In an exclusive distribution model, the supplier selects a single distributor for its products within a specific geographic area.
Under selective distribution, the supplier chooses its distributors (known as “authorized distributors/resellers”) based on objective quality criteria (such as the appearance and prestige of the store, as well as the competence and expertise of the staff). These criteria must be applied uniformly to all distributors.
Under an exclusive distribution agreement, the distributor is protected from competition within its territory, which encourages it to invest its commercial resources.
Exclusive distribution with a single point of contact allows the supplier to ensure better management of quality and brand image. This distribution model is common in the machinery, industrial equipment, technology, and medical equipment sectors, where suppliers must ensure that their distributors comply with applicable technical standards and regulations.
The primary disadvantage of exclusive distribution is the distributor’s economic dependence on its supplier.
Second, from the supplier’s perspective, because even in the event of poor performance or unsatisfactory results on the part of the distributor, the supplier cannot terminate the distribution agreement without providing advance notice (Article L442-1 II of the Commercial Code, which prohibits the abrupt termination of commercial relationships), the supplier could face a significant decline in revenue during the notice period.
It is strictly prohibited for a supplier to impose a minimum or fixed resale price on its distributors. In the event of a violation of this prohibition, the supplier is subject to a fine of 15,000 euros (Article L442-6 of the Commercial Code) and, if the practice is classified as an anticompetitive agreement (Article L420-1 of the Commercial Code), it is subject to a fine of up to the amount of the highest global revenue (excluding tax) generated during any of the fiscal years ending since the fiscal year preceding the one in which the practices were implemented (Article L464-2 of the Commercial Code).
However, the supplier may impose a maximum or recommended resale price on its distributors.
Furthermore, the supplier may require its distributors to commit to ordering or selling a specific volume or value of products over a given period (quota clause), provided that the specified volume is proportionate and realistic.
Yes, provided that the supplier’s market share and the buyer’s market share do not exceed 30% and that the duration of the exclusive supply obligation does not exceed 5 years (Articles 2 and 5 of Regulation (EU) 2022/720 of May 10, 2022, concerning the application of Article 101, paragraph 3, of the Treaty on the Functioning of the European Union to categories of vertical agreements).
No. The supplier may not prohibit its authorized or exclusive distributors from reselling its products online.
A ban on online resale imposed on a distributor by a supplier is considered an anticompetitive agreement under Article L420-1 of the Commercial Code and is punishable by a fine of up to 10% of the group’s or company’s global annual revenue (Article L464-2 of the Commercial Code).
The Competition Authority imposed a fine of 4 million euros on Mariage Frères in its decision of December 11, 2023 (No. 23-D-12), and 91.6 million euros on Rolex in its decision of December 19, 2023 (No. 23-D-13) (=> read the article).
The franchisor is required to provide the prospective franchisee, at least 20 days before the franchise agreement is signed, with a document called the “pre-contractual information document (DIP)” (Article L330-3 of the Commercial Code).
Article R330-1 of the Commercial Code lists the information that the DIP must contain, relating to: (i) the franchisor’s identity; (ii) the franchisor’s trademarks; (iii) the franchisor’s bank account information; (iv) the franchisor’s financial situation (including the annual financial statements for the last two fiscal years); (v) the network of franchisees; and (vi) the term of the agreement, as well as the conditions for renewal, termination, and assignment of the agreement. If the franchisor fails to provide the pre-contractual information document (DIP) to the prospective franchisee at least 20 days before the signing of the franchise agreement, the franchisor is subject to a fine of 7,500 euros (Article R330-2 of the Civil Code).
In the event that incomplete or erroneous information is provided by the franchisor, the franchisee may file a lawsuit in court to seek the annulment of the franchise agreement on the grounds of defect in consent (fraud on the part of the franchisor).
The competent court is a civil court, and the franchisee may choose between the court of the franchisor’s place of business (Article 42 of the Code of Civil Procedure) and the court of the place of performance of the contract (i.e., the franchisee’s place of business) (Article 46 of the Code of Civil Procedure).
The franchisee may also seek damages from the franchisor if the franchisee has suffered financial loss due to operating losses or compromised investments. The statute of limitations is five years from the date the franchisee became aware of the franchisor’s fraud (Article 2224 of the Civil Code).
Abuse of a Dominant Position and Economic Dependence (Procedure and Case Law)
Unfair competition is punishable as an abuse of the freedom of enterprise and free competition. Therefore, your competitor must have committed a wrongful act, such as disparagement, free-riding, disruption, or confusion/imitation, resulting in the loss of customers or a decline in revenue.
Liability for unfair competition falls under the framework of tort liability as set forth in Articles 1240 and 1241 of the Civil Code. It is the plaintiff’s responsibility to prove the competitor’s fault, as well as the damages suffered and the causal link between the fault and the damages.
