Exclusive Concession and Supra-Regional Advertising: When European Law Protects the Concessionaire

Imagine: you are a car dealer in Guebwiller, and your contract prohibits you from advertising beyond your granted area. Yet your potential customers sometimes live in Mulhouse or even Thann. What should you do if the manufacturer sues you for breach of this clause? This is exactly the question the Court of Cassation had to decide in 1996.

In a case opposing Fiat (through its subsidiary Auto France) to several Alsatian dealers, the judges had to consider the validity of a clause limiting supra-regional advertising. European competition law was at the heart of the debate.

This decision, still cited today, offers protection to small dealers against overly restrictive clauses. But be careful: not everything is permitted.

The Facts: A Story That Happens Every Day

In 1987, Fiat Auto France granted three companies — Sem'Autos, Centrale automobile de Strasbourg, and Hess — exclusive concessions for the sale of motor vehicles. The allocated areas were respectively Colmar, Strasbourg, and another area. Each dealer had to respect the boundaries of its territory.

However, Sem'Autos, a Lancia dealer in Colmar, believed that its competitor from Strasbourg was advertising beyond its area, particularly in the Colmar region. It therefore sued Centrale automobile de Strasbourg for unfair competition and breach of the concession contract.

The Colmar Court of Appeal, and then the Court of Cassation, examined the clause in the contract which limited supra-regional advertising to that which was the inevitable consequence of advertising relating to the concession area. In clear terms (but not too clear), the contract authorised advertising that goes beyond the area only if it is an inevitable side effect of local advertising. For example, a billboard campaign in Strasbourg that accidentally spills over into Colmar.

The Strasbourg dealers defended themselves by invoking European Regulation No. 123-85 of 12 December 1984, which exempts certain distribution agreements from the prohibition of anti-competitive agreements. According to them, this regulation allows territorial limitations, but not those that excessively restrict competition.

The Court of Appeal ruled in their favour: it held that the disputed clause was contrary to Article 85 (now Article 101) of the EEC Treaty, and therefore unenforceable. In other words, the clause could not be invoked against the dealers. Fiat appealed to the Court of Cassation, but the High Court upheld the appeal judgment in 1996.

The Reasoning of the Court — Analysed

The crux of the problem lies in the interpretation of European Regulation No. 123-85. This regulation, adopted pursuant to Article 85 (now Article 101 TFEU), provides for a block exemption for exclusive distribution agreements for motor vehicles. It allows, in particular, limiting dealers' active sales to their area, but with nuances.

The clause in question prohibited any supra-regional advertising unless it was an inevitable consequence of local advertising. However, for the Court of Appeal, this clause went beyond what the regulation permits: it prevented any commercial strategy aimed at attracting customers from outside the area, which is an essential element of competition.

The Court of Cassation approved this reasoning. It recalled that Regulation No. 123-85 aims to promote competition within the single market, not to create watertight monopolies. A clause that prohibits any supra-regional advertising, even non-aggressive, is therefore disproportionate and falls under the prohibition of agreements.

Attention: this does not mean that all clauses limiting advertising are void. If the clause merely prohibits advertising specifically targeting another area, it may be valid. But here, the prohibition was too broad.

The judges therefore applied the principle of proportionality, dear to European law. They also recalled that the exemption regulation must be interpreted strictly: any clause that goes beyond what it authorises is void and unenforceable.

What This Changes for You — Practically

If you are a car dealer, this decision protects you against overly restrictive clauses in your contracts. You may advertise beyond your area, provided that the advertising is not specifically intended to capture customers from another dealer. For example, a billboard campaign in your town, also visible in the neighbouring area, is lawful. But if you specifically target customers in Thann with inserts in their local newspaper, you may be at fault.

For manufacturers, this decision requires careful drafting of advertising limitation clauses. A clause that is too general will be unenforceable. It is necessary to distinguish passive advertising (which accidentally reaches outside the area) from active advertising (which deliberately targets another area).

A concrete example: take a dealer in Thann who invests €10,000 in a radio campaign in Mulhouse. If this campaign is designed to attract customers from Mulhouse, it probably violates the clause. On the other hand, if the same dealer advertises on a national channel, he cannot be penalised.

If you are in this situation, you must check your contract: what does it say exactly about advertising? If the clause is too broad, you can ignore it without fear, but it is better to consult a lawyer to avoid litigation.

Four Tips to Avoid This Type of Dispute

• Check the wording of your advertising clause: if it prohibits any advertising outside the area, without nuance, it is probably void. Ask your lawyer to review it in light of European regulations.
• Distinguish active and passive advertising: do not deliberately target customers from another area. Use local media with limited reach rather than national ones.
• Keep evidence of your campaigns: in case of a dispute, you will need to demonstrate that your advertising was not aggressive. A well-prepared file (invoices, media, coverage areas) will protect you.
• Negotiate your contract at the time of signing: if a clause seems too restrictive, ask for a modification or an addendum. It is easier to discuss before than to litigate after.

Further Analysis: Related Case Law and Developments

This decision is part of a consistent line of case law from the Court of Justice of the European Union. Already in the Pronuptia judgment (1986), the CJEU held that non-compete clauses in franchise contracts must be proportionate. Later, the Pierre Fabre judgment (2011) prohibited absolute restrictions on online sales.

Since 1996, Regulation No. 123-85 has been replaced by Regulation No. 1400/2002, and then by Regulation No. 330/2010. But the principle remains the same: territorial restrictions are allowed, but not if they eliminate all competition. The trend of the courts is to protect the small distributor against the large supplier.

For the future, with the development of online commerce, these questions remain relevant. Can a dealer prohibit another from selling online on its territory? The answer is nuanced: yes for active sales, no for passive sales (customers who come on their own).

In Practice: What to Do

Frequently Asked Questions:

• Can I advertise on Facebook if my area is limited to Colmar? Yes, because Facebook is a national medium. But you must not specifically target residents of Strasbourg.
• What should I do if my manufacturer threatens to terminate my contract for advertising outside my area? Check your clause. If it is too broad, it is unenforceable. You can challenge the threat in court.
• What are the time limits for taking action? In competition matters, the limitation period is 5 years from the harmful event. But in the case of a void clause, nullity is perpetual.
• Can I claim damages if my contract is void? Yes, if you suffer harm. For example, if you had to limit your advertising because of an unlawful clause, you can seek compensation.
• Can a buyer challenge an advertising clause? No, because he is not a party to the contract. But he can report an abuse to the Competition Authority.

Are you in a similar situation? A first 30-minute consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →