if applicable.
    6. Receipt of payment of the tax on the incorporation of legal entities.
    7. Photocopies of the Dominican Identity and Electoral Card and if foreign, Passport photo page or other official document with visible photo from the country of origin for the partners, managers and account commissary.
    8. Copy of the Trade Name Certificate issued by the Dominican Trademark Office.
    9. Declaration of acceptance of the appointments by the managers if this is not apparent from the by-laws and minutes of the incorporation meeting.

    REGISTERING A DOMINICAN BRANCH

    Foreign companies interested in doing business in the Dominican Republic (DR) may register a branch in the DR. Under Dominican law, a registered foreign company branch office can enter into contracts and execute and settle transactions in its own name, and can sue and be sued at its place of business.

    In order to successfully complete a DR branch registration, the foreign company documents shall prove its valid incorporation and existence, contain all general and specific information as well as proper authorizations; corporate documents shall be certified, notarized and duly legalized by all applicable foreign and local authorities according to local and international law. The Dominican Republic is a member of the 1965 convention of The Hague or Apostille.

    The registration of a foreign company branch before local authorities will enable the owners of the foreign entity to conduct business in a similar way and equal rights as a DR business entity.

    Branches of foreign corporations are in general treated the same way as legal entities for tax purposes. They are however not subject to issuance stamp tax upon formation. Profits of a Dominican branch office are exempt from taxation (Dominican withholding tax) in the partner-nation under the double-taxation agreements which Dominican Republic has signed.

    To register a branch in the DR, it is necessary to provide certified company incorporation, shareholder and manager verification and a power of attorney to qualified attorneys who will draft, prepare and file the request of branch registration at the business register and request a Taxpayer Identification Number (TIN) in the Dominican Republic.

    Usually, the registration of a branch to pursue general, unregulated and taxed commercial activities may be accomplished by pursuing the following:

    1. a) Business Registry: The Company should be registered in the Business Registry of the Chamber of Commerce where its local domicile will be located. A registration fee is calculated based on the authorized capital. In order to obtain this registry, the company must file all documents which evidence its proper incorporation in the home country and that representatives are fully authorized to register the foreign company branch.
    2. b) TIN: Issued by the Tax Administration. It is a number that shall serve for identifying the business’s taxable activities and for the control of the duties and obligations derived therefrom. To obtain such registration, the company shall file copy of the Business Registry and the corporate documentation that may be required by such Tax Administration. It shall also present a valid corporate domicile in the DR which may be subject to verification.

    USING DOMINICAN COMMERCIAL AGENTS AND DISTRIBUTORS

    A foreign supplier of goods and services may choose to enter the Dominican market by selling his/her products through Dominican agents and distributors or representatives. The different channels of selling are subject to different legal frameworks.

    Contracts involving Dominican agents and distributors are generally governed by the Civil Code of the Dominican Republic, whose freedom of contract principle allows the parties to choose freely the form, terms and conditions of their agreement as well as by the Code of Commerce and general commercial practices and rulings interpreting the scope of agency, unless said agreement is registered under Law 173 Protecting Importing Agents of Merchandises and Products of April 6, 1966, as amended (“Law 173”).

    Local agents and distributors often want to register their Agreements with foreign enterprises under Law 173, while foreign companies that do not have a free trade agreement with the Dominican Republic, are often unaware of this possibility and without adequate previous legal counsel, may later find out a Law 173 registration has been made.

    Once registration has been obtained, the relationship of the local licensee (a.k.a. “concessionaire”) with its grantor becomes governed by the provisions of Law 173 of 1966, which provides the local concessionaire with the following rights:

    • The right to initiate legal actions against the grantor or a third party for the purpose of preventing them from directly importing, promoting or distributing in Dominican Territory the registered products or services of the grantor;
    • The right to file suit for damages against both the grantor and any new appointee for substitution of the local concessionaire, including the right to be indemnified for unjust termination in accordance with the formula and for the concepts provided by Article 3 of Law 173.
    • The right to an automatic renewal of the contract or a mandate of continuation of the relationship existing thereof, even if the termination clause of a registered contract provides otherwise.
    • Unilateral termination by the grantor of the local concessionaire’s rights under Law 173 of 1966 is only possible if made for a “just cause”, pursuant to the definition of just cause provided by Law 173 of 1966.
    • The Law provides exclusive jurisdiction to the courts of the Dominican Republic.

