Selective distribution consists, for the supplier, in selling its products only to distributors that are selected on the basis of specified criteria. These distributors commit not to sell the products to unauthorised distributors.

In France, selective distribution must comply with article 101 of the Treaty on the Functioning of the European Union (hereinafter the “TUE”) and with article L420-1 of the French commercial code, which both prohibit agreements which have as their object or effect the prevention, restriction or distortion of competition. A refusal to sell to a non authorised distributor may indeed be considered as resulting from an agreement between the supplier and his distributors, which has a restrictive effect on competition between distributors for the same brand.

1. Type of products concerned by selective distribution

Constant, but rather old case law stated that agreements implementing a selective distribution system are not affecting competition when selective distribution is necessary due to the nature of the products. Concerning luxury brands or high tech products, it has thus been ruled that selective distribution is necessary in order to guarantee the quality of their commercialization and to protect the brand image. For example, selective distribution has been considered necessary for the sale of high tech clock-making products, computer hardware, electronic equipment and luxury cosmetics. But High tech products and luxury brands are not the only type of products which may be sold through a selective distribution network. Courts have, for example, considered that ceramic dinner services, jeans, and newspapers could also be distributed through selective distribution.

These principles are put in jeopardy by the fact that selective distribution agreements are not prohibited when the conditions for an exemption under the EU Regulation on Vertical Restrains are fulfilled. These conditions relate essentially to (1) not meeting a certain market share threshold and (2) the absence of “hardcore” anti competitive restraints, listed in the EU Regulation, in the distribution agreements concerned. The conditions for such exemption, previously provided for in the EU exemption regulation n°2790/1999, are now contained in the new EU Regulation adopted by the Commission on 20 April 2010. This regulation entered into force on 1 June 2010, with a transitional period of one year during which the agreements already in force on 31 May 2010 which do not satisfy the conditions for exemption provided for in the new Regulation but which satisfy the conditions for exemption provided for in the regulation n°2790/1999, are not submitted to the new exemption Regulation.

The implementation of the EU Regulation has a fundamental consequence: it does not create any distinction, in order to exempt a selective distribution system, based on the type of products concerned. If the conditions provided for by the regulation are satisfied, every type of product may benefit from a selective distribution system. In that case, the refusal to supply to an unauthorised distributor will not be considered as unjustified. This statement can be moderated in the light of the European Commission‘s Guidelines on vertical restraints. The Guidelines state that the benefit of the exemption may be “withdrawn” if the characteristics of the product concerned do not require selective distribution. Such a withdrawal of the exemption requires that the case be brought before the Commission or the relevant national competition authority, for example, by a non-authorised distributor.

It should be noted that the EU Regulation provides for a new market share threshold. Under the new rules, in order to benefit from the exemption, the market share held by the supplier should not exceed 30% of the relevant market on which it sells the products and the market share held by the distributor should not exceed 30% of the relevant market on which it purchases the products. This new rule aims at taking into account recent market developments, in particular the increased buyer power of big retailers.

2. Selection process

One of the main factors of litigation concerning selective distribution networks in France concerns the process for the selection of distributors. Sometimes, unauthorised distributors sue the supplier on the basis of a discriminatory or unjustified selection process.

According to European case law, (1) the distributors must be chosen on the basis of objective criteria which are laid down uniformly for all potential resellers and which are not applied in a discriminatory fashion, (2) the criteria laid down should not go beyond what is necessary. French competition authority and national courts draw largely on these principles.

However, The EU Regulation mentioned above does not create any distinction based on the selection modalities, in order to exempt a selective distribution network, whenever the conditions for an exemption are met. When the conditions relating to the market share threshold and the absence of severe restrictions of competition are fulfilled, the selection process should not be an obstacle to the exemption. When European law applies, national courts must respect the principle of precedence of European law over national law and the EU Regulation should therefore be enforced. However, the case law of French courts on this point is not very consistent. For example, in a recent case the Court of appeal of Paris has assessed whether the selection process was justified, objective and non discriminatory in a case, although the market share of the supplier was below 30%.

