In decision n° 20-11.754 of Feb. 16, 2022, the commercial chamber of the French Supreme Court (Cour de cassation) decided that the head of a qualitative selective distribution network is entitled to refuse to approve retailers as authorized dealers even if they meet the applicable selection criteria.

As part of the restructuring of its exclusive distribution network into a qualitative and quantitative selective distribution system, Mercedes-Benz France terminated, effective September 30, 2003, the exclusive distribution agreement with a retailer for the sale of new Mercedes-Benz vehicles in the region of Angers.

As the retailer had been an exclusive distributor of the Mercedes-Benz brand in the region since 1970, it immediately applied for approval to become an authorized dealer of new vehicles under the new distribution network. Mercedes-Benz rejected its application and appointed a third company as authorized dealer in the relevant territory.

The retailer disputed the termination of its distribution agreement and the refusal by Mercedes-Benz to examine the application to become an authorized dealer in the new distribution network. All of its claims were rejected by two definitive decisions (See Court of appeal of Angers, April 12, 2005, 04/00387, and Court of appeal of Versailles, February 24, 2005, 04/01837.)

Despite the termination of the agreement and the refusal of appointment as authorized dealer, the parties continued to be in business, with the retailer acting as authorized repairer of Mercedes-Benz cars under a separate agreement. In 2014, Mercedes-Benz France decided to also terminate that agreement, effective September 17, 2016. The retailer applied again to become an authorized Mercedes-Benz repairer. Even though the company met the applicable qualitative criteria of the selective distribution network, Mercedes-Benz France again refused to examine its application and again appointed the third company as authorized repairer.

The retailer disputed the termination of the agreement and the refusal to examine its new application to become an authorized repairer. Mercedes-Benz France argued that it had lost confidence in its former retailer due to the previous litigations and cited this as its justification for the rejection of the retailer's application for approval.

Before the Supreme Court, the retailer disputed the decision of the Court of Appeal of Paris of November 27, 2019 (RG n° 18/06901), which had rejected its request that Mercedes-Benz France be ordered to approve it as an authorized repairer of Mercedes-Benz cars and to pay compensation for damages.

The retailer argued first that by refusing to consider the application of a candidate that meets the selection criteria, the head of a selective distribution network breaches its obligation of contractual good faith. The Supreme Court replied that the requirement to establish objective selection criteria and to implement them in a nondiscriminatory manner is not based on the obligation of good faith but on the principle of free competition.

The plaintiff also argued that the refusal of approval, even though it meets the selection criteria, constitutes an anticompetitive practice falling under the prohibition of Article L. 420-1 of the French Commercial Code and therefore constitutes an anticompetitive agreement with the new authorized dealer.

In that respect, the Court noted that competition law prohibits not the refusal by the head of a selective distribution network to approve distributors who meet the selection criteria but rather the discriminatory implementation of such criteria.

In order to constitute an anticompetitive agreement within the meaning of Articles L. 420-1 of the French Commercial Code and 101 (1) of the Treaty on the Functioning of the European Union, a refusal to appoint an authorized dealer/repairer must have the object or effect of distorting competition in the relevant market; it's not enough that it makes it difficult for the unsuccessful candidate to enter the market.

Therefore, subject to the absence of discriminatory implementation of the selection criteria, the French Supreme Court considered in its decision that each operator at the head of a selective distribution network is free to choose distributors among those that meet the required qualities, and that the mere fulfilment of the selection criteria does not give rise to any right to approval for the applicant.

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