Germany: German Federal Court Of Justice Rules On Right To Be Admitted To Authorised Repair Networks

On 23 January 2018, the German Federal Court of Justice ruled on an action brought by a car repair shop (the claimant) against the general importer of Jaguar and Land Rover vehicles (the defendant). The importer operated a selective distribution system for the servicing of its vehicles. Effective in May 2013, the importer had terminated its existing service network contracts, offering new contracts to many of the previously authorised repair shops, but not to the claimant. The claimant then unsuccessfully brought a claim to be admitted as an authorised workshop, arguing, among other things, that the importer had abused its dominant position by refusing the repair shop access to the network.

The Higher Regional Court of Frankfurt had held on appeal that the importer was not dominant, since the relevant service market was not brand-specific and, as a result, rejected the claim. The Federal Court of Justice has now overturned the appeal court's ruling and referred the case back to the appeal court for reconsideration.

The Federal Court of Justice assessed the case under the rules on abuse of dominance and found that the appeal court had not sufficiently shown why the relevant upstream market (i.e., the market on which repair shops, on the demand side, request from manufacturers, on the supply side, resources used for the provision of repair and maintenance services) should be defined as not being brand specific.

The Federal Court of Justice instructed the appeal court to take into consideration the market conditions on the downstream market where the repair shop offers repair services to its customers because the conditions on the downstream market can influence how the upstream market should be defined. In particular, the appeal court should consider whether it is economically viable for repair shops to service Jaguar and Land Rover vehicles even if they do not have the status of an authorised repair shop. If this is not the case, the upstream market has to be defined as brand specific. In making this assessment, the court should consider whether it is technically possible for the repair shop to provide such services, e.g., whether it may source original spare parts from other authorised repair shops. In addition, it should consider whether an unauthorised repair shop can realistically expect to receive orders from customers, taking into account customers' own expectations including their emotional sensitivities.

The Federal Court of Justice distinguished this case from MAN (see VBB on Competition Law, Volume 2011, No. 4, available at www.vbb.com). In MAN, the Federal Court of Justice had found that it is not indispensable for a repairer to have the status of an authorised repairer in order to operate on the market for the repair and service of commercial vehicles and, therefore, that the market should not be defined as brand specific. According to the Court, this conclusion, which was based on the fact that most repair services for commercial vehicles were carried out by non-authorised workshops, cannot necessarily be assumed to apply to repair services for high-end passenger vehicles. Instead, an assessment must be made taking into account the demands, expectations and habits of car owners (for example, whether owners of Jaguar or Land Rover passenger vehicles are willing to pay higher prices to have their vehicles repaired by an authorised repair shop even after the expiry of the contractual guarantee). Such expectations and habits will be reflected in the customers' demand-related behaviour. Therefore, if it can be shown that most repairs for the passenger vehicles are performed by independent repair shops instead of by authorised repair shops, the status of authorised repair shop will not be considered indispensable.

The present ruling specifies that relevant market shares shall primarily be calculated based on the respective turnover of repair shops (in and outside the authorised repair network), instead of the numbers of orders placed with them. In addition, the turnover attributable to workshop services which do not require the knowledge and expertise that can typically only be acquired by specialising in a specific brand has to be weighted less.

In addition, the Federal Court of Justice further elaborated on the burden of proof to demonstrate the indispensability of being admitted as an authorised repair shop. Although this generally lies with the repair shop, it might shift to the opposing party where only it has access to the underlying data on the relevant market and can be reasonably expected to provide further details.

On the main issue in the case, the Federal Court of Justice clarified that, if the assessment shows that the market is brand specific, the defendant is dominant and may not - without objective reasons - deny access to the network of authorised repair shops if the claimant fulfils the qualitative requirements.

With the present judgment, the Federal Court of Justice confirmed its ruling of January 2016 on admittance to Jaguar's authorised repair network, which was only published after the decision of the appeal court was rendered in the present case. In overturning in that case a judgment of the Higher Regional Court of Frankfurt, the Federal Court of Justice already attributed particular importance to the expectations, demands and habits of end customers of high-end passenger vehicles. That case was referred back to the Higher Regional Court of Frankfurt, which has since decided the case (in a judgment which has not been published) and whose decision is currently again under appeal before the Federal Court of Justice.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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