Report for the Hearing delivered in Case 75/84
I — Summary of the facts
(1) Metro's commercial activities
a) The applicant (hereinafter referred to as ‘Metro’) is a self-service wholesale trading undertaking having some 40 establishments in the Federal Republic of Germany and other establishments in other Member States. Its commercial activities consist in selling a wide range of foodstuffs (food department) and other goods (non-food department) which it obtains directly from producers. It sells such goods mainly to retailers, who themselves re-sell the products, and also to commercial or industrial undertakings or small businesses which wish to use the goods purchased for commercial purposes and lastly to private customers termed ‘institutional consumers’, such as hospitals and hotels.
b) Metro distributes those products through the ‘cash-and-carry’ system whereby purchasers serve themselves in sales premises in which the goods are stored in such a way that they may be removed easily by the customers themselves, are displayed simply and are paid for in cash. This results in lower costs and makes it possible to operate satisfactorily on lower profit margins than those of traditional wholesale traders. This form of marketing is thus characterized both by special sales methods and by the nature of the customers sought by the wholesaler.
(2) SABA's selective distribution system for consumer electronic products
a) SABA GmbH, Villingen-Schwenningen, Federal Republic of Germany (hereinafter referred to as ‘SABA’), which has been a member of the French Thomson-Brandt group since 1980, manufactures consumer electronics equipment such as, for example, radios and television sets, video and hi-fi equipment and tape recorders. It distributes them through a network of contracts and agreements with sole distributors, wholesalers and appointed retailers, all of which constitute a selective distribution system (hereinafter referred to as the ‘SABA distribution system’).
b) According to the contested decision, the SABA system constituted a uniform system for the whole of the territory of the Community at the time when the decision was adopted. In the Federal Republic of Germany, including West Berlin, the system comprises a network of specialist wholesalers and retailers, both categories being appointed, and in other Member States, except Ireland, a network of sole distributors and specialist retailers. The sole distributors appointed in Italy and the United Kingdom are subsidiaries of SABA. The SABA distribution system consists of a set of contracts and agreements between SABA and the various distributors in its network which take the following forms:
a) the SABA EEC Dealership Agreement with Specialist Wholesalers [SABA — EG Vertriebsbindungsvertrag SABA — Fachgrosshändler] (hereinafter referred to as the ‘Wholesaler Agreement’),
b) the SABA Cooperation Agreement [SABA — Kooperationsvertrag],
c) the SABA EEC Dealership Agreement with Specialist Retailers [SABA — Vertriebsverbindungsvertrag SABA — Facheinzelhändler] (hereinafter referred to as the ‘Retailer Agreement’) and
d) the SABA Fair Service Agreement.
c) The terms of those agreements are as follows : The Wholesaler Agreement Under this form of agreement SABA admits into its wholesaler network only those wholesalers who inter alia: If SABA fails to process a wholesaler's application for admission to the network within four weeks, the wholesaler is deemed to be admitted in which case SABA undertakes to sign the Wholesaler Agreement with him. That agreement expressly provides that SABA wholesalers are free to supply or take supplies from any SABA dealer anywhere in the common market and to set their own resale prices. SABA wholesalers are also empowered to admit to the SABA dealer network any retailer who satisfies the selection criteria laid down in the Retailer Agreement and to supply them with SABA products. However, they must undertake inter alia to supply SABA products for resale in the common market only to other SABA dealers or SABA sole distributors and before supplying a customer to check with the trustee whether he is a member of the network. They must also undertake to sell SABA products to consumers only where they carry on a business, purchase the goods for use in that business and furnish objectively verifiable evidence of this by signing a special undertaking. SABA undertakes inter alia to guarantee the integrity of the SABA distribution system, only to admit to it and supply dealers satisfying the selection criteria and to keep a list of all SABA dealers. An up-to-date copy of that list is lodged with a trustee who is responsible for answering enquiries as to whether a dealer is a member of the SABA network. The independent sole distributors appointed by SABA in some Member States must also sign the Wholesaler Agreement. The Cooperation Agreement SABA wholesalers in the Federal Republic of Germany who are supplied direct by SABA must also sign the SABA Cooperation Agreement. Under this agreement the wholesaler is obliged inter alia to carry as a rule the full SABA range and to agree each year with SABA an annual sales target regarding the type and number of units. Sales contracts on similar lines but going into more detail on products and dates are also agreed with SABA in January, April and August. Wholesalers achieving their three-monthly sales targets receive a bonus. SABA also undertakes to involve the wholesalers in constant, close consultations on the future development of its product range and to provide training courses for them or their staff on new technological developments in its products, marketing problems and so forth. The Retailer Agreement Under this form of agreement a retailer must satisfy the following criteria in order to be admitted into the SABA network as a specialist retailer. He must: Applications to SABA are deemed to have been accepted if it fails to reply to them within four weeks, in which case SABA undertakes to sign the Retailer Agreement with the applicant immediately. That agreement expressly provides that SABA retailers are free to supply or take supplies from any * SABA dealer anywhere in the common market and to set their own resale prices. On the other hand they must supply SABA products for resale only to other SABA dealers or SABA sole distributors and before supplying a trade customer they must check with the trustee that the customer is a member of the SABA network. Under the Retailer Agreement SABA admits to its network any retailer fulfilling the selection criteria. SABA wholesalers may also admit retailers under the procedure described above. After admission the retailer is put on the SABA dealer list. SABA undertakes in particular to guarantee the integrity of the SABA distribution system and to appoint a trustee on the same terms as those applicable to wholesalers. However, SABA has discretion to waive individual admission conditions in so far and as long as they are not usually met by consumer electronics retail outlets in the area concerned. Nevertheless, it insists on the requirements that dealers be specialists, order and sell SABA products regularly, carry as far as possible the full SABA range and keep adequate stocks, and provide after-sales and warranty services. The SABA Fair Service Agreement SABA specialist retailers must also sign the SABA Fair Service Agreement which specifies the nature and scope of the service back-up which SABA provides to its retailers. In particular, it lays down the principles governing SABA's contribution to the cost of repairing products under warranty and gives details of the spare-parts service and the constant technical assistance to retailers through technical literature and instruction manuals, field technicians and the SABA training system. In return, the retailer undertakes to maintain a competent repair workshop and to observe the relevant technical regulations or to commission such a workshop to carry out repairs and ensure that this workshop observes the technical regulations.
i) carry on a specialist wholesale business, i. e. those who achieve over 50% of their turnover from sales of consumer electronics equipment or have within their business a department specializing in the wholesaling of such products which is comparable to a specialist wholesale business;
ii) carry on such business exclusively as a wholesaler, i. e. supply exclusively to specialist dealers or business users and not also to private customers and perform all the functions customarily performed by a specialist wholesaler;
iii) maintain a trained sales force capable of marketing SABA's products in a competent manner;
iv) recognize the SABA Fair Service system, are able to provide expert advice to SABA retailers through trained staff and are willing to allow such staff to undergo regular training with SABA;
v) have the necessary facilities and resources for holding stocks and prompt delivery of their customers, carry as far as possible the whole SABA range and hold stocks commensurate with their sales of SABA products and
vi) sign the SABA Wholesaler Agreement and — if they are to be supplied direct — the SABA Cooperation Agreement.
