85/559/EEC: Commission Decision of 27 November 1985 relating to a proceeding under Article 85 of the EEC Treaty (IV/30.846 - Ivoclar) (Only the German text is authentic)
Date: 1985-11-27
Institutions: European Commission
Subjects: competition, dental medicine, exclusive distribution agreement













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31985D0559

85/559/EEC: Commission Decision of 27 November 1985 relating to a proceeding under Article 85 of the EEC Treaty (IV/30.846 - Ivoclar) (Only the German text is authentic)  


Official Journal L 369 , 31/12/1985 P. 0001 - 0005 





COMMISSION DECISIONof 27 November 1985relating to a proceeding under Article 85 of the EEC  Treaty(IV/30.846   Ivoclar)(Only the German text is authentic)(85/559/EEC)THE  COMMISSION OF THE EUROPEAN COMMUNITIES,Having regard to the Treaty establishing the European  Economic Community,Having regard to Council Regulation N° 17 of 6 February 1962, First Regulation  implementing Articles 85 and 86 of the Treaty (1), as last amended by the Act of Accession of  Greece, and in particular Article 4 thereof,Having regard to the notification filed on 1 February  1983 by Ivoclar AG, Schaan, Liechtenstein, seeking exemption of its standard exclusive distribution  agreement,Having regard to the Commission Decision of 30 October 1984 to initiate proceedings in  this case, Having regard to the summary of the notification published (2) in accordance with  Article 19 (3) of Regulation N° 17,After consulting the Advisory Committee on Restrictive Practices  and Dominant Positions,Whereas:I. FACTS1.On 1 February 1983, Ivoclar AG, of Schaan (Liechtenstein),  notified to the Commission a standard exclusive distribution agreement which it intends to apply in  all EEC countries. Ivoclar initiallyasked for a declaration that the agreement was exempted from  Article 85 (1) of the EEC Treaty by Commission Regulation N° 67/67/EEC (3). Later it made it clear  that if necessary it also applied for exemption by way of individual decision under Article 85 (3)  of the Treaty.A. The undertaking2.Ivoclar AG is a medium-sized firm which, with its subsidiaries,  manufactures and sells dental supplies (in particular, artificial teeth made from resin or  porcelain, materials for making veneers, prostheses, crowns, bridges and for taking impressions,  and dental surgery and laboratory equipment). It supplies through national subsidiaries 25  distributors in the Federal Republic of Germany, 26 in France, a like number in Italy, one each in  Belgium, Denmark, the United Kingdom, Ireland and the Netherlands, and two in Luxembourg. It  intends to introduce the notified standard exclusive distribution agreement progressively in all  EEC countries. It presently applies the notified agreement in the Federal Republic of Germany and  in France.3.Ivoclar claims that its manufacturing processes are based on especially close  collaboration with centres of dental research and that its products are of very high quality. This  is especially true of its main product line, artificial teeth. Unlike most other suppliers, Ivoclar  does not produce its teeth to average patient specifications, but tailors the masticatory surfaces  of the teeth and their position in the prosthesis to the individual patient. This involves the use  of specialprecision instruments and requires a high standard ofworkmanship from the dental  technician and dentist making and fitting the dentures. Through research Ivoclar has also developed  special methods for the polymerization of plastics for dentures and for making bridges which yield  cost savings and greater durability. To ensure that the products and methods it has developed are  used correctly so as to maximize their advantages, Ivoclar has to provide intensive training and  counselling both of distributors and of users (dentists and dental technicians). For this purpose  it employs specially trained staff to give training courses at distribution depots, dentists,  laboratories, colleges and universities and to carry out regular inspections of depots and  generally look after them. 4.Ivoclar faces competition from a large number of other suppliers. Dentsply International Inc. of  the USA (with subsidiaries in most Member States) is the market leader in the Community market for  artificial teeth, with a market share of up to . . . (1) (Federal Republic of Germany). Other  significant competitors are Vita Zahnfabrik, Lindauer Zahnfabrik (a subsidiary of Bayer AG), Kulzer  GmbH (a subsidiary of Degussa AG), Major SA and Candulor AG. Ivoclar is one of the leading common  market suppliers of plastic artificial teeth. In 1984 its market share was around . . . in the  Federal Republic of Germany, France, Italy, Benelux and Denmark. In other Member States, Ivoclar's  share of the artificial teeth market varies between . . . (United Kingdom) and . . . (Greece). For  other products concerned by the notified agreement Ivoclar's market share is generally below . . .  