    Law 173 protects Dominican agents and distributors of foreign enterprises. Its objective is to protect exclusive and non-exclusive agents, distributors and representatives from being unilaterally substituted or terminated without just cause by foreign entities, after favorable market conditions have been created for them in DR.

    Law 173 defines as grantor the individuals or legal entities who the Dominican agents and distributors (i.e. concessionaires) represent, who conduct business activities in the interest of the grantor or of its goods, products or services, whether the contract is granted directly by grantor, or by means of other persons or entities, acting in grantor’s representation or in their own name but always in its interest or of their goods, products or services.

    The author of this post is Felipe Castillo.

    When entering new markets, there are different distribution strategies to choose from (I.). In retail, car and wholesale trade, distributorship agreements are quite common (II.). In international distributorship agreements, the parties may choose the applicable law (III.). Whether chosen or not, the applicable law may contain unpleasant surprises like goodwill indemnity for distributors under German law (IV.). Such surprises can be avoided – the post shows how, considering the latest 2016 decisions by the German Federal Court of Justice (V.).

    I.       Entering new Markets

    When entering new markets, different structures exist. Which one to choose depends on the strategy desired: from direct sales with own employees or sales agents to indirect distribution via distributors, franchisees, commission agents, the sale of white label products or licensing with the scope of manufacture and sale by third parties. For details on distribution in Germany see the Legalmondo post on “Distribution agreements in Germany”.

    II.      Distributorship Agreements

    In retail (especially electronics, cosmetics, jewelery, and sometimes fashion), car and wholesale trade, distributorship systems are particularly common – regardless of whether the sales intermediary is referred to as a “distributor”, “trader”, “dealer”, “specialist retailer”, “concessionary” or “authorized dealer”. Distributors are self-employed, independent contractors who constantly sell and promote the products in their own name and on their own account. They bear the sales risk, for which – vice versa –manufacturers’ margins are rather low. Distributors are generally less protected than commercial agents (to whom within the European Union, the Directive on self-employed commercial agents of 1986 applies, as implemented in the national law of the respective EU Member State). Contrary to agreements with sales agents, distributorship agreements are restricted by antitrust law. Restrictions of competition are, in principal, prohibited, unless they do not appreciably restrict competition under Article 101 TFEU (Treaty on the Functioning of the European Union). For details on distribution online see the Legalmondo post on “Restrictions on Distributors in E-Commerce”.

    III.     Distribution international and Choice of law

    When a manufacturer distributes its products or services internationally, the manufacturer’s and the distributors’ national laws « collide ». Frequently, the parties will choose the applicable law in order to solve such collision and create legal certainty. Typically, each party will try to take its « own », and perhaps not more favourable, but at least well-known law abroad. Alternatively, the parties may agree on the law of a “neutral”, third country – e.g. Swiss law between an Italian manufacturer and a German distributor, which, by the way, also gives more freedom as regards standard form contracts. Even with a choice of law, there can nevertheless be unpleasant surprises in international trade – approximately as in the saying « different countries, different customs« :

    • First, because a choice of law may not be effective – as, for example, in some South American countries and in the Middle East.
    • Second, because there may be internationally mandatory provisions (“overriding mandatory provisions”, « lois des police » or « Eingriffsnormen« ) which are so important for safeguarding a country’s public interests that they practically « override » the choice of law, i.e. apply despite the otherwise effective choice of law.
    • Third, because the chosen law may contain unpleasant surprises, such as the German goodwill indemnity for distributors.

    IV.     “German” Distributor Indemnity

    Also German law may provide surprises – in particular in form of the distributor’s claim to goodwill indemnity at termination. Though there are no explicit rules on distributors under German law, there is extensive case law and various agency rules apply also to distributors if two conditions are given:

    The distributor is

    • integrated into the supplier’s sales organisation; and
    • obliged (due to agreement or factually) to forward customer data during or at termination of contract.