i) carry on a specialist retailer business, i. e. one which achieves over 50% of its turnover from sales of consumer electronics equipment or alternatively have within his business a department specializing in the sale of such equipment which is comparable to a specialist consumer electronics retail business and in which specialist staff exclusively employed to advise customers on and to demonstrate and sell consumer electronics products are constantly in attendance;
ii) carry on his business from, or have his specialist department in, premises which are recognizable from the outside as those of a specialist consumer electronics dealer or department and inside have a reputable and smart appearance;
iii) refrain from describing himself as a wholesaler or wholesaler-cum-retailer or from acting in both capacities at once;
iv) be able and willing to
a) take supplies of and sell SABA products on a regular basis,
b) carry as far as possible the full current SABA range and display it to best advantage,
c) keep sufficient stocks of SABA products to be able to supply customers promptly,
d) advise, service and supply customers in a competent manner with professionally trained staff possessing the requisite technical knowledge,
v) provide competent technical after-sales service (either in his own workshop or in another workshop under contract to him) and warranty services;
vi) have : signed the SABA Fair Service Agreement and
vii) have signed the SABA Retailer Agreement.
d) The SABA system thus has the following essential features:
aa) Distribution is effected through wholesalers and retailers selected on the basis of certain criteria and formally appointed and through sole distributors;
bb) Those resellers undertake to supply within the common market only other resellers who are appointed distributors and agree to carry out or permit stringent checks in order to ensure that this undertaking is fulfilled; specialist wholesalers undertake not to supply private customers;
cc) The wholesalers and retailers undertake to carry ‘as far as possible’ the full SABA range, to keep sufficient stocks of SABA products to be able to supply customers promptly and to offer customers competent service. Retailers must also be able to take supplies of and sell SABA products on a regular basis and to provide competent technical after-sales service;
dd) The wholesalers established in the Federal Republic of Germany undertake to enter into agreements with SABA on annual sales targets for the various SABA products, the fulfilment of which is rewarded by a bonus to wholesalers and SABA undertake to consult regularly on the marketing of SABA products and on the future manufacturing programme. Wholesalers and retailers therefore undertake to promote the sale of SABA products.
(3) The Commission's decision of 21 December 1983
a) By Decision No 76/159/EEC of 15 December 1975 the Commission issued to SABA for the first time a negative clearance, within the meaning of Article 2 of Regulation No 17 of the Council of 6 February 1962 (Official Journal, English Special Edition 1959-1962, p. 87), for certain ‘conditions of sale for the domestic market’ of the SABA distribution system andgranted it an exemption under Article 85 (3) of the EEC Treaty, valid until 21 July 1980 subject to the observance of certain conditions concerning the rest of the SABA distribution system, in particular the obligation of retailers to carry as full a range as possible of SABA goods, to achieve satisfactory turnover and to keep adequate stocks and the obligation of sole distributors and wholesalers as well as of retailers to check when supplying another reseller whether it is a member of the SABA network.
b) That decision was the subject of an action brought by Metro against the Commission of the European Communities which was dismissed by judgment of the Court of 25 October 1977 in Case 26/76 [1977] ECR 1875 (hereinafter referred to as ‘Metro I’).
c) On 2 July 1979 SABA applied to the Commission for the original exemption to be extended beyond 21 July 1980. On the basis of the information available to it the Commission subsequently sent to SABA on 2 June 1980 and 13 October 1981 two statements of objections setting out the reasons for which it proposed not to extend the exemption granted to the SABA distribution system under Article 85 (3) of the EEC Treaty and to prohibit further application of the SABA agreements. Upon learning of those objections SABA made several amendments to the agreements, particularly as far as concerned the admissions system under which the admission of retailers into the system may be authorized not only by SABA itself but also by SABA wholesalers. Furthermore, the wholesalers, even if they do not wish to sign the cooperation agreement and are accordingly not supplied directly by SABA, may obtain supplies through other appointed wholesalers once they have satisfied the criteria set out in the Wholesaler Agreement.
d) On 28 May 1983 the Commission published a notice in the Official Journal of its proposal to grant SABA a new exemption under Article 85 (3) to the SABA distribution system and inviting observations from interested parties (Official Journal 1983, C 140, p. 3). Metro, to whom SABA has refused to supply its products on the ground that it does not fulfil the conditions for admission as a SABA wholesaler, submitted its views by letters sent in February 1983 and later, following the publication of the Commission's notice concerning its intention to grant SABA an exemption under Article 19 (3) of Regulation No 17 of the Council (Official Journal C 140 of 28 May 1983, p. 3).
e) By the contested decision of 21 December 1983 the Commission gave SABA negative clearance, within the meaning of Article 2 of Regulation No 17, as far as concerned the SABA Fair Service Agreement and granted it an exemption within the meaning of Article 85 (3) of the EEC Treaty, valid from 22 July 1980 to 21 July 1988 subject to the observance of certain conditions concerning the rest of the SABA distribution system. On the basis of an assessment of the structure of distribution and the market position of SABA the Commission examined in the decision the applicability of both paragraph (1) and paragraph (3) of Article 85 of the EEC Treaty:
i) As regards the structure of distribution, the Commission found that in the Federal Republic of Germany, including West Berlin, SABA products are distributed by specialist wholesalers and retailers. SABA also has several branches of its own at the wholesale level. In the other Member States except in Ireland SABA products are sold by sole distributors and specialist retailers. The sole distributors appointed in Italy and the United Kingdom are subsidiaries of SABA. As regards SABA's position on the Community consumer electronics market, the Commission observes in its decision that it varies greatly according to area and product. For colour television sets, easily its top-selling product line, SABA's market share in 1982 was, according to the Commission's findings, 8.3% in Germany and 7.4% in Italy. By contrast, in the Benelux countries and the United Kingdom it held a share of between 0.2 and 2.7% only. Its market share for other consumer electronic product lines is smaller. For audio equipment, for example, its share of the German market in 1979 was about 1.9%.
ii) As far as concerns the applicability of Article 85 (1) of the EEC Treaty, the Commission observes that the agreements which SABA has concluded or proposes to conclude with the wholesalers and retailers of its products are agreements between undertakings which have as their object or effect the restriction of competition within the common market and which may affect trade between Member States. Access to the SABA distribution system is exclusively reserved to undertakings which are prepared to fulfil not only objective qualitative criteria but also certain promotion requirements which go beyond what is necessary for a competent distribution of the products concerned. In the Commission's view, those obligations are in particular the obligations to be able to take supplies of and sell SABA products on a regular basis, to carry as far as possible the full SABA range and to keep adequate stocks. Under the cooperation agreement signed by wholesalers in the Federal Republic of Germany which obtain their supplies directly from SABA, the obligation concerned is the obligation to agree an annual sales contract with SABA containing binding sales targets by product and number of units. On the other hand, in their present form neither the checking obligations imposed on approved dealers when selling to resellers nor the procedure for admitting suitable dealers to the SABA network nor the SABA Fair Service Agreement go beyond what is necessary for ensuring that the SABA distribution system remains effective and intact.