in all Member States.B. The notified agreement5.The notified agreement sets out the conditions on  which Ivoclar and its subsidiaries supply their distributors. It forms the basis of Ivoclar's  distribution system in the EEC, consisting of a limited number of selected exclusive distributors  designated as 'SR depots'. The main provisions of the agreement are as follows:6.Each SR depot is  allotted a main sales territory in which it must try to ensure the best possible distribution of  Ivoclar products. The size of the territories is such that the potential volume of demand can be  expected to generate a minimum turnover in Ivoclar products sufficient to sustain a properly  staffed and equipped depot. 7.Within the allotted territory only the SR depot may set up further distribution points. Ivoclar  may only supply a further SR depot or its distribution points in the territory of the sales of the  original SR depot and its distribution points in any two calendar years should show a marked  decline or fall short of the level to be expected in the prevailing market conditions because of  inadequate exploitation of the territory.8.An SR depot may do business outside its main territory  but may not establish any branch in the territory of another SR depot.9.The SR depots are selected  for admission to the network on the following criteria (which are set out in detail in an Ivoclar  circular):(a)The distributor must have adequately qualified and trained staff capable of  instructing, advising and generally looking after the purchasers of Ivoclar products (dentists,  dental technicians, dental clinics, etc.).(b)The distributor must maintain complete stocks of all  Ivoclar products including a full range of teeth in all available colours and shapes and a stock of  spare parts for Ivoclar appliances and equipment. The stocks must be large enough to enable all  orders to be filled promptly.(c)The distributor must be able to display a representative  cross-section of Ivoclar products and to provide rooms and facilities for any demonstrations  Ivoclar wishes to hold for dentists and dental technicians.10.The SR depot accepts the following  further obligations:(a)To sell Ivoclar products only to dentists, dental technicians,  laboratories, universities and hospitals. It may not supply dealers nor other dental depots.  However, it is allowed to supply other authorized SR depots.(b)To use its best endeavours to  secure the widest possible distribution of Ivoclar products. In particular, it agrees to organize  lectures and demonstrations for potential purchaser groups and to carry out sales promotion by  visiting customers and sending out circulars and advertising material.11.Ivoclar undertakes to give  effective support to the sales efforts of SR depots by demonstrations, lectures, courses, training  sessions for sales representatives, promotion through brochures and advertising and by the quality  of the products it supplies. 12.The distribution agreement has an initial term of three years and seven months, automatically  renewable for further five-year periods unless terminated upon one year's notice. In the event of  changes in the personal or legal circumstances liable to jeopardize the purpose of the agreement,  Ivoclar is entitled to terminate the agreement from the end of any quarter upon six months'  notice.13.Where, in the territory of an SR depot which has served the territory for over 10 years  Ivoclar supplies a different or an additional SR depot, the second SR depot must pay the first a  compensation payment of 1 % of the first depot's sales of Ivoclar products over the past 10 years.  This does not apply where the original SR depot is giving up its distributorship without Ivoclar  having given it reasonable ground to do so or Ivoclar itself has terminated it because the original  SR depot breached its obligations under the agreement.C. Comments from third parties14.N° comments  were received from third parties in response to publication of a summary of the notified agreement  in accordance with Article 19 (3) of Regulation N° 17.II. LEGAL ASSESSMENTA. Article 85 (1)15.The  notified standard exclusive distribution agreement which Ivoclar concludes with distributors in the  EC has the object and effect of restricting competition within the common market.(a)The authorized  SR depots have virtual exclusive distribution rights for Ivoclar products in their main sales  territories. Other SR depots are not allowed to establish branches there. Ivoclar may only supply  other SR depots or their distribution points in the territory if the principal SR depot's sales of  Ivoclar products in two consecutive calendar years fall short of the level that could reasonably be  achieved by a distributor showing a proper degree of application in selling the products. The  supply of a different or additional SR depot in the territory of an SR depot which has served the  territory for over 10 years is subject to payment of a compensation payment to the original depot.  