JUDGMENT OF THE COURT 24 October 1995 *

JUDGMENT OF 24. 10. 1995 CASE C-266/93 JUDGMENT OF THE COURT 24 October 1995 * In Case C-266/93, REFERENCE to the Court under Article 177 of the EEC Treaty by the Bundesgerichtshof (Germany) for a preliminary ruling in the proceedings pending before that court between Bundeskartellamt and Volkswagen AG, VAG Leasing GmbH, supported by VAG-Händlerbeirat ev, intervener, * Language of the case: German. I - 3508

BUNDESKARTELLAMT v VOLKSWAGEN AND VAG LEASING on the interpretation of Article 85(1) of the EEC Treaty and Commission Regulation (EEC) No 123/85 of 12 December 1984 on the application of Article 85(3) of the Treaty to certain categories of motor vehicle distribution and servicing agreements (OJ 1985 L 15, p. 16), THE COURT, composed of: G. C. Rodriguez Iglesias, President, C. N. Kakouris, D. A. O. Edward, G. Hirsch (Presidents of Chambers), G. F. Mancini, F. A. Schockweiler (Rapporteur), J. C. Moitinho de Almedia, P. J. G. Kapteyn, P. Jann, H. Ragnemalm and L. Sevón, Judges, Advocate General: G. Tesauro, Registrar: H. A. Rühi, Principal Administrator, after considering the written observations submitted on behalf of: the Bundeskartellamt, by Stefan Held, Vice-President, Volkswagen AG and VAG Leasing GmbH, by Rainer Bechtold, Rechtsanwalt, Stuttgart, the German Government, by Ernst Röder, Ministerialrat at the Federal Ministry for Economic Affairs, and Claus-Dieter Quassowski, Regierungsdirektor at the same Ministry, acting as Agents, I - 3509

JUDGMENT OF 24. 10. 1995 CASE C-266/93 the United Kingdom, by S. Lucinda Hudson, Assistant Treasury Solicitor, acting as Agent, and Peter Goldsmith QC, the Commission of the European Communities, by Bernd Langeheine, of its Legal Service, acting as Agent, having regard to the Report for the Hearing, after hearing the oral observations of the Bundeskartellamt, Volkswagen AG and VAG Leasing GmbH, the German Government, represented by Stefan Held, Vice- President of the Bundeskartellamt, acting as Agent, the United Kingdom, and the Commission, represented by Götz zur Hausen, Legal Adviser, acting as Agent, at the hearing on 17 May 1994, after hearing the Opinion of the Advocate General at the sitting on 22 November 1994, having regard to the re-opening of the oral procedure on 25 January 1995, after hearing the oral observations of the Bundeskartellamt, Volkswagen AG and VAG Leasing GmbH, the German Government, the United Kingdom, represented by Lindsey Nicoli, of the Treasury Solicitor's Department, acting as Agent, and Peter Goldsmith QC, and the Commission, represented by Bernd Langeheine, at the hearing on 31 May 1995, after hearing the opinion of the Advocate General at the sitting on 8 June 1995, gives the following I-3510

BUNDESKARTELLAMT v VOLKSWAGEN AND VAG LEASING Judgment 1 By order of 19 January 1993, received at the Court on 3 May 1993, the Bundesgerichtshof (Federal Court of Justice) referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty a number of questions on the interpretation of Article 85(1) of the EEC Treaty and Commission Regulation (EEC) No 123/85 of 12 December 1984 on the application of Article 85(3) of the EEC Treaty to certain categories of motor vehicle distribution and servicing agreements (OJ 1985 L 15, p. 16). 2 Those questions were raised in proceedings between the Bundeskartellamt (Federal Cartel Office) and Volkswagen AG ('VAG') and VAG Leasing GmbH ('VAG Leasing'), a subsidiary of VAG primarily engaged in leasing, following an order by the Bundeskartellamt requiring them to desist from conduct which it considered to be contrary to German competition law. 3 VAG, with a market share of 28.2% in 1989, is the leading motor vehicle manufacturer in Germany. It distributes motor vehicles of the Volkswagen and Audi marks in Germany through a network of more than 1 600 dealers. 4 The relationship between VAG and its dealers is governed by a distribution agreement by which VAG grants them, in a specified area, the right to resell to the public new motor vehicles and spare parts of the Volkswagen and Audi mark and to provide customers with servicing assistance. The dealers must also offer certain services, including leasing transactions, for which VAG Leasing has responsibility within the VAG group. I-3511

