Can a manufacturer prohibit a retailer from selling products on internet platforms like eBay or Amazon, in its distribution agreement? A court in Berlin recently had to answer this interesting question.
Distribution agreement in dispute
A manufacturer of school bags, rucksacks, suitcases and bags placed conditions in its distribution agreement with retailers preventing the sale of its products on internet platforms like eBay or Amazon and threatening to withhold delivery of further products.
After some time, the manufacture demanded from one of its contractual partners that they stop selling the products over eBay. However, one retailer refused and demanded that the manufacturer continue to deliver products.
Eventually the manufacturer sued the retailer and sought the reimbursement of legal costs amounting to just over €4,900.
Cease and desist
The lower court found partially in favour of the retailer (Case ref.: 16 O 729/07).
Under § 1 of the German Act Prohibiting Restraints on Competition (Gesetz gegen Wettbewerbsbeschränkungen, GWB), businesses are not permitted to enter agreements which aim or operate to impede, restrict or distort competition.
The judges held that the manufacturer’s prohibition on selling over platforms like eBay amounted to a restriction in competition, as it removed the sellers’ freedom to trade.
Therefore the retailer was entitled to require the manufacturer to cease and desist under §§ 33, 2(1) GWB and the manufacturer was prohibited from threatening to withhold delivery for selling products over the internet.
Justification for selective distribution system
Under European Court of Justice case law there are situations when a manufacturer is justified in operating a selective distribution system.
They include when, through the choice of distributor or retailer, the manufacturer seeks to maintain a qualitatively high standard. Elements include choosing distributors with technical expertise, highly-trained employees or specialist infrastructure.
Provided these requirements are applied to all contract partners, without discrimination, the selective distribution system is legal.
In the current case the judges held that a selective distribution system was not required in order to secure a high standard in school rucksacks and other products.
An appeal court in Berlin has subsequently confirmed that the original judgment was correct (Case ref.: B 2 U 8/09 R). Furthermore, the manufacturer was ordered pay the legal costs.
The judgment is, however, not yet legally binding. The appeal court in Berlin has granted an application to appeal to Germany’s Federal Court of Justice (Bundesgerichtshof, BGH), where a final judgment in the case is expected.
Diverging case law
In a case based on similar facts, the Regional Court of Mannheim came to a different conclusion to that of the Berlin court and could not see a breach of § 1 GWB by the manufacturer (Case ref.: 7 O 263/07 Kart).
As there is diverging case law in this area, traders and manufacturers should act with caution until the BGH has reached a final judgment. Businesses should seek legal advice if they are in a similar situation. We are available to provide assistance.