    If given, the distributor is basically also entitled to claim goodwill indemnity at termination (under the same conditions as an agent). The calculation of such goodwill indemnity is, in general, based on the distributor’s margin made in the last year with new customers brought by the distributor or with existing customers where the distributor has significantly increased the business. Details vary; different ways of calculation are accepted by German courts.

    V.      How to avoid “German” Goodwill Indemnity for Distributors

    For a long time, it was disputed whether the distributor’s goodwill indemnity under German law, granted in analogue application of agency law (sec. 89b German Commercial Code) could be excluded in advance (i.e. before termination of contract) when the distributor operates outside Germany, but in the European Economic Area (“EEA”).

    The question was now put to the test before the German Federal Court (decision of 25/02/2016, ref. no. VII ZR 102/15). The defendant, established in Germany, manufactured equipment for the electrical industry. The plaintiff was operating as a distributor in Sweden and other EEA States. The distributorship agreement provided for German law; any postcontractual compensation or remuneration was excluded. After termination by the defendant, the plaintiff claimed goodwill indemnity as distributor. The plaintiff did not succeed in the lower courts, but the German Federal Court now decided in the plaintiff’s favour (as, by the way, in a similar matter did the Higher Regional Court of Frankfurt on 06/02/2016, ref. no. 11 U 136/14 [Kart]).

    The decision focuses on the territorial scope of the provision on goodwill indemnity (sec. 89b of the German Commercial Code). Pursuant to that provision, the agent’s goodwill indemnity cannot be excluded in advance. In settled case law, this provision may apply analogously to distributors (see above). However, it was disputed whether the distributor’s goodwill indemnity is also mandatory if the distributor operates outside Germany, but within the EU / EEA. The German Federal Court has now confirmed that – arguing especially with (i) the historic development of agency law and (ii) its objective to protect the agent respectively the distributor: also distributors operating in other EEA countries than Germany were to be protected as those operating in Germany; the relevant provision was intended to protect against unfavorable agreements resulting from economic dependence on manufacturers / suppliers. Finally, the Federal Court of Justice deemed it not necessary to refer this question to the Court of Justice of the EU because it did not fall within the scope of the Directive on self-employed commercial agents of 1986.

    The new decision is consistent with existing case-law: it was quite likely that the German Federal Court would continue on its way of largely applying agency law to distributors by analogy.

    Five practical tips for contractual practice and future contract drafting:

    1. Goodwill indemnity is a cost which arises only in the wake of a distributorship agreement, but should be considered beforehand – and also, if such cost can be avoided or stipulated differently beforehand (e.g. stipulate entry payments).
    1. If the distributor operates outside the EEA, the claim for goodwill indemnity can be excluded at any time, i.e. already in the distributorship agreement itself (sec. 92c German Commercial Code; cf. Higher Regional Court of Munich, decision of 11/01/2002, ref. no. 23 U 4416/01).
    1. If the distributor operates in the EEA, German law applies and the two above conditions are met, the distributor’s claim to goodwill indemnity cannot be excluded before termination.
    1. Distributor’s German goodwill indemnity can be excluded beforehand especially if the parties

    (i) exclude the transfer of the customer data; or

    (ii) oblige the manufacturer to block, stop using and, if necessary, delete such customer data at termination (German Federal Court, decision of 05/02/2015, ref. no. VII ZR 315/13); or

    (iii) chose another law (and, consequently, another jurisdiction or arbitration).

    1. Alternatively, the parties may cushion the claim for goodwill imdemnity by agreeing on “entry payments” (“Einstandszahlungen”) – which could even be deferred until termination and then offset against the claim for goodwill indemnity. However, such entry payment should not be unreasonably high (Federal Court of Justice, decision of 24/02/1983, ref. no. I ZR 14/81), respectively it should correspond to a value in return, e.g. a particularly high distributor discount or a very long contract term (Higher Regional Court of Munich, decision of 04/12/1996, ref. no. 7 U 3915/96, Higher Regional Court of Saarbrücken, decision of 30/08/2013, ref. no. 1 U 161/12). In short: the manufacturer must prove that the parties would not have agreed a higher commission, even without the entry payment (as just decided by the German Federal Court on 14 July 2016, ref. no. VII ZR 297/15).