iii) As regards the applicability of Article 85 (3) of the EEC Treaty, the Commission states that the agreements making up SABA's distribution system continue, in their amended form, to fulfil the conditions of that provision. It takes the view in particular that they improve production and distribution, that they benefit the consumer, that the obligations in question are indispensable for producing such benefits and that the SABA agreements do not afford the undertakings concerned the possibility of eliminating competition in respect of a substantial part of the products in question. In this regard it argues that SABA's position on the markets of most of the Member States is comparatively weak and that the consumer electronics market is particularly competitive. Finally, the Commission states that it has not therefore been able to establish that the widespread use of simple selective distribution systems has led to rigidity in the price structure or that the use of such systems in principle excludes particular types of outlet, such as ‘cash-and-carry’ stores or self-service wholesale and retailsupermarkets, from selling such products. The criteria applied in the SABA selective distribution system are not in fact of such a nature that in principle they cannot also be applied by those types of outlet, even if this entails some modification of their particular marketing methods. It was therefore able to exempt SABA's EEC selective distribution agreements once more.
II — Written procedure and conclusions
Metro's application of 6 February 1984 was received at the Court Registry on 19 March 1984.
By order of 26 September 1984 the United Kingdom was granted leave to intervene in support of the applicant's submissions.
By an order of the same date SABA and the Government of the Feder.al Republic of Germany were granted leave to intervene in support of the defendant's submissions.
Upon hearing the report of the Judge-Rapporteur and the views of the Advocate General the Court decided to open the oral procedure without any preparatory inquiry. However, it requested trie parties to indicate which of the annexes to their pleadings were the most important.
By order of 22 May 1985 made under Article 95 (1) and (2) of the Rules of Procedure the Court assigned the case to the Fourth Chamber.
The applicant claims that the Court should:
Declare void and annul the decision of the Commission of the European Communities of 21 December 1983 (No 83/672/EEC) relating to a procedure under Article 85 of the EEC Treaty (Case No IV/29.598 — SABA's EEC distribution system)
Order the defendant to pay the costs of the proceedings.
The defendant claims that the Court should:
Dismiss the application;
Order the applicant to pay the costs.
The United Kingdom supports the applicant's conclusions.
SABA and the Government of the Federal Republic of Germany support the Commission's conclusions.
III — Submissions and arguments of the parties
A — Admissibility of the application
In Metro''s view, its application is admissible because, although the contested decision was not addressed to it, the decision is of direct and individual concern to it because the effect of the decision is that it cannot obtain supplies of SABA products. It has therefore suffered and will continue to suffer damage as a result of the adoption of the contested decision by the Commission. The Commission acknowledged that Metro was directly interested and concerned in the outcome of the SABA proceedings in inviting it, in a telex message of 28 January 1982, in a letter of 13 September 1982 and in a letter of 8 June 1983, to submit its observations on its proposed decision.
The Commission raises no objection in relation to the admissibility of the application under Article 173 although Metro has not lodged a complaint pursuant to Article 3 (2) of Regulation No 17, as it had in Metro I. It acknowledges that in declaring the prohibition contained in Article 85 (1) inapplicable to the SABA distribution system the decision modified the position of undertakings which, like the applicant, are interested in obtaining supplies of SABA products. Furthermore, the objections of Metro, submitted in accordance with Article 19 (3) of Regulation No 17, were precisely whose which were rejected in Part I C of the contested decision.
SABA expresses reservations as to the admissibility of the application. First, Metro has no interest in bringing proceedings because it does not carry on the business of a wholesaler but is in fact engaged in retail trade and does not fulfil the formal requirements for admission into the SABA distribution system. Secondly, Metro is not directly and individually concerned by the contested decision because the decision was not adopted on an application made by Metro under Article 3 (2) (b) of Regulation No 17. An applicant cannot be directly and individually concerned by a decision which is not addressed to it unless the decision is one that is made on its application. However, it is not sufficient that Metro might be regarded as a party potentially interested in the purchase of SABA's products.
B — The substance
1. The submissions put forward by Metro in support of its application
Metro essentially relies on the following submissions in support of its claim:
i) Misuse of powers by the Commission in failing to take into account the conditions laid down by the Court of Justice in Case 26/76 (see under 2. below);
ii) Misuse by the Commission of the power to grant an exemption under Article 85 (3) of the EEC Treaty (see under 3. below);
iii) Misuse of powers by the Commission in failing to take account of the way in which the SABA agreements were implemented in practice (see under 4. below);
iv) Misuse of powers by the Commission in basing the contested decision on limited, incomplete and outdated information (see under 5. below);
v) Misuse of powers by the Commission in authorizing an abuse of a dominant position within the meaning of Article 86 of the EEC Treaty by SABA and its associated companies (see under 6. below);
vi) Lack of competence of the Commission to grant an exemption under Article 85 (3) of the EEC Treaty in the absence of the notification provided for in Article 4 of Regulation No 17 (dealt with under 7. below).
Metro is supported on those submissions by the United Kingdom.
The Commission rejects all the submissions as unfounded.
The Commission's position is supported by SABA and by the Government of the Federal Republic of Germany.
2. Misuse of powers by the Commission in failing to take into account the conditions laid down by the Court of Justice in Case 26/76
a) Tlie positions adopted by the parties in general on the question of the applicability of Article 85 (1)
aa) Metro submits that by granting exemption under Article 85 (3) to the SABA system the Commission misapplied its powers by failing to take into account the fundamental conditions laid down by the Court of Justice in Metro I as conditions precedent to the grant of any exemption under Article 85 (3) for selective distribution systems. The Court held that an exemption could not be justified in the event of an increase in the number of selective distribution networks in the sector in question which caused the rigidity of the price structure to be reinforced or self-service wholesale traders to be eliminated as distributors. As a result of the fundamental changes in the structure of competition on this market, the conditions prevailing in 1975 no longer exist. In its reply, Metro states that even a ‘simple’ selective distribution system will only be in conformity with Article 85 (1) where ‘workable competition’ exists in the marketplace. In Metro I the Court laid down a number of factors into which inquiry must be made to determine the existence of workable competition. The Commission failed to take account of those factors and also of the later decisions of the Court, in particular the judgment of 10 July 1980 in Case 99/79 SA Lancôme and Cosparfrance Nederland BV v Etos BV and Albert Heijn Superman 5F[1980] ECR 2511 and of 11 December 1980 in Case 31/80 L'Oréal NV and L'Oréal SA v de Nieuwe AMCK PvBA [1980] ECR 3775.
