antitrust aspects of exclusive distribution agreements

380 Pages·2011·1.5 MB·English

ANTITRUST ASPECTS OF
EXCLUSIVE DISTRIBUTION AGREEMENTS

By
Dragan Gajin

Submitted to
Central European University
Department of Legal Studies

n
o
cti In partial fulfillment of the requirements for the degree of
e
oll
C Doctor of Juridical Science
D
T
e
U
E
C
Supervisors: Professor Tibor Várady and Professor Jules Stuyck

Budapest, Hungary
2011
© Central European University, 21 May 2011
ABSTRACT
This paper analyzes the way in which the antitrust laws of the U.S. the EU assess the legality
of exclusive distribution agreements. The main purpose it to evaluate the extent to which the
laws of these two jurisdictions can be seen as being in line with the economic theory of
exclusive territories. To this end, the paper first lays down what it considers as the most
appropriate approach for judging the legality of exclusive territories, identifying a rule of
reason as the optimal rule. Compared to this rule, the current U.S. approach, bordering with
per se legality, is qualified as inappropriate. On the other hand, the paper praises the EU’s
approach towards non-airtight exclusive distribution agreements, characterizing it as a
structured rule of reason. Conversely, the paper criticizes the EU’s tough stance towards
airtight exclusive distribution agreements, which borders with per se illegality. The paper
also addresses some enforcement aspects with regards to exclusive distribution agreements.
As for the U.S., the emphasis is on the way in which ideology and the existence of treble
damages have contributed to the current state of the law of exclusive territories. Regarding
the EU, the essential role of the Commission and its views is stressed. Further, the paper
argues that, if not followed by a reconsideration of the fining policy, the trend towards
facilitating private damages actions in the EU can lead to an inadequate outcome connected
to the EU’s approach to exclusive territories. Finally, the paper addresses the relationship
between exclusive distribution agreements and arbitration. In this respect the paper finds that
n
o
cti
e
oll antitrust issues arising out of an exclusive distribution agreement can be referred to
C
D
T arbitration both in the U.S. and the EU; that the court review of awards dealing with antitrust
e
U
E
C
issues is potentially stricter in the EU than in the U.S., in parallel with the approach that the
two jurisdiction have towards the legality of exclusive territories; finally, the law of exclusive
territories should be considered as mandatory law in both of the analyzed jurisdictions, with
pertinent implications for the arbitral proceedings.
ii
ACKNOWLEDGMENTS

I would like to thank Professor Várady for guiding me through the process of writing this
dissertation; I have benefited a lot from his knowledge and experience.

I would also like to thank Professor Stuyck; his comments on the earlier drafts significantly
contributed to the final outlook of the paper.

Finally, I would like to thank my colleagues for the support in the last three years.
n
o
cti
e
oll
C
D
T
e
U
E
C
iii
SUMMARY OF CONTENTS

1 Introduction........................................................................................................................1
2 Theoretical Underpinnings.................................................................................................5
2.1 Modes of product distribution....................................................................................5
2.2 Introduction to exclusive territories.........................................................................31
2.3 Potential impact of exclusive territories..................................................................47
2.4 Exclusive territories and efficiency.........................................................................89
2.5 Towards an appropriate rule for exclusive territories............................................101
3 Exclusive Distribution in U.S. Law...............................................................................107
3.1 The legal framework..............................................................................................107
3.2 The early cases.......................................................................................................113
3.3 Sylvania..................................................................................................................121
3.4 Post-Sylvania developments..................................................................................127
3.5 Allocation of exclusive territories through a joint venture....................................141
3.6 Stare decisis in antitrust cases................................................................................147
3.7 Assessment.............................................................................................................151
4 Exclusive Distribution in EU Law.................................................................................154
4.1 The legal framework..............................................................................................154
4.2 The early cases.......................................................................................................164
4.3 Developments after Consten-Grundig...................................................................176
4.4 Exceptions to the prohibition of absolute territorial protection.............................189
4.5 Horizontal cooperation and exclusive territories...................................................196
4.6 Parallel trade and price discrimination..................................................................201
4.7 Assessment.............................................................................................................204
5 Exclusive Distribution and Antitrust Enforcement........................................................207
5.1 Enforcement in the U.S..........................................................................................207
5.2 Enforcement in the EU...........................................................................................228
5.3 Social cost of enforcement.....................................................................................251
5.4 Assessment.............................................................................................................256
6 Exclusive Distribution and Arbitration..........................................................................259
6.1 Identifying the main problems...............................................................................259
on 6.2 Arbitrability of antitrust issues...............................................................................261
cti 6.3 Court review of awards dealing with antitrust issues............................................283
e
oll 6.4 Mandatory character of the law of exclusive territories........................................309
C
D 6.5 Assessment.............................................................................................................314
T
e 7 Conclusion.....................................................................................................................317
U
E
C 8 Sources...........................................................................................................................322
8.1 Books.....................................................................................................................322
8.2 Periodical materials and works in collection.........................................................326
8.3 Table of cases.........................................................................................................349
8.4 Table of legislative and related materials..............................................................363