    Agency (regulations, duration, termination, indemnities – if any)

    Instead of direct distribution (by setting up a branch, a subsidiary or via e-commerce), one can also distribute ones’ products and / or services indirectly. Indirect distribution especially includes agents, distributors, franchisees or commission agents.

    Self-employed commercial agents solicit customers and can (but do not have to) have the authority to conclude a contract on supplier’s behalf. The supplier sells directly to end customers and bears the distribution risk, but may also control the margins. Contrary to employees, the agent’s remuneration (“commission”) can be exclusively profit-oriented, i.e. remunerated only in case of successfully soliciting customers, and in relation to the turnover. Commercial agents have to provide detailed market reports. If the commercial agent acts in the EU, protective agency law applies, including the indemnity claim.

    An agent would be treated as a supplier’s employee if the agent does not act independently. An agent acts independently if the agent – according to the overall picture of contractual rules and factual activity – freely organizes his activities and working time (sec. 84 (1) 2 HGB). This goes mutatis mutandis for other types of distribution partners. The treatment as employee especially has the following consequences:

    • employee protection, e.g. limited right of termination under Dismissal Protection Act;
    • continued payment of salary during public holidays, illness and holidays;
    • minimum wage under Minimum Wage Act of 11 August 2014;
    • obligation to pay contributions to social security;
    • income tax on salary;
    • adherence to worker participation and collective bargaining agreements if applicable.
    • exclusive competence of labour courts if the employee has, during the last 6 months of activity, earned an average amount which does not exceed EUR 1,000 per month.

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    Agency contracts are governed by sec. 84–92c German Commercial Code (HGB). The commercial agent is, next to the employee, strongly protected, e.g. by mandatory rules on remuneration, minimum notice periods, and goodwill indemnity. As regards remuneration, the agent is entitled to

        • “del credere commission” if the agent assumes liability for fulfilment of businesses (sec. 86b HGB);
        • an advance on commission once the principal has performed its obligation (sec. 87a para. 1 HGB);
        • accounting within maximum periods of three months (sec. 87c (1) HGB);
        • commission irrespective of delivery and payment, unless the principal is not responsible for non-delivery (sec. 87a ( 3) HGB);
        • request information, statements of account, an excerpt from the books, and inspection by an auditor (sec. 87c HGB).

    These rules are mandatory and cannot be contracted out. Further details on the payment of commission (if not agreed otherwise) are set in sec. 86b et seq. HGB.

    Besides, both parties have to safeguard each other’s interests (sec. 86, 86a, 90 HGB and sec. 242 BGB). Theagent is especially obliged to

      • check the customers’ creditworthiness,
      • inform the supplier immediately about any business procured,
      • keep confidential any information obtained during his activity, and
      • abstain from acting for the supplier’s competitors.

    Agency agreements can be terminated without cause if contractually agreed. However, mandatory notice periods have to be observed, staggered pursuant to the contractual term: from one month in the first year to six months after five years (sec. 89 ( 1) HGB). The notice periods cannot be shortened, and, in case of extension, the supplier’s notice period must not be shorter than the agent’s one (sec. 89 (2) HGB). A cause is only required if the agreement is terminated without notice period (sec. 89a HGB). It is given if the terminating party cannot reasonably be expected to continue the relationship until ordinary termination (considering all circumstances of the single case and weighing the interests of both parties).

    The agent is entitled to indemnity if the agent has brought new customers or has significantly increased the business volume with existing customers, which results in benefits for the principal, and if such payment of indemnity is equitable under the given circumstances (sec. 89b HGB). Indemnity is calculated on basis of the commission earned during the last 12 months of activity, earned with new customers, and existing customers towards whom the agent has substantially increased the sales. Indemnity is capped to a maximum of the past five year’s average annual commission (sec. 89b HGB). The claim cannot be waived before termination, but is excluded if the agent has not notified the principal within one year following termination. Indemnity is not payable if

    • the agent terminated the contract (unless justified by circumstances attributable to the principal or because of the agent’s age or illness),
    • the principle has terminated the contract because of default attributable to the agent (which would justify immediate termination for cause), or
    • the agent, with the principal’s agreement, assigns and transfers its rights and duties under the agency contract to another person.