3. Protection of the distribution network

An effective selective distribution network requires that the supplier achieves to reserve the sale of his products to authorised distributors. Selective distribution agreements therefore usually contain (1) a provision by which the supplier undertakes to sell the products only to authorised distributors and (2) a provision which forbids the authorised distributors to sell the products to unauthorised retailers.

When the selective distribution network is lawful, the supplier may sue unauthorised retailers, based on a violation of the distribution contracts or unfair competition. The burden of proof of the lawfulness of his network is borne by the supplier. If such proof is achieved, the supplier and / or its authorised distributors may have various causes for action against unauthorised retailers.

The supplier may bring a tort action on the basis of article 1382 of the French civil code. Unauthorised distributors may be punished on this basis in case of breach by selected distributors of their contractual obligations in selling products outside the distribution network. Article L442-6I-6° of the French commercial code has recently created a specific legal provision punishing explicitly the direct or indirect breach of a prohibition to resell products outside a selective distribution network.

On the same legal basis, the action against an unauthorised retailer may be qualified as unfair competition if the plaintiff proves a specific additional faulty behaviour by the non authorised retailer. The following behaviours have been considered faulty: the sale of high tech products by unskilled staff, the commercialisation of products through a method different from the one prescribed by the supplier, the resale of products at prices much lower than those usually fixed, special price offers next to shops fixing normal prices or the sale of products on a web site inconsistent with the standards laid down by the supplier.

Also, the supplier may trigger trademark infringement lawsuits against unauthorised distributors. This type of action is limited by the principle of the exhaustion of rights, according to which right conferred by a trademark does not enable its owner to forbid its use for products which have been put into circulation in the European community by the owner or with its consent. However the exhaustion principle does not apply if the owner justifies legitimate reasons, on grounds of deterioration of the products. The CJUE has for example ruled that the owner of the trademark may prevent from the commercialisation of its products by an importer where the importer has repackaged the product, unless the repackaging does not affect the brand image of the products. Most recently, in the Dior / Copeda case of 2009, the European court has ruled that the resale by a discounter, in violation of a prohibition of resale, could be a trademark infringement if it was demonstrated that the resale caused harm to the brand image.

4. Internet sales

An important debate has occurred in France concerning the Internet sale of products distributed through a selective distribution network. This debate is linked to the European Commission statements in its Guidelines on vertical restraints, according to which Internet sales are generally considered as “passive sales”, which selected distributors must remain free to make.

New guidelines published by the Commission in 2010 provide that the supplier may require quality standards from its distributors, when using the Internet to resell the products, just as the supplier may impose quality standards for physical shopping premises. The new guidelines also provide that suppliers may require that their distributors have at least one physical shop as a condition for becoming a member of the selective distribution system. One the other hand, the guidelines maintain the principle according to which selected distributors must be allowed to sell the products on the Internet.

In several recent cases, the French competition authority has followed the Commission’s position as described above and ruled that the prohibition, by the supplier, for retailers to sell the products through the Internet is a breach of the articles 101 of the Treaty and L420-1 of the French commercial code.

However, in October 2009, the Court of Appeal of Paris asked a preliminary question to the Court of Justice of the European Union as to whether an outright prohibition of Internet sales could be exempted under the EC regulation on vertical restrains. The answer of the Court will be highly relevant and may reverse the Commission’s approach on this point. While waiting for the Court’s decision, a supplier may nevertheless consider it prudent to continue authorising its distributors to sell the products through Internet, subject to specific quality standards.

Are anti-copy systems on discs and DVDs illegal? Not necessarily, answered the French Supreme Court on February 28, 2006, after applying the three step test.

Although the question itself and the absence of a clear-cut answer by the court may sound scary to the cultural industry, one must recall that several member states acknowledge the “private copy” system, i.e. a system under which the buyer of a disc or DVD may copy it freely for use in a private circle.

This is where the three step test is supposed to bring a balance between copyright and the rights of consumers.