Thus, Ivoclar's choice of the distributors supplied, the possibility of market entry for new depots  and the spatial extent of the business activities of authorized SR depots are restricted. (b)Authorized SR depots may supply Ivoclar products only to certain classes of customer. They are  barred from supplying them to depots not authorized by Ivoclar or to dealers. This restricts the  commercial independence of SR depots in relation to the resale of Ivoclar products.(c)SR depots  are not allowed to establish any branch for Ivoclar products outside their territories. This is a  territorial restriction on the activities of SR depots.16.Since the notified standard exclusive  distribution agreement will govern the commercial relations between a manufacturing company and its  subsidiaries and distributors in all EC countries, it is by its very nature likely to affect trade  between Member States. Given Ivoclar's relatively strong position within the common market, the  restrictions of competition and their effect on trade between Member States are likely to be  appreciable.B. Regulation N° 67/67/EEC and Regulation (EEC)N° 1983/8317.Regulation N° 67/67/EEC  and Commission Regulation (EEC) N° 1983/83 (1) grant a block exemption from Article 85 (1) of the  EEC Treaty for exclusive distribution agreements satisfying certain specified conditions. Article 7  of Regulation (EEC) N° 1983/83 provides that agreements which were in force before 1 July 1983 and  which satisfy the exemption conditions of Regulation 67/67 continue to be covered by that  Regulation until 31 December 1986.18Ivoclar's exclusive distribution agreement does not satisfy all  conditions of the above two Regulations. Its restriction on the classes of customer SR depots may  supply (see 15 (b) above) goes beyond the restrictions permitted by Articles 1 and 2 of both  Regulations and in recital 8 of the preamble to Regulation (EEC) N° 1983/83 the Commission clearly  states that obligations which limit the exclusive distributor's choice of customers are not  exempted under the Regulation.19.Article 2 (3) (c) of Regulation (EEC) N° 1983/83, concerning sales  promotion, allows the prohibition of sales to unsuitable dealers (see paragraph 20 of the  Commission notice of 13 April 1984 (2) concerning Regulations (EEC) N° 1983/83 and (EEC) N°  1984/83). However, this position does not apply inthe present case. SR depots are not only  forbidden from selling to 'dealers' but also to other specialized dental depots, which have not  been chosen by Ivoclar. This is so even where these other dental depots, in principle, fulfil the  qualitative criteria for the sale of Ivoclar products, or at least would when their staff had  received suitable training. Thus the Ivoclar distribution system combines elements of exclusive  distribution with the selection of customers in accordance with qualitative and quantitative  criteria. In so far as suitable clients will be unable to purchase or resell the products, the  distribution system doesnot fulfil the condition for a block exemptionunder Regulations N°  67/67/EEC and (EEC) N° 1983/83. C. Article 85 (3)20.The notified exclusive distribution agreement contributes to a substantial  improvement in the distribution of Ivoclar products.(a)Ivoclar is able to concentrate its sales  effort and particularly its training and education programme and advisory services on a manageable  number of distribution outlets. The training and continuing education programme and advisory  services provided by Ivoclar, at the cost of considerable expenditure on staff and resources, play  an important role in its distribution system. Supplying a much larger number of distributors would  be detrimental to its objective of ensuring competent distribution of its products and involve  needless extra expense.(b)The restriction of distribution to authorized SR depots meeting certain  professional standards helps to ensure that Ivoclar products are used properly and to best effect  having regard to their specific qualities and advantages. It also ensures that the users (dentists,  dental technicians, etc.) can be supplied promptly in line with their own customers' (the  patients') requirements and are adequately informed about the correct use of Ivoclar products. The  prohibition of resales to unauthorized distributors has the same object.(c)The restriction of  distribution to the authorizedSR depots also creates the conditions for the distributors to  exploit the market intensivelyand to maximize the sales of Ivoclar products. The obligations on SR depots to maintain comprehensive stocks and to carry out sales promotion are  a corollary of this restriction. (d)The restriction of the SR depots' active businessto their main sales territories encourages  the depotsto concentrate their sales effort on their allotted territories and hence to improve the  distribution of Ivoclar products.21.The advantages of Ivoclar's functional and appropriate  distribution system outweigh the negative effects on competition of the extensive territorial  protection enjoyed by the SR depots, the corresponding restriction on their doing business actively  elsewhere and the restriction of the network to authorized SR depots. The network of depots ensures  that orders for any Ivoclar product can be fulfilled promptly and efficiently.22.The exclusive  distribution agreement does not contain any restrictions that go beyond what is necessary to  achieve these objectives.