    Indemnity cannot be contracted out, unless the agent acts outside EEA (sec. 92c HGB).

    Antitrust law does generally not apply to the agent-relationship, provided that the principal bears the commercial and financial risks related to selling and purchasing the products or services (Guidelines on Vertical Restraints of 10/05/2010, para. 12 et seq., 18, 49). Therefore, suppliers can control the price for which they sell the products / services via agents. Special limits apply only to post-contractual non-compete-obligations if concluded before termination. They must be limited to a two-year-maximum, to the agent’s territory or customers, and to the contractual products or services. Further, they must be done in writing and delivered to the agent. The principal has to pay an indemnity for the non-compete obligation’s term (sec. 90a HGB).

    Generally, the parties are free to choose the applicable law (art. 3 Rome-I-Regulation). If, however, all elements relevant for the choice of law are located in another country than that of the chosen law, the choice of law shall not prejudice the provisions which cannot be derogated from by agreement (art. 3 (3) and (4) Rome-I-Regulation).

    Overriding mandatory provisions of the forum’s law cannot be avoided by choosing another law. The courts may also give effect to overriding mandatory provisions of the country where the contractual obligations have to be performed (cf. art. 9 Rome-I-Regulation). Overriding mandatory rules are especially most of the protective agency law provisions. If, therefore, the agent acts within the EU, the agent’s claim for goodwill indemnity (based on the EU Directive on self-employed commercial agents of 1986) can hardly be contracted out – even if the parties choose a foreign law (cf. European Court of Justice, decision of 09/11/2000 [“Ingmar”], concerning, however, the former Rome Convention on Law Applicable to Contractual Obligations of 1980). Arguments against applying the same principles under the Rome-I-Regulation exist, but there is yet no case law which favors such interpretation.

    Generally, the parties are free to choose a court, especially if

    Besides, the parties may also choose arbitration (sec. 1029 et seq. ZPO, and art. 1 (2)d Brussels-Ia-Regulationand art. 1 (2)d Lugano-II-Convention).

    However, a choice of court or arbitration can hardly avoid overriding mandatory provisions, as ruled by the Higher Regional Court in Munich (decision of 17/05/2006), and confirmed by the BGH (decision of 05/09/2012).

    Suppliers and distribution partners are free to use any means of dispute resolution, especially out-of-court-negotiation, mediation, arbitration, litigation. Restrictions exist only insofar as overriding mandatory provisions can hardly be avoided by means of dispute resolution (see above). Suppliers and distribution partners can expect fair treatment in German courts since the judges are well-trained, have been determined beforehand, and the parties are entitled to due process of law (art. 101, 103 German Constitution). Advantages of resolving disputes in Germany are (inter alia) that court rulings are quite foreseeable and that court proceedings are quite quick (8.2 months for proceedings in the district courts according to the latest statistics).

    Distribution or Concession of sale

    Distributors buy and sell products on their own behalf. Consequently, they bear distribution risks, and, in return, gain profit from the difference between purchase and resale price, while suppliers’ margins are rather low. The distributor is obliged to market and distribute the supplier’s products, and to safeguard the supplier’s interests. Distributors are less protected than commercial agents (exceptions: see below). The supplier is obliged to assist and take care of his distribution partner, subject, however, to the supplier’s economic freedom.

    Distributorship contracts are – as in most EU member states – not explicitly regulated by statutory law. However, there is extensive case law, e.g. whether the supplier has to take back products unsold at termination of contract. Agency law applies by analogy if the distributor is:

    • integrated into the supplier’s sales organization; and
    • obliged (due to agreement or factually) to forward customer data during or at termination of contract.