1. The triple test in the EU Copyright Directive (EUCD): how to conciliate copyright and droit d’auteur ?

NB: “Droit d’auteur” in French, “Derechos de autor” in Spanish, “Diritto d’autore” in Italian, are the continental European equivalent of the Anglo-Saxon “copyright”. For the purpose of this article, we oppose “droit d’auteur” to “copyright” when we want to stress differences between the two systems.

Basically, the three step test is a set of limitations over exceptions to the authors’ exclusive rights.

Following the work of the 1967 Stockholm Revision Conference, Article 9.2 of the Berne Convention first applied the test to the right of reproduction. Since then, the test has been extended to all exclusive rights and transplanted into the TRIPs Agreement (Article 13), and article 5.5 of the EUCD of May 22, 2001.

The test admits limitations to copyright provided that such limitations (i) concern certain special cases, (ii) do not conflict with a normal exploitation of the work and (iii) do not unreasonably prejudice the legitimate interests of the right holder.

Admittedly, the three step test is inspired by an economic approach of copyright derived from the Anglo-Saxon system, which conflicts with the conception of continental droit d’auteur. In the copyright approach, it belongs in the courts to analyse on a case-by-case basis the “fair use” of the rights. In the droit d’auteur culture, the Parliament has jurisdiction over a limited list of exceptions to the rights holders.

The Directive tries to conciliate the continental droit d’auteur together with the three step test. Article 5 provides for a limited list of exceptions (e.g. private copying, short quotation, etc.) which may be admitted under the condition they pass the three step test. The list of exceptions is however not compulsory and there is no obligation for the member states to expressly refer to the test in their implementation.

This certainly explains why the test enjoyed different fortunes in the implementation of the Directive: the test is not expressly imported in national German, Danish, Italian and Dutch laws; Greece and Spain decided on the contrary to refer to it. In France, the Parliament voted a draft law on March 21, 2006 (still to be examined by the Senate), which provides expressly for two steps of the test – the “special case” step being oddly omitted.

The most spectacular consequence of this poor level of harmonisation concerns the private copying exception.

2. The triple test in practice: how to conciliate copyright and private copy?

Admitting private copying without restriction would lead to uncontrolled spread of copies competing with “normal” exploitation of the works, thus deadly threatening the cultural industry. This is where the triple test is supposed to provide safeguards.

Some claimed however that anti-copy systems conflicted with the “right” of private copy, therefore were to be forbidden. The “Mulholland Drive” case in France offered a good perspective of chaos.

The facts in brief: some anti-copy system prevented a consumer from making a copy of a legally bought DVD of Mulholland Drive. Arguing that he had a so-called “right to make private copies”, the consumer sued the film producer and distributor.

In this landmark case, the French Supreme Court did not rule in favor of either party. It simply cancelled the judgement of the Appeal court (which had admitted “private copying” without limitations thus declared illegal anti-copy systems) on the ground that it did not apply the triple test. It is now up to a second Appeal court to handle the case and to decide whether, after applying the triple test, anti-copy systems shall be held illegal.

What is at stake in the French Supreme Court ruling is that for the first time, it expressly refers to the triple test, although not providing guidelines on how to apply it. Also, the Court confirmed that private copy was an exception rather than a “right” and that such exception was to be confined into economic considerations and risks on the industry in the digital environment – i.e. the three steps of the test.

There are few precedents which could help courts to interpret the test. The main sources of information hitherto come from the WIPO’s studies related to copyright in the information age (Limitations and exceptions under the three step test – R. Knights, August 29, 2000; WIPO study on limitations and exceptions on copyright and related right in the digital environment – S. Ricketson, April 5, 2003). In so far, only one case actually required an interpretation of the test in respect of the TRIPs Agreement (a WTO dispute settlement panel has tried a case involving the EU and the United States over an exception to copyright in US law – WTO panel report June 15, 2000 WT/DS160/R).

European countries have legislated about this crucial stake in very disparate ways. Some of them did not take into account the new digital environment and maintained unchanged their rules relating to private copy (Italy). Other countries such as Germany and Austria firmly restrained the scope of this exception and legalised anti-copy systems. The UK sticks to its copyright system letting the judge to decide for the fairness of the private copying exception.

