Watchmakers cleared of abuse

Some years ago, the European Commission started formal antitrust proceedings against some of the market’s most esteemed watch brands for infringement of competition law.

They were accused of having abused their dominant position on the market following a complaint lodged by the European Confederation of Watch and Clock Repairers’ Association. The latter is a non-profit-making association consisting of nine national associations from eight different member states representing the interests of independent watch repairers.

The complaint targeted Richemont, LVMH Moët Hennessy-Louis Vuitton, Rolex, Swatch, Audemars Piguet and Patek Philippe for acting either in agreement or in concert with each other and for their refusal to provide spare parts to independent repair companies.

In practice, the Swiss prestige watchmakers had set up a selective repair and service system for their watches, enabling independent watch repairers to become authorised repairers provided certain suitability criteria were satisfied.

Such repairers passed the qualitative criteria if they had the necessary training, experience and equipment and the premises from where the services were provided. Once authorised, these repairers formed part of the selective repair and service system of the watchmakers and were thus given access to spare parts, brand specific tools and technical information to be able to conduct the repairs and servicing of the branded watches. On the other hand, unauthorised watch repairers were supplied with nothing.

The European Confederation argued, in its complaint, that the Swiss watchmakers’ failure to supply spare parts to independent repairers constituted a breach of their market dominance, since independent repairers were prevented entry into the market of repairs and services of the branded watches. Consequently, it maintained that effective competition was being eliminated by this practice.

Effective competition was being eliminated

The European Commission initially held that there was insufficient community interest in continuing the investigation into the alleged infringement. On appeal, the EU General Court annulled that decision on legal and factual grounds. Following that annulment, the European Commission reopened the infringement proceedings against the prestige watch manufacturers. Nonetheless, after due investigation, it rejected the complaint of the European Confederation on the ground that there was no evidence of abuse of dominant position in terms of EU competition law.

Dissatisfied with this decision, the European Confederation filed an action for annulment of the Commission’s decision before the EU General Court in order to contest such decision. In its recent ruling, the latter has backed the European Commission and dismissed the European Confederation’s action with costs.

The General Court ruled that watchmakers are not obliged to provide unauthorised watch repairers with spare parts for the repairs or servicing of their branded watches once the branded watch manufacturers have established a qualitative selective repair system.

In reaching this conclusion, the EU court considered that similar restrictions are permitted under competition law. Watch manufacturers and other luxury branded goods are entitled to use such selective repair and maintenance systems if these are objectively justified, non-discriminatory and proportionate. It ruled that there are legitimate justifications that counterbalance the negative effects of such restrictions. While the court deemed that the preservation of a brand image cannot justify a restriction of competition, the objective of ensuring the products’ use and preserving their quality may justify the operation of a selective repair system.

The court also confirmed that the watchmakers’ refusal to supply spare parts would constitute an abuse of dominant position where such refusal would eliminate all competition. After examining the circumstances of the case, the court considered that competition was still retained between authorised repairers on the market.

Besides that, the court also noted that the selective repair systems operated by the watchmakers were open to all repairers who wished to join them. There was also the possibility of creating economies of scale given the ability of the authorised repairers to carry out repairs for several different brands of watches. Consequently, the selective repair system, albeit restrictive, was justified in the eyes of the law.

The court’s ruling establishes that manufacturers of branded goods may protect their products by means of a properly established selective repair system without falling foul of the law.

Dr Josette Grech is adviser on EU law at Guido de Marco & Associates.

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