This document was contributed under the ICC x Jus Mundi Partnership.
On 12 June 2018, the ICC Secretariat:
- acknowledged receipt on 12 June 2018 of 3 copies of Respondent's Answer dated 8 June 2018;
- notified Respondent's Answer to Claimant;
- advised the Parties that the International Court of Arbitration of the International Chamber of Commerce (the "ICC Court") would appoint the arbitrator, pursuant to Article 12(3) of the ICC Rules.
On 26 July 2018, the ICC Court appointed Jérôme Barbet as sole arbitrator upon the French National Committee's proposal (Article 13(3) of the ICC Rules). The sole arbitrator's address is:
Jérôme Barbet
SCP Enjea Avocats
5, rue du Renard
75004 Paris
France
The CMC took place in Brussels, Belgium, on 26 September 2018. At the CMC, Claimant's Counsel signed the Terms of Reference on behalf of the Claimant, and Respondent's Counsel signed the Terms of Reference on behalf of the Respondent. Also, Claimant's Counsel, Respondent's Counsel and the Tribunal discussed:
- Claimant's request that the arbitration proceeding be bifurcated;
- the procedural timetable; and
- the rules regarding communications and notifications.
After consulting the Parties at the CMC, the Tribunal decided not to bifurcate the proceeding and to fix the following timetable, as set out in Procedural Order No. 1 of 26 September 2018:
- 24 October 2018: Respondent will file an Expert Report on the relevant market shares;
- 21 November 2018: Claimant and Respondent will both file their respective Memorials No. 1 covering all of Claimant's claims and all of Respondent's counterclaims (together with the documents on which they rely);
- 21 December 2018: Claimant and Respondent will both file their respective Memorials No. 2 covering all of Claimant's claims and all of Respondent's counterclaims (together with the documents on which they rely);
- 18 January 2019: Claimant and Respondent will both file their respective Memorials No. 3 covering all of Claimant's claims and all of Respondent's counterclaims (together with the documents on which they rely);
- 31 January 2019: Final Hearing from 10:30am (location: offices of Claimant's Counsel in Brussels, Belgium).
On 15 January 2019, the Tribunal invited the Parties:
- to produce the legal authorities on which they relied, including copies of the Belgian court decisions and other legal material to which they referred in their respective Memorials;
- to address the issue of Clause 19.8.2 of the Distribution Agreement in their respective Memorials (Clause 19.8.2 provides that "(...) The Arbitral Tribunal may act as an ‘amiable compositeur' (...))".
By letter of 23 January 2019 (sent by fax and email), the Tribunal noted that the Parties had produced a number of documents in French (legal authorities such as case-law, legal commentaries, excerpts from legal textbooks, legal provisions, as well as extracts from the "[Redacted]"...). The Tribunal invited the Parties to confirm, by 28 January 2019, that:
- they did not require English translations of the documents in French produced by the other Party in this arbitration; and that,
- they agreed for the Arbitral Tribunal to rely, in the Arbitral Award, on documents in French produced by the Parties in this arbitration (without English translations).
Respondent's Counsel also confirmed:
- on 23 January 2019, that the Respondent did "not require English translations of the documents in French produced by the Claimant";
- on 24 January 2019, that the Respondent agreed "for the Arbitral Tribunal to rely in the Arbitral Award, on documents in French produced by the parties (without English translations)".
After consulting Claimant's Counsel and Respondent's Counsel at the Final Hearing on 14 February 2019, the Tribunal decided to fix the following timetable, as set out in Procedural Order No. 2 of 19 February 2019:
- 28 February 2019: Claimant and Respondent will both file their respective Memorials on the Costs of the Arbitration (art. 38 of the ICC Rules);
- 6 March 2019: Claimant and Respondent may file Memorials responding to the other Party's Memorial on the Costs of the Arbitration.
The Claimant, [Claimant], is a [Redacted] company specialized in the research and development, conception, manufacturing and sale of EC certified ophthalmologic devices, and in particular of enhanced as well as premium intraocular lenses ("IOLs") (see Recitals to the Distribution Agreement, § (A)).
The Respondent, [Respondent], is a [Redacted] company active in [Redacted], providing the health sector with professional support, marketing and advanced technology. Medical products distributed by [Respondent] are related to aesthetics, plastic surgery, hospital engineering, urology, cardiology, clinical & hospital interior and, more particularly, ophthalmology (Respondent's Memorial No. 1, §4).
There are different types of IOLs. The Respondent has explained that:
- a monofocal IOL is exclusively used to fix a cataracts pathology;
- whilst other types of IOLs do not only fix cataracts but also other pathologies; thus, a trifocal IOL will not only fix a patient's cataracts pathology but also his astigmatism. While monofocal IOLs can only fix one sight defect, trifocal IOLs can fix up to three issues in the sight of a patient (Respondent's Memorial No. 3, §60 and §61).
The appointment of [Respondent] as non-exclusive Distributor of [Claimant]'s products in [Redacted] was made possible by paying to [Redacted] a "compensation fee" designed to compensate [Redacted] for the loss of its exclusivity in [Redacted]. In consideration for the payment of this Compensation Fee, [Redacted] agreed to waive its exclusivity in [Redacted]. Under the Distribution Agreement, [Respondent] accepted to "bear a part of this compensation fee, as set forth in Article 10 of this Agreement" (Recitals to the Distribution Agreement, § D).
Thus, the recitals to the Distribution Agreement stated that:
"The appointment of the Distributor is subject to the waiver by [Redacted] ("[Redacted]"), the current exclusive distributor of the Products in [Redacted], of his exclusivity on the distribution of the Products in [Redacted]. [Redacted] has agreed to waive such exclusivity in consideration (inter alia) of a compensation fee to be paid by the Supplier. The Distributor has accepted to bear a part of this compensation, as set forth in Article 10 of this Agreement." (Recitals of the Distribution Agreement, § D).
Clause 2.1 of the Distribution Agreement provided that:
"Subject to the terms and conditions of this Agreement, the Supplier hereby appoints the Distributor (and the Distributor hereby accepts such appointment) as its nonexclusive Distributor in the Territory [Redacted] for the promotion and the sale of the Products under the label [Respondent]".
Clause 2.2 of the Distribution Agreement provided that:
"The Distributor is allowed to import, sell and distribute the Products solely in the Territory and solely under the label [Respondent]. The Distributor has no right to sell or distribute the Products in any country outside the Territory. The Distributor undertakes to refrain from advertising the Products, establishing a sales office or branch, or keeping a warehouse for distribution outside of the Territory and, in general, shall not actively solicit orders (or accept orders) for the Products from customers located outside the Territory."
Clauses 3.1 and 3.2, regarding the commencement and duration of the Distribution Agreement, provided that:
"3.1. This Agreement shall enter into effect on 1st January 2016 (the "Effective Date") and shall continue into effect until 31st December 2018 (the "Initial Period"), subject to the provisions of Section 15.
3.2. At the end of the Initial Period, the Agreement shall, subject to the provisions of Section 15, automatically be renewed for maximum four (4) successive twelve (12)-months periods (each a "Renewed Period"), unless terminated by either Party, at the end of the Initial Period, by giving six (6) months prior written notice to the other party, or at the end of any Renewed Period, by giving three (3) months prior written notice to the other party. "
Clause 5.4.2 of the Distribution Agreement provided for interest on unpaid invoices as follows:
"The Parties agree that timely payment by the Distributor of invoices relating to the Products and other amounts due by the Distributor pursuant to this Agreement is essential for the Supplier. Without prejudice to any other right of the Supplier, (i) the Supplier shall be entitled to postpone the delivery of the Products to the Distributor until full payment of any amount due by the Distributor and to subject any further delivery to specific payment conditions and (ii) an interest at an annual rate of 8% shall automatically accrue on any amount due by the Distributor to the Supplier pursuant to this Agreement as from the due date of such payment".
Clause 6 of the Distribution Agreement provided for sales targets and minimum purchase commitments. Clause 6.2.1 provided that:
"The Distributor ommits to purchase from the Supplier during each Contractual Year no less than 70% of the Units Sale Targets (the "Yearly Minimum Purchase Commitment") as set out in Schedule 6 (i.e. in an amount of 3,576,650 Euros for Year 1)".
Clause 10 of the Distribution Agreement provided that [Respondent] had to pay, each year (from 2016 to 2018), a "Compensation Fee", as follows:
"10. COMPENSATION FEE
10.1 The Distributor shall pay to the Supplier the following yearly lump sum:
| 2016 | 2017 | 2018 |
| 250,000 Euros | 300,000 Euros | 350,000 Euros |
10.2 The yearly amount due by the Distributor to the Supplier shall be paid each year in two instalments (each equal to one half of the yearly amount referred to in Clause 10.1) which shall be paid at the latest on June 30th and at the latest on December 31st upon receipt of the corresponding invoice from the Supplier".
Clause 17.1 of the Distribution Agreement provided that:
"For the duration of this Agreement, the Distributor shall not manufacture, sell or offer for sale, directly or indirectly, or use any other means with a view to marketing, either as principal, distributor, agent, intermediary or any other capacity within the Territory, any multifocal intraocular lenses not manufactured by the Supplier."