JUDGMENT OF 24. 10. 1995 CASE C-266/93 5 Since its creation in 1966, VAG Leasing, a wholly-owned subsidiary of VAG, has carried out its activities with the assistance of dealers, inter alia by means of exclusive agency agreements. That practice was extended to all German dealers with effect from 1989. In that year, VAG and VAG Leasing sent them a letter organizing 'Agency activities by VAG dealers for VAG Leasing'. 6 That letter provided that the dealers were to negotiate leasing contracts on behalf of VAG Leasing. They were to buy the relevant vehicles from VAG, in their own name and for their own account, and then transfer ownership in them to VAG Leasing at the price at which they had bought them. In respect of each concluded leasing transaction they were to receive from VAG Leasing a commission of an amount corresponding to their profit margin on a similar sales transaction. Upon the expiry of the lease, the vehicle was to be returned to them. They were then to sell the vehicle in conformity with the rules laid down in the agreements and general instructions. To that end, according to the order for reference and the leasing manual given to the dealers, the dealers repurchase the vehicle from VAG Leasing. 7 The letter also required dealers to canvas business and to act as exclusive agents for VAG Leasing. However, according to the order for reference, that exclusivity clause does not prevent them from negotiating leasing contracts for a competing leasing company if the customer has requested its involvement or such a company has itself introduced the customer. s Finally, the letter stated that the incorporation of VAG Leasing into the VAG distribution system necessarily led to the establishment of direct legal relations between VAG Leasing and the VAG dealers. Thus dealers were requested to indicate that they agreed to cooperate with VAG Leasing by signing and returning the copy of the contract annexed to the letter. I - 3512

BUNDESKARTELLAMT v VOLKSWAGEN AND VAG LEASING 9 Leasing transactions account for 18% of VAG's national turnover. According to the information provided by VAG, VAG Leasing performs approximately 80% of leasing transactions concerning Volkswagen and Audi vehicles, a figure which corresponds to approximately 20% of the German motor vehicle leasing market. There are approximately 400 companies operating on that market, including companies affiliated to other manufacturers and undertakings linked to motor vehicle distributors or large credit institutions. According to a study published by one of the main independent leasing companies, Auto-leasing D, the market share of companies controlled by the motor vehicle manufacturers amounts to 60% and VAG Leasing has the largest share on the market. io The Bundeskartellamt took the view that the exclusive link between VAG dealers and VAG Leasing unfairly impeded the business activity of those dealers and the independent leasing companies and, by decision of 25 July 1990, it prohibited VAG and VAG Leasing from requiring the dealers to negotiate leasing contracts exclusively for VAG Leasing. Furthermore, it prohibited VAG from forbidding its dealers to sell new motor vehicles to independent leasing companies if those dealers had acted as intermediaries in the conclusion of leasing contracts. n The Bundeskartellamt based its view on Paragraph 26(2) of the Gesetz gegen Wettbewerbsbeschränkungen (Law against Restraints on Competition, hereinafter 'the GWB'), which prohibits undertakings in a dominant position from unfairly impeding access by an undertaking to business activities normally accessible to undertakings similar to it. Paragraph 26(2) lays down the same prohibition with respect to undertakings in so far as small and medium-sized businesses depend on them as suppliers of or customers for a certain type of product or commercial service in such a way that a sufficient number of reasonable possibilities do not exist for them to turn to other undertakings. I -3513

