Court of Justice of the European Communities (including Court of First Instance Decisions)

Pursuant to Article 85(3) of the Treaty it is hereby declared that subject to the conditions laid down in this Regulation Article 85(1) [of the Treaty] shall not apply to agreements to which only two undertakings are party and in which one contracting party agrees to supply within a defined territory of the common market

- only to the other party, or

- only to the other party and to a specified number of other undertakings within the distribution system,

for the purpose of resale certain motor vehicles intended for use on public roads and having three or more road wheels ....

The exemption ... shall also apply where [the selective distribution agreement] is combined with an obligation on the dealer:

...

8. outside the contract territory

(a) not to maintain branches or depots for the distribution of contract goods or corresponding goods,

(b) not to seek customers for contract goods or corresponding goods;

9. not to entrust third parties with the distribution or servicing of contract goods or corresponding goods outside the contract territory;

10. to supply to a reseller:

(a) contract goods or corresponding goods only where the reseller is an undertaking within the distribution system, ...

...

11. to sell motor vehicles ... to final consumers using the services of an intermediary only if that intermediary has prior written authority to purchase a specified motor vehicle and, as the case may be, to accept delivery thereof on their behalf.

Articles 1, 2 and 3 shall apply notwithstanding any obligation imposed on the dealer to:

...

(3) endeavour to sell, within the contract territory and within a specified period, such minimum quantity of contract goods as may be determined by agreement between the parties or, in the absence of such agreement, by the supplier on the basis of estimates of the dealer's potential sales;

...

(8) inform customers, in a general manner, of the extent to which spare parts from other sources might be used for the repair or maintenance of contract goods or corresponding goods;

....

The exemption shall not apply where:

...

(3) ... the parties agree restrictions of competition that are not expressly exempted by this Regulation; or

...

(7) the manufacturer, the supplier or another undertaking within the network directly or indirectly restricts the freedom of final consumers, authorised intermediaries or dealers to obtain from an undertaking belonging to the network of their choice within the common market contract goods or corresponding goods ... or the freedom of final consumers to resell the contract goods or corresponding goods, when the sale is not effected for commercial purposes; or

(8) the supplier, without any objective reason, grants dealers remunerations calculated on the basis of the place of destination of the motor vehicles resold or the place of residence of the purchaser; ...

....

Facts of the dispute and proceedings before the Court of First Instance

1 The applicant is the holding company of the Volkswagen group. The group's business activities include the manufacture of motor vehicles of the Volkswagen, Audi, Seat and Skoda makes, and the manufacture of components and spare parts. ...

2 Motor vehicles of the Volkswagen and Audi makes are sold in the Community through selective distribution networks. The import into Italy of those vehicles, their spare parts and accessories, is carried out exclusively by Autogerma SpA (Autogerma), a company incorporated under Italian law, established in Verona (Italy), which is a wholly owned subsidiary of the applicant and which accordingly constitutes, with the applicant and Audi, one economic unit. Distribution in Italy takes place through legally and economically independent dealers, who are nevertheless contractually bound to Autogerma.

...

8 From September 1992 and during 1993 the value of the Italian lira declined greatly in comparison with the German mark. However, the applicant did not make a proportionate increase in its sales prices in Italy. The price differences which resulted from that situation made it economically advantageous to re-export vehicles of the Volkswagen and Audi makes from Italy.

9 During 1994 and 1995 the Commission received letters from German and Austrian consumers complaining of obstacles to the purchase in Italy of new motor vehicles of the Volkswagen and Audi makes for immediate re-export to Germany or Austria.

10 By letter of 24 February 1995 the Commission informed the applicant that, on the basis of complaints from German consumers, it had concluded that the applicant or Autogerma had forced Italian dealers for Volkswagen and Audi makes to sell vehicles solely to Italian customers by threatening to terminate their dealer contracts. In the same letter the Commission gave formal notice to the applicant to put an end to that barrier to re-exportation and to inform it, within three weeks of the date of receipt of that letter, of the measures adopted in that regard.

...