bb) The United Kingdom challenges the Commission's view that some of the ‘qualitative’ conditions laid down by SABA for admission to its distribution system do not fall within Article 85 (1), in particular the conditions relating to the level and type of pre-sales and post-sales service to be provided to customers and those concerning the nature and quality of the dealer's premises. On the contrary, those conditions go far beyond what is necessary to preserve the quality of SABA's products and to ensure their proper use and secondly they are insufficiently precise and admitof too much subjective interpretation to constitute objective criteria and are applied in a discriminatory fashion. In this regard it refers to the Court's judgment in L'Oréal, cited above. In any event the Commission failed to carry out an adequate investigation to determine whether the above-mentioned conditions were truly necessary for a competent distribution of SABA's products, taking into consideration primarily their actual characteristics and not only the brand image. Neither the report by Mackintosh International Limited (the ‘Mackintosh Report’) submitted by the Commission nor the report of Dr R. M. Grant of the London Business School (the ‘Grant Report’) commissioned and submitted by the United Kingdom contains evidence to support the Commission's view.
cc) The Commission states in reply that Metro's submissions are all unfounded and that the conditions laid down in paragraph 50 of the Court's judgment in Metro I are not present at all. Furthermore, the Commission enjoys a certain discretion in the assessment of the economic situation. The contested decision can therefore be annulled only for abuse of power, which is not alleged by Metro. In its rejoinder the Commission states that, contrary to Metro's opinion, the compatibility of simple distribution systems with Article 85 (1) does not depend on the perceptibility of their effect on competition. Consequently, a possible accumulation of such systems is of no relevance to theircompatibility with Article 85 (1). The presence or absence of similar systems will have to be considered when examining the applicability of Article 85 (3).
dd) SABA points out that no ‘simple’ selective distribution system comes under the prohibition laid down in Article 85 (1). In such a case, it does not matter whether or not such a system excludes self-service trade completely from distribution owing to non-fulfilment of the qualifying criteria or whether the market is highly concentrated or prices are rigid. Those points must therefore be examined only in connection with the requirements laid down in Article 85 (3). Since SABA's distribution system is not only a ‘simple’ selective distribution system, but goes beyond this, its legality should therefore be examined with reference to Article 85 (3).
ee) In the German Government's view, it is generally known that throughout the Community there is keen price competition, not only inter-brand competition but also intra-brand competition, on the relevant market. Despite the number of existing selective distribution systems, the rigidity of the price structure, far from having increased, has therefore decreased, particularly under the pressure of competition from Japanese manufacturers.
b) The parties' detailed views on the conditions governing the application of Article 85(1)
aa) Proliferation of selective distribution systems since 1975 Metro submits that since 1975 there has been a significant increase in the number of selective distribution systems. The selective distribution systems operated by four of the leading Community producers (SABA, AEG-Telefunken, Grundig, Nordmende and Dual) are now under the control of the Thomson-Brandt group. Many producers (AEG-Telefunken, Grundig, Nordmende, Loewe-Opta, Wega, Sony) have notified the Commission of such systems. Most of the leading producers have applied to the Commission for a grant of exemption under Article 85 (3) for their selective distribution systems. Other major producers also operate systems which withhold supplies from self-service wholesale outlets. The Commission states that no other selective distribution networks similar to SABA's are operated on the relevant market and that the SABA Cooperation Agreement requiring wholesalers to sign supply estimates is a unique feature of the SABA system. Of a total number of 13 Community-wide selective distribution systems notified to the Commission, four are ‘simple’ systems not falling within the scope of Article 85 (1) whereas the remaining nine systems needed exemption under Article 85 (3).
bb) Elimination of self-service wholesalers from the market Metro claims that as a result of the proliferation of selective distribution agreements Metro and other self-service wholesalers are now unable to obtain stocks of the leading brands ofhigh-quality consumer electronics equipment, in particular videos and television sets, including those of Grundig, Dual, ITT Schaub-Lorenz, AEG-Telefunken, Loewe-Opta, Nordmende and Wega. Each of them has refused to supply Metro on the ground that it does not fulfil the criteria by which they select their distributors. The only producer which supplies Metro with television sets is Philips; however, Philips supplies it with products only under the comparatively unknown trade-mark ‘Watson’. Metro and other self-service wholesalers have therefore been virtually eliminated as competitors. In its reply Metro further maintains that the Commission ought to have taken into account the existence of other selective distribution systems on the relevant market, in particular those operated by the major suppliers of colour television sets in Germany (inter alia Thomson-Brandt, Wega, Bang & Olufsen, Sanyo, National Panasonic, Sony and Mitsubishi) and the policy of selective distribution of Philips, Blaupunkt, Hitachi and Sharp. There now appear to be, in all, 19 notified selective distribution systems and other informal unnotified systems. Twelve of those 19 systems cover consumer electronics generally on the German market. The Commission ought therefore to have examined the conditions prevailing on the German market for colour television sets. The Commission argues that there is a large variety of distribution concepts present on the relevant market. Even the alleged proliferation of selective distribution systems could not therefore have the effect of excluding self-service wholesale organizations from the distribution chains of most of the leading producers. Even if Metro was unwilling to sign the Cooperation Agreement, it would be able to obtain supplies from admitted wholesalers provided that it fulfilled the criteria laid down in the Wholesaler Agreement. In the rejoinder the Commission states that there are no facts to confirm the alleged proliferation of selective distribution systems. The applicant now finds itself excluded from supplies of three simple systems (Canton, Heco, National Panasonic) and four systems with further obligations (SABA, Grundig, Dual, and Sony). Of the latter four, SABA is the only manufacturer which makes direct supplies to wholesalers dependent on an obligation to sign supply estimates. On the other hand, there are major manufacturers which distribute their products without any type of selection. Moreover, the modified SABA system excludes all possibility of abuse which may result from admission by a manufacturer.
cc) Increased degree of concentration Metro submits that the structure of competition has completely changed since 1975 owing to the growth of the Thomson-Brandt group which bought SABA, Nordmende and Dual and has also acquired a majority shareholding in AEG-Telefunken. As a result, the group's share of the German market in colour television sets increased from around 21.3% in 1980 to 27% in 1983. Thomson-Brandt is now the market leader not only in Germany but also in France and Italy with market shares of 34% and 27% respectively. The German companies in the Thomson-Brandt group, namely SABA, AEG-Telefunken, Nordmende and Dual, are subsidiaries of Thomson-Brandt and therefore can nolonger be considered to be independent. They no longer compete on the market, either in general or at the price level, although each of them has its own distribution network. The acquisitions by the Thomson-Brandt group have therefore entailed not only substantial concentration at the level of production but also an excessive degree of concentration at the level of distribution. In its reply Metro observes on this point that, according to the judgment in Metro I, the geographical market concerned for the purposes of Article 85 may also be ‘a substantial part of the common market’. Although SABA's selective distribution network is a system which applies throughout the Community, its effects are mainly felt in Germany. It is therefore necessary to assess the degree of concentration with reference to the supply of colour television sets on the German market which, according to the Mackintosh Report, is dominated by two suppliers, namely Philips and Thomson-Brandt, each holding an overall share of approximately 30%. The Commission does not deny that concentration has increased in recent years but it does not agree that this has affected the structure of competition. Besides, the degree of concentration is irrelevant in relation to simple selective distribution systems; it may only affect the permissibility of competitive restrictions under Article 85 (3). The individual undertakings in the Thomson-Brandt group have in fact remained independent and in a competitive relationship, at least as far as their distribution systems are concerned. In its rejoinder the Commission contends that the structure of the market must be examined in the context of Article 85 (3) and that the relevant geographical market is not limited to Germany but is the entire common market. On none of the separate markets in the relevant products does SABA or Thomson-Brandt hold a position which enables it to eliminate competition. Even on the German market SABA holds only 9% of the market in colour television sets and the Thomson-Brandt group only approximately 30%.