    Further, distributorship contracts have to conform to antitrust law. Generally, the antitrust law of any affected market applies (art. 6 (3a) Rome-II-Regulation). Agreements which aim at or result in restraints of competition are prohibited by antitrust law, namely by the German Act Against Restraints of Competition (“GWB”) andart. 101, 102 Treaty on the Functioning of the EU (“TFEU”). Unless agreements contain hardcore restrictions, asafe harbor is provided by the De Minimis Notice of 30/08/2014 and the Vertical Block Exemption Regulation no. 330/2010 [“VBER”]). Hardcore restrictions are generally prohibited, regardless of the parties’ market shares, especially price fixing, restricting the geographic areas or categories of customers, or cross-supplies between distributors within a selective distribution system. If one party’s market share exceeds 30%, any restriction of competition can only benefit from the individual exemption under the strict criteria of art. 101 (3) TFEU(“efficiency defense”). Here are the most relevant types of clauses.

    As regards non-compete-obligations, they are enforceable if they conform to antitrust law:

    • Such agreements between non-competitors are safe if each party’s market share does not exceed 15% on any relevant market affected. If one party’s market share exceeds 15%, but none exceeds 30%, a non-compete-obligation during the contractual term is valid if limited up to 5 years at most. Where products are sold on premises owned or leased by supplier from third parties, the five-year maximum does not apply. However, the non-compete obligation cannot exceed the term the buyer is occupying the premises.
    • After the contractual term, a non-compete obligation where one party’s market share exceeds 15%, but none exceeds 30%, is valid if it is necessary to protect know-how transferred to the distributor, and if limited to competing products, the concrete distributor’s premises, and a 1-year-term.

    A supplier can generally not fix a resale price or price level at which its distributors or franchisees resell (except for suppliers that manufacture newspapers, magazines and books, sec. 30 GWB). An agreement or behaviour that aims at establishing such resale price maintenance is treated as hardcore restriction and thereforegenerally void (cf. Guidelines on Vertical Restraints of 10/05/2010, para. 48, 223). By way of – rare – exception, the supplier can plead the efficiency defense (e.g. when introducing a new product or a coordinated short term low price campaign).

    However, resale prices can be influenced by recommending resale prices or setting maximum resale prices:Recommending resale prices or setting maximum resale prices is exempt from antitrust law if the parties’ market shares do not exceed 30% (beyond, there is only room for the efficiency defense), and only if it does not result in a minimum or fixed sale price because of pressure or incentives from one party (art. 101 (1) TFEU andart. 4 (a) VBER).

    Establishing a minimum advertised price policy is exempt if it works as mere recommendation. If, however, it results in minimum resale prices or a fixed or minimum price level, it can only be exempt under the efficiency defense.

    By contrast, a supplier shall not announce not to deal with distributors or franchisees that do not follow its pricing policy because it will be treated as fixing the selling prices (see above).

    Most-favored nation or most-favored customer clauses are those which specify that the supplier’s price to the distributor will be no higher than its lowest price to other customer. Such clauses are enforceable if agreed between non-competitors and if none of the parties’ market shares exceeds 30% (beyond, there is only room for the efficiency defense).

    The distributor on its side can generally charge different prices to different customers because of freedom of contract. However, a seller

    • may have to charge the same prices if it holds a dominant or similarly strong market position(sec. 19, 20 GWB and art. 102 TFEU);
    • may generally not charge different prices on grounds of race or ethnic origin. The same goes ongrounds of sex, religion, disability, age or sexual orientation if the respective sales contract is typically concluded without or with low importance of the buyer’s person, especially in “bulk business”. An exception exists if different treatment is based on objective grounds, especially where it serves to avoid threats, prevent damage etc. (sec. 19, 20 Anti-Discrimination Act, “AGG”).

    A supplier may not restrict the territory into which, or the customers to whom its distribution partner sells (art. 101 (1) b TFEU). Exempt are, however, restrictions of:

    • active sales into the exclusive territory or an exclusive customer group reserved to the supplier or another distribution partner;
    • sales to end users if the distribution partner operates at wholesale level;
    • sales from members of a selective distribution system to unauthorised distributors in the system’s territory; and
    • selling components, supplied for incorporation, to customers who would use them to manufacture the same kind of products (art. 4 (b) VBER).

