JUDGMENT OF THE COURT

28 April 1998 (1)

(Competition — Luxury cosmetic products — Selective distribution system —

Obligation to export to a non-member country — Prohibition of re-importationinto, and of marketing in, the Community)

In Case C-306/96,

REFERENCE to the Court under Article 177 of the EC Treaty by the Courd'Appel de Versailles (France) for a preliminary ruling in the proceedings pendingbefore that court between

Javico International and Javico AG

and

Yves Saint Laurent Parfums SA (YSLP)

on the interpretation of Article 85(1) of the EC Treaty,

THE COURT,

composed of: G.C. Rodríguez Iglesias, President, C. Gulmann and R. Schintgen(Rapporteur) (Presidents of Chambers), G.F. Mancini, J.C. Moitinho de Almeida,

P.J.G. Kapteyn, D.A.O. Edward, J.-P. Puissochet, G. Hirsch, P. Jann and L. Sevón,Judges,

Advocate General: G. Tesauro,

Registrar: H. von Holstein, Deputy Registrar,

after considering the written observations submitted on behalf of:

—    Javico International and Javico AG, by Franck Berthault, of the Paris Bar,

—    Yves Saint Laurent Parfums SA (YSLP), by Dominique Voillemot andAntoine Choffel, of the Paris Bar,

—    the Commission of the European Communities, by Giuliano Marenco,Principal Legal Adviser, and Guy Charrier, a national civil servant onsecondment to the Commission's Legal Service, acting as Agents,

having regard to the Report for the Hearing,

after hearing the oral observations of Javico International and Javico AG,represented by Franck Berthault, Yves Saint Laurent Parfums SA (YSLP),represented by Dominique Voillemot and Antoine Choffel, the FrenchGovernment, represented by Régine Loosli-Surrans, Chargé de Mission in theDirectorate for Legal Affairs, Ministry of Foreign Affairs, Acting as Agent, and theCommission, represented by Giuliano Marenco and Guy Charrier, at the hearingon 17 September 1997,

after hearing the Opinion of the Advocate General at the sitting on 6 November1997,

gives the following

Judgment

1.

    By judgment of 8 September 1995, received at the Court Registry on 23 September1996, the Cour d'Appel (Court of Appeal), Versailles, referred to the Court for apreliminary ruling under Article 177 of the EC Treaty two questions on theinterpretation of Article 85(1) of the EC Treaty in order to enable it to appraisethe validity of a contract containing an obligation to export luxury cosmetics to anon-member country and of a prohibition of reimporting and marketing thoseproducts in the Community.

2.

    The questions have been raised in proceedings brought by Yves Saint LaurentParfums SA (hereinafter 'YSLP‘) against Javico International and Javico AG(hereinafter together referred to as 'Javico‘) for a finding that Javico was inbreach of its contractual obligations, that the two contracts between the parties hadbeen properly terminated and that YSLP was entitled to contractual compensationand damages.

3.

    YSLP enjoys an individual exemption for the selective distribution of its productswithin the Community (Commission Decision 92/33/EEC of 16 December 1991relating to a procedure pursuant to Article 85 of the EEC Treaty (IV33.242 — YvesSaint Laurent Parfums) (OJ 1992 L 12, p. 24)), the legality of the main provisionsof which was upheld by judgment of the Court of First Instance in Case T-19/92Leclerc v Commission [1996] ECR II-1851).

4.

    On 5 February and 6 May 1992 YSLP concluded with Javico International, whoseregistered office is in Germany but which does not form part of YSLP's distributionnetwork within the Community, two contracts for the distribution of its products,one covering Russia and Ukraine and the other Slovenia.

5.

    The distribution contract for Russia and Ukraine provides:

'1.    Our products are intended for sale solely in the territory of the Republicsof Russia and Ukraine.

    In no circumstances may they leave the territory of the Republics of Russiaand Ukraine.

2.    Your company promises and guarantees that the final destination of theproducts will be in the territory of the Republics of Russia and Ukraine, andthat it will sell the products only to traders situated in the territory of theRepublics of Russia and Ukraine. Consequently, your company will providethe addresses of the distribution points of the products in the territory ofthe Republics of Russia and Ukraine and details of the products bydistribution point.‘

6.

    The distribution contract for Slovenia provides:

'In order to protect the high quality of the distribution of the products in othercountries of the world, the distributor agrees not to sell the products outside theterritory or to unauthorised dealers in the territory.‘

7.

