Frankfurt Higher Regional Court rules on admissibility of setting margins and bonuses unilaterally

In a judgment on 14 February 2023, Frankfurt Higher Regional Court (case 11 U 9/22) confirmed in full that the manufacturer has the right to set margins and bonuses “outside” of the dealer contract.

In the case at hand, the defendant had expressly clarified in its authorised dealer contract that discounts and margin components were not part of the contract. Instead, the defendant unilaterally set the margins (i.e. discounts on the recommended retail price) and any bonuses in a circular in the last quarter of a calendar year for each subsequent year. The dealership association had taken legal action against this.

The court of first instance, Frankfurt Regional Court, ruled that the right of the manufacturer to unilaterally set margins and bonuses in a circular valid for one year constituted an unreasonable impediment to the authorised dealer within the meaning of section 19(2)(1) and section 20(1) of the German Competition Act. In the Regional Court’s opinion, the manufacturer should be required to agree fixed margins in the dealer contract, otherwise the authorised dealers would lack the necessary certainty for planning purposes. The defendant was not allowed to unilaterally determine bonuses, since the dealers could assume, based on the specific structure of the dealer contract and the accompanying correspondence when entering into the dealer contracts, that bonuses were a contractually agreed component of the fee and that the conditions were not in place under the law on T&C for a unilateral reservation of the right to change or a unilateral right to determine performance. The use of clauses that are invalid under the law on T&C would constitute an unfair impediment within the meaning of antitrust law.

The decision of the Regional Court met with incomprehension from many observers, as it disregarded the relevant case law of the higher courts in many aspects and called into question the previous practice of numerous manufacturers and importers.

The court of appeal, Frankfurt Higher Regional Court, has now overturned the judgment handed down by Frankfurt Regional Court of 16 December 2021, completely reversing it. In doing so, the Higher Regional Court made some important clarifications and specifications and did not permit a further appeal against its decision.

I. Unilateral setting of margins

The Higher Regional Court confirmed that in principle, margins can also be set unilaterally by the manufacturer. The basic margins therefore do not have to be agreed per se in the dealer contract.

The Higher Regional Court justified this by stating, among other things, that according to relevant higher court case law, the agreement of an ex works price system was permissible under antitrust law (see Frankfurt Higher Regional Court, ZVertriebsR 2017, 244 para. 42 et seq; Munich HRC, OLGR 2004, 197; Cologne HRC, BeckRS 2010, 143557). If such an ex works price system, i.e. a system in which a manufacturer sells its products to the dealer on the basis of the current price lists it has unilaterally determined, is permissible, a provision in the dealer contract stating that the basic margins are determined once a year by the manufacturer cannot be contrary to antitrust law, the court said.

The authorised dealers were also protected insofar as the manufacturer was subject to increased contractual duties of consideration and loyalty when exercising its right to unilaterally set the margins each year, the court said. In addition, the manufacturer usually had no interest either in making it more difficult for its authorised dealers to sell to end customers because of excessive purchase prices, since it itself at least indirectly participated in the sales risk of the authorised dealers. In this respect, the interests of the manufacturer and the authorised dealer were the same, concluded the court.

Although the use of a clause that is not permissible under the law on T&C may also constitute an impediment in breach of antitrust law, the specific provision in the case at hand is not objectionable under T&C law. In the present case, the parties had not agreed on any right to determine performance subject to the strict requirements of the law on T&C in the first place: In terms of sales prices (meaning dealer purchase prices), there was no right to determine performance because the sales price was determined at the time the individual purchase contract was entered into and was not determined subsequently by the manufacturer. The court also said there was no right to determine performance with regard to the remuneration for the activities owed under the dealer agreement, because the basic margin was only a calculation factor in the assessment of the dealer purchase price and no specific fee was fixed nor was one intended to be fixed. Moreover, the actual fees, i.e. the dealer’s profit, depends on many factors that the manufacturer cannot influence.

II. Unilateral setting of bonuses

With regard to the right to set bonuses unilaterally, the court followed the Daihatsu decision of the German Federal Court of Justice (NJW 1994, 1060).

First of all it clarified that, contrary to the conclusions reached by the Regional Court, the bonuses offered were voluntary additional benefits from the manufacturer and not remuneration for a service owed under the dealer contract. None of the services earning the bonuses in dispute were owed under the dealer contract. In addition, there was nothing in the dealer contract to indicate that the defendant had agreed to pay bonuses. Since it was a voluntary benefit from the manufacturer, the manufacturer could have refrained from promising bonuses altogether. In any event, in line with the Daihatsu decision, the manufacturer was permitted to unilaterally determine the content and scope of the promise.

Accordingly, setting bonuses in circulars valid for one year at a time was not an unreasonable hindrance, the court concluded.

III. What are the practical implications of the ruling?

As a result, everything remains the same and yet the ruling will bring some calm back into the agitated debate on setting margins and especially bonuses. This debate had gained momentum with the Büchl ruling by the Austrian Supreme Court as the antitrust higher court (decision of 22 March 2021, GZ 16 Ok 4/20d) and was also fuelled in Germany by the first-instance ruling of Frankfurt Regional Court. As a result, numerous dealers and dealer associations tried to use antitrust law as a lever to challenge the remuneration and bonus systems by their principals. The Higher Regional Court has now put a damper on this by consistently applying the existing case law of the higher courts and supreme courts.