The Distribution Agreement provided for a severability clause (Clause 19.1), as follows:
"19.1 Severability
The invalidity or unenforceability of any provision of this Agreement shall not result in the invalidity or the unenforceability of any other provision of this Agreement or of this Agreement as a whole. In the event that the validity or the enforceability of this Agreement or any provision thereof is challenged, the Parties hereto undertake to do whatever is reasonably necessary or advisable to maintain such provision and this Agreement in full force and effect or to substitute such provision by other provisions that have economically substantially the same effect for all Parties hereto".
The Distribution Agreement contained the following arbitration clause:
"In the event of any dispute arising out of this Agreement, the Parties hereto shall endeavour first to resolve the dispute by amicable settlement. If the Parties are unable to reach an amicable settlement, any dispute arising out of or in connection with this Agreement (including its validity, its execution, its interpretation, its performance and its termination) shall be finally settled exclusively by arbitration under the Rules of Arbitration of the International Chamber of Commerce by a sole arbitrator appointed in accordance with said rules. The place of arbitration shall be Brussels and the language of arbitration shall be English. The Arbitral Tribunal may act as an "amiable compositeur". For the purpose of the arbitration proceeding, the Distributor and Alphaeon shall be regarded as one party”.
[Respondent] has alleged that:
- in May 2017, [Redacted] started to lower prices down to a level that was "not affordable for the Respondent" ; and that in October 2017, [Redacted] offered [Claimant]'s IOLs to [Redacted] (“the largest ophthalmic clinic group in [Redacted], with approximately 40 establishments throughout the country") "for a price that [Respondent] could not match as doing so would have entailed selling at a loss. Such a price would have neither covered the costs of transportation, logistics and storage nor the financial costs related to stocks" (Respondent's Memorial No. 3, §15).
- the "only reason that explains why [Redacted] could afford selling at these prices was that the latter was funding the sales with the Compensation Fees paid by [Respondent]" (Respondent's Memorial No. 3, §16); "in these circumstances, [Respondent] did not only lose [Redacted] as a client but also found it highly difficult to find new clients, as [Redacted]'s pricing strategy put [Respondent] at a clear disadvantage." (Respondent's Memorial No. 3, §17);
- these circumstances allegedly caused the Respondent to suffer "important financial difficulties. By way of illustration, while [Respondent]'s turnover in 2017 amounted to EUR 11 million, it dramatically dropped down to EUR 7 million in 2018." (Respondent's Memorial No. 3, §18); and
- this situation "resulted in the Respondent not being able to bear certain payments in a timely manner" (Respondent's Memorial No. 3, §19).
[Claimant] has made the following claims (Claimant's Memorial No. 3, §88):
(i) Payment by [Respondent] of the invoices with respect to the Products and the Compensation Fee:
- Main claim: to order [Respondent] to pay to [Claimant] the principal amount of all invoices due by [Respondent] pursuant to the Distribution Agreement increased by a default (contractual) interest at the yearly rate of 8% from the due date of each invoice until full payment.
As of January 18, 2019, (i) the principal amount of all invoices due to [Claimant] is EUR 1.724.080,00 (i.e. EUR 1.374.080,00 for the Products purchased by [Respondent] and EUR 350.000,00 for the Compensation Fee) and (ii) the interests amount to EUR 101.051,44 (see new Exhibit Erreur ! Source du renvoi introuvable. as of January 18, 2019).
- Subsidiary claim: should the Arbitral Tribunal consider that either the entire Distribution Agreement or Clause 10 thereof relating to the Compensation Fee be null and void, [Claimant] requests the Arbitral Tribunal to (i) order [Respondent] to pay the principal amount of all invoices due to [Claimant] for the purchase of the Products (i.e. EUR 1.374.080,00) increased by the applicable interests (being either the legal interest due in case of late payment in business transactions (i.e. 8%) if the Distribution Agreement is considered as null and void in its entirety or the contractual interest (i.e. also 8%) if solely Clause 10 is considered as null and void) and to (ii) dismiss [Respondent]'s claim to offset part of its debt with the amount of the Compensation Fee already paid by [Respondent] and the amount of the legal interest on such amount.
(ii) In all cases, to indemnify [Claimant] from any damages resulting from the breach of the Distribution Agreement, such damages being estimated ex aequo et bono at EUR. 15.000.
(iii) In all cases, to order [Respondent] to bear, pay and reimburse the arbitration costs (including the ICC administrative costs, arbitrator's fees and expenses) as well as all the costs and expenses incurred by [Claimant] for the defense of its interest, including but not limited to its lawyers' fees and expenses.
As of December 31, 2018, [Claimant]'s defense costs and expenses amounted to EUR. 74.780 (excluding VAT) (see Exhibit 12). The Claimant has updated this amount to EUR 127,041.80 (excluding VAT) in its Memorial on the Costs of the arbitration.
(i) to order [Respondent] to pay to [Claimant] the principal amount of all invoices due by [Respondent] pursuant to the Distribution Agreement (such principal amount adding up to EUR 1.549.080,00 (EUR 1.374.080,00 + EUR 175.000,00) as of August 31, 2018) increased by a default interest at the yearly rate of 8% from the due date of each invoice until full payment (the amount of such interests adding up to EUR 52.827,61 (EUR 50.449,53 + EUR 2.378,08), as of August 31, 2018),
(ii) to order [Respondent] to bear and pay the arbitration costs as well as all the costs and expenses borne by [Claimant] for the defense of its interest, including but not limited to its lawyers' fees and expenses,
(iii) to indemnify [Claimant] from any other damages resulting from the breach of the Distribution Agreement.
The Claimant has asserted that since 2002, [Claimant] has put into place a wide network of distributors worldwide. As part of this distribution policy, on 1 December 2016, [Claimant] and [Respondent] entered into a non-exclusive distribution agreement (the Distribution Agreement) for the sale of [Claimant]'s cataracts' surgery products by [Respondent] in [Redacted], namely, monofocal intraocular lenses ("IOLs"), toric monofocal IOLs, trifocal IOLs, toric trifocal IOLs and an injector.
According to the Respondent, the relevant product market should be at least the IOLs market, which could be further segmented into the different categories of IOLs available: monofocal IOLs and trifocal IOLs. Additionally, it would be possible to draw a further distinction in the IOLs market between standard and premium IOLs. Premium IOLs include trifocal, bifocal and extended depth of focus ("edof") IOLs. Geographically, the relevant market is [Redacted].
In at least two of the relevant markets, [Claimant]'s market share exceeds 30%, namely, in the segment of trifocal IOLs (where [Claimant]'s market share in [Redacted] is estimated to amount to 51%) and in the premium IOLs segment (where [Claimant]'s market share in [Redacted] is estimated to be 38%).
More precisely, a prohibition to engage in active sales outside of the territory of [Redacted] is in breach of Article 4.b) of Regulation 330/2010. In so far as [Claimant] has not assigned other territories of the EEA exclusively to other distributors or has reserved some territories to itself (nothing is said in this regard in the Distribution Agreement), this clause leads to a market partitioning by territory contrary to EU Competition Law.
According to the Respondent, Clause 10 also entails competition concerns. This compensation mechanism was in theory set up for the following reason: before [Respondent] joined [Claimant] distribution network, [Redacted] was the only distributor in [Redacted], and benefited from exclusivity in the [Redacted]. When [Respondent] joined, the Parties agreed that [Respondent] would pay [Claimant] a compensation fee on an annual basis, intended to compensate [Redacted] for future decrease of income arising from the loss of its exclusivity. Two consequences stem from the compensation mechanism:
- First, as stated above, [Claimant]'s market shares in [Redacted] exceed 30%. In this scenario, the mere existence of an exclusive distribution agreement (such as the one formerly executed with [Redacted]) entails a high risk of significant reduction of intra-brand competition. However, opening [Claimant] products to a second distributor ([Respondent]) did not lead to open intra-brand competition as it should have been desirable, as this was countervailed by the compensation fee to be paid by [Respondent] to [Redacted] (indirectly through [Claimant]). [Respondent] entered into [Claimant]'s distribution network under a disadvantaged position compared to [Redacted], and [Redacted] could benefit from the same level of income arising from the sale of [Claimant]'s products without, at the same time, bearing the costs arising from organising the distribution.
- Second, in practice, the compensation mechanism is allowing [Redacted] to lower its prices to levels that would not be affordable for [Respondent], thereby starting a price war which, at the end of the day, would be purely artificial or deprived of benefit for final customers. As a consequence, [Respondent] is finding difficulties to compete and, especially, to comply with the minimum purchase obligations set out in Clause 6.2 of the Distribution Agreement. Clause 15.1.3 allows for termination of the Distribution Agreement in case of breach of Clause 6.2. Termination on these grounds would lead again to a situation of de facto exclusivity for [Redacted].
The presence of hardcore restrictions implies the nullity of the agreement as a whole. This is established by both Article 101(2) TFEU (and Article IV.l, §2 of the Belgian Code of Economic Law) and by the Guidelines on Vertical Restraints, which read as follows regarding Regulation 330/2010 and hardcore restrictions:
(70) The Block Exemption Regulation exempts vertical agreements on condition that no hardcore restriction, as set out in Article 4 of that Regulation, is contained in or practised with the vertical agreement. If there are one or more hardcore restrictions, the benefit of the Block Exemption Regulation is lost for the entire vertical agreement. There is no severability for hardcore restrictions.
