On 23 October 2017, the European General Court dismissed the second appeal by the Confédération européenne des associations d’horlogers-réparateurs ('CEAHR') against the European Commission's ('Commission's') decision to reject its complaint regarding the refusal by luxury watch manufacturers to supply spare parts to unauthorised independent repairers pursuant to a selective repair system. The General Court confirmed that a selective distribution system and, by analogy, a selective repair system, falls outside the scope of the prohibition on anti-competitive agreements if it is based on criteria which are objectively justified, non-discriminatory and proportionate. It also dismissed CEAHR's arguments relating to abuse of dominance.
The General Court first considered settled case law regarding the compatibility of selective distribution systems with EU competition law. In light of the reference in the leading judgment of Metro-v-Commission (1986) to the need for a specially adapted after-sales service for certain products, the General Court considered that the criteria applied to selective distribution systems can also be applied, by analogy, to selective repair systems. On that basis, provided that repairers were selected on the basis of criteria that were objectively justified, non-discriminatory and proportionate, it agreed with the Commission that the selective repair system would not raise competition concerns. It noted in this regard that the increased complexity of luxury watch models, the need to maintain high and uniform quality repair services, and the prevention of counterfeit goods were all factors which justified a selective repair system in the present case.
However, the General Court emphasised that the objective of maintaining a prestigious brand image is not, in itself, a legitimate aim for restricting competition by means of a selective repair system, citing the ECJ's judgment in Pierre Fabre (2011) (although the objective of preserving the quality of products and ensuring their proper use may, by itself, justify such a restriction). It is notable in this regard that in the Coty case, currently pending before the ECJ, Advocate-General Wahl gave an Opinion in July 2017 that the statements regarding protection of brand image in Pierre Fabre could be distinguished, and that such an objective could justify a ban on sales via third party platforms such as Amazon and eBay in the context of a selective distribution system.
As regards the issue of abuse of dominance, the General Court confirmed that in order to amount to an abuse, a refusal to supply by a dominant company must be likely to eliminate all competition on the market on the part of the person requesting the goods or services, the refusal must not be objectively justified, and the goods or services must be in themselves indispensable to carrying on that person's business. In the circumstances of the present case these cumulative criteria were not fulfilled and the Commission was therefore entitled to reject the complaint.
This judgment provides useful guidance for companies producing luxury and high-tech goods as to the legality of selective repair and maintenance systems for such products, and largely confirms existing case law. However, aspects of the judgment may need to be revisited following the ECJ's judgment in the landmark Coty case, which is expected to be handed down on 6 December 2017.
With thanks to Louisa Wong of Ashurst for her contribution.
All articles in the November edition of the Competition newsletter
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Image is not everything - but Luxury watchmakers still permitted to operate selective repairer system
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