The Cour de cassation, France’s highest court for judicial matters, rendered a judgment on 15 January 2013 in a case involving Jaguar’s distribution agreements in France.  The judgment follows an earlier ruling on the matter by the Court of Justice of the European Union (CJEU), from which the Cour de cassation had requested a preliminary ruling.  The Cour de cassation ruled essentially that quantitative selective distribution systems must be based on specified criteria, but those criteria do not need to be objectively justified and applied in a uniform and non-differentiated manner.  It therefore  exactly applied to the facts at issue the definition provided by the CJEU as regards the nature of “specified criteria” in Article 1(1)(f) of Regulation No. 1400/2002 of 31 July 2002 on the application of Article 81(3) of the Treaty to categories of vertical agreements and concerted practices in the motor vehicle sector (i.e., the Vertical Block Exemption Regulation for the Automotive Industry (VBER 1400/2002)).

The background to the case is an action brought before a French commercial court by Auto 24 SARL (Auto 24) against Jaguar Land Rover France SAS (JLR).  Auto 24 had been the exclusive distributor in a specific French region for the motor vehicles imported by JLR into France.  When JLR terminated this arrangement after deciding to limit the number of its sellers in France by adopting a new numerus clausus (closed number), Auto 24 took an action for damages for loss of profit.  Auto 24 claimed that JLR could not adopt a numerus clausus without using specified criteria in its selection of distributors.  Auto 24 argued that such criteria should be specific, objective, proportionate to the aim pursued and implemented in a non-discriminatory manner.

This action led the parties ultimately to the Cour de cassation, which asked for a ruling from the CJEU on the definition of the “specified criteria” a quantitative selective distribution system must satisfy to benefit from an exemption under the VBER 1400/2002.  Because of the somewhat ambiguous case law on the subject, the Cour de cassation was seeking for a clarification of the law as regards selective distribution systems.

Specified Criteria Refer Only to Criteria whose Precise Content may be Verified

According to the VBER 1400/2002, in both quantitative (agreements limiting the number of distributors) and qualitative (agreements where the supplier uses qualitative criteria for the selection of distributors) selective distribution agreements, distributors must be selected on the basis of “specified criteria”.  There is no obligation or inference in the VBER 1400/2002, however, that such agreements must be subject to the selection criteria put forward by Auto 24.

The CJEU and the Cour de cassation ruled accordingly that “specified criteria” refers solely to criteria whose precise content may be verified.  It follows therefore that they do not have to be justified by the head of a selective distribution network, and it is sufficient for that head to share the set criteria with all potential distributors on an ex ante basis.

Quantitative and Qualitative Selective Distribution Systems are Not Subject to the Same Exemption Conditions

According to the VBER 1400/2002, a qualitative selective distribution system must necessarily be based on criteria that i) are only qualitative in nature, ii) are required by the nature of the contract goods or services, iii) are laid down uniformly for all distributors, iv) are not applied in a discriminatory manner and v) do not directly limit the number of distributors.

There are no such conditions stated in the VBER 1400/2002 as regards quantitative selective distribution systems, nor is there any evidence that it was the legislator’s intention that these conditions should apply to such systems.  The CJEU and  the Cour de cassation considered accordingly that applying the conditions argued by Auto 24 would have the effect of assimilating the two types of selective distribution systems, contrary to a literal interpretation of the text.  Choosing such a literal interpretation, the CJEU held that “specified criteria” in quantitative selective distribution agreements do not need to be based on criteria that are objectively justified and applied in a uniform and non-differentiated manner.  It was thus enough that JLR had communicated to Auto 24 the details of its numerus clausus to satisfy the condition of “specified criteria”.

The Cour de cassation applied this ruling on 15 January and held that JLR did not have to justify its decision to limit the number of distributors (thereby conforming with the CJEU’s ruling), and JLR was thus not at fault for any financial detriment felt by Auto 24 for its loss of the distribution contract.

The Aftermath

The precedent set by the Cour de cassation will likely be adopted by all other national courts of the EU Member States as it is based on a CJEU decision.

It should be noted that the VBER 1400/2002 will be replaced by a new regulation, coming into effect on 1 June 2013.  The CJEU ruling nevertheless remains applicable, all the more so as the new Regulation No. 461/2010 has abandoned the distinction between quantitative and qualitative selective distribution systems and refers solely to “specified criteria”.

Wider Ramifications

Although the case is confined to the automotive sector and the VBER 1400/2002, this ruling will also have relevance for selective distribution systems under the “umbrella” VBER that covers those market sectors that do not have a specific VBER of their own.