(71) The rule of severability does apply, however, to the excluded restrictions set out in Article 5 of the Block Exemption Regulation. Therefore, the benefit of the block exemption is only lost in relation to that part of the vertical agreement which does not comply with the conditions set out in Article 5.
[Respondent] has requested the Tribunal (Respondent's Memorial No. 3, §192):
(i) To partially dismiss [Claimant]'s claims by:
Main claim:
a. Declaring that the Distribution Agreement (and, thereby, the distribution relationship) is null and void on the basis of the existence of two hard core restrictions in Clause 2.2 of the said agreement, within the meaning of Article 4.b) of Regulation 330/2010 and in accordance to Article 101(1) and 101(2) TFEU;
b. Declaring that, as a consequence of the above, the Compensation Fee foreseen in Clause 10 of the Distribution Agreement is not due and that, consequently, there is no obligation for [Respondent] to pay the 2018 Compensation Fee, which amounts to EUR 350.000;
c. Ordering [Claimant] to offset part of [Respondent]'s debt, accrued as a consequence of the purchase of goods under the Distribution Agreement, with the Compensation Fees already paid by [Respondent] (i.e. EUR 550.000);
d. Ordering [Claimant] to further offset [Respondent]'s debt, accrued as a consequence of the purchase of goods under the Distribution Agreement, with the amount of legal interest that corresponds to [Respondent] for the unduly paid Compensation Fees;
Subsidiary claim:
a. Declaring that Clause 2.2 of the Distribution Agreement is null and void because it contains hardcore restrictions.
b. Declaring that, as a consequence, and for being inherent and non-severable from Clause 2.2, the Compensation Fee foreseen in Clause 10 of the Distribution Agreement is not due and that, consequently, there is no obligation for [Respondent] to pay the 2018 Compensation Fee, which amounts to EUR 350.000;
c. Ordering [Claimant] to offset part of [Respondent]'s debt, accrued as a consequence of the purchase of goods under the Distribution Agreement, with the Compensation Fees already paid by [Respondent] (i.e. EUR 550.000);
d. Ordering [Claimant] to further offset [Respondent]'s debt, accrued as a consequence of the purchase of goods under the Distribution Agreement, with the amount of legal interest that corresponds to [Respondent] for the unduly paid Compensation Fees;
(ii) To dismiss [Claimant]'s claim for damages (provisionally estimated at EUR 15,000);
(iii) To state, in accordance with Article 38 (4) of ICC Arbitration Rules, that each party will bear (i) its own costs and fees of defence arising from the arbitration proceedings and (ii) 50% of fees and expenses of the arbitrators and the ICC administrative expenses.
The total amount of Claimant's claims is EUR 1,724,080.00. This amount includes:
- the price of products purchased by [Respondent] to [Claimant] under the Distribution Agreement, in the amount of 1,374,080.00; and
- the Compensation Fee for the year 2018, provided for in Clause 10 of the Distribution Agreement, in the amount of EUR 350,000.
The Respondent has asked the Tribunal:
- to declare that the entire Distribution Agreement is null and void on the basis of the existence of two hardcore restrictions in Clause 2.2 of the said agreement, within the meaning of Article 4(b) of the Block Exemption Regulation and in accordance with Article 101(1) and 101(2) TFEU (Respondent's Memorial No. 3, §192 (i) (a));
- alternatively, to declare that Clause 2.2 of the Distribution Agreement is null and void because it contains hardcore restrictions; and to declare that, as a consequence, and "for being inherent and non-severable from Clause 2.2", the Compensation Fee provided for in Clause 10 of the Distribution Agreement is "not due” (Respondent's Memorial No. 3, §192 (i) (a) an (b)).
Thus, the Respondent has asked the Tribunal:
- to reject the Claimant's claim for payment of the Compensation Fee for the year 2018, in the amount of EUR 350,000; and
- to order the Claimant to repay to the Respondent, by way of set-off against Claimant's claims, the Compensation Fees for 2016 and 2017 already paid by the Respondent, for a total amount of EUR 550,000; the Respondent has asked the Tribunal to deduct the amount of EUR 550,000 (corresponding to the Compensation Fees already paid by the Respondent) from the total amount of the price of the products owed by [Respondent] to [Claimant].
The EU rules which are directly effective in Belgium include:
- Article 101 of the Treaty on the Functioning of the European Union (the "TFEU");
- Council Regulation (EC) No. 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty establishing the European Community [now Articles 101 and 102 TFEU] ("EU Regulation 1/2003"); and,
- Commission Regulation (EU) No. 330/2010 of 20 April 2010 on the application of Article 101(3) of the TFEU to categories of vertical agreements and concerted practices (the "Block Exemption Regulation").
Accordingly, the Tribunal will set out below its reasoning as to the merits of the Parties' respective claims, defences and counterclaims under:
- Article 101 of the TFEU;
- the Block Exemption Regulation;
- EU Regulation 1/2003;
- Article IV.1 of the Belgian Code of Economic Law; and,
- the relevant rules of Belgian civil law relied upon by the parties.
(B) Introduction: Article 101 TFEU, Article IV.l of the Belgian Code of Economic Law, EU Regulation 1/2003 and the Block Exemption Regulation
Article 101 of the TFEU provides that:
"1. The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which:
(a) directly or indirectly fix purchase or selling prices or any other trading conditions;
(b) limit or control production, markets, technical development, or investment;
(c) share markets or sources of supply;
(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
(e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
2. Any agreements or decisions prohibited pursuant to this Article shall be automatically void.
3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of:
- any agreement or category of agreements between undertakings,
- any decision or category of decisions by associations of undertakings,
- any concerted practice or category of concerted practices,
which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not:
(a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;
(b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question."
EU Regulation 1/2003 provides, inter alia, that:
- "In any national or Community proceedings for the application of Articles 81 and 82 of the Treaty, the burden of proving an infringement of Article 81(1) or of Article 82 of the Treaty shall rest on the party or the authority alleging the infringement. The undertaking or association of undertakings claiming the benefit of Article 81(3) of the Treaty shall bear the burden of proving that the conditions of that paragraph are fulfilled" (Article 2);
- "National courts shall have the power to apply Articles 81 and 82 of the Treaty" (Article 6).
Article 4 of the Block Exemption Regulation provides that the "exemption provided for in Article 2 shall not apply to vertical agreements which, directly or indirectly, in isolation or in combination with other factors under the control of the parties, have as their object: (...) (emphasis added)
(b) the restriction of the territory into which, or of the customers to whom, a buyer party to the agreement, without prejudice to a restriction on its place of establishment, may sell the contract goods or services, except: (i) the restriction of active sales into the exclusive territory or to an exclusive customer group reserved to the supplier or allocated by the supplier to another buyer, where such a restriction does not limit sales by the customers of the buyer, (ii) the restriction of sales to end users by a buyer operating at the wholesale level of trade, (iii) the restriction of sales by the members of a selective distribution system to unauthorised distributors within the territory reserved by the supplier to operate that system, and (iv) the restriction of the buyer s ability to sell components, supplied for the purposes of incorporation, to customers who would use them to manufacture the same type of goods as those produced by the supplier; (emphasis added)
(c) the restriction of active or passive sales to end users by members of a selective distribution system operating at the retail level of trade, without prejudice to the possibility of prohibiting a member of the system from operating out of an unauthorised place of establishment; (...)"
Article 3(1) of the Block Exemption Regulation provides that:
"1. The exemption provided for in Article 2 shall apply on condition that the market share held by the supplier does not exceed 30 % of the relevant market on which it sells the contract goods or services and the market share held by the buyer does not exceed 30 % of the relevant market on which it purchases the contract goods or services."
Thus, the exemption provided for in Article 2 of the Block Exemption Regulation does not apply in the following circumstances (Article 3(1) of the Block Exemption Regulation):
- when the market share of the supplier exceeds 30% of the relevant market on which it sells the contract goods; and/or
- when the market share of the buyer exceeds 30% of the relevant market on which it purchases the contract goods.
The Commission Notice on the definition of relevant market for the purposes of Community competition law (97/C 372/03) (the "Commission Notice") has laid down the following definitions:
- "A relevant product market comprises all those products and/or services which are regarded as interchangeable or substitutable by the consumer, by reason of the products' characteristics, their prices and their intended use." (Commission Notice, §7).
- "The relevant geographic market comprises the area in which the undertakings concerned are involved in the supply and Remand of products or services, in which the conditions of competition are sufficiently homogeneous and which can be distinguished from neighbouring areas because the conditions of competition are appreciably different in those area" (Commission Notice, §8).
The Respondent has asserted that:
- the intended use of monofocal IOLs is exclusively to fix cataracts; whilst the intended use of trifocal IOLs is to fix cataracts and other pathologies, such as astigmatism (Respondent's Memorial No. 3, §60-§62);
- monofocal IOLs are "considerably less costly" than trifocal IOLs: "in [Redacted], monofocal IOLs' average price is EUR 45, while trifocal IOLs' average price is EUR 225" (Respondent's Memorial No. 3, §63);
- "some patients will simply not be able to afford trifocal lenses and will have no choice but to opt for monofocal IOLs" (Respondent's Memorial No. 3, §64).