    Shortly after the conclusion of those contracts, YSLP discovered in the UnitedKingdom, Belgium and the Netherlands products sold to Javico which should havebeen distributed in Russia, Ukraine and Slovenia. YSLP therefore terminated thecontracts and instituted proceedings before the Tribunal de Commerce, Nanterre,

which, by judgment of 21 October 1994, upheld the termination of the twocontracts and YSLP's claim for contractual compensation and damages.

8.

    Javico appealed against that decision to the Cour d'Appel, Versailles, whichconsidered that the validity of the provisions in the distribution contracts at issuehad to be appraised in the light of Article 85(1) of the Treaty, the appellantshaving contended that those contractual provisions were void by virtue of Article85(2) of the Treaty.

9.

    In those circumstances, the Cour d'Appel stayed proceedings pending a ruling fromthe Court of Justice on the following questions:

'1.    Where an undertaking (the supplier) situated in a Member State of theEuropean Union by contract entrusts another undertaking (the distributor)situated in another Member State with the distribution of its products in aterritory outside the Union, must Article 85(1) of the Treaty establishing theEuropean Economic Community be interpreted as prohibiting provisions inthat contract which preclude the distributor from effecting any sales in aterritory other than the contractual territory, and hence any sale in theUnion, either by direct marketing or by re-exportation from the contractualterritory?

2.    In the event that the said Article 85(1) prohibits such contractual provisions,must it be interpreted as not being applicable where the supplier otherwisedistributes his products on the territory of the Union by means of a selectivedistribution network which has been the subject of an exemption decisionunder Article 85(3)?‘

The first question

10.

    By its first question, the national court asks whether Article 85(1) of the Treatyprecludes a supplier established in a Member State from prohibiting a distributorestablished in another Member State to which it entrusts the distribution of itsproducts in a territory outside the Community from making any sales in a territoryother than the contractual territory, including the territory of the Community, either by means of direct sales or by means of re-exportation from the contractualterritory.

11.

    According to settled case-law (see, in particular, Case 56/65 Société TechniqueMinière v Maschinenbau Ulm [1966] ECR 235 and Joined Cases 56/64 and 58/64Consten and Grundig v Commission [1966] ECR 299), agreements betweeneconomic operators at different levels of the economic process may be caught bythe prohibition contained in Article 85(1) of the Treaty.

12.

    In order to determine whether agreements such as those concluded by YSLP withJavico fall within the prohibition laid down by that provision it is necessary to

consider whether the purpose or effect of the ban on supplies which they entail isto restrict to an appreciable extent competition within the common market andwhether the ban may affect trade between Member States.

13.

    As far as agreements intended to apply within the Community are concerned, theCourt has already held that an agreement intended to deprive a reseller of hiscommercial freedom to choose his customers by requiring him to sell only tocustomers established in the contractual territory is restrictive of competition withinthe meaning of Article 85(1) of the Treaty (see, to that effect, Case 86/82Hasselblad v Commission [1984] ECR I-883, paragraph 46, and Case C-70/93 BMWv ALD [1995] ECR I-3439, paragraphs 19 and 21).

14.

    Similarly, the Court has held that an agreement which requires a reseller not toresell contractual products outside the contractual territory has as its object theexclusion of parallel imports within the Community and consequently restriction ofcompetition in the common market (see, to that effect, Case C-279/87 Tipp-Ex vCommission [1990] ECR I-261, paragraph 22 (summary publication)). Suchprovisions, in contracts for the distribution of products within the Community,therefore constitute by their very nature a restriction of competition (see Case19/77 Miller v Commission [1978] ECR 131, paragraph 7)

15.

    However, anti-competitive conduct may not be struck down under Article 85(1) ofthe Treaty unless it is capable of affecting trade between Member States.

16.

    If an agreement, decision or practice is to be capable of affecting trade betweenMember States, it must be possible to foresee with a sufficient degree ofprobability, on the basis of a set of objective factors of law or of fact, that they mayhave an influence, direct or indirect, actual or potential, on the pattern of tradebetween Member States in such a way as to cause concern that they might hinderthe attainment of a single market between Member States. Moreover, that effectmust not be insignificant (Case 5/69 Völk v Vervaecke [1969] ECR 295, paragraph5).

17.

