CN09 - Porsche-Tuning II - Top German court rules car manufacturer

In a decision of 6 July 2021, published in September 2021, the German Federal Court of Justice ("FCJ") ruled that restrictive clauses in retail and service agreements between Porsche and its authorised distributors were in breach of competition law. Porsche could not prohibit its authorised distributors from selling Porsche cars and spare parts to companies operating in the tuning industry.

Key takeaways

• Car manufacturers, such as Porsche, may not prohibit their authorised distributors from selling cars and spare parts to companies that want to modify (tune) them and/or use them for presentation purposes. Such a ban constitutes a restriction of competition. The tuning companies here were not to be classified as "subsequent retailers" competing with Porsche – on which such a prohibition generally could be imposed – but rather as end customers.
• The term "subsequent retailer" is to be interpreted objectively. The manufacturer cannot arbitrarily exclude undesirable buyers from the purchase by arbitrarily declaring them to be subsequent retailers.
• The burden of proof for establishing that the market share threshold for the block exemptions for vertical agreements ("VBER") has not been met is on the party relying on the exemption. Porsche failed to persuade the court that it was below the market share threshold of 30% and therefore VBER was not applicable.

Background: Porsche prohibits authorised distributors from selling to resellers

Within its authorised distribution network, Porsche obliged its distributors to sell their cars exclusively to end consumers or to other authorised distributors. Sales to so-called "subsequent retailers" were expressly prohibited. 

In doing so, Porsche considered companies that used Porsche cars either as presentation models for their tuning equipment or in order to tune (i.e. modify) them and sell them to the end consumer as "subsequent retailers". Similarly, distributors were prohibited from selling spare parts when these were to be used as components for tuning products. 

The plaintiff, an association of around 130 companies that manufacture and distribute tuning parts, requested a cease and desist order in relation to these clauses. The appeal court, the Stuttgart Higher Regional Court, mostly upheld the action and the FCJ confirmed this decision.

FCJ's decision: Prohibition of supply to tuning product manufacturers is inadmissible restriction of competition

The FCJ ruled that the clauses at issue represented unlawful customer sales restrictions that restricted both the ability of the "subsequent retailers" to enter the tuning market as suppliers and the ability of the tuning companies to purchase the parts needed for their products. By virtue of Porsche manufacturing its own range of tuning products, it was not only a competitor with the tuning companies but could also not rely on the supply of components exemption as the clauses represented a blanket restriction on the sale of all spare parts and not just Porsche's tuning products.

No exception to the prohibition

Members of a selective distribution system cannot be prevented from selling to end users. According to the FCJ, the organiser of a selective distribution system cannot arbitrarily exclude sales by members of that system to groups of "undesirable" buyers by arbitrarily declaring them to be "subsequent retailers" and not "end users". 

The term "subsequent retailer" has to be interpreted objectively. It only applies to retailers reselling the vehicle in an as-new condition without substantial modifications. The purpose of use in question here - presentation of the vehicle with one's own tuning products - did not fall under that definition. Companies that buy Porsche cars solely as presentation models for their own tuning products are to be considered end users rather than "subsequent retailers". 

Non-applicability of the VBER

The restrictive clauses could not be exempt based on VBER. While the burden of proof was held to be on the party trying to rely on the exemption, Porsche could not establish that its market share did not exceed 30%, a requirement for the applicability of the VBER.

Comment

This is the second case in which the FCJ held that Porsche could not restrict the sale of Porsche cars and equipment to tuning companies. In the decision in Porsche-Tuning I of 6 October 2015 the FCJ found that the claimant, a tuning company, under specific circumstances had a right to be supplied with Porsche vehicles and parts, otherwise Porsche would infringe the prohibition against abuse of economic dependence and abuse of dominance under German law.

The FCJ in both cases clarified that Porsche could only rely on the supply of components exemption under VBER with regard to parts from their own Porsche tuning programmes which are intended for value-added reuse and not for unchanged use and resale to Porsche centres.

With thanks to Jan Schwarzfischer of Ashurst for his contribution.