As for the Respondent, it submitted a "Report on Market Definition and Market Shares" (annexed to Respondent's Memorial No. 1), whose figures are based:
- on the Respondent's own estimates of [Claimant]'s market share; and
- certain figures included, according to the Respondent, in a "report prepared by Global Market Insights" (Respondent's Memorial No. 3, §91); however, the Respondent has not produced this report of Global Market Insights.
In its "Report on Market Definition and Market Shares", the Respondent has estimated that [Claimant]'s market shares were as follows in [Redacted]:
- 6.5% of the IOLs sales market (2017);
- 51% of the Trifocal IOLs market (2017);
- 2.65% of the Monofocal IOLs market (2017);
- 38% of the Premium IOLs market (2017).
Pursuant to Article 2 of EU Regulation 1/2003, the burden of proving an infringement of Article 101(1) TFEU rests on the party alleging the infringement. Thus, Article 2 of Regulation 1/2003 provides that:
"In any national or Community proceedings for the application of Articles 81 and 82 of the Treaty, the burden of proving an infringement of Article 81(1) or of Article 82 of the Treaty shall rest on the party or the authority alleging the infringement. The undertaking or association of undertakings claiming the benefit of Article 81(3) of the Treaty shall bear the burden of proving that the conditions of that paragraph are fulfilled."
Article 5 of the Block Exemption Regulation provides that:
"1. The exemption provided for in Article 2 shall not apply to the following obligations contained in vertical agreements:
(a) any direct or indirect non-compete obligation, the duration of which is indefinite or exceeds five years;
(b) any direct or indirect obligation causing the buyer, after termination of the agreement, not to manufacture, purchase, sell or resell goods or services;
(c) any direct or indirect obligation causing the members of a selective distribution system not to sell the brands of particular competing suppliers.
For the purposes of point (a) of the first subparagraph, a non- compete obligation which is tacitly renewable beyond a period of five years shall be deemed to have been concluded for an indefinite duration."
Clause 17.1 of the Distribution Agreement provides that:
"For the duration of this Agreement, the Distributor shall not manufacture, sell or offer for sale, directly or indirectly, or use any other means with a view to marketing, either as principal, distributor, agent, intermediary or any other capacity within the Territory, any multifocal intraocular lenses not manufactured by the Supplier."
Clauses 3.1 and 3.2 of the Distribution Agreement provide that:
"3.1. This Agreement shall enter into effect on 1st January 2016 (the "Effective Date") and shall continue into effect until 31st December 2018 (the "Initial Period"), subject to the provisions of Section 15.
3.2. At the end of the Initial Period, the Agreement shall, subject to the provisions of Section 15, automatically be renewed for maximum four (4) successive twelve (12)-months periods (each a "Renewed Period"), unless terminated by either Party, at the end of the Initial Period, by giving six (6) months prior written notice to the other party, or at the end of any Renewed Period, by giving three (3) months prior written notice to the other party. "
As the Respondent was not allowed to manufacture, sell or offer for sale, goods (multifocal intraocular lenses) which competed with the Products to be distributed in [Redacted] under the Distribution Agreement, Clause 17.1 of the Distribution Agreement contained a non-compete obligation within the meaning of Articles 1.1(d) and 5.1(a) of the Block Exemption Regulation.
Under Article 5.1 (§5) of the Block Exemption Regulation, "For the purposes of point (a) of the first subparagraph, a non- compete obligation which is tacitly renewable beyond a period of five years shall be deemed to have been concluded for an indefinite duration." It follows that:
- in accordance with Article 5.1 (§5) of the Block Exemption Regulation, the non-compete obligations provided for in Clauses 2.3 and 17.1 of the Distribution Agreement are deemed to have been concluded for an indefinite duration within the meaning of Article 5.1(a) of the Block Exemption Regulation; and that
- in accordance with Article 5.1(a) of the Block Exemption Regulation, the non-compete obligations provided for in Clauses 2.3 and 17.1 of the Distribution Agreement do not benefit from the block exemption provided for in Article 2 of the Block Exemption Regulation.
The Respondent's case is that Clause 2.2 of the Distribution Agreement contains two hardcore restrictions within the meaning of the Block Exemption Regulation. The Respondent has alleged that:
- Clause 2.2 of the Distribution Agreement "contains an absolute, unjustified and anti-competitive restriction on active sales outside of [Redacted]" (Respondent's Memorial No. 3, §106); and that
- "moreover, the last sentence of Clause 2.2., and especially the reference that appears in brackets to "accept orders", is an upfront prohibition to engage in passive sales outside of [Redacted] and, as such, a hardcore restriction" (Respondent's Memorial No. 3, §107).
As its main claim, the Respondent has alleged that the Distribution Agreement contains "anticompetitive clauses (including the hardcore restrictions and the Compensation Fee)", and that as such, it is null and void. The Respondent has asserted that, by reason of the hardcore restrictions and the Compensation Fee:
- the Distribution Agreement is "presumed to fall within Article 101(1) TFEU" (Respondent's Memorial No. 3, §133); and that
- the Distribution Agreement is "unlikely to fulfil the conditions of Article 101(3) TFEU" (Respondent's Memorial No. 3, §133).
It follows from the wording of Article 4(b)(i) of the Block Exemption Regulation, that vertical agreements which restrict active sales may benefit from the block exemption, if the restriction concerns:
- actives sales "into the exclusive territory (...) reserved to the supplier"; or
- active sales "into the exclusive territory (...) of another buyer".
The Tribunal notes that:
- the Claimant has not disputed the Respondent's assertion that "To the best of the Respondent's knowledge, the Claimant has not appointed any exclusive distributor throughout the EEA" (Respondent's Memorial No. 2, §90); the Claimant has merely asserted that "throughout the European Economic Area, [Claimant] operates either through its own distribution system or through independent distributors" (Claimant's Memorial No. 3, §62); the Claimant has not asserted that it allocated territories of the EEA (except [Redacted]) exclusively to other buyers; and the Claimant has not asserted that it reserved the territories of the EEA (except [Redacted]) exclusively to itself;
- in any event, the Claimant has produced no document showing either that [Claimant] exclusively allocated all the territories of the EEA (except [Redacted]) to other distributors or that [Claimant] exclusively reserved all the territories of the EEA (except [Redacted]) to itself.
The Respondent's obligation, under Clause 2.2 of the Distribution Agreement, not to actively solicit orders from customers located outside [Redacted] was very clear: the Respondent was not allowed to actively approach individual customers by for instance direct mail, including the sending of unsolicited e-mails of visits; or actively approaching a specific customer group or customers outside [Redacted] through advertisement in media, or on the internet. This interpretation of Clause 2.2 is consistent with the Guidelines on Vertical Restraints, which state that "active sales" have the following meaning: "'Active' sales mean actively approaching individual customers by for instance direct mail, including the sending of unsolicited e-mails, or visits; or actively approaching a specific customer group or customers in a specific territory through advertisement in media, on the internet or other promotions specifically targeted at that customer group or targeted at customers in that territory. (...)" (Guidelines on Vertical Restraints, §51).
The precise scope of the Respondent's obligation not to "accept orders" from customers located outside [Redacted], provided for in Clause 2.2, was the subject of different interpretations by the Claimant and the Respondent in this arbitration. The Respondent alleged that its obligation not to "accept orders" from customers located outside [Redacted] was a hardcore restriction on passive sales. The Claimant refuted the Respondent's interpretation.
For these reasons, the Tribunal concludes that Respondent's obligation not to "accept orders" from customers located outside [Redacted] constituted a hardcore restriction on passive sales; and that as a result, the Distribution Agreement cannot benefit from the block exemption provided for in the Block Exemption Regulation.
Pursuant to Article 2 of EU Regulation 1/2003, the burden of proving an infringement of Article 101(1) TFEU rests on the party alleging the infringement. Thus, Article 2 of Regulation 1/2003 provides that:
"In any national or Community proceedings for the application of Articles 81 and 82 of the Treaty, the burden of proving an infringement of Article 81(1) or of Article 82 of the Treaty shall rest on the party or the authority alleging the infringement. The undertaking or association of undertakings claiming the benefit of Article 81(3) of the Treaty shall bear the burden of proving that the conditions of that paragraph are fulfilled."