13 On 17 October 1995 the Commission adopted a decision ordering investigations under Article 14(3) of Council Regulation No 17 of 6 February 1962: First Regulation implementing Articles 85 and 86 of the Treaty (OJ, English Special Edition 1959-1962, p. 87). The investigations took place on 23 and 24 October 1995 ...

14 On the basis of the documents found during those investigations the Commission reached the conclusion that the applicant, Audi and Autogerma had put in place, with their Italian dealers, a market-partitioning policy. On 25 October 1996 the Commission served a statement of objections to that effect on the applicant and Audi.

15 By letter of 18 November 1996 the applicant and Audi requested access to the file. They inspected the file on 5 December 1996.

16 On 19 December 1996 Autogerma, at the express request of the applicant, sent a circular to the Italian dealers stating that exports to final users (including those through intermediaries) and to dealers belonging to the distribution network were lawful and would therefore not be penalised. The circular also indicated that the discount granted to dealers on the sale price of vehicles ordered, known as the margin, and payment of their bonus did not depend in any way on whether the vehicles had been sold within or outside their contract territory.

...

20 On 28 January 1998 the Commission adopted [the contested decision]. The decision is addressed solely to the applicant. The Commission states that the applicant is responsible for the infringement found because Audi and Autogerma are its subsidiaries and their activities were known to it. As regards the Italian dealers, the Commission states that they did not participate actively in the barriers to re-export but, as victims of the restrictive policy introduced by the manufacturers and Autogerma, were forced to consent to that policy.

...

22 As regards the measures taken by the applicant and Audi, the Commission cites the introduction by the applicant of a split margin system ... The Commission also mentions the reduction by the applicant and Audi of dealers' stocks. That measure, accompanied by a policy of restricted supply, caused a considerable increase in delivery times and led some customers to cancel their orders. It also allowed Autogerma to refuse supplies requested by German dealers (cross-deliveries inside the Volkswagen distribution network). The Commission also refers to the conditions laid down by Audi and Autogerma for calculating the quarterly 3% bonus paid to dealers on the basis of the number of vehicles they had sold.

23 Amongst the penalties imposed by Autogerma on the dealers, the Commission refers to the termination of certain dealership contracts and the cancellation of the quarterly 3% bonus for sales outside the contract territory.

...

26 The Commission concludes that those measures, which all form part of the contractual relations which the manufacturers maintain, through Autogerma, with the dealers in their selective distribution network, are the result of an agreement or concerted practice and constitute an infringement of Article 85(1) of the Treaty since they represent the implementation of a market-partitioning policy. It explains that those measures are not covered by Regulation No 123/85 and Regulation No 1475/95, since no provision of those regulations exempts an agreement which aims to prevent parallel exports by final consumers, by intermediaries acting on their behalf or by other dealers in the dealer network. It also states that an individual exemption cannot be granted in the present case, since the applicant, Audi and Autogerma did not notify any aspect of their agreement with the dealers, and that in any event the barriers to re-exportation are at variance with the objective of consumer protection set out in Article 85(3) of the Treaty.

...

28 In Article 1 of the decision the Commission finds that the applicant and its subsidiaries Audi and Autogerma have infringed Article 85(1) of the EC Treaty by entering into agreements with the Italian dealers in their distribution network in order to prohibit or restrict sales to final consumers coming from another Member State, whether in person or represented by intermediaries acting on their behalf, and to other authorised dealers in the distribution network who are established in other Member States. In Article 2 of the decision it orders the applicant to bring an end to the infringements and requires it to take, inter alia, the measures set out there.

29 In Article 3 of the decision the Commission imposes a fine of ECU 102 million on the applicant in view of the gravity of the infringement found. The Commission contends that the obstruction of parallel imports of vehicles by final consumers and of cross-deliveries within the dealer network hampers the objective of creating the common market, which is one of the fundamental principles of the European Community, and the infringement found is therefore particularly serious. Moreover, it points to the fact that the relevant rules have been settled for many years and the fact that the Volkswagen group has the highest market share of any motor vehicle manufacturer in the Community. The Commission also refers to documents as proof that the applicant was fully aware that its behaviour infringed Article 85 of the Treaty. It states, moreover, that the infringement lasted for more than 10 years. Lastly, the Commission took into account, as aggravating circumstances, the fact that the applicant, first, did not put an end to the measures in question even though it had received two letters from the Commission in 1995 pointing out that preventing or restricting parallel imports from Italy was an infringement of the competition rules and, second, had used the dependence of dealers on a motor vehicle manufacturer, and so caused, in this case, quite substantial turnover losses for a number of dealers. The decision explains that the applicant, Audi and Autogerma threatened more than 50 dealers that their contracts would be terminated if they continued to sell vehicles to foreign customers and that 12 dealership contracts were in fact terminated, endangering the existence of the businesses concerned.

30 The decision was sent to the applicant by letter dated 5 February 1998 and received by it on 6 February 1998.

...

- with regard to the barrier resulting from the bonus system and the alleged infringement of Regulation No 123/85, the 3% bonus had been granted, logically, on the basis of the proper performance of the dealer's obligation to concentrate his activity within his contract territory; consequently, the 15% rule, under which, for the calculation of the bonus, all sales were to be taken into account but those made outside the contract territory would be taken into account only up to a maximum of 15% of total sales achieved by the dealer (hereinafter the 15% rule) was entirely justified by the wording of Regulation No 123/85 (recitals 1 and 9 and Article 4(1)(3) thereof);

- contrary to what the Commission alleges, a split margin system was never introduced;

- the Commission erred in finding that the business conduct of the manufacturers and of their distribution network in Italy vis-à-vis consumers from other Member States constituted a barrier to re-exportation;

- all of the instances of termination of dealership contracts on which the Commission relied concerned dealers who had sold vehicles on numerous occasions to independent dealers and who had on occasion also committed other serious breaches of their contractual obligations;

- the conduct alleged did not continue after October 1995; the documents removed by the Commission related only to the years 1993, 1994 and 1995; and

- a restriction on supplies to the Italian market cannot be classified as an agreement within the meaning of Article 85(1) of the Treaty.

The judgment under appeal

The barrier resulting from the bonus system and the alleged infringement of Regulation No 123/85

The barrier resulting from business conduct vis-à-vis consumers

105 The applicant's argument is manifestly at variance with the considerable number of complaints which were sent, particularly during 1995, by consumers in Member States other than Italy and, for the most part, of German or Austrian nationality, either to the applicant, Audi or Autogerma, or to the Commission. Following a request by the Court to send to it all the letters received from consumers or obtained by it the Commission produced more than 60 letters or faxes all of which complain of the obstacles encountered by those consumers in acquiring a Volkswagen or Audi vehicle in Italy. It is sufficient to set out hereinafter some of the correspondence considered by the Commission in the contested decision.

115 Those documents show in an adequately representative manner that during the period concerned a potential customer resident outside Italy faced the greatest difficulties in finding an Italian Volkswagen and Audi dealer prepared to sell him a vehicle. Consequently, the Commission could properly conclude that the business conduct of the manufacturers and their distribution network in Italy vis-à-vis consumers from other Member States also constituted a barrier to re-exports.

The sanctions allegedly imposed on dealers

The duration of the barriers to re-exports

The question whether restriction of supplies to the Italian market constituted an agreement within the meaning of Article 85(1) of the Treaty

297 The statement of reasons for the contested decision showed, in conformity with the requirements of Article 190 of the EC Treaty (now Article 253 EC), clearly and unequivocally the Commission's reasoning and so enabled the applicant to ascertain the reasons for that decision in order to defend its rights, and the Court to review the correctness of the decision (Case C-278/95 P Siemens v Commission [1997] ECR I-2507, paragraph 17; Case T-150/89 Martinelli v Commission [1995] ECR II-1165, paragraph 65; and [Case T-229/94] Deutsche Bahn v Commission [[1997] ECR II-1689], paragraph 96).

298 It is clearly explained in the contested decision, with regard to the various types of conduct complained of, why the Commission considered that the applicant had infringed Article 85(1) of the Treaty. The Commission's analyses have enabled the Court to exercise its power of review. By the same token, both in its application and during the proceedings, the applicant has replied to the arguments set out by the Commission in the decision in relation to the finding of an infringement, which shows that the decision supplied it with the necessary information to enable it to defend its rights.