No need to be an adept of bashing to say that the implementation of the Directive in France led to an extreme confusion. After a harsh discussion among the MPs, the draft law glumly proclaims “the right to benefit from the private copying exception” (right to exception???) and concomitantly legitimate the “TPM” (technical protection measures) that obstruct not allowed uses.

It is difficult to foresee a happy future for the cultural industry in Europe without anti-copy systems. The challenge is now to reach a level of harmonisation between the member states. No doubt that the Directive will need serious update.

The Paris commercial court rendered on June 30th, 2008, three judgments holding eBay liable for the online auction sale of counterfeit goods and the breach of exclusive channels of distribution. The total indemnity amounts to €40m, payable immediately to Parfums Dior, Kenzo Parfums, Parfums Givenchy, Guerlain SA, Christian Dior Couture and Louis Vuitton Malletier.

eBay claimed the benefit of the protective status of hosting (as provided for in the Directive 2000-31/EC on e-commerce), under which it could have avoided direct liability subject to the withdrawal of listings on counterfeit goods after the receipt of a formal notification.

This position did not convince the French judges. They considered that eBay qualified as a provider of intermediation services between sellers and buyers in consideration of a commission. The judges expressly denied the protection of the status of hosting, for eBay takes an active role in the information published on its website. As a result, eBay was submitted to civil law (non contractual) liability.

The judges blamed eBay for not having secured that its activity was not generating illegal acts, such as the sale of counterfeit goods or the violation of exclusive channels of distribution. They also considered that eBay breached its duty to check that sellers making a great amount of transactions were duly registered with the Trade Register. This latter ground may cause eBay additional trouble in the future, for buyers might claim the benefit of consumer laws for sales by professionals – and blame eBay for not providing this information.

In the Christian Dior Couture and Louis Vuitton Malletier cases, the judges observed that eBay should have set up effective measures against the infringement, such as (i) the duty for the sellers to provide on demand a receipt or a certificate of authenticity of the goods in sale, or (ii) the immediate and definitive closing of the account of sellers in fault or (iii) the immediate withdrawal of the listings reported as illegal by the claimants. They also underlined that the listings related to sales of counterfeiting goods could be easily identified, either by the “fake” or “imitation” quotes which often appear, or by the low price of the goods.

The judges concluded that eBay was liable for both the wrongful use of the claimants’ rights and the damage caused on their image. Interestingly, the indemnity awarded is an indemnifying royalty based on a percentage of eBay’s commissions. This type of indemnity is unusual, for under French civil law the amount of the indemnity may not exceed the prejudice actually suffered – which is in most cases limited to lost profits and the compensation of lost investments. The concept of indemnifying royalty was introduced in France by law n°2007-1544 of 29 October 2007 implementing the 2004-48/EC Directive on intellectual property rights enforcement. Lastly, the judges released an injunction for eBay to stop auctions on the perfumes, under a restriction of € 50 000 per day of delay.

Although eBay immediately filed an appeal, these judgments may be perceived as an incentive to sue eBay to seek indemnification. The short-term future of eBay is gloomy: in November 2007, the French regulator of public auctions took action against eBay for failure to comply with French rules applicable to public auctions. Another “big” judgment expected this year.

The transactions made on www.amazon.fr are in the name of “Amazon EU”, a limited company registered under the laws of Luxemburg, acting as seller.  Such sales are governed by Amazon EU’s “Terms and conditions”, and consumers have to agree to a “Privacy Notice”, which details how their personal data are processed.

Amazon Services Europe, another limited company registered under the laws of Luxemburg, provides a platform named “Marketplace” also available via www.amazon.fr, which allows professionals or individuals to buy or sell items online, after having approved their participation to a so-called “Marketplace Program”.

UFC Que Choisir, an association acting to protect the interests of the consumers, asked the Court of first instance of Paris to declare unfair or unlawful 36 clauses of Amazon’s Terms and conditions, Privacy Notice and Marketplace Program.