(a)The extensive territorial protection given to SR depots (and its  corollary, the ban on establishing branches in the main sales territory of another SR depot) is  necessary because without it SR depots would hardly be willing to make the substantial commitments  of staff and of resources tied up in stocks that are required of them or to engagein intensive and  active sales promotion forIvoclar products (including giving their own presentations). This sales  commitment is also rewarded by the compensation payment which new SR depots have to pay the depot  previously serving the territory in consideration of the work the original depot has done to  penetrate the market. In the special circumstances, the compensation payment appears to be a  justifiable protection of the old SR depot. The new SR depot takes over a clientele, that its  predecessor has built up over more then 10 years of market development. Moreover, the amount of the  compensation payment would appear an adequate recompense for the previous performance of the old SR  depot, and represents no serious barrier to entry for the new SR depot.(b)The restriction of  distribution to SR depots and the associated restriction on the classes of customer to whom depots  can sell is necessary for an efficient distribution of the products. The specific advantages of the  products and processes (individual tailoring of teeth and prostheses to the patient, greater  durability and cost savings with Ivoclar crowns and dentures) can only be fully realized if the  distributor carries a full range (particularly of artificial teeth in all available colours and  sizes), is fully informed about Ivoclar products and processes and is able to give the users of the  products and processes (dentists, dental technicians, etc.) expert advice and instruction. These requirements can only be met by authorized Ivoclar distribution depots, which are regularly  serviced by Ivoclar with training and advice. Other distributors, which would be dependent on  supplies from SR depots, would not be able to fulfil these requirements, especially the obligation  to carry complete stocks, if only because of inadequate sales volume. The restriction of its  distribution network to depots which must fulfil certain necessary requirements for the  distribution of these products enables Ivoclar to guarantee a successful market penetration of its  products, intensive exploitation of the market by the SR depots and the efficient operation of the  network.23.Consumers are allowed a fair share of the benefit resulting from the improvement in the  distribution of Ivoclar products. This applies equally to the immediate purchaser (dentist, dental  technician etc.) and to the final consumer (patient). The distribution system ensures that the full  range of Ivoclar products is available to users at short notice for their dental treatment and that  the products are used properly so as to maximize their specific advantages for the patient.24.The  exclusive distribution agreement does not afford the possibility of eliminating competition for a  substantial part of the products in question. Ivoclar faces stiff competition from other  manufacturers, some of which are larger and have considerably more financial backing. These other  manufacturers are not hindered in their dealings with distributors within the contract territory.  Parallel imports and sales between distributors are not ruled out but only restricted to depots  belonging to the distribution network. This is justified by the special characteristics of Ivoclar  products. N° absolute territorial protection is given. The Ivoclar distributors are further free in  their price policy. D. Article 8 (1) of Regulation N° 1725.Under Article 8 (1) of Regulation N° 17, an exemption may be  granted for a limited period only. In view of the term of the notified agreement and the scientific  and technical development in the industry, a period of exemption of 10 years is appropriate. This  period should begin from the date of formal notification of the exclusive distribution agreement, 1  February 1983,HAS ADOPTED THIS DECISION:Article 11.  Pursuant to Article 85 (3)  of the EEC Treaty, the provisions of Article 85 (1) are hereby declared inapplicable to the  standard exclusive distribution agreement dated 1 December 1982 of Ivoclar AG governing its supply  of SR depots in the Community.2.  The exemption shall apply from 1 February 1983 until 31 January  1993.Article 2This Decision is addressed to Ivoclar AG, FL-9494 Schaan/Liechtenstein. Done at Brussels, 27 November 1985.For the CommissionPeter SUTHERLANDMember of the  Commission(1) OJ N° 13, 21. 2. 1962, p. 204/62. (2) OJ N° C 297, 8. 11. 1984, p. 14. (3) OJ N° 57, 25. 3. 1967, p. 849/67. (1) Pursuant to Article 21 (2) of Regulation N° 17, business secrets are not published in the  Official Journal of the European Communities. (1) OJ N° L 173, 30. 6. 1983, p. 1. (2) OJ N° C 101, 13. 4. 1984, p. 2.