This said, the position that when a vertical agreement contains a hardcore restriction within the meaning of the Block Exemption Regulation, it is presumed to be prohibited by Article 101(1) TFEU is consistent with the Guidelines on Vertical Restraints, which state that:
- "The Block Exemption Regulation contains in Article 4 a list of hardcore restrictions which lead to the exclusion of the whole vertical agreement from the scope of application of the Block Exemption Regulation. Including such a hardcore restriction in an agreement gives rise to the presumption that the agreement falls within Article 101(1). It also gives rise to the presumption that the agreement is unlikely to fulfil the conditions of Article 101(3), for which reason the block exemption does not apply. However, undertakings have the possibility to demonstrate pro-competitive effects under Article 101(3) in an individual case. In case the undertakings substantiate that likely efficiencies result from including the hardcore restriction in the agreement and that in general all the conditions of Article 101(3) are fulfilled, this will require the Commission to effectively assess the likely negative impact on competition before making the ultimate assessment of whether the conditions of Article 101(3) are fulfilled." (Guidelines on Vertical Restraints, §47) (emphasis added);
- "Outside the scope of the block exemption it is relevant to examine whether in the individual case the agreement is caught by Article 101(1) and if so whether the conditions of Article 101(3) are satisfied. Provided that they do not contain restrictions of competition by object and in particular hardcore restrictions of competition, there is no presumption that vertical agreements falling outside the block exemption because the market share threshold is exceeded are caught by Article 101(1) or fail to satisfy the conditions of Article 101(3). Individual assessment of the likely effects of the agreement is required. Companies are encouraged to do their own assessment. Agreements that either do not restrict competition within the meaning of Article 101(1) or which fulfil the conditions of Article 101(3) are valid and enforceable. Pursuant to Article 1(2) of Regulation 1/2003 no notification needs to be made to benefit from an individual exemption under Article 101(3). In the case of an individual examination by the Commission, the latter will bear the burden of proof that the agreement in question infringes Article 101(1). The undertakings claiming the benefit of Article 101(3) bear the burden of proving that the conditions of that paragraph are fulfilled. When likely anti-competitive effects are demonstrated, undertakings may substantiate efficiency claims and explain why a certain distribution system is indispensable to bring likely benefits to consumers without eliminating competition, before the Commission decides whether the agreement satisfies the conditions of Article 101(3)." (Guidelines on Vertical Restraints, §96) (emphasis added).
Based on the decision of the ECJ rendered in the case of SIA Maxima Latvija (C-345/14), it might be considered that a hardcore restriction within the meaning of the Block Exemption Regulation cannot be automatically considered as constituting a restriction by object forbidden by Article 101(1) TFEU:
- the opposite position might be considered as being based: (i) on an extensive interpretation of the concept of restriction of competition by object; and (ii) on a purely abstract determination, without assessing whether "taking account of the economic context" in which a vertical agreement is to be applied, the "analysis of the content" of such an agreement "clearly" shows a "degree of harm with regard to competition sufficient" for the said agreement to be considered as constituting a restriction of competition by object within the meaning of Article 101(1) TFEU (see ECJ, SIA Maxima Latvija (C-345/14), §23);
- also, the opposite position might be considered as overlooking the point that the concepts of restriction of competition by object and hardcore restriction do not operate on the same level, since the former operates under Article 101(1) TFEU and the latter under Article 101(3) TFEU. Thus, in the reasoning, the concept of restriction of competition by object comes first, and refers only to practices whose experience shows that they have a degree of harmfulness such that their restrictive nature of competition must be recognized without there being any need to prove their anticompetitive effects; whilst the concept of hardcore restriction may only appear in a second step, once the restriction of competition (by object or effect) has been established; a hardcore restriction will only define assumptions in which the block exemption is excluded. The respective scopes of hardcore restrictions and restrictions of competition by object are therefore distinct.
Article 101(3) TFEU provides that:
"3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of:
- any agreement or category of agreements between undertakings,
- any decision or category of decisions by associations of undertakings,
- any concerted practice or category of concerted practices,
which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not:
(a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;
(b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question."
The Claimant, has asserted that the whole Distribution Agreement had a pro-competitive effect within the meaning of Article 101(3) TFEU: "the pro-competitive effect of the Distribution Agreement (i.e. increased competition and lower prices) also establishes that it largely fits into the conditions for an Article 101(3) individual exemption (even if [Respondent] succeeded to prove an anti-competitive restriction under Article 101(1) TFEU in the first place, which it does not). In particular, it results from the above that (i) the effect of the Distribution Agreement was essentially to open the market from one to two distributors (i.e. better availability and therefore distribution of products on the market), (ii) thereby increasing competition and lowering prices of IOLs to the benefit of direct customers (e.g. clinics) and ultimately to the benefit of patients in [Redacted], while (iii) not imposing to the parties restrictions which are not indispensable (to the contrary, limiting the geographic scope of the Distribution Agreement to [Redacted] was indispensable within the context of [Claimant]'s worldwide network of distributors, as obviously understood and recognized by [Respondent] from the very beginning of the contractual relationship) and (iv) competition has not been eliminated here but, on the contrary, increased, which is evidenced by the correlative decrease in price.” (Claimant's Memorial No. 3, §80).
However, the Claimant has not demonstrated that the hardcore restrictions contained in Clause 2.2 of the Distribution Agreement had, per se, some pro-competitive effects. The Claimant has not demonstrated how (i) by preventing the Respondent from actively selling [Claimant]'s products outside [Redacted] and (ii) by preventing the Respondent from making passive sales outside [Redacted], Clause 2.2 may have specifically contributed to "improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit" (Article 101(3) TFEU).
The recitals to the Distribution Agreement state that:
"The appointment of the Distributor is subject to the waiver by [Redacted] ("[Redacted]"), the current exclusive distributor of the Products in [Redacted], of his exclusivity on the distribution of the Products in [Redacted]. [Redacted] has agreed to waive such exclusivity in consideration (inter alia) of a compensation fee to be paid by the Supplier. The Distributor has accepted to bear a part of this compensation, as set forth in Article 10 of this Agreement." (Recitals of the Distribution Agreement, § D).
Clause 10 of the Distribution Agreement provides as follows:
"10. COMPENSATION FEE
10.1 The Distributor shall pay to the Supplier the following yearly lump sum:
| 2016 | 2017 | 2018 |
| 250,000 Euros | 300,000 Euros | 350,000 Euros |
10.2 The yearly amount due by the Distributor to the Supplier shall be paid each year in two instalments (each equal to one half of the yearly amount referred to in Clause 10.1) which shall be paid at the latest on June 30th and at the latest on December 31st upon receipt of the corresponding invoice from the Supplier".
The Respondent has asserted that:
- the "compensation mechanism" established in Clause 10 of the Distribution Agreement "was in theory set up for the following reason: before [Respondent] joined [Claimant]'s distribution network, [Redacted] was the only distributor in [Redacted], and benefited from exclusivity. When [Respondent] joined, parties agreed that [Respondent] would pay [Claimant] a compensation fee on an annual basis, intended to indemnify [Redacted] from future loss of income arising from having lost its exclusivity” (Respondent's Memorial No. 3, §117); "However, in practice, the compensation mechanism has allowed [Redacted] to lower its prices to levels that, in absence of the Compensation Fee, would have entailed losses for [Redacted], thereby starting a price war" (Respondent's Memorial No. 3, §117);
- "This war, at the end of the day, has been purely artificial or deprived of benefit for final consumers" (Respondent's Memorial No. 3, §117); "In this context, [Respondent] could not match [Redacted]'s price as doing so would have amounted to selling at a loss" (Respondent's Memorial No. 3, §118);
- the "price war resulted in [Respondent] losing its most important customer [Redacted] to [Redacted] in October 2017. This had an important impact on the sales' forecasts [Respondent] had drawn on the basis of the results of the first year, which had been calculated without taking into account the fact that [Redacted] would start a price war in the [Redacted]" (Respondent's Memorial No. 3, §120); "In these circumstances, [Respondent] did not only lose [Redacted] as a client but also found it highly difficult to find new clients, as [Redacted]'s pricing strategy had put [Respondent] at a clear disadvantage” (Respondent's Memorial No. 3, §121).
- "(...) while [Respondent]'s turnover in 2017 amounted to EUR 11 million, it dramatically dropped down to EUR 7 million in 2018 (when [Respondent] could no longer sell to [Redacted] due to [Redacted])” (Respondent's Memorial No. 3, §123).
- The Respondent's decision to give notice of termination of the Distribution Agreement with effect from 31 December 2018 "has led again to the exclusivity of [Redacted] in the [Redacted]" (Respondent's Memorial No. 3, §124).