Under French law, terms may be either unfair or unlawful. According to Article L.132-1 of the French consumer code, terms are unfair in agreements between professionals and consumers when they aim to create or result in the creation of a significant imbalance between the rights and obligations of the parties to the contract, to the detriment of the non-professional or the consumer. Terms which are contrary to public order or mandatory legal provisions are unlawful.

The French Court held unlawful or unfair 18 clauses out of the 36 in balance. Below is an overview of the clauses cancelled by the Court.

I. Terms and conditions

- The clause by which Amazon EU excludes its liability for indirect damages

The clause was drafted as follows: “We are making every effort to provide the services described in the Terms and conditions. We are liable for any direct damages. Under no circumstances, Amazon shall be liable for loss of profits, commercial losses, data losses, shortfall or any other indirect damages.”

According to the Court, this clause is contrary to Article L.121-20-3 al 4 of the Consumer code which provides that “The professional is liable towards the consumer for the proper fulfillment of the obligations deriving from a distance contract” and to Article R132-1 of the same code for which “Clauses which aim to or have the effect of cancelling or reducing the consumer’s right to compensation in the event of non-fulfillment by the professional of any of its obligations, are unfair”.

- The clause which provides for a copyright assignment to Amazon EU

Consumers have the opportunity to post comments, suggest ideas or ask questions on www.amazon.fr.

Amazon EU’s terms and conditions provides that the consumer grant Amazon EU a royalty-free and worldwide right to use and reproduce such contents, in any media and for the length of protection of copyrights. The consumer also has to waive the right to be identified as the author of the content.

The French Court held that this clause interfered with the author’s moral right provided by Article L.121-1 of the French intellectual property code. The moral right of the author includes the right to be identified as the author of content. It cannot be waived or assigned.

- The clause under which only the consumer may be liable in the event of a lawsuit based on the illegality, or breach of third parties’ rights, of a content posted by the consumer

Art. 6. I. 2 of Law n°2004-575 on confidence in the digital economy (“LCEN” which implemented Directive n°2000/31/EC on electronic commerce) provides that the hosting provider is not liable for the information stored at the request of a user, on condition that:

-         The provider does not have an actual knowledge of illegal activity or information; or

-         The provider, upon obtaining such knowledge, acts expeditiously to remove or to disable access to the information.

Amazon EU is liable for said contents pursuant to this Article, in its capacity as a hosting provider, from the moment it took cognizance of the illegality of the content.

This clause is therefore contrary to LCEN since it provides that the liability shall be borne only by the consumer while this liability could be shared with, or completely borne by, the hosting provider.

II. Privacy notice
- The clauses which allow Amazon EU to share personal data with subsidiaries and to disclose personal data in order to enforce “other agreements”

The clauses were drafted as follows:

“We share customer information only as described below and with subsidiaries Amazon.com, Inc. controls that either are subject to this Privacy Notice or follow practices at least as protective as those described in this Privacy Notice”.

“We release account and other personal information when we believe release is appropriate to comply with the law; enforce or apply our Conditions of Use and other agreements; or protect the rights, property, or safety of Amazon.com, our users, or others.”

The Court held that these clauses created an imbalance between the rights and obligations of the parties, for the sharing of the consumer’s personal data was imposed on the consumer without indicating the purpose and means of this processing.  Therefore such clauses contravene the law n°78-17 of 6 January 1978 on the processing of personal data.

- The clauses which allow Amazon EU to send personal data to other companies for promotional offers, or co-branded or joint offerings

These clause are contrary to Article L.121-20-5 of the consumer code which provides that: “Direct canvassing by electronic mail is authorized if the recipient’s contact details were obtained directly from him (…) in connection with a sale or the provision of services, if (i) such direct canvassing relates to similar products or services provided by the same natural person or legal entity and (ii) the recipient is expressly and unambiguously given an opportunity, via a simple means and at no cost, to oppose the use of his details”.

Promotional offers are sent by Amazon EU “on behalf of other businesses”, while canvassing should be authorized only for the goods or services provided by Amazon EU directly, in its capacity as company which obtained the personal data of the consumer.