    The effect which an agreement might have on trade between Member States is tobe appraised in particular by reference to the position and the importance of theparties on the market for the products concerned (Case 99/79 Lancôme andCosparfrance Nederland v Etos [1980] ECR I-2511, paragraph 24). Thus, even anagreement imposing absolute territorial protection may escape the prohibition laiddown in Article 85 if it affects the market only insignificantly, regard being had tothe weak position of the persons concerned on the market in the products inquestion (Joined Cases 100/80 to 103/80 Musique Diffusion Française and Others vCommission [1983] ECR 1825, paragraph 85).

18.

    It is therefore necessary to determine to what extent the foregoing considerationsalso apply to agreements, like those at issue in this case, which are intended toapply in a territory outside the Community.

19.

    In the case of agreements of this kind, stipulations of the type mentioned in thequestion must be construed not as being intended to exclude parallel imports andmarketing of the contractual product within the Community but as being designedto enable the producer to penetrate a market outside the Community by supplyinga sufficient quantity of contractual products to that market. That interpretation issupported by the fact that, in the agreements at issue, the prohibition of sellingoutside the contractual territory also covers all other non-member countries.

20.

    It follows that an agreement in which the reseller gives to the producer anundertaking that he will sell the contractual products on a market outside theCommunity cannot be regarded as having the object of appreciably restrictingcompetition within the common market or as being capable of affecting, as such,trade between Member States.

21.

    Consequently, the agreements at issue, in that they prohibit the reseller Javico fromselling the contractual product outside the contractual territory assigned to it, donot constitute agreements which, by their very nature, are prohibited by Article85(1) of the Treaty. Similarly, the provisions of the agreements in question, in thatthey prohibit direct sales within the Community and re-exports of the contractualproduct to the Community, cannot be contrary, by their very nature, to Article85(1) of the Treaty.

22.

    Although the contested provisions of those agreements do not, by their very nature,have as their object the prevention, restriction or distortion of competition withinthe common market within the meaning of Article 85(1), it is, however, for thenational court to determine whether they have that effect. Appraisal of the effectsof those agreements necessarily implies taking account of their economic and legalcontext (Case C-393/92 Almelo and Others v Energiebedrijf Ijsselmij [1994] ECRI-1477, paragraph 37) and, in particular, of the fact that YSLP has established inthe Community a selective distribution system enjoying an exemption.

23.

    In that regard, it is first necessary to determine whether the structure of theCommunity market in the relevant products is oligopolistic, allowing only limitedcompetition within the Community network for the distribution of those products.

24.

    It must then be established whether there is an appreciable difference between theprices of the contractual products charged in the Community and those chargedoutside the Community. Such a difference is not, however, liable to affectcompetition if it is eroded by the level of customs duties and transport costsresulting from the export of the product to a non-member country followed by itsre-import into the Community.

25.

    If that examination were to disclose that the contested provisions of the agreementsconcerned had the effect of undermining competition within the meaning of Article85(1) of the Treaty, it would also be necessary to determine whether, having regardto YSLP's position on the Community market and the extent of its production andits sales in the Member States, the contested provisions designed to prevent directsales of the contractual products in the Community and re-exports of them to theCommunity entail any risk of an appreciable effect on the pattern of trade betweenthe Member States such as to undermine attainment of the objectives of thecommon market.

26.

    In that regard, intra-Community trade cannot be appreciably affected if theproducts intended for markets outside the Community account for only a very smallpercentage of the total market for those products in the territory of the commonmarket.

27.

    It is for the national court, on the basis of all the information available to it, todetermine whether the conditions are in fact fulfilled for the agreements at issueto be caught by the prohibition laid down in Article 85(1) of the Treaty.

28.

    Accordingly, the answer to the first question must be that Article 85(1) of theTreaty precludes a supplier established in a Member State of the Community fromimposing on a distributor established in another Member State to which thesupplier entrusts the distribution of his products in a territory outside theCommunity a prohibition of making any sales in any territory other than thecontractual territory, including the territory of the Community, either by directmarketing or by re-exportation from the contractual territory, if that prohibition hasthe effect of preventing, restricting or distorting competition within the Communityand is liable to affect the pattern of trade between Member States. This might bethe case where the Community market in the products in question is characterisedby an oligopolistic structure or by an appreciable difference between the pricescharged for the contractual product within the Community and those charged outside the Community and where, in view of the position occupied by the supplierof the products at issue and the extent of the supplier's production and sales in theMember States, the prohibition entails a risk that it might have an appreciableeffect on the pattern of trade between Member States such as to undermineattainment of the objectives of the common market.