The Claimant has asserted that:
- "Before the entry into force of the Distribution Agreement, the Products were distributed in [Redacted] through another distributor ([Redacted]) entitled by [Claimant] to distribute the Products in [Redacted] on an exclusive basis. [Redacted] accepted to waive its exclusivity right in consideration of a compensation fee such that a right for distribution might be also attributed to a third party, i.e. [Respondent]. According to the preamble (see Whereas (D)) of the Distribution Agreement, [Respondent] "has accepted to bear part of this compensation" by paying to [Claimant] the Compensation Fee" (Claimant's Memorial No. 3, §10);
- "The Compensation Fee was agreed upon between the parties in view of the specific circumstances of the case, in particular the fact that, prior to the Distribution Agreement, the Products were distributed in [Redacted] through another exclusive distributor ([Redacted]) which accepted to waive its exclusivity right in consideration of a compensation fee" (Claimant's Memorial No. 3, §40);
- "(...) [Respondent] fails to put forward any figures. [Respondent] does not demonstrate that its "important financial difficulties" (Second Memorial, n°105) find their source in the Compensation Fee nor that [Redacted] would be "selling at a loss" thanks to the Compensation Fee" (Claimant's Memorial No. 3, §70);
- "In any case", the Respondent's allegations "are not grounded on any relevant theory under competition law and [Respondent] does not draw any single conclusion from its allegations as to the nullity of Clause 10 of the Distribution Agreement. In particular, it does not even try to demonstrate that the Compensation Fee would be contrary to Article 101 TFEU or argue that it would be void"(Claimant's Memorial No. 3, §70);
- "As a matter of principle, a compensation fee such as the one set forth in Clause 10 of the Distribution Agreement is not prohibited by Article 101 (1) TFUE neither, more generally, by any provision of competition law that would be applicable in the case at hand. Hence, [Respondent] does not require the Arbitral Tribunal to declare that the Distribution Agreement would be null as a result of the Compensation Fee neither that such Compensation Fee would be null" (Claimant's Memorial No. 3, §70);
- "Even assuming" that Clause 10 of the Distribution Agreement, which provides for the Compensation Fee, "would be prohibited by competition law (...), [Respondent] fails to demonstrate that it had an actual anti-competitive effect" (Claimant's Memorial No. 3, §79); "To the contrary, when [Respondent] complains about a "price war" and about the fact that it "found it highly difficult to find new clients, as [Redacted]'s pricing strategy had put [Respondent] at a clear disadvantage", it recognizes the pro-competitive effect of the Distribution Agreement in the form of increased competition and lower prices in the [Redacted], to the benefit of clinics and ultimately patients" (Claimant's Memorial No. 3, §79); "The fact that such a price reduction may be related (quod non) to the Compensation Fees is irrelevant, as competition law does not aim at protecting a particular market player, but the overall competition on the market to the benefit of consumers. The fact that price decrease would be “artificial" as this would "lead again to a new de facto exclusivity for [Redacted]" (Second Memorial, n°18) and thus would ultimately harm consumers is also irrelevant: even assuming that this would be the case (quod non), we would revert to the status quo ante, and the Distribution Agreement would be considered as competitively neutral at most, but in no way anti-competitive" (Claimant's Memorial No. 3, §79).
Pursuant to Article 2 of EU Regulation 1/2003, the burden of proving an infringement of Article 101(1) TFEU rests on the party alleging the infringement. Thus, Article 2 of Regulation 1/2003 provides that:
"In any national or Community proceedings for the application of Articles 81 and 82 of the Treaty, the burden of proving an infringement of Article 81(1) or of Article 82 of the Treaty shall rest on the party or the authority alleging the infringement. The undertaking or association of undertakings claiming the benefit of Article 81(3) of the Treaty shall bear the burden of proving that the conditions of that paragraph are fulfilled."
In order to determine whether an agreement may be regarded as having the "effect" of preventing, restricting or distorting competition within the meaning of Article 101(1) TFEU, the following elements must be considered, as per the case-law of the ECJ:
- the effects of an agreement on competition must be assessed "in the economic and legal context" in which it occurs and where it might "combine with others to have a cumulative effect on competition" (ECJ, SIA Maxima Latvija, §26) (emphasis added);
- the assessment of the impact of the agreement must take account, in the first place, "of all of the factors which determine access to the relevant market”, for the purposes of assessing whether there are real concrete possibilities for a new competitor to establish itself (ECJ, SIA Maxima Latvija, §27); in the second place, the "conditions under which competitive forces operate on the relevant market" must be assessed; in that connection it is necessary to know not only the number and the size of operators present in the market, but also the degree of concentration of that market and customer fidelity to existing brands and consumer habits (ECJ, SIA Maxima Latvija, §28);
- it is only if, after a "thorough analysis of the economic and legal context" in which the vertical agreement at issue occurs and the "specificities of the relevant market", it is found that access to that market is made difficult, that it will then be necessary to analyse "to what extent" it contributes to any "closing-off of that market", on the basis that only agreements which make an "appreciable contribution to that closing-off' are prohibited; to assess the extent of the contribution of the vertical agreement at issue to the cumulative closing-off effect, the position of the contracting parties on the market in question and the duration of the agreement must be taken into consideration (ECJ, SIA Maxima Latvija, §29).
The Tribunal notes that the Parties are in agreement on the fact that the Compensation Fee provided for in Clause 10 of the Distribution Agreement was designed to compensate [Redacted] for the loss of its exclusivity in [Redacted]. Thus:
- the recitals to the Distribution Agreement stated that “[Redacted] has agreed to waive such exclusivity in consideration (inter alia) of a compensation fee to be paid by the Supplier. The Distributor has accepted to bear a part of this compensation, as set forth in Article 10 of this Agreement" (Recitals to the Distribution Agreement, § D);
- the Respondent alleged, in this arbitration, that: "When [Respondent] joined, parties agreed that [Respondent] would pay [Claimant] a compensation fee on an annual basis, intended to indemnify [Redacted] from future loss of income arising from having lost its exclusivity" (Respondent's Memorial No. 3, §117); and,
- the Claimant asserted, in this arbitration, that: "The Compensation Fee was agreed upon between the parties in view of the specific circumstances of the case, in particular the fact that, prior to the Distribution Agreement, the Products were distributed in [Redacted] through another exclusive distributor ([Redacted]) which accepted to waive its exclusivity right in consideration of a compensation fee” (Claimant's Memorial No. 3, §40).
It follows that if [Respondent] had not accepted to pay the Compensation Fee provided for in Clause 10 of the Distribution Agreement:
- [Redacted] would not have waived its exclusivity; and that
- the Respondent would have remained excluded from the [Redacted] for the sale of [Claimant]'s products (because of the exclusivity granted to [Redacted]).
Therefore, the Compensation Fee had no anticompetitive effect, but a pro-competitive effect, as it allowed a new market player ([Respondent]) to access the [Redacted].
The Respondent has asserted that the Compensation Fee provided for in Clause 10 of the Distribution Agreement prevented it from sustaining a "price war" which [Redacted] started in [Redacted]. However, the Respondent has provided no evidence that:
- [Redacted] ever started a "price war" in the [Redacted]; and/or that
- the Respondent was unable to sustain this alleged "price war" because of the Compensation Fee it was obliged to pay to the Claimant pursuant to Clause 10 of the Distribution Agreement; and/or that
- the Respondent's alleged financial difficulties may have been caused by the "price war" waged by [Redacted] in [Redacted]; and/or that
- this alleged "price war" entailed, de facto, the exclusion of the Respondent from the [Redacted].
The Respondent has asserted that "the alleged intra-brand competition that the agreement intended to boost was completely artificial as the final outcome has been the expulsion of one of the distributors of the market, which provides great incentives for [Redacted] to operate in the market by implementing price increases" (Respondent's Memorial No. 3, §125). However:
- the Respondent has not established that it was unable to compete because of a price war;
- the Respondent has not established that [Redacted] increased prices after the Respondent stopped selling [Claimant]'s products in [Redacted]; and
- in any event, assuming that the Compensation Fee had led, de facto, to the exclusion of [Respondent] from the market because of [Respondent]'s inability to lower prices as much as its competitor [Redacted]:
o the fact would remain that because of the exclusivity waiver, obtained from [Redacted] as a consideration for the payment of the Compensation Fee, the prices of [Claimant]'s products were reduced which constitutes a pro-competitive effect;
o the alleged de facto exclusion of [Respondent] from the market (due to [Respondent]'s alleged inability to lower prices as much as [Redacted]) would not establish, per se, that the Distribution Agreement had an anticompetitive effect; the purpose of competition law is not to protect a specific market player, but the overall competition on the market to the benefit of the final consumers; and,
o the effect of the Compensation Fee would have been to reinstate a de facto exclusivity to the benefit of [Redacted], which the Compensation Fee was supposed to annihilate; thus, the Distribution Agreement could be considered, at most, as neutral from the standpoint of competition, but not as anticompetitive.
The Respondent has provided no economic analysis showing what the actual impact of the Compensation Fee may have had on its business and no proof of the alleged resale of the products at a loss. The only figures provided to the Tribunal did not show, per se, that the Compensation Fee prevented the Respondent from selling the products. Thus:
- according to the Respondent, its turnover for 2016 was EUR 13 million and its turnover for 2017 was EUR 11 million, i.e. a total turnover of EUR 24 million over a period of two years;
- the total amount of the Compensation Fee for years 2016 and 2017 was EUR 550,000, i.e. only 2.29% of Respondent's total turnover for 2016 and 2017.
As explained in Section V (C) (2) above, the Respondent has not demonstrated that [Claimant]'s market share exceeded 30% of the relevant market in either [Redacted] or the EEA. Thus, in any event, the Respondent has not demonstrated that the loss of intra-brand competition allegedly caused by the Compensation Fee may have produced an anti-competitive effect within the meaning of Article 101(1) TFEU.