    Active sales mean actively approaching individual customers (e.g. by direct, unsolicited mail, e-mail, visits) or a customer group in a specific territory trough promotions specifically targeted at that group. Passive sales mean responding to unsolicited requests from individual customers, including general advertising which reaches customers in other exclusive territories or customer groups if done reasonably. This also applies to the internet: sales via webshops cannot be excluded. A supplier may only, however, require its distribution partner to fulfil certain quality standards, especially in selective distribution (Guidelines on Vertical Restraints of 10/05/2010, para. 51, 54).

    At the end of the distribution chain, consumer protection laws apply, namely between the seller and the buying consumer. Statutory law grants a 2-year-warranty that products are free from defects at the passing of risk. In case of defect, the buyer is entitled to claim subsequent performance (remedy of defect or delivery of a defect-free product), alternatively price reduction or withdrawal (all regardless of fault), and, damages, provided that the seller has acted with fault (sec. 437, 280 et seq. BGB). Though fault is generally assumed by law, the seller can exculpate itself, especially if the seller has not manufactured the good (but its sub-supplier). Towards consumers, these rights cannot be contracted out (sec. 474, 475 BGB). Each seller within the distribution chain is entitled to have recourse against its own supplier if the product has already been defective at the respective delivery (sec. 478, 479 BGB). In order to maintain these rights, however, the buyer (unless consumer) already has to check at delivery if products are defective, and inform the seller accordingly (sec. 377, 378 HGB).

    Besides, special information duties towards consumers exist in:

    Statutory law also limits the fees which the consumer shall pay beyond for means of payment or consumer hotlines etc. (sec. 312a (3–5) BGB). Finally, the consumer has a right of withdrawal regarding distance and off-premises contracts (sec. 312g, 355 BGB).

    These consumer rights are similar throughout the EU because they are influenced by the EU Directives 1999/44/EC on the sale of consumer goods and 2011/83/EU on consumer rights.

    A supplier may limit the warranty rights granted by statutory law towards its distribution partners. In general, there are few limits to individual agreements: they must not contradict statutory prohibitions (sec. 134 BGB) and public policy (sec. 138 BGB), and must not limit or exclude liability for willful intent, fraudulently concealing defects, where a guarantee has been given, or according to product liability law (sec. 202, 276, 444, 639 BGB). If the product has been found defective at the consumer, and the defect has already been existing between the distribution partners, a limitation of warranty can only be enforced if the supplier provides another compensation of equal value (sec. 478 (4) BGB).

    In standard business terms, however, one may hardly deviate from statutory law – even in B2B-contracts (sec. 310 (1) and 307 BGB). One may only

      •  modify the rules of subsequent performance (time, place, number of attempts);
      • exclude liability for slightly negligent breaches of non-cardinal duties; and
      • limit liability for slightly negligent breaches of cardinal duties to the typical damages foreseeable at conclusion of contract.

    The same goes for warranties provided to each downstream customer, unless the customer is a consumer because a consumer’s statutory rights cannot be contracted out.As regards product recalls, statutory law does not set any requirements. According to case law, a manufacturer must keep its products under surveillance and, when detecting risks for legally protected goods (as health), adopt the necessary preventive measures.Extent and time of such measures depends on the single case, especially the good at risk and the extent of possible damage (BGH, decision of 16/12/2008). Distribution agreements can delineate which party isresponsible for a recall and its costs. Individual agreements are not subject to specific limits. Standard business terms, however, are subject to a strict review in court: they can be unenforceable if they are incompatible with essential statutory principles, if they limit essential contractual rights and duties, if they are surprising or ambiguous (sec. 310 (1), 307, 305c BGB). Therefore, such terms should consider who would typically be responsible for recall and costs, depending on the product (ready-made, or not, etc.).

    Distributor agreements with indefinite term can be terminated (sec. 314, 573, 620 (2), 723 BGB); the notice period depends, however, on the single case, considering also the distributor’s investments. E.g., one-year periods have been accepted in automotive distribution (BGH, decision of 21/02/1995 [Citroën]). In rare cases, antitrust law may demand a renewal of the relationship.