Before sending a formal notice demanding that your competitor cease the unfair competition, you should gather evidence establishing their liability.
With regard to unfair competition in the field of e-commerce, examples include practices such as disparagement through fictitious customer reviews, free-riding resulting from the reproduction of a website’s design, as well as free-riding or confusion caused by the marketing of products that imitate those of others. For these practices, a bailiff’s report on the Internet is essential.
If you possess the evidence necessary to establish the competitor’s liability, you may file a motion with the judge presiding over summary proceedings pursuant to Article 145 of the Code of Civil Procedure (référé in futurum) to request the compulsory production or seizure of documents. The petition is filed with the presiding judge of the judicial court, and the plaintiff may choose between the court in the defendant’s place of residence (Article 42 of the Code of Civil Procedure) and the location where the damage occurred (Article 46 of the Code of Civil Procedure).
It is the plaintiff’s responsibility to assess the damages suffered, based on the following three elements: (i) losses (various expenses incurred to put an end to the disturbance), (ii) lost profits (decrease in revenue, loss of profit margin during the period, loss of customers), and (iii) non-economic damages (damage to the company’s image and reputation).
In the event that quantifying the damages proves complex, the plaintiff may petition the judge presiding over summary proceedings pursuant to Article 145 of the Code of Civil Procedure to request a forensic accounting expert opinion. In this case, an expert appointed by the presiding judge (a certified public accountant registered with the court of appeals) will prepare a report assessing the amount of the damages. This report will form the basis for the claim for compensation in the main proceedings before the court.
An established commercial relationship is a stable and continuous business relationship over time. Only an established commercial relationship is subject to the provisions of article L442-1, II (former article L. 442-6, I, 5°) of the Commercial Code which requires the granting of sufficient prior notice before the termination of such a relationship.
Yes. Any established commercial relationship falls within the scope of article L. 442-1, II of the Commercial Code, whether it concerns the supply of a product or a service, even consulting.
The notice period is determined based on the length of the relationship and taking into consideration professional practices and agreements.
According to case law, the notice period must take into account not only the duration of the relationship, but also other circumstances at the time of notification of the termination, such as economic dependence, the existence of an agreement to exclusivity or the financial importance of the commercial relationship. There is a calculation method established by case law and doctrine.
Pursuant to Order No. 2019-359 of April 24, 2019, in the event of a dispute between the parties regarding the length of the notice period, the party terminating the contract cannot be held liable for providing an insufficient notice period so long as it has given 18 months’ notice (Article L442-1 II of the Commercial Code).
The provisions of Article L. 442-1, II do not prevent the right to terminate without notice, in the event of non-performance by the other party of its obligations or in the event of force majeure.
However, according to case law, the termination without notice of an established commercial relationship must be justified by a fault of such gravity as to justify the unilateral and immediate termination of the contract (Court of Cassation, Commercial Chamber, May 24, 2011, n°10-17844, March 27, 2019, n°17-16548).
According to the case law of the Court of Cassation, a sudden termination constitutes a manifestly unlawful disturbance (Court of Cassation, commercial chamber, June 23, 2015, n°14-14687). The victim can contact the judge for summary proceedings to request the continuation of the commercial relationship during a predefined notice period (Court of Cassation, Commercial Chamber, November 10, 2009, n°08-18337, Paris Court of Appeal, pole 1, ch 2, January 24, 2019, n°18/14599).
Except in special circumstances, the commercial relationship must be maintained on the previously agreed conditions during the notice period. If one of the parties modifies essential elements of the commercial relationship during the notice period, for example, by significantly reducing its orders, it incurs liability under article L442-1 of the Commercial Code.
A sudden breakup engages the tortious liability of its author who must repair the resulting damage to the victim. The damage to be compensated is that caused by the brutal nature of the breakup. The victim cannot obtain compensation for the damage resulting from the breakup itself.
The damage to be compensated is that caused by the brutality of the termination and not that resulting from the termination itself.
Several criteria are taken into account for the assessment of damages: (i) the missed gain, (ii) Loss of earnings, (iii) costs incurred.
The courts take into account the loss of the gross margin that the victim of the sudden termination could expect from his commercial relations with the partner at fault during the period of notice.
According to case law, the calculation consists of determining the monthly average of the margin on variable costs over the two or three financial years preceding the termination of commercial relations. Then, we multiply the amount obtained by the number of months of notice that the victim of the breakup should have benefited from.
When you purchase a business, you are not only buying the right to become the tenant of the premises, but you will also take over all of the business’s assets, such as its customer base, brand name, equipment, and sometimes operating licenses. In general, you purchase a business when the seller is engaged in the same type of business as you. Otherwise, you are purchasing only the right under the lease to rent the premises you like. The business activity you wish to conduct must be permitted under the commercial lease.