JUDGMENT OF 24. 10. 1995 CASE C-266/93 i2 Following an appeal by VAG and VAG Leasing, on 15 March 1991, the Kammergericht (Berlin Court of Appeal) annulled the decision of the Bundeskartellamt on the ground that the conditions laid down in Paragraph 26(2) of the GWB had not been satisfied. It held that VAG and VAG Leasing did not have a dominant position on the motor vehicle market. Furthermore, the dealers were not small or medium-sized undertakings. The Bundeskartellamt then appealed on a point of law ('Rechtsbeschwerde') to the Bundesgerichtshof. 1 3 The Bundesgerichtshof considered that if the exclusive agreements linking the VAG dealers to VAG Leasing were incompatible with Article 85(1) of the Treaty they necessarily constituted an unfair impediment for the purposes of Paragraph 26(2) of the GWB. That is why it first wished to establish the scope of that provision of the Treaty. Next, should the agreements at issue prove to be incompatible with Article 85(1), the Bundesgerichtshof wished to know whether or not they were exempted by Regulation No 123/85. Finally, in the event that the agreements at issue were compatible with Article 85(1) or, although contrary to that provision, exempted by Regulation No 123/85, it wished to know whether one or other of those rules of Community law precluded the application of more stringent rules of German competition law. H On the basis of those considerations, the Bundesgerichtshof decided to stay the proceedings and requested the Court to give a preliminary ruling on the following questions: '1. The leading German manufacturer of motor vehicles prohibits the German authorized dealers in its selective distribution system from mediating leasing contracts with leasing undertakings (other than the manufacturer's own leasing I-3514

BUNDESKARTELLAMT y VOLKSWAGEN AND VAG LEASING company) or from selling them new motor vehicles if the vehicles are to be used for the performance of leasing contracts mediated by the authorized dealers. Is such a prohibition and compliance therewith by the German authorized dealers liable to affect trade between Member States within the meaning of Article 85(1) of the EEC Treaty, or is this to be presumed? 2. Is the conduct described in Question 1 caught by Article 85(1) of the EEC Treaty if it is likely to affect trade between Member States? 3. If Question 2 is answered in the affirmative, is the conduct described in Question 1 exempted from the application of Article 85(1) of the EEC Treaty by Regulation (EEC) No 123/85? 4. Do the aforesaid provisions of European Community law preclude the national cartel authority from giving a decision prohibiting conduct of the type described in Question 1?' is As in Case C-70/93, the Court assumes that the national court's questions relate to sales to leasing companies of motor vehicles where there is no intention of subsequently transferring ownership to the lessee. Questions 1 and 2: application of Article 85(1) of the Treaty i6 The national court's first two questions ask essentially whether Article 85(1) of the Treaty is to be interpreted as meaning that it prohibits an obligation imposed by I-3515

JUDGMENT OF 24. 10. 1995 CASE C-266/93 the leading manufacturer of motor vehicles in a Member State on all its dealers established in that State to develop activities as agents for leasing transactions exclusively for its own leasing company. i7 It is settled case-law, established by the judgments in Case 56/65 Société Technique Minière v Maschinenbau Ulm [1966] ECR 235 and in Joined Cases 56/64 and 58/64 Consten and Grundig v Commission [1966] ECR 299, that agreements between traders at different levels in the economic process, also known as 'vertical agreements', may constitute agreements within the meaning of Article 85(1) of the Treaty and be prohibited by it. is However, VAG and VAG Leasing claim that the German VAG dealers, as intermediaries of VAG Leasing, form one economic unit with VAG and VAG Leasing, so that in the absence of more than one undertaking, the exclusive agency agreements fall outside the scope of Article 85(1). i9 That argument must be rejected. Representatives can lose their character as independent traders only if they do not bear any of the risks resulting from the contracts negotiated on behalf of the principal and they operate as auxiliary organs forming an integral part of the principal's undertaking (see Joined Cases 40/73 to 48/73, 50/73, 54 to 56/73, 111/73, 113/73 and 114/73 Suiker Unie and Others v Commission [1975] ECR 1663, paragraph 539). However, the German VAG dealers assume, at least in part, the financial risks linked to the transactions concluded on behalf of VAG Leasing, in so far as they repurchase the vehicles from it upon the expiry of the leasing contracts. Furthermore, their principal business of sales and after-sales services is carried on, largely independently, in their own name and for their own account. I-3516