III. Marketplace program

- The clause which provides for the application of the Laws of Luxemburg

Article 17 of LCEN provides that the activity of electronic commerce is governed by the law of the Member State on which the e-merchant is established, subject to the common intention of the parties.

The Court underlined that Amazon Services Europe, which for the www.amazon.fr website aims at consumers who reside mostly in France, would be unable to prove that the common intention of the parties would have been to choose the laws of Luxemburg in order to govern any dispute.

In addition, Article 17 of the LCEN also specifies that a consumer, whose usual residence is in France, cannot be deprived from the protection of French laws. The Court therefore decided that the wording of the clause was contrary to Article 17 of LCEN.

- The clauses which exonerate Amazon Services Europe from any liability in relation to the lawfulness of the items offered on the marketplace, or in the event of a lawsuit between participants

As explained before, Amazon Services Europe in its capacity as hosting provider is liable according to Article 6.I of LCEN, from the moment it had knowledge of the unlawfulness of the contents posted in its platform. Therefore, the clause which provides for Amazon Services Europe’s general exemption of liability is illegal.

- The clause which imposes on the consumer to hold Amazon Services Europe harmless of any third party’s claim as a result of the information provided by the consumer

The Court considered that this clause lacked detail on the type of claim that Amazon Services Europe would be part of and that this created a significant imbalance to the detriment of the participant, for the consumer was unable to identify the nature and the scope of his/her undertaking to Amazon Services Europe.

This clause was therefore declared unfair according to the aforementioned provisions of Article L.

132-1 of the French consumer code.

- The clause which authorizes Amazon Services Europe to terminate in its sole discretion the participation agreement

Once again, the Court held that this clause created an imbalance between the obligations of the parties, for the seller could be expelled from the Marketplace, without any justification, and without giving to the seller any opportunity to protest.

- The clauses which authorize Amazon Services Europe to impose transactions limits, to postpone the payment of the price to the seller, without specification on the delay or the purposes, or to refuse or deposit the payment of the price to the seller, or to reimburse the buyer without justification

According to the Court, these clauses lack details in order to allow the consumer to identify clearly the nature and scope of the obligation he/she is subscribing. They are also sorely understandable by the consumer. The Court therefore decided that they were unfair according to the Consumer code.

Conclusion

The ruling of the Paris Court is very protective of the interest of the consumers and triggers numerous questions: is it still possible for a professional to limit its contractual liability vis-à-vis French consumers? It is still possible to avoid French law as applicable law? Etc.

1. Context of the French market of cards

France is the biggest market in the Euro zone concerning payments made by cards, with a rate of 37% – compared to rates of 17% in Germany, 10% in Spain or in the Netherlands and 8% in Italy. Cards are the favourite payment instrument for 73% of the French, whereas this rate is of 57% and 34% respectively in the UK and Germany (Sofres study, 2006).

According to articles L. 311-1, L. 311-3 and L. 511-22 of the Financial and Monetary Code, issuing and managing payment cards in France as well as providing credit services is strictly reserved to banks agreed by the French regulator or acting under the European passport.

The Financial and Monetary Code provides for a limited series of exceptions to such so-called “banking monopoly”, such as mono-provider cards (for instance private cards issued by retail companies) and multi-provider cards under certain specific conditions (article L. 511-7 of the Financial and Monetary Code). The French regulator closely controls compliance to these conditions and few companies are able to comply.

Until October 1, 2007, the rules related to banking cards did not allow co-branding, thus limiting the development of products such as private cards. As a consequence, a great portion of payments made by cards is made through banking cards: 87% of the French hold at least one banking card (with an average of 1.4 cards per person) and the total of banking cards issued amounts to 53 million with an annual growth of about 5 % and a record satisfaction rate of 97 % (Sofres study, 2006).