iv
TABLE OF CONTENTS

1 Introduction........................................................................................................................1
2 Theoretical Underpinnings.................................................................................................5
2.1 Modes of product distribution....................................................................................5
2.1.1 Direct sales.........................................................................................................5
2.1.2 In-house distribution..........................................................................................6
2.1.2.1 Advantages of in-house distribution..............................................................6
2.1.2.1.1 Transaction costs......................................................................................6
2.1.2.1.2 Control.....................................................................................................8
2.1.2.1.3 Double marginalization..........................................................................10
2.1.2.1.4 Legal considerations..............................................................................11
2.1.2.2 Disadvantages of in-house distribution........................................................12
2.1.2.2.1 In-house presence can be costly.............................................................12
2.1.2.2.2 Integrated manufacturers bear more risk...............................................12
2.1.2.2.3 Outside representatives better equipped for distribution.......................13
2.1.2.2.4 Diseconomies of scale............................................................................14
2.1.2.2.5 Economies of scope...............................................................................15
2.1.2.2.6 Legal considerations..............................................................................17
2.1.3 Distribution through an outside representative................................................19
2.1.3.1 Agency.........................................................................................................19
2.1.3.1.1 Agency under American law.................................................................19
2.1.3.1.2 Agency under EU law............................................................................20
2.1.3.1.3 Commission business and mediation.....................................................22
2.1.3.2 Distributorship.............................................................................................23
2.1.3.2.1 Distributorship defined..........................................................................23
2.1.3.2.2 Agency and distributorship compared...................................................24
2.1.3.2.2.1 Control............................................................................................24
2.1.3.2.2.2 The passage of title.........................................................................25
2.1.3.2.2.3 Authority to act on behalf of the principal......................................26
2.1.3.2.2.4 The level of risk..............................................................................26
2.1.3.2.2.5 Compensation.................................................................................27
2.1.3.2.2.6 Tax treatment..................................................................................28
2.1.3.2.3 Exclusive distributorship.......................................................................28
on 2.2 Introduction to exclusive territories.........................................................................31
cti 2.2.1 Notion and types of vertical restraints.............................................................31
e
oll 2.2.2 Exclusive territories defined............................................................................34
C
D 2.2.3 Some rationale behind exclusive territories.....................................................36
T
e 2.2.4 Exclusive territories and resale price maintenance..........................................40
U
E 2.2.5 Exclusive territories and exclusive dealing......................................................44
C
2.3 Potential impact of exclusive territories..................................................................47
2.3.1 Justifications....................................................................................................47
2.3.1.1 Elimination of free-riding............................................................................47
2.3.1.2 Wider sales margins and lower monitoring costs........................................52
2.3.1.3 Facilitating new entry..................................................................................58
2.3.1.4 Expanding market coverage.........................................................................59
2.3.1.5 Specialized information...............................................................................62
2.3.1.6 Quality certification.....................................................................................63
v
2.3.1.7 Lowering the costs of distribution...............................................................65
2.3.1.8 Health and safety considerations.................................................................67
2.3.2 Concerns..........................................................................................................67
2.3.2.1 Private v. general interest.............................................................................67
2.3.2.2 Advertising and barriers to entry.................................................................68
2.3.2.3 Special services may be over-supplied........................................................72
2.3.2.4 Deterring new entry.....................................................................................74
2.3.2.5 Facilitating horizontal collusion..................................................................75
2.3.2.6 Higher prices and lower output....................................................................77
2.3.2.7 Softening upstream competition..................................................................82
2.3.2.8 Price discrimination.....................................................................................83
2.4 Exclusive territories and efficiency.........................................................................89
2.4.1 Efficiency, welfare, and goals of antitrust.......................................................89
2.4.2 The Chicago School.........................................................................................93
2.4.3 The Freiburg School (Ordoliberals).................................................................99
2.5 Towards an appropriate rule for exclusive territories............................................101
3 Exclusive Distribution in U.S. Law...............................................................................107
3.1 The legal framework..............................................................................................107
3.1.1 The main sources of law................................................................................107
3.1.2 Goals of enforcement.....................................................................................108
3.1.3 Forms of analysis...........................................................................................111
3.2 The early cases.......................................................................................................113
3.2.1 White Motor...................................................................................................113
3.2.2 Schwinn..........................................................................................................117
3.3 Sylvania..................................................................................................................121
3.4 Post-Sylvania developments..................................................................................127
3.4.1 The Sylvania rule of reason...........................................................................127
3.4.1.1 Before the Supreme Court.........................................................................127
3.4.1.2 Before the lower courts..............................................................................130
3.4.2 Other possible challenges of exclusive territories.........................................135
3.4.2.1 Boycott.......................................................................................................135
3.4.2.2 Horizontal collusion...................................................................................138
3.5 Allocation of exclusive territories through a joint venture....................................141
3.6 Stare decisis in antitrust cases................................................................................147
3.7 Assessment.............................................................................................................151
4 Exclusive Distribution in EU Law.................................................................................154
n
o
cti 4.1 The legal framework..............................................................................................154
e
oll 4.1.1 The main sources of law................................................................................154
C
D 4.1.2 Goals of enforcement.....................................................................................159
T
e 4.1.3 Forms of analysis...........................................................................................163
U
E 4.2 The early cases.......................................................................................................164
C
4.2.1 The context.....................................................................................................164
4.2.2 Cases before the Commission........................................................................166
4.2.3 ECJ cases.......................................................................................................168
4.2.3.1 Maschinenbau............................................................................................168
4.2.3.2 Consten-Grundig........................................................................................170
4.3 Developments after Consten-Grundig...................................................................176
4.3.1 The significance of block exemptions...........................................................176
4.3.2 Block exemption 2010...................................................................................180
vi
4.3.2.1 The application of the block exemption.....................................................180
4.3.2.2 Assessment when the block exemption does not apply.............................182
4.3.2.2.1 Article 101(1) analysis.........................................................................182
4.3.2.2.2 Article 101(3) analysis.........................................................................188
4.4 Exceptions to the prohibition of absolute territorial protection.............................189
4.4.1 Active sales....................................................................................................189
4.4.2 Lack of appreciable effect..............................................................................190
4.4.2.1 On competition...........................................................................................190
4.4.2.2 On inter-state trade.....................................................................................193
4.4.3 New entrant....................................................................................................193