BUNDESKARTELLAMT v VOLKSWAGEN AND VAG LEASING 20 Since the exclusive agency agreements which bind all German VAG dealers to VAG Leasing are agreements within the meaning of Article 85(1) of the Treaty, it must be considered whether their object or effect is to restrict competition within the common market to an appreciable extent and whether they may affect trade between Member States. 21 As regards the anticompetitive effect of the exclusive agency agreements at issue, it should first be observed that those agreements are an adjunct to the VAG distribution agreements which, it is undisputed, are contrary to Article 85(1) but exempted by Regulation No 123/85. The dealers have been obliged to become agents of VAG Leasing because they are VAG dealers. First, the distribution agreements already required them to offer VAG Leasing's services to their customers. Secondly, the letter organizing the dealers' activity as agents for leasing transactions expressly links that activity to their obligation under the distribution agreement to represent and promote in every possible way the interests of VAG, the VW and Audi distribution organization and their marks (see paragraph 2.6 of the distribution agreement). 22 Secondly, the exclusive agency agreements bind all the German VAG dealers and those dealers have, in their territorial district, the exclusive right to sell new vehicles of the Volkswagen and Audi marks. 23 Accordingly, the ban on distributors' seeking customers and acting as intermediary for leasing companies competing with VAG Leasing appears to limit their access to leasing transactions concerning vehicles of the Volkswagen and Audi marks. Those companies are unable to use the privileged channel of communication with potential customers which the VAG dealer network represents. I-3517

JUDGMENT OF 24. 10. 1995 CASE C-266/93 24 Furthermore, the exclusivity clause in the agency agreement restricts competition in a second respect: it prevents VAG dealers from developing a leasing business in their own name and for their own account. In that regard, it restricts the freedom of action of traders independent of VAG and aims to increase their integration within the manufacturer's distribution strategy. 25 Having regard to the position of VAG as leader on the national market for the sale of new motor vehicles, and to that of VAG Leasing as leader on the national market for vehicle leasing, it appears that the object or, at least the effect, of the exclusive agency contracts at issue is to restrict competition to an appreciable extent. 26 Finally, as regards their effect on trade between Member States, it is sufficient to note that the exclusive agency contracts bind all the German VAG dealers. As the Court has held on several occasions, practices restricting competition which extend over the whole territory of a Member State by their very nature have the effect of reinforcing the compartmentalization of markets on a national basis, thereby obstructing the economic interpénétration which the Treaty is intended to bring about (see Case 42/84 Remia and Others v Commission [1985] ECR 2545, paragraph 22). German VAG dealers are in fact unable to act either as intermediaries for leasing companies established in other Member States or to conclude leasing contracts for their own account with consumers established in other Member States. 27 The answer to the first two questions must therefore be that Article 85(1) of the EEC Treaty must be interpreted as meaning that it prohibits an obligation imposed by the leading manufacturer of motor vehicles in a Member State on all its dealers established in that State to develop activities as agents for leasing transactions exclusively for the account of its own leasing company. I-3518

Question 3: Regulation No 123/85 BUNDESKARTELLAMT v VOLKSWAGEN AND VAG LEASING 28 The national court's third question asks essentially whether Regulation No 123/85 must be interpreted as exempting the obligation imposed by the leading motor vehicle manufacturer in a Member State on all its dealers established in that State to develop activities as agents for leasing transactions exclusively for the account of its own leasing company. 29 Regulation No 123/85 exempts from Article 85(1) of the Treaty agreements by which a supplier entrusts to an (authorized) reseller the task of promoting the distribution of the contract goods in a defined area and undertakes to supply, within that territory, motor vehicles and spare parts only to that reseller (Article 1). It also exempts an obligation on dealers not to sell motor vehicles of competing marks (Article 3(3)) and not to sell the contract goods to resellers which do not belong to the distribution system (Article 3(10)) unless they are intermediaries, that is to say, traders acting in the name and for the account of final consumers and who have received prior written authority to that effect (Article 3(11)). 30 On the other hand, none of the provisions of the regulation explicitly governs leasing. Only Article 13, which defines the terms used in the regulation, provides at point 12 'that "distribute" and "sell" include other forms of supply such as leasing'. 3i VAG and VAG Leasing combine that provision with Article 3(10)(a) of the regulation, which permits the manufacturer to prohibit its dealers from supplying contract goods to a reseller not within its distribution system, and argue that I-3519

