By a judgement of 21 December 2016 (Case No C-618/15), the Court of Justice of the European Union (the CJEU) ruled that French courts may have jurisdiction to hear an action, based on French law, to establish liability for the infringement of the prohibition on resale outside a selective distribution (SD) network for unauthorised sales of a retailer operating from abroad.
The background: a dispute over the prohibition of online sales within an SD network
This case has been initiated by a French-based retailer of consumer electronics, selling products both through its own website and in a shop located in Paris. The retailer was an authorised distributor of a specific range of high-end products from a well-known manufacturer, acting under an SD agreement which (amongst other things) prohibited online sales of these products.
A dispute arose between the parties as the manufacturer accused the distributor of breaching the SD agreement by selling the products online. The distributor responded by challenging the legality of the SD agreement, alleging that it was not uniformly applied to all distributors, some of whom marketed the products in question on several websites of a marketplace operator without any response from the manufacturer. Finally, the manufacturer informed the distributor of the termination of their commercial relationship and stopped its supply.
French courts first held not to have jurisdiction
The distributor brought an action before the Paris Commercial Court under article L. 442-6, I, 6 of the French Commercial Code, which sanctions direct or indirect involvement in contravening the prohibition on reselling outside the network imposed on distributors bound by an SD network.
The distributor sought interim measures against the manufacturer and the marketplace operator:
- declaring the prohibition on the sale of the products on the internet unenforceable and requiring the manufacturer to continue to supply it with the products covered by the SD agreement; and
- requiring the withdrawal of any offers for sale of a number of the manufacturer’s product models from the marketplace’s French, German, British, Spanish and Italian websites.
The Paris Commercial Court dismissed the claims. It held that it did not have jurisdiction over the websites operating outside French territory. The Paris Court of Appeal upheld that analysis, holding that the concerned marketplace’s websites operating outside French territory were not directed at the French public.
The distributor lodged an appeal against the Court of Appeal ruling before the Court of Cassation, which decided to stay proceedings and requested an interpretation of Regulation No 44/2001 (the Brussels Regulation) from the CJEU.
The CJEU’s analysis
The CJEU had to interpret Article 5(3) of the Brussels Regulation, which set forth that “a person domiciled in a Member State may, in another Member State, be sued […] in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or may occur“.
The court first observed that the rule laid down in Article 5(3) of the Brussels regulation “is based on the existence of a particularly close connecting factor between the dispute and the courts of the place where the harmful event occurred or may occur” (§25-26).
In this respect, the court found that such connecting factor may be verified upon two criteria:
- “the likelihood of damage occurring in a particular Member State is subject to the condition that the right whose infringement is alleged is protected in that Member State” (§30); and
- “where the protection granted by the Member State of the place of the court seized is applicable only in that Member State, that court only has jurisdiction to determine the damage caused within the Member State in which it is situated” (§31). Specifically, the damage that may be claimed by the distributor is defined by the Court as “the reduction in the volume of its sales resulting from the sales made in breach of the conditions of the network and the ensuing loss of profits” (§33).
In the present case, the court considered that French courts may have jurisdiction because:
- “the infringement of the prohibition on resale outside a selective distribution network is sanctioned [under French law], so that a natural link exists between that jurisdiction and the dispute in the main proceedings” (§32); and
- it was on the territory of that Member State that the alleged damage occurred. The court, however, specified in this respect that this aspect is for the national court to ascertain (§34).
The court finally found that the fact that the websites on which the products covered by the SD agreement were offered operated in Member States other than that of the court seized was irrelevant, “as long as the events which occurred in those Member States resulted in or may result in the alleged damage in the jurisdiction of the court seized” (§34).
In France, the Court of Cassation will now have to rule on this case, before most likely sending the case back to the Court of Appeal, which will have to decide on whether it has jurisdiction or not, especially in view of the damage suffered by the distributor.
From a legal standpoint, the CJEU’s ruling strengthens the efficiency of the French law which sanctions direct or indirect involvement in contravening the prohibition on reselling outside of an SD network by expanding the enforcement of this provision against retailers located in other EU member States.
The question of whether such analysis may be extended to other EU Member States will depend on the local legal framework applicable to the fight against parallel trade in that Member State. France seems to have taken a first step ahead, but others may follow.