When a business is sold—unlike when a company is sold—the seller’s debts are not transferred to the buyer.
The purchase price for the business must be held in escrow, typically in the escrow account of an attorney or notary. The name and contact information of the escrow agent, as well as the amount held in escrow, must be specified in the deed of sale and published in a legal gazette.
When acquiring a business, it is essential to obtain documents from the commercial court regarding the seller’s debt situation and to ensure that the outstanding balance is less than the purchase price of the business.
In principle, the escrow period lasts from 3,5 to 5,5 months (Article L143-21 of Commercial Code). During this period, the seller’s creditors may file an objection with the escrow agent regarding the sale price in order to obtain payment of outstanding debts.
In the context of a business transfer, the seller’s employees must be taken on by the buyer (Article L 1224-1 of the Labor Code). All employment contracts in effect on the date of the transfer remain in force between the new employer and the company’s staff. All prior terms and conditions—including compensation, job duties, seniority, and qualifications—are also maintained.
The provisions of Article L 1224-1 of the Labor Code are matters of public policy, and the parties may not deviate from them through a clause included in the deed of sale. A purchaser of a business who does not wish to retain all or part of the employees must negotiate the terms of their departure with the seller. In practical terms, the costs associated with employees’ voluntary termination agreements must be taken into account when setting the sale price of the business.
In most cases, the value of a business is calculated based on the seller’s revenue. To do this, the average annual revenue generated by the seller over the last three years of operation is weighted by a coefficient that varies depending on the nature of the business and the specific characteristics of the business in question, in order to calculate the minimum and maximum sale prices. Based on these figures, the seller and the buyer negotiate to set the sale price, taking into account the value of the components of the business, including the value of the leasehold interest, as well as the customer base and equipment.
A business can be leased under certain conditions. Leasing a business offers advantages in that it allows the lessee to assess the business’s potential and its prospects for profitability before acquiring it.
The term of the business lease agreement is freely agreed upon between the lessee-manager and the business owner. During the term of the agreement, the lessee-manager must pay rent, known as a “royalty” (a percentage of revenue), to the business owner in exchange for the right to operate the business.
The tenant-manager of a business is not entitled to contract renewal or to eviction compensation, unlike a tenant under a commercial lease. Thus, upon the contract’s expiration, the tenant-manager runs the risk of being evicted from the business he or she has operated, without any compensation.
If your business partner acts on behalf of your company, they may be classified as a commercial agent (Article L 134-1 of the Commercial Code).
You must then give notice to permanently terminate your business relationship with that company at the end of the current contract; the notice period is one month for the first year of the contract, two months for the second year, and three months for the third year and subsequent years (Article L 134-11 of the Commercial Code). If the principal fails to comply with the notice period, the commercial agent is entitled to receive compensation in lieu of notice to offset lost commissions.
Furthermore, upon the termination of a commercial relationship, the commercial agent is entitled to compensation for damages suffered, unless the termination of the contract is caused by gross negligence on the part of the commercial agent, or unless the termination of the contract is initiated by the agent (Articles L 134-12 and L 134-13 of the Commercial Code). This provision is a matter of public policy and cannot be waived by a contractual provision.
To be eligible, your business partner must notify you of their intention to assert their rights within one year of the termination of the contract (Article L 134-12 of the Commercial Code).
The method for calculating the compensation owed to the sales agent is not specified by law, but it is customary to award the agent an amount equal to two years’ worth of commissions.
The warranty against hidden defects is the statutory warranty against defects that render the item unfit for its intended use. The obligation to deliver in conformity is the seller’s obligation to deliver the item in accordance with the specifications set forth in the contract.
While the warranty against hidden defects applies when the item does not conform to its intended use, the obligation to deliver in conformity applies when there is a material discrepancy between the item sold and the item delivered. The latter, which falls under the general law governing breach of contract, is broader in scope than the former. The courts hold that when the defect affecting the goods constitutes both a lack of conformity and a latent defect, the buyer may hold the seller liable solely on the basis of the warranty against latent defects.
No, to obtain compensation for the harm suffered due to the defective implants, you must bring a claim against the manufacturer of those implants on the basis of liability for defective products.
The surgeon is not liable unless a wrongful act is proven. In other words, if the harm suffered is due to the defectiveness of the implants—and not to the surgeon’s fault—only the manufacturer of those implants is liable (Court of Cassation, First Civil Chamber, February 26, 2020, No. 18-26.256).
The CJEU ruling of December 21, 2011 (C-495/10, Case of Centre hospitalier universitaire de Besançon v. Thomas Dutrueux) established the principle that medical practitioners using defective products are excluded from the scope of the 1985 European Directive on defective products.