JUDGMENT OF 24. 10. 1995 CASE C-266/93 independent leasing companies are in the same position as resellers not forming part of the VAG distribution system. Since it is therefore lawful to prohibit dealers from supplying independent leasing companies it is a fortiori possible to prohibit them from negotiating leasing contracts on behalf of such companies. Consequently, the exclusive agency agreements at issue are covered by Regulation No 123/85. 32 That argument cannot be accepted. 33 It must be noted at the outset that, having regard to the general principle prohibiting anticompetitive agreements laid down in Article 85(1) of the Treaty, provisions in a block exemption which derogate from that principle cannot be interpreted widely and cannot be construed in such a way as to extend the effects of the regulation beyond what is necessary to protect the interests which they are intended to safeguard. 34 Secondly, leasing companies which do not offer an option to purchase cannot be regarded as resellers of new motor vehicles, with whom Regulation No 123/85 is exclusively concerned, so long as they confine themselves to purchasing vehicles in order to satisfy requests from their customers and do not build up stocks which they offer to customers attracted in that way. 35 Finally, as the Commission has correctly pointed out, the definition in Article 13(12) relates exclusively to the relationship between the manufacturer and the dealer. That provision is intended to prevent the dealer from circumventing certain of its contractual obligations by resorting to leasing. The object of Article 13(12) is therefore to prevent the dealer from evading his obligation not to sell vehicles of a different mark (Article 3(3) of the regulation) by leasing to customers vehicles of a I - 3520

BUNDESKARTELLAMT v VOLKSWAGEN AND VAG LEASING competing mark. Similarly, it ensures compliance by the dealer with his obligation not actively to seek customers outside his allotted territory (Article 3(8) of the regulation) by preventing him from leasing the contract goods to customers outside his territory. Article 13(12) is therefore irrelevant for the purpose of determining whether independent leasing companies are resellers outside the distribution system for the purposes of Article 3(10)(a) of the regulation. 36 Nor can the exclusive agency agreements be exempted on the basis of Article 3(3) of the regulation, under which the dealer may be obliged to refrain from selling new, competing motor vehicles. The contracts at issue relate to the leasing of Volkswagen and Audi vehicles, not vehicles of a competing mark. 37 The answer to the national court's third question must therefore be that Regulation No 123/85 must be interpreted as meaning that it does not exempt an obligation imposed by the leading motor vehicle manufacturer in a Member State on all its dealers established in that State to develop activities as agents for leasing transactions exclusively for the account of its own leasing company. Question 4: the relationship between Community and national competition laws 38 There is no need to deal with the fourth question, since it is raised solely in the event that the exclusive agency agreements in question are compatible with Article 85(1) or, despite being contrary to that provision, are exempt under Regulation No 123/85. I - 3521

JUDGMENT OF 24. 10. 1995 CASE C-266/93 Costs 39 The costs incurred by the German Government, the United Kingdom and the Commission of the European Communities, which have submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national 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 Bundesgerichtshof by order of 19 January 1993, hereby rules: 1) Article 85(1) of the EEC Treaty must be interpreted as meaning that it prohibits an obligation imposed by the leading manufacturer of motor vehicles in a Member State on all its dealers established in that State to develop activities as agents for leasing transactions exclusively for the account of its own leasing company. 2) Commission Regulation (EEC) No 123/85 of 12 December 1984 on the application of Article 85(3) of the Treaty to certain categories of motor vehicle distribution and servicing agreements must be interpreted as meaning that it does not exempt an obligation imposed by the leading motor vehicle manufacturer in a Member State on all its dealers established in that State to develop activities as agents for leasing transactions exclusively for the account of its own leasing company. I - 3522

BUNDESKARTELLAMT v VOLKSWAGEN AND VAG LEASING Rodríguez Iglesias Kakouris Edward Hirsch Mancini Schockweiler Moitinho de Almeida Kapteyn Jann Ragnemalm Sevón Delivered in open court in Luxembourg on 24 October 1995. R. Grass Registrar G. C. Rodíguez Iglesias President I - 3523