299 Moreover, in the decision and, more specifically, in recitals 194 to 201 thereof, the Commission, as stated in paragraph 27 above, expressly replied to certain observations submitted by the applicant and Audi in response to the statement of objections. It should be added here that the Commission did not have to reply to the applicant's detailed objections, such as those submitted in regard to its margin policy. All that was required of the Commission was to explain clearly and unequivocally, as it did in recitals 62 to 66 of the decision, why it took the view that a split margin system had been instituted (see Siemens v Commission, cited above, paragraphs 17 and 18). Likewise, the Commission gave adequate reasons for its analysis of the documents obtained by amply explaining the grounds on which it considered that those documents were of such a nature as to prove the existence of the alleged infringement, but without replying point-by-point to the different interpretations submitted by the applicant in its reply to the statement of objections. ...

The excessive nature of the fine imposed

334 As to the first question, it is not disputed that in the present case the Commission found that the infringement was committed intentionally and not merely negligently (recital 214 of the decision). That assessment is wholly justified. As has been found above in the context of the first plea, the applicant adopted measures whose object was to partition the Italian market and thus to hinder competition ... Moreover, it is not necessary for an undertaking to have been aware that it was infringing the competition rules laid down in the Treaty for an infringement to be regarded as having been committed intentionally; it is sufficient that it could not have been unaware that the object of its conduct was the restriction of competition (Case T-61/89 Dansk Pelsdyravlerforening v Commission [1992] ECR II-1931, paragraph 157, and Case T-143/89 Ferriere Nord v Commission [1995] ECR II-917, paragraph 41). In view of the existence of settled case-law holding that actions partitioning markets are incompatible with the Community competition rules ..., the applicant could not have been unaware that its conduct hindered competition.

342 As to the argument that Convenzione B had been notified in 1988 and, accordingly, the Commission could not impose a fine on the applicant in respect of the 15% rule agreed in that agreement, the Court points out, first, that the prohibition laid down in Article 15(5)(a) of Regulation No 17 on the imposition of fines in respect of acts taking place after notification to the Commission and before its decision in application of Article 85(3) of the Treaty, provided they fall within the limits of the activity described in the notification applies only in respect of agreements which have in fact been notified in accordance with the necessary formalities (Joined Cases 240/82 to 242/82, 261/82, 262/82, 268/82 and 269/82 Stichting Sigarettenindustrie and Others v Commission [1985] ECR 3831, paragraph 77; [Case T-29/92] SPO and Others v Commission [[1995] ECR II-289], paragraph 342; also Case 30/78 Distillers Company v Commission [1980] ECR 2229, paragraphs 23 and 24). Next, it must be pointed out that in a letter dated 25 November 1988 (Annex 3 to the defence) the Commission informed Autogerma that the dispatch by it of Convenzione B was not a notification for the purposes of Regulation No 17 ...

343 Irrespective of the question whether or not the sending of Convenzione B was a notification for the purposes of Regulation No 17, the very fact that that agreement was sent to the Commission already in 1988 ought to have led the Commission to reject the view that that agreement was in itself a factor justifying an increase in the amount fixed in respect of the gravity of the infringement (recital 217 of the decision). Consequently, the period from 1988 to 1992, during which the 15% rule stipulated in Convenzione B is the only act complained of (see recital 202 of the decision) must not be taken into account when fixing the fine, even if that rule was rightly regarded as incompatible with the Treaty (see, in regard to the latter point, paragraphs 49 and 189 above).

344 On the other hand, the 15% rule could be taken into account for the purposes of fixing the fine in respect of the period from 1993 to 1996. As has been found above ..., during that period the ceiling provided by the 15% rule was combined, and thus strengthened, with other measures, in order to hinder re-exports. ... Consequently, even if it were proved that Convenzione B had been notified, it would still be necessary to find that since 1993 the application of the 15% rule fell outside the scope of the activity as set out in the text of the agreement notified to the Commission, so that, by virtue of the clear wording of Article 15(5)(a) of Regulation No 17, the exemption from fines would no longer apply. It follows that it would have been appropriate to take 1 September 1993 as the starting date of the period to be taken into account when fixing the fine ....