The second question

29.

    By its second question, the national court asks whether provisions intended toprevent a distributor from selling directly in, and exporting back to, the Communitycontractual products which he has undertaken to sell in non-member countries canescape the prohibition laid down in Article 85(1) of the Treaty on the ground thatthe Community supplier of the products concerned distributes them within the

Community through a selective distribution network covered by an exemptiondecision under Article 85(3) of the Treaty.

30.

    It must be explained here that the individual exemption decision issued by theCommission to YSLP relates only to standard selective distribution contracts drawnup by YSLP for the retail sale of its products in the Community. The provisionsat issue concern the distribution of such products outside Community territory andcannot therefore be affected by the exemption granted in respect of the selectivedistribution system within the Community.

31.

    For the same reasons, those contracts cannot enjoy an exemption underCommission Regulation (EEC) No 1983/83 of 22 June 1983 on the application ofArticle 85(3) of the Treaty to categories of exclusive distribution agreements (OJ1983 L 173, p. 1) on which YSLP purports to rely. That regulation relates, byvirtue of Article 1 thereof, only to agreements in which 'one party agrees with theother to supply certain goods for resale within the whole or a defined area of thecommon market only to that other‘.

32.

    As to whether the provisions at issue are capable of escaping the prohibition inArticle 85(1) of the Treaty owing to the existence within the Community of aselective distribution system enjoying an exemption which those provisions aredesigned to protect, it need only be observed that, by adopting an exemptiondecision under Article 85(3), the Commission allows an exception to the prohibitionlaid down by Article 85(1). Consequently, exemption decisions must be interpretedrestrictively so as to ensure that their effects are not extended to situations whichthey are not intended to cover (see, to that effect, BMW v ALD, cited above,paragraph 28).

33.

    In view of the foregoing considerations, the answer to the second question must bethat provisions intended to prevent a distributor from selling directly in theCommunity and re-exporting to the Community contractual products which thedistributor has undertaken to sell in non-member countries do not escape theprohibition laid down in Article 85(1) of the Treaty on the ground that theCommunity supplier of the products concerned distributes those products within theCommunity through a selective distribution network covered by an exemptiondecision under Article 85(3) of the Treaty.

Costs

34.

    The costs incurred by the French Government and by the Commission, which havesubmitted observations to the Court, are not recoverable. Since these proceedingsare, for the parties to the main proceedings, a step in the action pending before thenational court, the decision on costs is a matter for that court.

On those grounds,

THE COURT

in answer to the questions referred to it by the Cour d'Appel, Versailles, byjudgment of 8 September 1995, hereby rules:

1.    Article 85(1) of the EC Treaty precludes a supplier established in aMember State of the Community from imposing on a distributorestablished in another Member State to which the supplier entrusts thedistribution of his products in a territory outside the Community aprohibition of making any sales in any territory other than the contractualterritory, including the territory of the Community, either by directmarketing or by re-exportation from the contractual territory, if thatprohibition has the effect of preventing, restricting or distorting competitionwithin the Community and is liable to affect the pattern of trade betweenMember States. This might be the case where the Community market inthe products in question is characterised by an oligopolistic structure or byan appreciable difference between the prices charged for the contractualproduct within the Community and those charged outside the Communityand where, in view of the position occupied by the supplier of the productsat issue and the extent of the supplier's production and sales in theMember States, the prohibition entails a risk that it might have anappreciable effect on the pattern of trade between Member States such asto undermine attainment of the objectives of the common market.

2.    Provisions intended to prevent a distributor from selling directly in theCommunity and re-exporting to the Community contractual products whichthe distributor has undertaken to sell in non-member countries do notescape the prohibition laid down in Article 85(1) of the Treaty on theground that the Community supplier of the products concerned distributesthose products within the Community through a selective distributionnetwork covered by an exemption decision under Article 85(3) of the Treaty.

Rodríguez Iglesias Gulmann Schintgen Mancini Moitinho de Almeida Kapteyn Edward Puissochet Hirsch Jann Sevón

Delivered in open court in Luxembourg on 28 April 1998.

R. Grass

G.C. Rodríguez Iglesias

Registrar

President

1: Language of the case: French.