On 8 June 2017, in an appeal against a judgment of the Paris Court of Appeals, the French Supreme Court issued a judgment confirming the contractual freedom of a supplier operating a selective distribution system not to renew a selective distribution contract, despite the fact that the distributor met the required qualitative criteria in the contract. The judgment is of particular importance since it appears to represent a reversal in the Supreme Court's jurisprudence.
In 2008, Caudalie (a French manufacturer of body care products and perfumes) entered into a one-year tacitly renewable selective distribution contract with a pharmacist in Normandy (the "Contract"). In October 2011, complying with the two-month notice period, Caudalie notified the pharmacist that the contract ending on 31 December 2011 would not be renewed, and that as of this date it would no longer be entitled to sell Caudalie's products.
The pharmacist challenged Caudalie's decision not to renew the contract arguing that it was abusive as Caudalie was applying the required qualitative criteria included in the contract in a discriminatory manner inconsistent with Article 101 TFEU, Regulation 330/2010 (the Vertical Agreements Block Exemption: "VABER"), and Article L420-1 of the French Commercial Code.
The pharmacist's claims appeared to be consistent with one interpretation of past French jurisprudence. Indeed, on 25 October 1991, the Paris Court of Appeals affirmed that the renewal of a selective distribution contract for distributors fulfilling the contractually required quality criteria was "a right". Additionally, on 27 April 1993, the French Supreme Court considered that the operator of a selective distribution system was liable where it refused to renew a selective distribution contract without an objective justification, such as a reorganisation of the network or a violation of the set qualitative criteria.
However, in its judgment of 7 October 2015 concerning Caudalie's decision not to renew the agreement, the Paris Court of Appeals had essentially affirmed that, based on the principle of contractual freedom, a supplier is free, as long as it falls under the 30% market share threshold of the VABER and does not include hardcore restrictions in its distribution agreements, to organise its network as desired, choose its contractors, and terminate past contracts pursuant to their terms.
The French Supreme Court endorses this approach in the judgment and confirms the right of the supplier "not" to renew a contract at the end of its term "without" any need to motivate this decision. This apparent reversal of jurisprudence may be explained by a change in French law itself, as, before 1 July 1996, a refusal to sell between professionals was prohibited without "due cause", such as the violation of set qualitative criteria. Since the removal of the "due cause" criterion in 1996, recent jurisprudence has favoured contractual freedom in a manner that is consistent with EU competition law. For example, the Paris Court of Appeals in a ruling dated 30 September 2015 stated that "the termination with notice of a selective distribution contract cannot in itself be described as discriminatory".
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