German Federal Court of Justice: Porsche may not prohibit authorised dealers from selling to tuning companies

According to a recently published ruling by the Federal Court of Justice [Bundesgerichtshof - BGH], car manufacturers may not prohibit their authorised dealers from selling new vehicles, spare parts and accessories to independent tuning companies (judgement dated 6 July 2021, docket No. KZR 35/20 - Porsche Tuning II). The BGH classifies such a restriction of customer groups as an impermissible restraint of competition.

To the detriment of tuning companies: Porsche prohibited resale of vehicles, spare parts and accessories

The car manufacturer Porsche and its German distributor distribute their vehicles within a selective distribution system. The dealer agreement prohibited authorised dealers from selling new Porsche vehicles, Porsche spare parts and Porsche accessories to so-called “resellers”. The sale of new vehicles for presentation purposes was also prohibited. According to the definition in the dealer agreement, “resellers” expressly included tuning companies - i.e. companies that acquire motor vehicles in order to commercially convert or tune them in order to then resell the tuned vehicles.

An association comprising 129 tuning companies considered this to be a restraint of competition and applied to the Regional Court [Landgericht - LG] of Stuttgart for injunctive relief, initially without success. However, the Higher Regional Court [Oberlandesgericht - OLG] and, ultimately, the BGH ruled in the claimant’s favour. In the BGH’s view, the association was capable of bringing an action under Section 33 (4) No. 1 German Act against Restraints of Competition [Gesetz gegen den Wettbewerbsbeschränkungen - GWB] as it represents a considerable number of companies affected by the supply ban. In addition, the ban on sales to independent tuning companies that had been imposed on the authorised dealers infringed German and European antitrust law, both with regard to the ban on the sale of new vehicles and with regard to the ban on the sale of Porsche spare parts and Porsche accessories.

Twofold purpose of the restraint of competition

In the BGH’s opinion, the agreement between Porsche and its authorised dealers directly pursued the purpose of two restraints of competition. First of all, competition amongst the authorised Porsche dealers themselves would be eliminated by prohibiting them from selling new cars to tuning companies. This constitutes a restriction of a group of customers. The fact that, according to its wording, the prohibition clause is not directly linked to a specific customer group (tuning companies) but to the intended use of the acquisition (acquisition of new cars in order to present tuning products), is irrelevant. The agreement nevertheless has to be regarded as a restriction of a customer group because the clause ultimately only affects such tuning companies.

According to the BGH, the prohibition clause also serves to restrict competition for the tuning of Porsche vehicles between the tuning companies and Porsche. For Porsche itself also offers own tuning programmes for its series-production vehicles and thus competes with the independent tuning companies. In the BGH’s opinion, in order to be able to present the range of tuned vehicles to customers, tuning companies require access to new cars. Resorting to used cars as an alternative is not an option. Upon the launch of new models, independent tuning companies would otherwise only be able to present tuned vehicles of the new model series at a much later date.

Sales ban not necessary for selective distribution

The BGH further ruled that the sales ban clause could not be exempted from the cartel prohibition pursuant to the principles applicable to the qualitative selective distribution. Although sales to unauthorised dealers (the BGH uses the term "resellers") can fundamentally be prohibited within the framework of a permissible selective distribution system, the concept of “reseller” (or distributor) needs to be defined objectively in the context of the particular distribution contract. A manufacturer cannot itself contractually determine who is a “reseller”.

Since Porsche's selective distribution system concerns the resale of new series-production Porsche vehicles, according to objective standards, resellers in the Porsche distribution system are only those who purchase new Porsche cars and resell them without any substantial modification. Tuning companies, on the other hand, make modifications to new vehicles and keep them for a certain period of time for presentation purposes. If the tuned Porsche is later resold, this no longer corresponds to a resale of the new vehicle. Independent tuning companies are therefore not “resellers” or dealers. Porsche therefore cannot prohibit the resale of new vehicles to tuning companies within its selective distribution system.

Furthermore, the BGH clearly ruled that the sales ban also had not been necessary for the sales objectives pursued by Porsche. According to the BGH, Porsche’s selective distribution would have been sufficiently protected if Porsche had obliged the tuning companies requesting vehicles for presentation purposes to hold the new vehicles for a reasonable period.

No exemption under block exemption regulations

The BGH also rejected an exemption of the purposeful restraints of competition from the cartel prohibition.

It clarified once again that the burden of representation and proof of the fulfilment of the conditions for an antitrust exemption under the Block Exemption Regulation for Vertical Restraints (Regulation No. 330/2010) and the Motor Vehicle Block Exemption Regulation (Regulation No. 461/2010) lies with the party that invokes it (in this case Porsche). When stating the market shares of relevance for an exemption, concrete submissions have to be made on the amount of the market shares. A reference to statements on market delimitations in merger control decisions is not sufficient. Porsche also cannot rely on special exemptions in the block exemption regulations on selective distribution, since the independent tuning companies specifically are not “dealers” or “resellers” within the meaning of the block exemption regulation (see above).

Ban on sale of Porsche spare parts and accessories

The BGH also considered the ban on the sale of Porsche spare parts and Porsche accessories in the dealer agreement as contrary to antitrust law. Although the resale of original spare parts and accessories can be restricted if they are subsequently used by the buyer in a way that adds value (i.e. in particular to tune new Porsche vehicles), the traditional trade in spare parts, i.e. the unchanged resale of parts and accessories, on the other hand, cannot be restricted. Porsche had failed to reflect this small but subtle difference in its contract and had banned the sale of all Porsche parts across the board.

Dealer agreements do not usually contain protectable trade secrets

Rather incidentally, the BGH also pointed out another important circumstance: Porsche had argued that the content of its dealer agreements contained trade secrets that needed to be protected. The claimant’s lawyer had therefore gained knowledge of the content of the contract in violation of criminal and professional provisions.

The BGH did not accept this argument. It made it clear that, in principle, a review of potentially competitively restrictive contractual clauses cannot be opposed by an interest in maintaining secrecy. This can already be derived from the requirement of an effective enforcement of antitrust law.

Required careful examination of the structure of distribution agreements

The decision clearly demonstrates that every detail is decisive if distribution agreements are to be structured in conformity with antitrust law. Sales bans, in particular, should always be subjected to a critical assessment under antitrust law.

"Dodges" in the form of (supposedly) subtly worded clauses should be treated with caution, as the wording is always secondary in antitrust law. The decisive factor is a provision’s intention and the (economic) incentives it offers. If incentives can induce the contracting parties to engage in restrictive competitive conduct, the clause requires review under antitrust law. Provisions that contradict antitrust law are invalid under civil law and can - if they constitute essential clauses - also "infect" the entire contract. In the worst case scenario, serious restraints of competition, such as resale price maintenance or territorial sales restrictions, may even result in fines.

The ruling of the BGH also underlines the importance of the block exemption regulations for distribution agreements and the motor vehicle sector. Both regulations are currently undergoing a comprehensive reform process.

The Block Exemption Regulation for the Motor Vehicle Sector applies until 31 May 2023. However, the revision process has already begun. In this revision, the Commission will focus on three thematic areas in particular: (1) technological developments, especially in the field of communication technologies and the growing importance of in-vehicle data; (2) the development of new emission technologies; (3) the COVID-19 pandemic, which may have caused mobility patterns to have permanently changed to a certain degree. The Commission will also continue its efforts to ensure that spare parts producers have sufficient access to the motor vehicle aftermarkets.

The Block Exemption Regulation for Vertical Restraints still applies until 31 May 2022. The EU Commission has already presented a draft of a new regulation.

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