    The distributor can claim indemnity only by analogue application of agency law (see above). The distributor’s indemnity can amount to the distributor’s average annual net margin.As regards applicable law / choice of lawand details on dispute resolution (choice of court, choice of arbitration / mediation), please see above in the section on agents.

    Franchising

    Franchisees buy and sell products on their own behalf. The franchisee acquires licences of intellectual property rights (trademarks and know-how) from the supplier (franchisor) for using and distributing the products or services. The franchisee is entitled and obliged to design its shop according to the franchisor’s concept and corporate design, and use the management-/system-specific know-how. In return, the franchisee pays royalties. The franchisor is precontractually obliged to disclose the key risks and issues for running the franchise, and subsequently often provides assistance on know-how and business.

    Franchise contracts are not explicitly governed by statutory law (unlike e.g. in Italy). They combine elements of licensing, sales, and management of another’s affairs. Generally, agency law applies by analogy (cf. German Federal Court of Justice [“BGH”], decision of 17/07/2002).

    Within franchisee relationships, the same antitrust rules apply as within distributor relationships: generally, agreements which aim at or result in restraints of competition are prohibited by antitrust law, namely by the German Act Against Restraints of Competition (“GWB”) and art. 101, 102 Treaty on the Functioning of the EU (“TFEU”). For details, please see above in the section on distributors.

    Franchise agreements can be terminated according to agency law (mutatis mutandis). However, longer periods can apply in the specific case, e.g. if the franchisee made considerable investments due to the supplier’s product.

    The franchisee can likely claim indemnity based on analogue application of agency law, but this has not yet been ruled out (BGH, decision of 23 July 1997, Benetton). No indemnity, however, can be claimed where the franchise concerns anonymous bulk business and customers continue to be regular customers only de facto (BGH, decision of 5 February 2015).

    Trademark license

    If a company owns a brand or design, such trademark owner can also distribute the product or service bygranting a trademark license to another party (“licensee”). By way of such license agreement, the trademark owner (“licensor”) allows the licensee to make use of its trademark.

    The license agreement should especially cover:

    • the trademark;
    • the goods and/or services which the licensee is entitled to offer under the trademark and details on the use of the trademark (with or on the goods and/or services, promotion material);
    • the territory where the licensee is entitled to use the trademark;
    • any exclusivity of the license (if applicable);
    • royalty (in return for the license);
    • quality control (e.g. approval of samples prior to mass production and audit rights as regards the licensee’s facilities, the raw materials used and the final products);
    • the license’s term; and

    the usual boilerplate clauses (written form, no waiver, severability, choice of law, choice of court etc.).

    Selling via e-commerce (required licences, if any)

    Selling via e-commerce does not require special licenses in Germany. However, certain requirements have to be observed as regards the webshop, especially providing clearly

    • the basic information about the entity behind the webshop (“Contact“, “Imprint” or “Legal Notes”);
    • the terms and conditions of sale; and
    • the privacy policy (it should mention which kind of personal identifiable data [“data”] is stored, how data, cookies and web-tracking are used, and explain the customer’s right to inform about, correct and delete data, cf. sec. 13 German Telemedia Act).

    Relevant anti-trust regulations

    According to the effects doctrine, the antitrust law of any affected market applies (art. 6 (3a) Rome-II-Regulation). Within the European Economic Area (“EEA”), Agreements which aim at or result in restraints of competition are prohibited by antitrust law, namely by art. 101, 102 Treaty on the Functioning of the EU (“TFEU”) and in Germany also by the German Act Against Restraints of Competition (“GWB”). Unlessagreements contain hardcore restrictions, a safe harbor is provided by the De Minimis Notice of 30/08/2014 and the Vertical Block Exemption Regulation no. 330/2010 [“VBER”]). Hardcore restrictions are generally prohibited, regardless of the parties’ market shares, especially price fixing, restricting the geographic areas or categories of customers, or cross-supplies between distributors within a selective distribution system.

    Details are explained above with each kind of distribution channel.

    Javier Gaspar

    Domaines d'intervention

    • Arbitrage
    • Distribution
    • Franchise
    • Litiges
    • Sport
    Contact Javier