2. The decision of Groupement des Cartes Bancaires to authorise co-branding

The Groupement des Cartes Bancaires provides for interbank standards through contractual as well as technical requirements to all the users of the system – cardholders, banks and merchants – including normalisation of the devices and requirements concerning the nature and position of the information labelled on the cards. Apart from banks operating selective or private networks, such as American Express, banks that wish to benefit from the general acceptance of the “CB” interbank system must comply with such standards and requirements.

The authorisation of co-branding results from an amendment to the banking card model contract issued by the Groupement des Cartes Bancaires. All the members of the Groupement will have the benefit of this decision, including its 148 member banks, among which 35 foreign banks.

3. The opportunities of co-branding

Waiving the branding restriction provides great market opportunities to banks as well as to brand companies.

Firstly, banks will be able to use their cards as a marketing vector with their customers, providing new B2C services such as affinity cards and giving way to diversification on a strong yet mature banking cards market. Société Générale has already launched a “Rugby World Cup 2007” banking card offering specific services to their holders, from which the bank expects to attract new clients.

Secondly, banks will also be able to develop B2B partnerships with brand companies (such as retailers) which may be interested in providing financial services to their customers and thus enlarge their own private card programs by providing banking services. Brand companies will find a particular interest in providing credit services to their customers – an activity reserved to banks. Analysts consider that a credit service embedded on a private card may increase the average purchase amount of 50 %. On the other hand, banks hope to develop their credit cards offer – credit cards only represent 5 million out of the 53 million banking cards currently in use.

This circumstance should lead companies to verify, before terminating any well established contract or commercial relationship, whether such termination may be abusive, because a sufficient notice period has not been granted to other party before the termination, except if such termination is justified by a violation of the contract.

1. When is a termination considered abusive?

Article L.442-6 5° of the French commercial code prohibits the fact of “terminating brutally, even partially, an established commercial relationship, without a written notice and without a notice period taking into account the duration of such commercial relationship and complying with the minimum duration for notice periods as provided for in inter-professional agreements, by reference to usual commercial practice”.

It should be noted that this provision was initially mainly intended for the retail sector, but it has eventually been applied to all sectors and to all types of commercial relationships by the courts.

A “termination??? within the meaning of that provision may result from any “official” termination of a given contract, but it may also consist in a de facto termination. The text of the commercial code provides that even a partial termination may trigger the implementation of article L.442-6 5°. This includes, for example, situations where a distributor informally discontinues ordering some, but not all products of a given supplier. Court precedents have thus extended the term “termination” to, for example, a mere reduction of the quantity of orders, in order to avoid that the progressive reduction of orders become a way to avoid the consequences of article L.442-6 5°.

The “brutal” i.e. abusive nature of the termination results from the absence of a written notice and of a sufficient notice period. The assessment of this principle is made without taking any account of the notice period or termination notice system possibly provided for in the contract. The problematic question is to determine which duration the notice period should have. This duration is determined on a case by case basis by the courts, in particular depending on the duration of the past relationship and – if they exist – by referring to usual commercial practices or inter-professional agreements. There are thus precedents setting forth a duration from one month to more than 18 months!

As a matter of fact, precedents applying article L.442-6 5°, have created an obligation for any company to grant a reasonable notice period (which duration is difficult to appreciate) before terminating any contract. Naturally, when a termination is justified by a contractual violation by the other party, such notice period may not be necessary.

2. The risk of a condemnation to substantial damages

The victim of an abusive termination may claim substantial damages, with the purpose of repairing several types of prejudices:

- the loss of profit or turnover: certain courts calculate the reasonable duration of the notice period which should have been granted, and grant damages corresponding to the loss of either profit, or turnover for that period;

- specific costs linked to the abusive termination: the victim of the abusive termination may claim damages covering specific costs incurred because of the absence of a sufficient notice period (for example replacement costs, or the cost of perishable products already produced). It does not seem justified, however, to claim damages for a prejudice resulting from the termination itself, and not from the abusive nature of such termination. The termination itself is not prohibited, only the absence of a sufficient notice period is prohibited;

- in certain rare cases, the victim of the abusive termination may be able to demonstrate that such termination has harmed its reputation and caused the mistrust of other business partners. It may claim damages to compensate for this situation.