European Distribution: Antitrust Pitfalls Arising out of Warranty Repair Services
In the context of its preliminary antitrust investigation into Apple's iPhone guarantee policies, the European Commission has confirmed that, in order not to infringe competition rules, suppliers should provide EU-wide warranty services, regardless of the EU/EEA country where the product was purchased.
In this case, the Commission reviewed Apple's iPhone country of purchase rule, according to which warranty repair services were available only in the EU/EEA country where the customer had purchased the iPhone. The Commission was concerned that this rule could create territorial restrictions and market partitioning by dissuading customers from buying iPhones in EU countries outside their country of residence. Following Apple's decision to introduce cross-border iPhone warranty repair services within the EU/EEA, it appears that the Commission has decided to close its investigation.
This decision does not come as a surprise, and is aligned not only with the Commission's Regulation 330/2010 on Vertical Restraints and accompanying Guidelines adopted earlier this year, but also with its long standing decisional practice.
According to Article 4 of the Regulation, direct or indirect restrictions on the territory into which distributors may sell their products or services are considered hardcore restrictions (with some exceptions). Vertical agreements containing these types of restrictions are therefore presumed to be anticompetitive and to infringe Article 101(1) of the Treaty on the Functioning of the European Union (TFEU). As illustrated in the Guidelines, territorial restrictions may result from suppliers not providing EU-wide guarantee services.
On a number of occasions, the Commission has made it clear that any guarantee offered should be applicable without discrimination. In other words, suppliers should provide warranty services throughout the EU/EEA, irrespective of the place of purchase within the EU/EEA.
Back in the late 1970's, the Commission had already found that restrictions contained in warranty terms could be caught under Article 85(1) of the EC Treaty (now Article 101(1) TFEU). In the Zanussi case, the guarantee offered in the European Union provided that a Zanussi appliance user was entitled to guarantee service only from the Zanussi subsidiary that imported the appliance. The guarantee service was thus refused when the appliance was used in a country other than where it was originally imported by a local Zanussi subsidiary. Following Zanussi's decision to instruct its subsidiaries to provide guarantee services in the European Union for all Zanussi appliances regardless of the country where users bought the product or where it was being used, the Commission found that Zanussi's guarantee no longer infringed Article 85(1) of the EC Treaty. In addition, the Commission noted that the manufacturer should not necessarily provide the same guarantee service in all parts of the European Union. The supplier may provide guarantee services on the terms applicable in the country where the product is used rather than those applicable in the country of purchase.
The Commission's recent investigation into Apple's iPhone warranty terms shows that business practices that could result in market partitioning within the European Union are still under scrutiny. Bearing this in mind, warranty terms are an area to be monitored closely by suppliers within the EU/EEA.
To avoid competition issues that may arise out of the warranty terms in distribution agreements, suppliers conducting business in the EU/EEA should review their guarantee policies carefully. In particular, a customer should be entitled to claim warranty services under an EU-wide guarantee regardless of the EU/EEA country of purchase, and the supplier cannot stipulate in the warranty that it only applies to products acquired from an authorised distributor in that country.
From a practical point of view, distributors are generally reimbursed by the supplier for the warranty services provided under the EU-wide guarantee, even in relation to products or services sold by other distributors into their territory. If the supplier does not wish to provide reimbursement in such cases, other arrangements may be compatible with EU competition law (but legal advice should be taken before implementing them). Suppliers may consider a system whereby a distributor making a sale outside its allocated territory pays a fee to the distributor in the country of destination based on the cost of the repair or replacement services to be carried out under the warranty, including a reasonable profit margin. Alternatively, suppliers may choose a system whereby the customer pays for the warranty repair or replacement services in the country of destination and obtains a receipt on the basis of which the costs can be reclaimed from the distributor in the country of purchase.
Asta Aleskute also co-authored this article.