4.4.4 Dealing through a subsidiary.........................................................................194
4.4.5 Specific sectors..............................................................................................195
4.4.6 Health and safety considerations...................................................................196
4.5 Horizontal cooperation and exclusive territories...................................................196
4.6 Parallel trade and price discrimination..................................................................201
4.7 Assessment.............................................................................................................204
5 Exclusive Distribution and Antitrust Enforcement........................................................207
5.1 Enforcement in the U.S..........................................................................................207
5.1.1 Public enforcement........................................................................................207
5.1.1.1 The Department of Justice.........................................................................207
5.1.1.2 The Federal Trade Commission.................................................................212
5.1.1.3 State Attorneys General.............................................................................214
5.1.2 Private enforcement.......................................................................................215
5.1.2.1 Exclusive territories and treble damages...................................................215
5.1.2.2 The elements of damages actions..............................................................221
5.1.2.2.1 Causation..............................................................................................221
5.1.2.2.2 Antitrust injury.....................................................................................222
5.1.2.2.3 Standing...............................................................................................222
5.1.2.2.4 The amount of damages.......................................................................224
5.1.2.3 In pari delicto and enforceability...............................................................225
5.2 Enforcement in the EU...........................................................................................228
5.2.1 Public enforcement........................................................................................228
5.2.1.1 The European Commission........................................................................228
5.2.1.2 National competition authorities................................................................230
5.2.1.3 National courts...........................................................................................231
5.2.2 Private enforcement.......................................................................................233
n
o 5.2.2.1 Euro-defense and euro-offense..................................................................233
cti
e 5.2.2.2 Nullity........................................................................................................235
oll
C 5.2.2.3 Private damages actions.............................................................................237
D
T 5.2.2.3.1 ECJ case-law........................................................................................237
e
U 5.2.2.3.1.1 Courage.........................................................................................237
E
C 5.2.2.3.1.2 Manfredi........................................................................................239
5.2.2.3.2 The Commission’s standpoint..............................................................241
5.2.2.3.3 Distributors’ and suppliers’ right to damages......................................244
5.2.2.3.4 Conflict of laws issues.........................................................................247
5.2.2.3.4.1 Jurisdiction....................................................................................247
5.2.2.3.4.2 Applicable law..............................................................................248
5.2.2.3.4.3 Multiple damages..........................................................................249
5.3 Social cost of enforcement.....................................................................................251
5.3.1 Enforcement errors.........................................................................................251
vii
5.3.2 Inefficient vertical integration........................................................................253
5.4 Assessment.............................................................................................................256
6 Exclusive Distribution and Arbitration..........................................................................259
6.1 Identifying the main problems...............................................................................259
6.2 Arbitrability of antitrust issues...............................................................................261
6.2.1 General considerations...................................................................................261
6.2.1.1 The concept of arbitrability........................................................................261
6.2.1.2 Arbitrability in international instruments...................................................262
6.2.1.3 Arbitrability in national legislation............................................................263
6.2.1.4 Law applicable to arbitrability...................................................................265
6.2.2 Arbitrability of antitrust issues in the U.S.....................................................268
6.2.2.1 The American Safety doctrine...................................................................268
6.2.2.2 Mitsubishi..................................................................................................270
6.2.2.3 Some limitations of Mitsubishi..................................................................274
6.2.2.3.1 Domestic v. international context........................................................274
6.2.2.3.2 Choice of law.......................................................................................275
6.2.2.3.3 Waiver of remedies..............................................................................275
6.2.2.3.3.1 Treble damages.............................................................................275
6.2.2.3.3.2 Litigation costs..............................................................................277
6.2.2.3.3.3 Equitable reliefs............................................................................277
6.2.2.4 The impact of Mitsubishi...........................................................................278
6.2.3 Arbitrability of EU competition law..............................................................281
6.3 Court review of awards dealing with antitrust issues............................................283
6.3.1 U.S.................................................................................................................283
6.3.1.1 Mitsubishi second look..............................................................................283
6.3.1.2 Manifest disregard of the law....................................................................286
6.3.2 EU..................................................................................................................290
6.3.2.1 Eco Swiss second look...............................................................................290
6.3.2.2 Arbitrators’ duty to apply EU competition law ex officio.........................291
6.3.2.3 Review before national courts...................................................................298
6.3.2.3.1 France...................................................................................................298
6.3.2.3.2 Belgium................................................................................................301
6.3.2.3.3 The Netherlands...................................................................................302
6.3.2.3.4 Switzerland..........................................................................................303
6.3.2.3.5 Italy......................................................................................................306
6.3.2.4 The impact of Eco Swiss............................................................................307
n
o 6.4 Mandatory character of the law of exclusive territories........................................309
cti
e 6.4.1 Antitrust legislation as mandatory law..........................................................309
oll
C 6.4.2 Circumstances that trigger mandatory rules..................................................311
D
T 6.4.3 Rome I............................................................................................................313
e
U 6.5 Assessment.............................................................................................................314
E
C 7 Conclusion.....................................................................................................................317
8 Sources...........................................................................................................................322
8.1 Books.....................................................................................................................322
8.2 Periodical materials and works in collection.........................................................326
8.3 Table of cases.........................................................................................................349
8.3.1 U.S.................................................................................................................349
8.3.1.1 Court decisions (listed alphabetically).......................................................349
8.3.1.2 FTC decisions (listed alphabetically).........................................................355
viii
8.3.2 EU..................................................................................................................355
8.3.2.1 ECJ and GC decisions (listed alphabetically)............................................355
8.3.2.2 Commission decisions (listed alphabetically)............................................359
8.3.3 Other..............................................................................................................360
8.3.3.1 National courts (listed alphabetically according to the country)...............360
8.3.3.2 Arbitral awards (listed chronologically)....................................................362
8.4 Table of legislative and related materials..............................................................363
8.4.1 US..................................................................................................................363
8.4.1.1 Legislation (listed alphabetically)..............................................................363
8.4.1.2 Related materials (listed alphabetically)....................................................363
8.4.2 EU..................................................................................................................364
8.4.2.1 Legislation (listed chronologically)...........................................................364
8.4.2.2 Related materials (listed chronologically).................................................366
8.4.3 Other..............................................................................................................367
8.4.3.1 Treaties (listed chronologically)................................................................367
8.4.3.2 National statutes (listed alphabetically according to the country).............368
8.4.3.3 Arbitration rules and model laws (listed alphabetically)...........................368

