Arbitration In Selective Distribution Agreements
1. Meaning of Selective Distribution Agreements
A selective distribution agreement is a system where a supplier sells goods or services only through authorized distributors who meet specific criteria.
Key Features:
Distributors are chosen based on qualitative criteria (e.g., technical expertise, store standards)
Sometimes includes quantitative limits (restricted number of distributors)
Common in:
Luxury goods
High-tech products
Automobiles
Example:
A luxury brand allows only selected retailers to sell its products to maintain brand image and quality.
2. Why Arbitration is Used
Disputes in selective distribution agreements are frequently referred to arbitration because:
They involve confidential business strategies
Require expertise in competition law and industry practices
Often cross-border in nature
Awards are enforceable under the New York Convention
3. Types of Disputes in Selective Distribution Agreements
(A) Admission/Termination Disputes
Refusal to appoint a distributor
Termination for not meeting criteria
(B) Competition Law Issues
Whether the system restricts competition
Allegations of cartel-like behavior
(C) Contractual Disputes
Breach of exclusivity
Parallel imports and resale restrictions
4. Arbitrability of Disputes
General Rule:
Contractual disputes → Arbitrable
Regulatory competition issues → Not directly arbitrable
However:
Arbitrators can incidentally assess competition law compliance
5. Legal Principles Governing Arbitration
(A) EU Competition Law (for global relevance)
Selective distribution must satisfy:
Objective, qualitative criteria
Uniform application
Proportionality
(B) Indian Perspective
Governed by the Competition Act 2002
Arbitration governed by the Arbitration and Conciliation Act 1996
(C) Rights in Rem vs Rights in Personam
Competition law enforcement → Rights in rem (non-arbitrable)
Contractual disputes → Rights in personam (arbitrable)
6. Important Case Laws
Below are at least 6 leading case laws on arbitration and selective distribution systems:
1. Metro SB-Großmärkte GmbH & Co. KG v Commission
Landmark case validating selective distribution systems
Held: Permissible if based on objective qualitative criteria
Relevance: Provides legal foundation for disputes often resolved through arbitration
2. Pierre Fabre Dermo-Cosmétique SAS v Président de l’Autorité de la concurrence
Issue: Ban on online sales in selective distribution
Held: Absolute ban on online sales violates competition law
Relevance: Arbitrators must ensure compliance with competition rules
3. Coty Germany GmbH v Parfümerie Akzente GmbH
Issue: Restriction on selling via third-party platforms (e.g., Amazon)
Held: Allowed for luxury goods to preserve brand image
Principle: Selective distribution is valid if justified
4. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth Inc.
Held: Competition law disputes can be arbitrated
Relevance: Arbitration clauses in distribution agreements are enforceable
5. Eco Swiss China Time Ltd v Benetton International NV
Held: Arbitration awards must comply with competition law
Principle: Courts can set aside awards violating competition law
6. Booz Allen & Hamilton Inc v SBI Home Finance Ltd
Established arbitrability test
Application: Distribution agreement disputes are contractual and arbitrable
7. Eros International Media Ltd v Telemax Links India Pvt Ltd
Held: Contractual disputes involving commercial rights are arbitrable
Relevance: Supports arbitration in distribution arrangements
8. Amritsar Gas Service v Indian Oil Corporation Ltd
Issue: Termination of distributorship
Held: Arbitration valid but limited remedies in certain contracts
Relevance: Shows how distributorship disputes are arbitrated
7. Key Issues in Arbitration of Selective Distribution Agreements
(A) Competition Law Compliance
Arbitrators must ensure:
No anti-competitive restrictions
No abuse of dominance
(B) Validity of Restrictions
Online sales restrictions
Territorial limitations
Price controls
(C) Parallel Imports
Distributors selling outside authorized territories
(D) Remedies
Damages
Specific performance
Injunctions
8. Challenges
1. Public Policy Constraints
Awards violating competition law may be set aside
2. Parallel Proceedings
Arbitration vs competition authorities
3. Enforcement Issues
Courts may refuse enforcement under public policy grounds
4. Confidentiality Concerns
Competition law often requires transparency
9. Drafting Considerations
(1) Clear Selection Criteria
Objective and transparent
(2) Competition Compliance Clause
Explicit adherence to competition laws
(3) Arbitration Clause
Broad wording to include:
Admission disputes
Termination disputes
Competition-related issues
(4) Governing Law
Clearly specify applicable law
10. Conclusion
Arbitration plays a crucial role in resolving disputes arising from selective distribution agreements, particularly because these agreements combine:
Contractual obligations (arbitrable)
Competition law concerns (public policy limitations)
Judicial trends across jurisdictions confirm that:
Arbitration clauses in such agreements are generally enforceable
Arbitrators can decide disputes while applying competition law principles
Courts retain the power to review awards for compliance with public policy
Thus, arbitration provides a flexible, expert-driven, and enforceable mechanism for resolving disputes in selective distribution systems, as long as competition law boundaries are respected.
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