dd) Rigidity of the price structure In Metro's view, the fact that the Thomson-Brandt group has acquired control of several of the leading brand names means that since 1975 there has been a marked decrease in the possibility of inter-brand price competition. Moreover, there is little or no inter-brand competition between appointed distributors. The maintenance of selective distribution systems enables manufacturers to maintain a policy of high prices and to prevent self-service wholesale outlets from competing on price. In its reply Metro, which also bases its arguments on various economic studies — inter alia the Mackintosh Report, an ISIS Market Report also made by the Mackintosh company and a comparative study of retail margins on colour television sets in Germany and the United Kingdom — states that the structure of retail trade in colour television sets is completely different in those two Member States and that the proliferation of selective distribution systems in Germany has resulted in a higher level of prices than would otherwise prevail. For that reason, German specialist retailers, who account for 65% of the market by value, have a much higher margin than United Kingdom retailers. The Commission states that the Community market in consumer electronics is one of the most highly competitive markets in consumer goods. This applies both to inter-brand competition and intra-brand competition and the situation is intensifying. It is therefore impossible for a noticeable attenuation of intra-brand price competition to be achieved. Finally, the Commission points out that the SABA agreements expressly provide for the right of dealers to determine prices freely. In its rejoinder the Commission criticizes the applicant's comparison of production prices, retail prices and profit margins in the United Kingdom and Germany and also of the profit margins of German ‘discounters’ and hypermarkets on the one hand and specialist traders on the other and between specialist outlets themselves. In its view, the existence of retail price differences between discount and specialist outlets shows that the price structure in Germany is not rigid.
ee) Nature of product Metro maintains in its reply in particular that the Commission failed to take into account the nature of the products covered by the SABA distribution system. In particular, colour television sets, which, according to the Mackintosh Report, represent no less than 70% of total output of consumer electronics in the Community, have progressed technologically, providing better quality and greater reliability; consequently a consumer will not require specialist advice in order to purchase one. This is why in the United Kingdom a substantial percentage of the total sales of television receivers are made through non-specialist high-street stores, and cash-and-carry outlets. In the Commission's view, the nature of the relevant products fully justifies a system of selective distribution through specialist outlets.
3. Misuse by the Commission of the power to grant an exemption under Article 85 (3) of the EEC Treaty
a) The positions adopted by the parties in general on the question of the applicability of Article 85 (3)
aa) Metro submits that in granting an exemption under Article 85 (3) to the SABA distribution system the Commission misapplied the power conferred on it by that provision. Neither the SABA agreements nor the way in which they have been implemented on the market fulfil all the conditions expressly laid down in the provision. In particular, Metro argues that there is no workable competition on the relevant market. In its reply Metro complains that the Commission failed to determine the facts needed for a proper application of Article 85 (3). Referring again to the Mackintosh Report it statesthat the selective distribution systems are in fact used to exclude outlets whose low-price marketing methods would in the manufacturers' view be likely to affect the ‘brand image’ of their product and that this is detrimental to the consumer.
bb) The United Kingdom also argues that very many features of the SABA distribution system identified as ‘qualitative’ which in fact fall within Article 85 (1) cannot be justified under Article 85 (3) since they constitute subjective criteria and are applied in a non-uniform and discriminatory manner. The Commission failed to examine actual conditions on the market and in particular to take account of the practical effect of the SABA criteria on the relevant market and the structure of competition, having regard to the expansion of the Thomson-Brandt group. The effects of the SABA distribution system on production and distribution are not beneficial but harmful. Secondly, the SABA system cannot be regarded as allowing consumers a fair share of the profits. On the contrary, consumers are worse off in so far as they have less choice and must pay higher prices. All the conditions imposed by SABA for admission to its system exceed what is necessary for a competent distribution of the products in question. This is evident from the fact that they are not uniformly applied and that SABA has expressly retained the power to waive them in individual cases. Finally, the United Kingdom considers that cash-and-carry stores and self-service supermarkets could not possibly comply with the SABA conditions without a fundamental change in the character of their outlets.
cc) The Commission admits that the SABA agreements are different from a simple obligation to supply only through specialized outlets in so far as they contain, along with a number of objective, qualitative criteria of appointment, an obligation on the dealers to promote the sale of SABA products. However, as regards this obligation, it maintains that all the conditions laid down in Article 85 (3) are fulfilled. In the rejoinder the Commission states that the SABA distribution system contains both advantages and disadvantages for competition. In balancing the positive and negative aspects, however, it concluded that the system fulfilled the conditions laid down by Article 85 (3).
dd) SABA maintains that its selective distribution system satisfies all the criteria laid down in Article 85 (3). It states in particular that its products can only be properly distributed through specialized retailers. This is because of rapid technological development on the consumer electronics market, the development of new media and significant innovations in other classes of goods which go beyond the classically defined area of ‘brown goods’. SABA does not want to leave to chance the proper advising of the customer by the dealer and for that reason it has established the SABA School for Video and Communications Technology in Rottweil, Germany. Furthermore, when making his purchase the German consumer attaches more importance than the United Kingdom consumer to the advice of aprofessional and to thorough presentation. SABA also points out the importance of the guarantee and customer service for the good reputation of its products. As regards its channels of distribution, SABA states that in 1983 it effected just over 7% of its domestic turnover in ‘brown goods’ through distribution by markets and departmental stores, 24.3% through buying associations and other cooperatives, 7.2% through certain cooperating retailers, 28.5% through wholesalers and 17.3% through independent specialist retailers. As regards the existence of competition on the market in question, SABA contends that the market shares of the German undertakings in the Thomson-Brandt group are relatively small when considered separately, both on the German market and on the European market. In fact there is considerable competition between them and with other brands and between European producers and manufacturers in the Far East, in particular Japanese manufacturers. In view of the structure of distribution as described above and the degree of competition on the market SABA disputes that it is able to pursue a ‘policy of high prices’. On the question of price competition, SABA states that, according to an investigation carried out by the Arbeitsgemeinschaft der Verbraucher in 1984 in eight different towns in the Federal Republic of Germany, price differences of up to 30% and more were found within the same brand, in the same town and at the same period of time. SABA also disputes that it has deliberately prevented parallel imports; parallel imports are in fact automatically permitted and guaranteed within the Community.