Clause 19.1 of the Distribution Agreement provides as follows:
"19.1 Severability
The invalidity or unenforceability of any provision of this Agreement shall not result in the invalidity or the unenforceability of any other provision of this Agreement or of this Agreement as a whole. In the event that the validity or the enforceability of this Agreement or any provision thereof is challenged, the Parties hereto undertake to do whatever is reasonably necessary or advisable to maintain such provision and this Agreement in full force and effect or to substitute such provision by other provisions that have economically substantially the same effect for all Parties hereto" (emphasis added)
The Respondent has asserted that, in accordance with the Guidelines on Vertical Restraints, "There is no severability for hardcore restrictions". However, the Guidelines on Vertical Restraints merely state that when a vertical agreement contains one or more hardcore restrictions, the benefit of the Block Exemption Regulation is lost for the entire agreement. The Guidelines on Vertical Restraints do not state that when a vertical agreement contains one or more hardcore restrictions, the agreement as a whole must be declared null and void. Thus, the Guidelines on Vertical Restraints state that:
- "The Block Exemption Regulation exempts vertical agreements on condition that no hardcore restriction, as set out in Article 4, is contained in or practised with the vertical agreement. If there are one or more hardcore restrictions, the benefit of the Block Exemption Regulation is lost for the entire vertical agreement. There is no severability for hardcore restrictions" (Guidelines on Vertical Restraints, §70).
- "The rule of severability does apply, however, to the excluded restrictions set out in Article 5 of the Block Exemption Regulation. Therefore, the benefit of the block exemption is only lost in relation to that part of the vertical agreement which does not comply with the conditions set out in Article 5" (Guidelines on Vertical Restraints, §71).
In accordance with Clause 19.1 of the Distribution Agreement (severability clause) and the case-law of the Belgian Supreme Court of 28 June 2012, the Tribunal concludes that:
- as Clause 2.2 of the Distribution Agreement is prohibited by Article 101(1) TFEU, it must be declared null and void; and that,
- the fact that Clause 2.2 of the Distribution Agreement is prohibited by Article 101(1) TFEU does not entail the nullity of the entire Distribution Agreement.
The Respondent has alleged that if the Distribution Agreement had not contained hardcore restrictions, the Compensation Fee would have been acceptable: "This extraordinary cost (like the Compensation Fee) for entering into the network can only be accepted if, in return, [Respondent] can benefit from all theoretical incomes arising from a fully legal distribution agreement. In other words, if [Respondent] was able to sell not only to [Redacted] clients but also to other clients located within the EEA (not exclusively assigned to another distributor), as foreseen in Regulation 330/2010" (emphasis added) (Respondent's Memorial No. 3, §163). Thus, the Respondent has alleged that Clause 10 is "inherent and non-severable" from Clause 2.2.
However, the evidence does not suggest that Clause 2.2 (which provides for hardcore restrictions on active and passive sales) and Clause 10 (which provides for a Compensation Fee) were supposed to be non-severable, either from an economic point of view or from the standpoint of the Parties' intention:
- firstly, as explained above, Clause 2.2 of the Distribution Agreement contains hardcore restrictions on active and passive sales: it follows that the Respondent accepted not only these restrictions but also to pay the Compensation Fee provided for in Clause 10; therefore, the Respondent's assertion is not consistent with the wording of the Distribution Agreement; had the Respondent actually considered that the Compensation Fee was only acceptable if the Distribution Agreement did not contain hardcore restrictions on active and passive sales (as the Respondent has alleged in this arbitration), the Respondent would not have accepted hardcore restrictions on active and passive sales; however, it is clear that, by signing the Distribution Agreement, the Respondent accepted these restrictions (as the Respondent has alleged itself);
- secondly, from an economic point of view:
o in the Respondent's own admission, it is only "active in [Redacted], providing the health sector with professional support, marketing and advanced technology" (Respondent's Memorial No. 3, §5); it would not appear that the Respondent ever envisaged to develop sales of medical products in other countries than [Redacted];
o the Respondent did not assert, in this arbitration, that it ever requested [Claimant] to be able to approach customers and develop active sales of [Claimant]'s products outside [Redacted];
o up until 2018, the Respondent never asked [Claimant] to be able to perform passive sales outside [Redacted];
o when the Respondent started to challenge the validity of Clause 2.2 of the Distribution Agreement in early 2018, on the basis (inter alia) that this clause did not allow [Respondent] to perform passive sales outside [Redacted], [Claimant] responded immediately that the Distribution Agreement did not prevent [Respondent] from performing passive sales outside [Redacted]; thus, in in an email of 11 April 2018, [Claimant]'s CEO, Mr. [Person 5], wrote to [Respondent] that the Distribution Agreement "solely concerns 'active sales' and therefore does not restrict in any way [Respondent]'s ability to perform 'passive sales'" (Claimant's Exhibit No. 8); therefore, there was no doubt, at least as from 11 April 2018, that the Respondent could perform passive sales outside [Redacted];
o whilst it was clear, at least from 11 April 2018, that [Claimant] would not prevent [Respondent] from performing passive sales outside [Redacted] (despite the wording of Clause 2.2, which prohibits passive sales outside [Redacted]), [Respondent] has neither alleged nor proved that after 11 April 2018, it was able to perform passive sales of [Claimant]'s products outside [Redacted]; thus, the Respondent's assertion that the Distribution Agreement prevented it from performing passive sales, whilst legally correct (until at least 11 April 2018) would not appear to have had any significant impact on the Respondent's business in practice.
The Claimant has produced invoices and credit notes (Claimant's Exhibits 3.1 to 3.33) which show that:
- the total amount invoiced by [Claimant] to [Respondent], in respect of the sale of the products, is EUR 1,486,807;
- the total amount of credit notes issued in respect of the sale of the products is EUR 71,640; and
- the total amount invoiced in respect of the Compensation Fee is EUR 350,000.
Under Clause 5.4.1 of the Distribution Agreement:
"Should the Distributor not agree with any invoice sent by the Supplier, the Distributor shall send a written disagreement notice to the Supplier setting forth, in reasonable details, the reason of such disagreement with ten (10) days of receipt of the invoice. Failing to do so, the Distributor shall be deemed to accept the invoice."
The Claimant has submitted that:
- in accordance with Article 1710, § 4, of the Belgian Judiciary Code "Irrespective of whether it decides on the basis of rules of law or as amiable compositeur, the arbitral tribunal shall decide in accordance with the terms of the contract if the dispute opposing the parties is contractual in nature and shall take into account the usages of the trade if the dispute is between commercial parties";
- "In the case at hand, the provisions of the Distribution Agreement are clear and the Arbitral Tribunal will have to apply these provisions, without having the power to release [Respondent] from its obligations to pay the amounts due to [Claimant]. There is, therefore, no room for the Tribunal to decide as amiable compositeur."
- "Nevertheless, should the Arbitral Tribunal consider deciding as amiable compositeur, this would undoubtedly play in favor of [Claimant] in view mainly of the following elements: (i) PhsylOL is only asking the Arbitral Tribunal to apply the clear provisions of an agreement which have been agreed upon between two professionals having full knowledge of the situation and which have not been challenged by [Respondent] for over two years. (ii) [Claimant] is only asking to be paid the amounts due by [Respondent] for the purchase of the Products and for the Compensation Fees (together with the contractual interest). No less, no more. (...)".
The Respondent has submitted that:
- “acting as an amiable compositeur would permit the Arbitral Tribunal to exclude the application of legal provisions if for example, the application of the law would be too strict for one of the parties provided that such a party has acted in good faith. However, excluding the application of a legal provision is not possible if the provision in questions contains a rule of public order" (Respondent's Memorial No. 3, §189).
- “as an "amiable compositeur", the Arbitral Tribunal would not be entitled to deviate from competition law provisions in so far as the latter are provisions of public order. In any event, the wording of Clause 19.8.2 of the Distribution Agreement does not impose on the Arbitral Tribunal an obligation to act as an "amiable compositeur", but it only gives it discretion to do so ("The Arbitral Tribunal may act as an “amiable compositeur""; emphasis added)" (Respondent's Memorial No. 3, §190).
- “[Respondent] would accept the Arbitral Tribunal to act as an “amiable compositeur" and does not oppose to such a way in resolving the dispute, provided that the solution that could be adopted does not contravene articles 1 TFEU, IV.l of the Belgian Economic Code and Regulation 33072010" (Respondent's Memorial No. 3, §191).
It is fair for the Tribunal to admit Claimant's claim for payment of the price of the products sold to the Respondent, in the amount of EUR 1,374,080.00, as:
- it is clear that the Claimant has delivered products to the Respondent and that the Respondent has raised no objection regarding the quality or quantity of the products sold; and
- the Respondent has not contested that it is obliged to pay to the Claimant the price of the products sold (albeit the Respondent has asked the Tribunal to order a set off of the price of the products against the Compensation Fee already paid by the Respondent in 2016 and 2017).
Furthermore, in circumstances where the Claimant has not demonstrated that it exclusively allocated the territories of the EEA other than [Redacted] to other distributors than [Respondent] or exclusively reserved these other territories to itself, the Tribunal, acting as amiable compositeur, concludes that it is fair to declare Clause 2.2 of the Distribution Agreement null and void.
