ECJ Ruling of May 8, 2025 – Case C-581/23
The mere assignment of an exclusive distribution territory does not automatically imply a sales ban for other dealers. Rather, it must be demonstrably agreed that other dealers refrain from active sales within an exclusive area. This was clearly established by the ECJ in its ruling of May 8, 2025 (Case C-581/23). The term exclusive distribution is often used synonymously with sole distribution and describes a special form of distribution where a supplier grants a trading partner exclusive rights for a specific region or product.
It is common for a manufacturer to assign exclusive sales territories to dealers. In an exclusive or sole distribution agreement (also referred to as exclusivity distribution), the manufacturer commits to selling its products in a defined territory only through one dealer. The distribution channel plays a central role as it defines the exclusive route for product sales and the control over the brand image. The selection of the product and the entire product range is crucial in exclusive distribution, as premium products and special lines are often offered exclusively.
Advantages for Manufacturers and Dealers
Suppliers and dealers benefit from exclusivity by achieving competitive advantages and strengthening their market position. The rights and agreements in exclusive distribution regulate which party holds which powers and obligations, especially concerning brand protection and compliance with non-compete clauses. Within exclusive distribution and sales agreements, all relevant aspects such as territorial rights, the number of dealers, and product selection are defined. The distribution partnership between manufacturer and dealer is of central importance as it is based on mutual trust and clear agreements. Exclusivity offers both manufacturers and dealers the advantage of protecting the brand, ensuring quality, and differentiating from competitors. Brands and their underlying trademarks benefit from controlled presentation and market positioning. Exclusive distribution has direct effects on sales and the development of new regions since market coverage is strategically managed. The legal framework and impact of exclusive distribution must be considered particularly with regard to antitrust law and market structure. Protective mechanisms and adherence to regulations are necessary to secure exclusivity and the rights of the contracting parties. The competence of the involved parties is a decisive factor for success in exclusive distribution.
Definition of Exclusive Distribution
Exclusive distribution refers to a distribution form in which a supplier grants exclusive rights to a dealer for a specific territory or product line. An example of the application of exclusive distribution can be found in the luxury goods sector, such as with high-end watch brands. In exclusive distribution, certain lines or parts of the product range are often offered exclusively; the offering targets a limited number of buyers and products. In many industries, especially in the premium segment, exclusive distribution is a proven model in which each party – manufacturer and dealer – relies on carefully made decisions and clear agreements. Non-compete clauses and sole distribution rights are important legal tools to secure exclusivity. Finding suitable distribution partners is a key success factor in exclusive distribution, as only competent and reliable partners can ensure the desired advantages and market position.
ECJ Ruling: Dealers Must Be Informed About Exclusive Territories
The ECJ has now made it clear in its ruling that an agreement on an exclusive distribution system between dealer and manufacturer alone is not sufficient. Within exclusive distribution, it is important to clearly define each side of the contracting parties – i.e., the manufacturer side and the dealer side – as both have different rights and obligations under the distribution agreement. Moreover, the other dealers must be informed about the exclusive territory and at least tacitly consent to it, according to the law firm MTR Legal Rechtsanwälte, which advises on commercial and distribution law.
In the underlying case before the ECJ, a Dutch cheese manufacturer granted a dealer the sole distribution right for a certain cheese in neighboring Belgium. Clear agreements on the respective rights of both parties are essential to avoid misunderstandings and conflicts. The decision for an exclusive territory can have significant impacts on competition, as it brings advantages for the contracting parties as well as potential competition restrictions. Such agreements establish a legal framework and offer protection for the dealer by securing exclusive distribution rights in a specific region. Usually, drafting exclusive agreements requires high expertise in distribution law to safeguard the interests of both parties and minimize legal risks. This dealer accused a supermarket chain of also selling the cheese in Belgium, thus violating the exclusive distribution right. The supermarket chain argued, on the other hand, that the sales ban violates antitrust law.
The competent Dutch court involved the European Court of Justice and referred the question under which conditions an active sales ban in an exclusive distribution agreement is permissible under competition law. Specifically, it was about whether an implicitly granted exclusive territory is sufficient or whether a clear, explicit agreement is required.