n
o
cti
e
oll
C
D
T
e
U
E
C
ix
ABBREVIATIONS

AAA American Arbitration Association
APR Area of primary responsibility
Article 101 Article 101 TFEU
Article 102 Article 102 TFEU
BER Block exemption regulation
Council Regulation (EC) No 44/2001 of 22 December 2000 on
Brussels I jurisdiction and the recognition and enforcement of judgments in
civil and commercial matters, OJ [2001] L 12/1
Clayton Antitrust Act of 1914, 15 U.S.C. §§ 12–27, 29 U.S.C. §§
Clayton Act
52–53
Commission Notice on agreements of minor importance which do
De minimis notice not appreciably restrict competition under Article [101](1) of the
[TFEU] (de minimis), OJ [2001] C 368/13
DoJ U.S. Department of Justice, Antitrust Division
DoJ Vertical U.S. Department of Justice Vertical Restraints Guidelines of 23
Guidelines January 1985, 50 FR 6263-03
ECJ European Court of Justice
n
o
cti
olle ECN European Competition Network
C
D
T Commission Notice - Guidelines on the effect on trade concept
e
U Effect on Trade
E
C contained in Articles [101] and [102] of the Treaty, OJ [2004] C
Concept
101/81
EU Vertical
Commission Guidelines on Vertical Restraints, OJ [2010] C 130/1
Guidelines
x