ee) The German Government submits that the condition laid down by Article 85 (3) requiring restrictions to be indispensable must be understood not only in a technical sense; the qualitative selection criteria which are indispensable within the meaning of that provision are all those criteria which are necessary for ensuring that the distribution system chosen by the manufacturer is not discriminatory and for ensuring its implementation. Those conditions are met in this case. In the view of the German Government, it should not be possible for a dealer to impose his marketing strategy on the manufacturer. The development of the various forms of distribution should depend solely on the choice of the consumer. That freedom of choice is guaranteed by the multiplicity of European and Japanese suppliers operating different distribution systems and by a wide range of distribution forms. Moreover, the selective distribution systems do not generally prevent self-service wholesalers from dealing in the products in question in Germany. Indeed, the market share of self-service wholesalers is not insignificant, even on the German market.
b) Detailed views of the parties on the conditions governing the application of Article 85 (3)
aa) Improvement of production or distribution On this point Metro submits that the Commission has not shown that the SABA distribution system improves either production or distribution. In its reply Metro states that the Commission did not apply to the SABA system the principles laid down in the Court's judgment of 29 October 1980 in Joined Cases 209 to 215/78 and 218/78 Fedetab y Commission [1980] ECR 3125 and in the Commission's decision of 15 July 1982 (No 82/506/EEC: re the Agreements of Stichting Sigarettenindustrie, Official Journal 1982, L 232, p. 1). It is for the Commission to produce evidence of improvements in production and distribution and not merely to assume that they exist. In the Commission's view, the obligation of wholesalers to cooperate with SABA and SABA's obligation to consult the wholesalers enables SABA to plan and rationalize production and distribution and to satisfy demand in a continuous way. In any event, the obligations as a whole promote competition between SABA and competing brands without affecting intra-brand competition. As regards the Fedetab judgment cited by Metro, the Commission points out in its rejoinder that the members of Fedetab had a share of 95% of the relevant market whereas SABA's market share ranges between 0.2 and 8.3%.
bb) Consumer benefit Metro submits that the Commission has presented no evidence to support its contention that the commercial advantages accruing to SABA will necessarily be passed on to the consumer. In its reply Metro argues that the restrictions of the SABA system are in fact designed to benefit SABA and the specialist retailers rather than consumers. In this regard Metro refers to the representations of the Bureau européen des unions de consommateurs (BEUC) made on 25 June 1980 to the Commission under Article 3 of Regulation No 17 in which it expressed its concern about the grant of a new exemption to SABA and the proliferation of selective distribution systems in this sector. The Commission acknowledges that its conclusion that advantages accrued to the consumer from the sales promotion obligation is based only on an assumption. However, that conclusion is the logical consequence of a competitive market and is a sufficiently strong probability. In its rejoinder the Commission points out that consumers are free to choose between ‘discounters’, hypermarkets or specialist shops as far as the same type of product is concerned. However, consumers cannot ask for such freedom of choice in respect of the same brand.
cc) Indispensability of SABA's selection criteria In Metro's view, several of the restrictive provisions in the SABA agreements are neither indispensable nor necessary for achieving the abovementioned aims. Metro disputes in particular that it is indispensable for a SABA wholesaler to provide qualified sales staff at the point of sale and to be able to provide expert technical advice to SABA retailers who are already highly technically specialized and benefit from the technical support provided by SABA. Metro doubts in particular whether the obligations imposed on a SABA wholesaler to provide an after-sales service and to maintain high stocks are necessary. In its reply Metro contends that the Commission has in any event failed to prove that any consultation takes place with the wholesalers in respect of planning and production or that sales are in fact planned by reference to the forecasts. The Commission states that the need for wholesalers to be technically qualified and to maintain stocks helps to promote competition between SABA and competing brands. On the other hand wholesalers are not required to provide an after-sales service or to have a service workshop. In combination with SABA's obligation under the Cooperation Agreement to consult wholesalers, their obligations regarding turnover and supply permit the planning of production and sales and are therefore entirely justified. In the rejoinder the Commission observes that Metro's argument is directed against a restriction of competition which does not exist in SABA's distribution system and which has consequently never been examined: an obligation of the manufacturer not to make direct supplies to the retail trade. The inclusion of the wholesale trade in the SABA system results from the manufacturer's autonomous policy of distribution.
dd) Elimination of competition Metro contests the Commission's assertions to the effect that there is keen competition on the market in consumer electronic products and that SABA's position on that market is relatively weak in most of the Member States. The Commission should not have examined the SABA system separately from the systems applied by the sister companies in the Thomson-Brandt group throughout the Community. The proliferation of those systems allows the suppliers of the relevant products to eliminate competition on a substantial part of the relevant market. Nor has the Commission established the actual existence of competition based on the right of approved SABA distributors to carry on horizontal trade inter se under the SABA system, even if this is theoretically possible. Furthermore, the degree of competition between the different brands has remained negligible, owing, inter alia, to the obstacles created by the differences between the national distribution systems and the similarity of the products as regards their technical quality. In its reply Metro observes that there is a marked absence of parallel imports of the relevant products, particularly colour television sets, within the Community, notwithstanding the marked differences in price in different Member States which, according to Metro, are the result of the existence of selective distribution systems. The Commission has not adduced any evidence showing that horizontal competition actually exists within the SABA system (intra-brand competition); furthermore, the degree of price competition between the different brands (inter-brand competition) is negligible. Therefore there is no keen competition at all on the relevant market. The Commission on the other hand observes that, as regards cross-supplies between appointed dealers, it is not possible and not necessary for the Commission to establish the actual volume of trade between the dealers. However, in several investigations the Commission has established that such trade does take place, even across frontiers. The essential point is that all appointed dealers are legally entitled to take part in such transactions. Secondly, the Commission contends that, contrary to Metro's view, the products of the various manufacturers are not equal in the eyes of consumers, with the price being the only decisive factor; consumers also react to other competition parameters such as performance, appearance, design and brand reputation. Thirdly, the Commission reject-sMetro's contentions regarding the position of SABA and the Thomson-Brandt group on the market and refers to its previous arguments on this point. On the question of parallel imports, the Commission points out in its rejoinder that SABA dealers are free to supply each other and to pursue their individual pricing policy. In the course of investigations carried out in several cases, the Commission has obtained sufficient proof that dealers make use of this possibility not only inside but also between Member States. The SABA system in no way threatens to eliminate competition in a substantial part of the relevant market.