Verifiable Agreement with Dealers Required
The ECJ clarified that an active sales ban in favor of an exclusive distribution territory is only effective if it is based on an explicit or at least clearly verifiable agreement between the parties. This means: A manufacturer cannot simply rely on having “de facto” assigned territories or that dealers “usually” serve certain markets. It is also insufficient that the manufacturer assumes dealers respect the territorial allocation. Rather, it must be verifiably agreed that other dealers refrain from active sales into the exclusive territory. In the context of such exclusive agreements, the non-compete obligation plays a central role, as it prohibits dealers from actively operating in certain territories or towards certain customers. The exclusive distribution right serves to legally secure the exclusive distribution and regulates under which conditions a supplier grants a dealer the sole right to sell in a region or for specific products.
Such an agreement exists when distribution agreements with the other dealers explicitly prohibit active sales into the exclusive territory or the dealers explicitly or implicitly have agreed to comply with this prohibition.
Express Prohibition Must Be Issued
In the underlying case, this means that the cheese manufacturer should have prohibited the other dealers from selling into the exclusive territory. According to the ECJ, it is insufficient for an effective allocation of an exclusive territory if other dealers merely do not operate there as a matter of fact.
The Court bases its decision on the structure of the Vertical Block Exemption Regulation (Regulation 2022/720) and the general principles of EU competition law (Article 101 TFEU). Within these legal frameworks, the conditions for exclusive agreements and their implementation are defined. The effects of exclusive distribution agreements on competition must be particularly considered because they can bring both positive efficiency benefits and potential restrictions of competition. An essential aspect is also the protection of the exclusive distribution territory, which provides the dealer with a secure market position within the allocated area. Restrictions of competition are only exempted if they genuinely serve to create efficiency benefits and do not eliminate competition as a whole.
For this purpose, exclusive distribution systems must be transparent and verifiable, the ECJ further stated. A mere factual allocation of territories or “implicit” agreement is insufficient. This would lead to informal market closures, which Article 101 TFEU precisely aims to prevent.
Review of Exclusive Distribution Agreements
The judgment makes clear that exclusive distribution territories should be explicitly contractually regulated and it is not sufficient that territorial boundaries are only internally known. It should be clearly documented which dealer is responsible for which territories and prohibitions must be clearly defined. Clear agreements create legal certainty by defining roles, responsibilities, and performance indicators within the distribution partnership and thus minimize conflicts.
For existing exclusive distribution agreements, dealers and manufacturers should check whether they are legally airtight and comply with ECJ case law. It should be noted that otherwise there is a competition law risk and the block exemption can be lost. Anyone relying on mere tacit territorial allocations risks severe sanctions.
Minimum Wage and Working Conditions in Exclusive Distribution
The topics of minimum wage and working conditions are gaining increasing importance in exclusive distribution and are a central component of a sustainable distribution strategy for manufacturers and distribution partners. With the introduction of the EU Minimum Wage Directive, the European Union has established clear requirements to ensure fair wages and improved working conditions for employees in all member states. The European Court of Justice (ECJ) has emphasized in its recent ruling the importance of these standards for the competitiveness and integrity of the European market.
Implementation of the EU Minimum Wage Directive
Minimum wages vary within the EU as member states apply their own criteria for setting wage levels. In Germany, for example, the minimum wage is based on 60 percent of the median hourly wage of full-time employees. The federal government is obliged to implement the directive’s requirements and ensure that minimum wages are appropriate and that employees benefit from fair working conditions.
Significance for Manufacturers and Distribution Partners
For manufacturers and distribution partners in exclusive distribution, this means they must pay attention not only to the quality of their products but also to compliance with labor standards. The implementation of the minimum wage directive and the regular review of working conditions – for example, through audits or inspections – are crucial to ensure compliance with legal requirements and to strengthen customer trust.
Close cooperation between manufacturers and distribution partners is essential. Only when distribution partners have the necessary skills and resources and working conditions are appropriate can products be successfully and sustainably placed on the market. Manufacturers should therefore ensure that their distribution partners are sufficiently trained and comply with the requirements of the EU Minimum Wage Directive.
Overall, it becomes clear: Compliance with minimum wage and fair working conditions is not only a legal obligation but also an important success factor in exclusive distribution. It strengthens the position of companies in European competition and contributes to offering high-quality products and services in the long term.
MTR Legal lawyers advise on distribution law and other areas of commercial law.
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