On 3 December 2024, the Danish Supreme Court overturned the judgment of the Eastern High Court and ruled in favour of the Danish Competition Authority, finding that Deutz had infringed the prohibition on abuse of a dominant position, and that Deutz and Diesel Motor Nordic had entered into an agreement with the object of restricting competition.

The development of the case

This case goes back to 2010 and relates to whether the German train engine manufacturer Deutz AG (Deutz) and its exclusive distributor of train engines and spare parts in Denmark, Diesel Motor Nordic (DMN), had infringed competition rules by restricting passive sales and parallel trade of spare parts for Deutz train engines to a consortium that had won a tender for the renovation of engines for the Danish State Railways’ IC3 trains. The Danish company Fleco, which was part of the winning consortium, complained to the Danish Competition and Consumer Authority about this behaviour. 

The conduct resulted in several engines failing, as timely repairs could not be carried out, causing significant inconvenience to train passengers. By refusing to supply spare parts to Fleco and preventing parallel imports from other suppliers, Deutz and DMN effectively restricted Fleco’s access to the necessary spare parts for the IC3 engines. This forced the Danish State Railways to purchase the parts at inflated prices from DMN and to order components for other engines, which the Danish State Railways had to modify to make them compatible with the IC3 trains.

In June 2023, the Danish Competition Council (DCC) found that Deutz and DMN had infringed competition rules by restricting passive sales and parallel trade of spare parts. The DCC found that Deutz had abused its dominant position, and that Deutz and DMN had entered into an illegal anti-competitive agreement.

Following the DCC’s decision (and a decision from the Competition Appeals Tribunal upholding the DCC’s decision), the case has been under appeal before the Danish courts for several years: 

• The decision was subsequently appealed to the Maritime and Commercial High Court, which upheld the decision in 2021. 
• The case was then further appealed to the Eastern High Court, which in 2023 revoked the decision and referred the matter back to the competition authority for reconsideration, primarily due to finding that the market definition was based on insufficient investigations and could not serve as basis for the findings. 
• The Eastern High Court’s judgment was appealed by the DCC to the Supreme Court later the same year, which handed down its ruling as explained in the following.

Interestingly, the European Commission (Commission) sought permission to submit amicus curiae observations before the Supreme Court to ensure the uniform application of competition rules across the EU Member States. This marks the first time the Commission has ever intervened in a competition case before a Danish court.

Competition law assessment 

While the Eastern High Court had found that the agreement between Deutz and DMN might qualify for an exemption from the prohibition on anti-competitive agreements under the EU Vertical Block Exemption Regulation (VBER), the Commission supported the DCC’s position before the Supreme Court, expressing disagreement with the Eastern High Court's interpretation of the VBER. 

The DCC argued that the agreement between Deutz and DMN was not a vertical agreement in the sense of the VBER, as it did not relate to the conditions under which DMN may purchase, sell or resell certain goods or services. The DCC argued that the agreement related to Deutz and DMN blocking the supply of a range of spare parts that were vital to the tender, so that other dealers could not supply spare parts to the winning bidder, Fleco, without involving DMN. The object of the agreement was to hinder the supply and parallel import of spare parts, which is a serious restriction of competition. 

The Commission argued that an agreement that effectively obliges an undertaking (here Deutz) from entering into an agreement with other buyers that has the restriction of competition as its object in violation of Article 101 TFEU, cannot be exempted pursuant to Article 101(3) nor benefit from the VBER. The Commission argued that a supplier protecting its buyers from passive sales from other buyers cannot benefit from the safe harbour in the VBER. Contrary to the DCC, the Commission considered the agreement to be vertical. 

Moreover, the Commission argued that if the agreement between Deutz and DMN could be block-exempted and benefit from the VBER, as argued by Deutz and DMN, it would consequently entail that the parties could legally agree that Deutz should enter into agreements with other buyers with the object of restricting competition in violation of Article 101(1) TFEU. A supplier that protects its buyers from passive sales should not be able to benefit from the VBER. 

Deutz and DMN argued that their agreement was a vertical agreement, as also acknowledged by the Eastern High Court and the Commission, and that the DCC’s standpoint to the contrary is a result of post-rationalization. Given that the market definition was based on insufficient investigations, there was no basis for concluding that the 30% market share threshold in the VBER was exceeded. Moreover, there was no legal basis for concluding that an agreement between a buyer (DMN) and a supplier (Deutz) that promotes the conclusion of illegal agreements between Deutz and other buyers cannot benefit from the VBER. The hardcore restriction listed in Article 4(b) of the VBER, regarding restriction of passive sales imposed on a buyer, cannot be interpreted contrary to its wording. In other words, the hardcore restriction should not be interpreted widely and extended to also apply to restrictions imposed on the supplier (i.e. turning the “other way around”), pursuant to which the supplier is obliged to impose certain restrictions on its dealer network. 

The Supreme Court ruled as follows: 

In relation to the question of whether Deutz had abused its dominant position, the Supreme Court did not find reasons to set aside the competition authority’s previous assessment, and thus concluded that the refusal to supply amounted to an abuse in violation of Article 102 TFEU and the Danish equivalent in Section 11 of the Danish Competition Act. 

In relation to the question of whether the agreement between DMN and Deutz restricting passive sales and hindering parallel trade (thus granting DMN absolute territorial protection) was in violation of the prohibition on anti-competitive agreements, the Supreme Court found that this agreement could not benefit from the exemption under the VBER. The Supreme Court found the agreement had restriction of competition as its object, and therefore it was not necessary to prove the actual harmful effects. Moreover, as Deutz had a 100% market share for the provision of the spare parts, the agreement could not benefit from the VBER. Interestingly, the Supreme Court also found – in line with the Commission’s arguments – that an agreement between a buyer (DMN) and a supplier (Deutz) whereby the supplier is obliged to restrict its other buyers’ passive sales, cannot benefit from the VBER. 

Consequently, the Supreme Court did not find reasons to set aside the competition authority’s previous assessment, and thus concluded that DMN and Deutz had violated Article 101 TFEU and the Danish equivalent in Section 6 of the Danish Competition Act.

The Supreme Court's interpretation of the scope of the hardcore restriction on passive sales in Article 4(b) appears to broaden the scope of the provision, and the judgment can in this light be considered a landmark decision regarding the interpretation of the VBER. Given that the Commission supported this interpretation in its submissions before the Supreme Court, the Commission will likely apply a similar interpretation to its own enforcement going forward. 
 

The decision by the Danish Supreme Court is available here (in Danish). 

Our previous article regarding the High Court’s judgment is available here (in English). 

If you need more information or further guidance in this area, please contact Morten Nissen or Stefan Brkic.  

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