4. Misuse of powers by the Commission in failing to take account of the way in which the SABA agreements are implemented in practice
a) Metro submits that the Commission misused its powers by failing to take account of the way in which SABA has abused the exemption granted to it in 1975 and in particular by failing to appreciate the fictitious nature of the distribution system, the discriminatory way in which it is applied by SABA and the subjective nature of the criteria on which the system is based. The way in which the system is implemented is wholly different from the terms of either the SABA agreements as originally notified to the Commission or the new form of SABA agreements. The Commission should therefore have revoked its previous decision or amended it pursuant to Article 8 (3) of Regulation No 17. As regards the obligation of retailers to carry as full a range as possible of SABA products, Metro contends in its reply that, according to the SABA catalogue, there are 103 items in the complete SABA range whereas an investigation carried out by Metro in 175 outlets (162 specialist retailers and 13 department stores) in the Federal Republic of Germany revealed that none of those SABA outlets actually fulfilled the criteria of the SABA agreements. Furthermore, those criteria are not fully incorporated in the SABA test report questionnaire. Metro also complains that the Commission has not given any indication as to the number and nature of the complaints it has received about the operation of the SABA system or as to the nature and extent of the investigation which it carried out following those complaints or as to the results of any investigation. Metro therefore requests the Court itself to institute an inquiry and to invite the Commission to produce the information gathered from the complaints and from the investigation which it carried out.
b) The United Kingdom also considers that the conditions laid down for admission to the SABA system are too general and vague and therefore admit of too much subjective interpretation by SABA to constitute ‘Objective’, criteria. SABA's power to waive its conditions in individual cases confers a very wide discretion upon SABA. That power should be conferred on all members of the network empowered to admit dealers to the SABA system. Furthermore, the SABA criteria are applied in a non-uniform and discriminatory manner. The procedure for admission to the SABA networkprovides insufficient safeguards against the risk of abuse found by the Commission. The right to appoint dealers should also be conferred not only on wholesalers but also on SABA retailers.
c) The Commission states that all the objections and complaints advanced against the operation of the SABA system have proved to be unfounded. The investigation it conducted in order to establish whether SABA had applied its distribution system otherwise than as notified produced no evidence to suggest that the exemption granted in 1975 was being abused. However, it points out that it requested modifications to SABA's original system on the basis of its experience with the practical application of selective distribution systems in general and those modifications made the SABA system considerably less restrictive than it was formerly. The Commission also points out that the position of wholesalers in the Federal Republic of Germany cannot be compared with that of wholesalers in other Member States since in those Member States wholesalers receive no supplies at all and retailers receive no supplies directly from SABA but are supplied exclusively by the sole distributors. There is therefore no discrimination. Finally, the Commission considers that the SABA appointment criteria are fundamentally objective notwithstanding the existence of a certain margin of interpretation. In its rejoinder the Commission states that since the adoption of the first SABA decision in 1975 it has received four formal complaints concerning a refusal to admit applicants to the network; they all proved to be ill-founded or obsolete. In its decision it took account of all the objections raised by other undertakings. In June 1979 Directorate General IV undertook a broad investigation of suspected restrictive practices on the market in question. That investigation was set in motion by various dealers' complaints about abusive exclusion from selective distribution systems, motivated by pricing policy. With respect to SABA, this investigation resulted in the Commission's communicating two statements of objections on 2 June 1980 and 13 October 1981 as a result of which SABA declared its willingness to amend its system of distribution. After a further investigation on the premises of 27 wholesale and retail dealers in four Member States in March and April 1982 the Commission communicated to SABA in November 1982 the elements of the system which in the Commission's view needed modification. After total acceptance of its suggestions by SABA, the Commission adopted the contested decision.
d) SABA strongly disputes Metro's assertion that it does not operate its distribution system in accordance with the exempted contracts and proposes to prove that most SABA dealers carry a considerable number of SABA products in their shops. It is not possible for SABA specialist dealers to carry or keep in stock the whole SABA range nor is this required of them. The relevant obligation under the SABA agreements is limited by the specialist retailers' possibilities for setting up the equipment.
e) The German Government takes the view that the decentralized admission of retailers into the network makes it practically impossible for there to be any discrimination. The question whether the admission criteria may have been applied discriminately in the past in a few isolated cases is not important in this regard. In any case, the obligation to provide an after-sales service does not apply to wholesalers like Metro but only to specialist retailers.
5. Misuse of powers by the Commission in basing the contested decision on limited incomplete and outdated information
a) Metro submits that the Commission has based its decision on limited, incomplete and outdated statistical information without having regard to the actual economic effect of the SABA distribution system throughout the Community market. In not presenting detailed arguments the Commission failed in its duty to conduct a proper inquiry into the facts and to indicate the results in the contested decision. Metro disputes in particular the percentage figures given in the decision for SABA's share of the market in colour television sets. In its reply Metro disputes that the Mackintosh Report covering the period from 1975 to 1982 can provide an appropriate basis for the contested decision on the ground that it was not completed until two months after the adoption of the decision and that it does not deal with the relevant matters in this case. The report is nevertheless the only evidence which the Commission has put forward in order to justify its decisions. In the meantime, in August 1984, Metro conducted its own survey into the profit margins of retailers on the colour television market in Germany and the United Kingdom.
b) The United Kingdom also submits that the Commission did not make an adequate investigation into the facts, particularly into the structure of distribution, the effects of increased concentration and the extent ofcompetition. In particular, the Commission ought not to have relied on the facts forming the basis of its previous decision or on notifications but ought to have re-examined all the relevant aspects of the case, taking into account the actual conditions on the market. Consequently, the Commission's reasoning in the contested decision in support of its conclusion is patently inadequate and the conclusion itself is not justified by the available evidence. The Commission did not take sufficient account of the changes in the overall structure of distribution of the relevant products, the effects of those changes on competition or of the increased concentration of production in this sector. The Mackintosh Report is not a sufficient basis for an assessment of the matters under consideration. This is why the United Kingdom Government commissioned a report by Dr R. M. Grant of the London Business School to determine to what extent selective distribution systems exist and are applied in the United Kingdom.
c) The Commission states in reply that in the contested decision it dealt with the relevant aspects of the structure of the market throughout the Community. It denies that the structure of competition on the market has been appreciably affected by the recent increase in the concentration on the relevant market and it refers in this regard to the findings in the Mackintosh Report drawn up at its request in February 1984. In its rejoinder the Commission refers to the investigation which Directorate General IV carried out in June 1979 into restrictive practices on the relevant market and to the investigation conducted in 1982 into the application of the SABA system.
d) SABA puts forward its own figures regarding the structure of distribution, the market shares of undertakings in the Thomson-Brandt group and the competitive position. In its view, those figures fully support the Commission's arguments.
e) The German Government also takes the view that it is well known that competition on the relevant market is very keen. There is therefore no need for a further market analysis. Moreover, the facts presented by the Commission are also adequate to establish the need for the restrictions imposed on SABA dealers and subject to exemption by the Commission.
