Competition and trade law: Territorial protection outside EU - ECJ decision in Yves St. Laurent Parfums SA and Javico

United Kingdom
The ECJ has ruled that EU competition law does not allow a supplier established in a Member State to impose on a distributor in a territory outside the Community a prohibition on making sales in any territory other than the contractual territory, including the territory of the Community, either by direct marketing or by re-exportation from the contractual territory, if that prohibition has the effect of preventing, restricting or distorting competition within the Community and is liable to affect the passing of trade between Member States.

This question arose in a dispute between Yves St. Laurent Parfums SA and Javico, whose registered office was in Germany. Javico had been appointed as distributor of Yves St. Laurent's products in Russia, Ukraine and Slovenia. Javico agreed that it would not sell the products outside the specified territory. Shortly after entering into the contract, Yves St. Laurent discovered that products which it had supplied to Javico for sale within the contract territories were being sold in the UK, Belgium and the Netherlands. It terminated the contracts and sued for compensation and damages. Javico claimed that the contract was contrary to EU competition laws.

The Court found that the aim of the restriction was to be construed as being intended to enable the producer to penetrate markets outside the EU rather than being intended to restrict competition. However, it was for the national court to determine whether such contracts had the effect of appreciably restricting competition. This might be the case, said the Court, where the Community market in the products in question is characterised by an oligopolistic structure or by an appreciable difference between the prices charged for the contractual product within the Community and those charged outside the Community. In assessing whether the prohibition entails a risk that it might have an appreciable effect on trade between Member States, reference should be made to the position occupied by the supplier of the products at issue and the extent of the supplier's production and sales in the Member States. Therefore, the contract imposing absolute protection for a territory outside the Community could escape EU competition law if it affected the market insignificantly. In this regard, intra-Community trade cannot be appreciably affected if the products intended for markets outside the Community account for only a very small percentage of the total market for those products in the territory of the common market.

The ECJ further ruled that the type of restrictions contained in the agreements in question did not escape the prohibitions contained in EU competition rules on the ground that the Community supplier of the products concerned distributes those products within the Community through a selective distribution network covered by an exemption decision from EU competition rules. (Case C-306/96 Javico International v Yves St. Laurent Parfums SA, ECJ 28.4.98)