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Exclusive purchase obligation for more than 8 years contract term in sales terms allowed

7. Apr 2018 | News

Suppliers and customers agree – if it is not merely a one-off purchase – often framework supply contracts uniformly regulate the basic issues of a long-term business relationship (especially concerning the type and quality of products and their prices, including payment, quality assurance and liability, and dispute resolution mechanisms). Moreover, customers want to ensure supply (with raw materials or end products) with ideally consistent, or only slightly changing prices; suppliers, on the other hand, want to retain customers, ideally with fixed or even increasing sales volumes.

Long-standing exclusive purchasing obligations may even be effective in terms and conditions – provided that they have no market-isolating effects. This has now confirmed the Düsseldorf Higher Regional Court in its judgment of 17.05.2017 (VI-U (Kart) 10/16).

The delivery contract contained the following regulation:

“The customer undertakes to obtain the contract products listed in Annex 1 exclusively from the supplier during the contract period.”

The contract had a fixed term of 8 years and tacitly extended by one year if not terminated within 6 months. Nevertheless, the customer obtained contract products from third parties as of the third contractual year. Thereupon the supplier sued the customer for information and compensation (from § 280 Abs. 1, 241 Abs. 1 BGB). Both the district court and the higher regional court ruled in favor of the supplier.

The exclusive purchasing obligation is enforceable, particularly because it does not infringe on the prohibition of cartel in § 1 GWB (paragraph 21 et seq.). The exclusive purchase obligation is void only if it seals off the market to the detriment of competitors in a significant way. This is not the case, on the contrary, the exclusive purchasing obligation offers advantages to both parties: the supplier receives the sales, the customers supply the guarantee. In addition, the supplier has only a market share of about 1%. Overall, the General Court considered the antitrust objection to be unjustified and even the submission was inadequate (inter alia, information on market definition, market share, barriers to entry was missing).

In addition, the exclusive purchasing obligation as a general business condition under Section 307 (1) and (2) BGB is not invalid because it does not unduly prejudice the customer (marginal 27 et seq., 35 et seq.). This is the result of a comprehensive balancing of the interests of both parties. In particular, the customer’s long-term exclusive purchasing obligation (sales guarantee) was offset by numerous over-valuing estimations by the supplier (market access under favorable conditions, in any case customary conditions with a guaranteed supply) – even if the supplier did not grant a price guarantee for many years. In addition, the supplier had installed devices for the customer free of charge and provided them for the entire contract period, which served to use the products. In addition, the supplier promised various free services. Therefore, the customer is required to be an exclusive purchaser and, since it infringed the obligation in previous years, must pay damages.

Practice Notes:

The case confirms the previous line that exclusive purchasing obligations may well be exempted from the cartel ban and be effective even if they have been applied for more than 5 years. This is then – beyond the block exemption under Article 5 (1) of the Vertical BER – a matter of case-by-case analysis pursuant to Article 101 (3) TFEU.

In the abstract, it is decisive whether the exclusive purchasing obligation has a significant market-isolating effect – as has already been decided by the well-known ices decision of the Court of First Instance of the European Union in the matter of Langnese-Iglo in 1996 (judgment of 08.06.1995, Az. T-7/93 , No. 99 ff., And No. 133 ff.). There, the EU Commission and the EU courts considered the exclusive purchasing obligation with an average contract period of only 2.5 years as inadmissible – because (i) the supplier had more than 45% market share (ie not covered by the de minimis notice, see the newsletter here), (ii) the customers should meet more than 80% of their needs with the supplier, and (iii) there were significant additional barriers to entry (over 15% of the dealers were tied to the supplier and more than 10% to the other the supplier provided loan cabinets with a commitment to use them only for their products, and the supplier granted a rebate to maintain exclusivity, since demand was very fragmented).

Specifically, two criteria primarily determine whether exclusive purchasing obligations are effective: the duration and the coverage (see Article 5 (1) of the Vertical BER or Article 101 (3) TFEU).  As a general rule, the more exclusive their term, and the smaller the proportion of demand coverage, the more effective they are.

The ruling reinforces the scope that suppliers have for designing exclusive purchasing obligations for their customers. In particular, the duration of the bond may be more than five years, moreover, the purchaser does not necessarily have to be guaranteed fixed prices over this period and, finally, such an exclusive purchase obligation can also be agreed in general terms and conditions.

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