6. Misuse of powers by the Commission in authorizing an abuse of a dominant position within the meaning of Article 86 of the EEC Treaty by SABA and the companies in the same group
a) Metro contends that in granting an exemption under Article 85 (3) for the SABA system the Commission has in fact authorized an abuse of a dominant position by SABA and the Thomson-Brandt group on the market in consumer electronics in general and colour television sets and video recorders in particular. Following the abovementioned acquisitions, the undertakings in the Thomson-Brandt group now constitute a single economic unit which, in view of the criteria laid down by the Court in its judgments in Case 85/86 Hojfmann-La-Roche v Commission [1979] ECR 461 and in Case 48/69 ICI v Commission [1972] ECR 691 now has a dominant position on each of the separate markets of the market in durable consumer electronic goods. In setting up its anti-competitive system and in particular refusing to supply Metro SABA has abused that position in the way defined in the recent judgments of the Court (judgment of 21 February 1984 in Case 86/82 Hasselblad v Commission [1984] ECR 883 and of 14 February 1978 in Case 27/76 United Brands v Commission [1978] ECR 207).
b) The Commission replies that the various undertakings in the Thomson-Brandt group have remained independent of one another from the point of view of distribution and that the distribution systems which they use differ from one another in essential respects. It is therefore SABA's position on the market and not the position of the Thomson-Brandt group as a whole which must be the proper basis of assessment for the purposes of examining whether a dominant position exists. Metro has not succeeded in proving or even attempted to argue that SABA's share of the relevant markets has increased from its 1977 level of between 5 to 10%. Even if the applicant were entitled to look at the market shares of the undertakings in the Thomson-Brandt group as a whole, its own figures do not disclose the elements of a dominant position. SABA certainly does not have a dominant position on the common market in consumer electronics as a whole or in a substantial part of it and it is therefore unnecessary to consider the question of the alleged abuse of such a dominant position.
c) SABA maintains that the German undertakings in the Thomson-Brandt group do not have a dominant position on the market. If they did, the Bundeskartellamt would not have allowed the acquisitions of undertakings by Thomson-Brandt in Germany between 1979 and 1983.
d) The German Government also challenges Metro's contention that the Thomson-Brandt group or SABA have a dominant position. It also observes that even an undertaking having a dominant position is entitled to refuseto supply a distributor who does not fulfil the qualitative admission criteria. In particular, where the undertaking concerned has established a selective distribution system before acquiring a dominant position, there is no abuse of such a position.
7. Lack of competence of the Commission to grant an exemption under Article 85 (3) of the EEC Treaty in the absence of notification pursuant to Article 4 of Regulation No 17
a) Metro considers that in view of the important amendments made by SABA to its original system the contested decision does not simply renew the original exemption but grants a new exemption. In the absence of a new formal notification of the amended SABA system pursuant to Article 4 (1) of Regulation No 17, the Commission had no power to grant SABA an exemption under Article 85 (3) of the EEC Treaty. In any event, the way in which the SABA system is actually being implemented differs significantly from the terms of the document originally notified and from the terms of the new standard-form agreements. In its reply, Metro argues that the Commission has itself drawn a distinction between the previous set of SABA agreements and the present set of agreements, it having stated in its decision that the agreements ‘have undergone many changes’ and it refers in this regard to the Court's judgment of 10 July 1980 in Case 30/78 Distillers v Commission [1980] ECR 2229).
b) The Commission states in reply that under Regulation No 27 of the Commission of 6 February 1962 (Official Journal, English Special Edition 1959-1962, p. 132) no fresh notification was necessary in this case since it concerned a renewal of an exemption under Article 85 (3) which had lapsed. The original notification of the SABA system covered the subsequent modifications and amendments which have been duly communicated to the Commission. In such a case Article 8 (2) of Regulation No 17 only requires an application to be made by the undertaking. Even if Metro's allegations proved to be correct, they cannot detract from the competence of the Commission to exempt SABA's distribution system as notified but could only justify a withdrawal of the exemption granted to SABA, in accordance with Article 8 (3) of Regulation No 17. In the rejoinder the Commission submits that notification under Regulation No 17 is simply the equivalent of a request for exemption and sets a time-limit beyond which retroactive exemption cannot normally extend. Once an agreement has been notified, the mere communication to the Commission of subsequent amendments is sufficient; there is no need of formal notification in order to satisfy the obligation of correctness and completeness, breaches of which may be fined under Article 15 (1) (a) of Regulation No 17.
c) SABA also takes the view that no formalities are required for an application for the extension or renewal of an exemption made under Article 8 (2) of Regulation No 17. The same applies for amendments to agreements which are notified during the Commission's proceedings. A repetition of the notification with Form A/B for each amendment of the text would be a pointless formality.
d) The German Government shares the Commission's and SABA's view on this point. It submits that the course suggested by Metro would not only make for unnecessary formalism but would also render the procedure impracticable.
IV — Oral procedure
At the sittings on 2 July 1985 and 12 November 1985 oral argument was presented, and answers to questions put by the Court were given, by Metro, represented by R. J. J. Taylor and D. Marks, Solicitors, the United Kingdom, represented by S. Richards, Barrister, the Commission, represented by N. Koch and K. Banks, the Federal Republic of Germany, represented by O. Lieberknecht, and SABA, represented by C. Hootz.
In response to the request made by the Court at the sitting the Commission, by letter dated 12 July 1985, sent documents showing the extent to which the distribution of certain products is covered by selective distribution systems (‘coverage ratio’) in the Federal Republic of Germany and the EEC as regards colour television sets. According to Annex I to the letter, concerning the selective distribution systems operating on the German market, the Commission does not mention ‘simple’ EEC-wide distribution systems whereas the systems with promotional obligations which it mentions cover 33.6% of the market (SABA, Nordmende, Grundig, Bang & Olufsen, Sony); according to the Commission, there are also national selective distribution systems on the German market covering 10% of that-market (a ‘simple’ selective distribution system operated by Panasonic and two, more intricate, systems operated by ITT and Mitsubishi). Together, all those systems therefore cover 46.6% of the market. According to Annex 5, concerning the EEC market, the Commission does not mention ‘simple’ selective distribution systems whereas the more intricate systems it mentions cover 17% of the market (SABA, Nordmende, Grundig, Bang & Olufsen, Sony).
When commenting on the figures submitted by the Commission, Metro claimed that the figures given in Annex I provide a misleading view of the structure of competition on the German market inasmuch as the Commission left out of account unnotified and de facto ‘simple’ selective distribution systems and other marketing systems which also excude the non-specialist trade. Metro therefore contests the figures given by the Commission and submits its own table showing the coverage ratio on the German market of marketing systems for colour television sets which exclude non-specialist dealers. According to Metro, the ‘formal’ selective distribution systems, including Telefunken's ‘partner’ system, cover 58% of the market (Grundig, Telefunken ITT/Groetz, Sony, Panasonic and Mitsubishi) whereas the ‘informal’ systems, incuding Philips' allegedly discriminatory distribution system, cover 33% of the market (Siemens, Blaupunkt, Loewe-Opta, Metz, Toshiba, Hitachi, Sharp, Sanyo and Philips). The total share of the market covered by ‘simple’ or qualified selective distribution systems is therefore 91%, in which Metro includes 16% for SABA and Nordmende.
The Advocate General delivered his Opinion at the sitting on 12 November 1985.
K. Bahlmann
Judge-Rapporteur
1 Language of the Case: English.