The issue arises as to whether it is fair:
- to admit the Claimant's claim for payment of the Compensation Fee for the year 2018;
- to reject the Respondent's counterclaim for the Distribution Agreement to be declared null and void as a whole;
- to admit the Respondent's counterclaim for Clause 2.2 of the Distribution Agreement to be declared null and void but reject the Respondent's counterclaim for the Compensation Fee provided for in Clause 10 of the Distribution Agreement to be declared undue; and
- to reject the Respondent's counterclaim for the Compensation Fee for the years 2016 and 2017 to be refunded to the Respondent (by way of set-off against the price of the products owed by the Respondent).
Firstly, the Tribunal notes that the Respondent has not established that the restrictions on active and passive sales contained in Clause 2.2 of the Distribution Agreement had any actual consequences on its business:
- in the Respondent's own admission, it is only "active in [Redacted], providing the health sector with professional support, marketing and advanced technology" (Respondent's Memorial No. 3, §5);
- it would not appear that the Respondent ever envisaged to develop sales of medical products in other countries than [Redacted];
- the Respondent did not assert, in this arbitration, that it ever requested [Claimant] to be able to approach customers and develop active sales of [Claimant]'s products outside [Redacted];
- up until 2018, the Respondent never asked [Claimant] to be able to perform passive sales outside [Redacted];
- when the Respondent started to challenge the validity of Clause 2.2 of the Distribution Agreement in early 2018, on the basis (inter alia) that this clause did not allow [Respondent] to perform passive sales outside [Redacted], [Claimant] responded immediately that the Distribution Agreement did not prevent [Respondent] from performing passive sales outside [Redacted]; thus, in in an email of 11 April 2018, [Claimant]'s CEO, Mr. [Person 5], wrote to [Respondent] that the Distribution Agreement "solely concerns 'active sales' and therefore does not restrict in any way [Respondent]'s ability to perform 'passive sales'" (Claimant's Exhibit No. 8); therefore, there was no doubt, at least as from 11 April 2018, that the Respondent could perform passive sales outside [Redacted];
- whilst it was clear, at least from 11 April 2018, that [Claimant] would not prevent [Respondent] from performing passive sales outside [Redacted] (despite the wording of Clause 2.2, which prohibits passive sales outside [Redacted]), [Respondent] has neither alleged nor proved that after 11 April 2018, it was able to perform passive sales of [Claimant]'s products outside [Redacted]; thus, the Respondent's assertion that the Distribution Agreement prevented it from performing passive sales, whilst legally correct (until at least 11 April 2018) would not appear to have had any significant impact on the Respondent's business in practice.
Clause 5.4.2 of the Distribution Agreement provides that:
"The Parties agree that timely payment by the Distributor of invoices relating to the Products and other amounts due by the Distributor pursuant to this Agreement is essential for the Supplier. Without prejudice to any other right of the Supplier (...) (ii) an interest at an annual rate of 8% shall automatically accrue on any amount due by the Distributor to the Supplier pursuant to this Agreement as from the due date of such payment".
It follows that, as regards the sale of [Claimant]'s products to [Respondent]:
- all invoices issued in respect of the sale of [Claimant]'s products became due 60 days after receipt; and that,
- interest at the yearly rate of 8% started to accrue 60 calendar days after receipt of each invoice for the sale of these products.
It follows from the Claimant's chart (Claimant's Exhibit No. 2) that:
- the total amount invoiced in respect of the sale of the products is EUR 1,486,807;
- the total amount of credit notes issued in respect of the sale of the products is EUR 71,640;
- the total amount invoiced in respect of the Compensation Fee is EUR 350,000;
- thus, the total amount due, according to the chart produced by the Claimant, is EUR 1,765,167 (EUR 1,486,807 + 350,000 - EUR 71,640 = EUR 1,415,167).
The invoices and credit notes produced by the Claimant (Exhibits 3.1 to 3.33) also support the fact that:
- the total amount invoiced in respect of the sale of the products is EUR 1,486,807;
- the total amount of credit notes issued in respect of the sale of the products is EUR 71,640; and
- the total amount invoiced in respect of the Compensation Fee is EUR 350,000.
The Tribunal sets out below a chart stating the due date of each invoice, for the purposes of calculating interest:
| Invoice N°. | Invoice Date | Due Date | Amount bearing interest |
| 17012170 | 24-10-2017 | 23-12-2017 | EUR 49,129.00 |
| 17011489 | 10-10-2017 | 09-12-2017 | EUR 147,493.00 |
| 17012653 | 07-11-2017 | 06-01-2018 | EUR 121,568.00 |
| 17013039 | 14-11-2017 | 13-01-2018 | EUR 114,485.00 |
| 17013924 | 04-12-2017 | 04-03-2018 | EUR 238.00 |
| 17013925 | 04-12-2017 | 04-03-2018 | EUR 119.00 |
| 17013926 | 04-12-2017 | 04-03-2018 | EUR 203,006.00 |
| 17013961 | 05-12-2017 | 05-03-2018 | EUR 13,440.00 |
| 17014259 | 12-12-2017 | 12-03-2018 | EUR 3,213.00 |
| 17014260 | 12-12-2017 | 12-03-2018 | EUR 46,050.00 |
| 17014613 | 19-12-2017 | 19-03-2018 | EUR 103,729.00 |
| 17014870 | 26-12-2017 | 26-03-2018 | EUR 14,862.00 |
| 18000252 | 09-01-2018 | 09-04-2018 | EUR 9,316.00 |
| 18000432 | 12-01-2018 | 12-04-2018 | EUR 48,205.00 |
| 18000568 | 16-01-2018 | 16-04-2018 | EUR 10,863.00 |
| 18000913 | 23-01-2018 | 23-04-2018 | EUR 53,884.00 |
| 18001519 | 06-02-2018 | 07-05-2018 | EUR 73,980.00 |
| 18001629 | 08-02-2018 | 09-05-2018 | EUR 48,375.00 |
| 18001876 | 13-02-2018 | 14-05-2018 | EUR 57,086.00 |
| 18002138 | 20-02-2018 | 21-05-2018 | EUR 77,938.00 |
| 18002463 | 27-02-2018 | 28-05-2018 | EUR 121,000.00 |
| 18002898 | 08-03-2018 | 06-06-2018 | EUR 18,445.00 |
| 18003138 | 13-03-2018 | 11-06-2018 | EUR 11,492.00 |
| 18003462 | 20-03-2018 | 18-06-2018 | EUR 35,865.00 |
| 18003377 | 16-03-2018 | 14-06-2018 | EUR 61,650.00 |
| 18004331 | 09-04-2018 | 30-06-2018 | EUR 175,000.00 |
| 18014804 | 12-12-2018 | 31-12-2018 | EUR 175,000.00 |
Article 38(4) of the ICC Rules provides that:
"4. The final award shall fix the costs of the arbitration and decide which of the parties shall bear them or in what proportion they shall be borne by the parties."
Article 38(5) of the ICC Rules provides that:
"5. In making decisions as to costs, the arbitral tribunal may take into account such circumstances as it considers relevant, including the extent to which each party has conducted the arbitration in an expeditious and cost-effective manner."
Article 38(1) of the ICC Rules provides that:
"1 The costs of the arbitration shall include the fees and expenses of the arbitrators and the ICC administrative expenses fixed by the Court, in accordance with the scales in force at the time of the commencement of the arbitration, as well as the fees and expenses of any experts appointed by the arbitral tribunal and the reasonable legal and other costs incurred by the parties for the arbitration."
In support of its claim for legal costs, the Claimant produced six invoices of its legal counsel, Willkie Farr & Gallagher, as follows (Claimant's Exhibit No. 12):
- Invoice No. 055/18 of 29 May 2018, in the amount of EUR 13,450 (VAT excluded);
- Invoice No. 094/18 of 14 August 2018, in the amount of EUR 9,275 (VAT excluded);
- Invoice No. 115/18 of 27 September 2018, in the amount of EUR 6,965 (VAT excluded);
- Invoice No. 149/18 of 30 November 2018, in the amount of EUR 29,400 (VAT excluded);
- Invoice No. 169/18 of 31 December 2018, in the amount of EUR 18,690 (VAT excluded);
- Invoice No. 009/19 of 26 February 2019, in the amount of EUR 28,261,80 (VAT excluded).
For the reasons set out above, the Arbitral Tribunal decides as follows:
(1) Clause 2.2 of the Distribution Agreement entered into between the Respondent, [Respondent], and the Claimant, [Claimant], is declared null and void.
(2) The Respondent, [Respondent], shall pay to the Claimant, [Claimant], EUR 1,724,080.00.
(3) The Respondent, [Respondent], shall pay to the Claimant, [Claimant], interest at the yearly rate of 8% from the due date of each of [Claimant]'s invoices (as set out in Section VII above) until full payment by [Respondent] (except interest on Invoice No. 18001180).
(4) The Respondent, [Respondent], shall bear the full costs of the arbitration (fees and expenses of the arbitral tribunal and the ICC administrative expenses). At its session of 2 May 2019, the Court fixed the costs of the arbitration at USD 100,800. Thus, the Respondent, [Respondent] shall pay USD 100,800 to the Claimant, [Claimant]
(5) The Respondent, [Respondent], shall pay to the Claimant, [Claimant], EUR 120,000 as compensation for [Claimant]'s legal costs.
(6) All other claims and counterclaims of the Parties are dismissed.
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