[The Court of First Instance hereby]

1. Annuls Commission Decision 98/273/EC of 28 January 1998 relating to a proceeding under Article 85 of the EC Treaty (Case IV/35.733 - VW) in so far as it finds that:

(a) a split margin system and termination of certain dealership contracts by way of penalty were measures adopted in order to hinder re-exports of Volkswagen and Audi vehicles from Italy by final consumers and authorised dealers in those makes in other Member States;

(b) the infringement had not completely ceased between 1 October 1996 and the adoption of the decision;

2. Reduces the amount of the fine imposed on the applicant by Article 3 of the contested decision to EUR 90 000 000;

3. Dismisses the remainder of the application;

4. Orders the applicant to bear its own costs and to pay 90% of the costs incurred by the Commission;

5. Orders the Commission to bear 10% of its own costs.

The appeal

- set aside the judgment under appeal and declare the contested decision to be void;

- order the Commission to pay the costs of the proceedings before the Court of First Instance and the Court of Justice.

- dismiss the appeal;

- set aside the contested judgment and refer the case back to the Court of First Instance in so far as it reduced to EUR 90 million the amount of the fine imposed on the appellant without taking into account, in fixing that fine, the 15% rule laid down in Convenzione B of the dealership contract concluded in 1988 for the period from 1988 to 1992;

- order the appellant to pay the costs of the proceedings before the Court of Justice and reserve to the Court of First Instance the decision on costs in the cross-appeal.

The main appeal

- contrary to what the Court of First Instance held, the 3% reduction in the bonus paid to Italian dealers who completed more than 15% of their sales outside their contract territory is not contrary to Article 85(1) of the Treaty and is in any event covered by Regulation No 123/85 (first ground of appeal);

- the restricted supply to the Italian market, which the Court of First Instance took into account, does not fall within the scope of the prohibition of concerted practices in Article 81(1) as it is a unilateral measure (second ground of appeal);

- the account taken of the bonus system (see the first plea) in the calculation of the fine is contrary to Article 15(5)(a) of Regulation No 17 (third ground of appeal);

- the findings by the Court of First Instance as to the intentional nature of the infringement fail to satisfy the requirements of Article 15(2) of Regulation No 17 (fourth ground of appeal);

- the Court of First Instance based the judgment under appeal on facts differing from those on which the contested decision was based (fifth ground of appeal);

- the Court of First Instance failed to guarantee the right to a fair hearing (as a right of the defence) by using, to the appellant's detriment, complaints lodged by consumers on which the appellant had been unable to set out its views during the administrative procedure (sixth ground of appeal);

- contrary to the finding of the Court of First Instance, the contested decision is not adequately reasoned and is, by virtue of that fact, unlawful (seventh ground of appeal);

- the Court of First Instance failed to comply with its obligation to provide reasons in regard to the fine which it fixed (eighth ground of appeal); and

- the premature announcement of the draft decision by the commissioner responsible for competition matters must, in any event, render the contested decision unlawful (ninth ground of appeal).

The first ground of appeal

Arguments of the parties

Findings of the Court

The second ground of appeal

Arguments of the parties

Findings of the Court

The third ground of appeal

Arguments of the parties

Findings of the Court

The fourth ground of appeal

Arguments of the parties

Findings of the Court

The fifth ground of appeal

Arguments of the parties

Findings of the Court

The sixth ground of appeal

Arguments of the parties

Findings of the Court

The seventh ground of appeal

Arguments of the parties

Findings of the Court

The eighth ground of appeal

Arguments of the parties

Findings of the Court

The ninth ground of appeal

Arguments of the parties

Findings of the Court

It is settled case-law that an irregularity of the type found above may lead to annulment of the decision in question if it is established that the content of that decision would have differed if that irregularity had not occurred (... Suiker Unie and Others v Commission [cited above], paragraph 91; Dunlop Slazenger v Commission, cited above, paragraph 29). However, in the present case the applicant has not adduced such proof. There are no grounds for supposing that if the information at issue had not been disclosed the Advisory Committee or the College of Commissioners would have altered the proposed amount of the fine or the content of the decision.

The cross-appeal

Arguments of the parties

Findings of the Court

Costs