Article 101 of the TFEU (ex Article 85 of the EEC Treaty) lays down the prohibited and incompatible practices with the internal market, and it’s number 2 provides that “Any agreements or decisions prohibited pursuant to this Article shall be automatically void”.
Due to this historical case law, where the European Court of Justice held that that the prohibition of this article applies not only to horizontal agreements but also to vertical agreements, it was clarified that the agreements prohibited according to this article should be automatically void only to those parts of the deal which are subject to the prohibition, or to the agreement as a whole if those parts do not appear to be severable from the contract itself.
In this case law, only specific clauses of the agreement between Grundig and Constant, mainly those concerning absolute territorial protection, were incompatible with Article 85(1) of the EEC Treaty. Therefore, the contract was not annulled in its entirety.
Now accordingly, nullity under Article 101(2) TFEU only applies to the parts of the agreement which are subject to the prohibition or to the agreement as a whole if those parts do not appear to be severable from the contract itself.
In the case Établissements Consten S.à.R.L. and Grundig-Verkaufs-GmbH v Commission of the European Economic Community, the applicants brought an action for annulment of the Decision of the Commission of 23 September 1964, where the Commission of the European Economic Community decided that Consent and Grundig had infringed European competition rules under Article 85 of the Treaty.
In the main dispute, Grundig held an exclusive distribution agreement with, Constant which was appointed as the sole representative to distribute only Grundig’s products and only in France, while the Grundig will only deliver them the Content, including the prohibition on Consten to export the products. However, UNEF company bought electrical appliances from German distributors who offered them despite the export ban, and UNEF resold them in France. As a reply, Constant filed actions against the UNEF, but the Commission of the European Economic Community decided that Consten and Grundig were the ones that had infringed European competition rules.
The applicants submit in action for annulment that the prohibition in Article 85(1) applies only to so-called horizontal agreements and maintained that the Commission has relied on a mistaken interpretation of the concept of an agreement which may affect trade between member states and has not shown that such work would have been more significant without the agreement in dispute.
The European Court of Justice had to decide whether the contested Decision duly applied the prohibition in Article 85(1) to the agreement at issue because of the restriction of competition which entailed solely concerning the distribution of Grundig product.
The applicant Grundig argued that the Commission did not properly exclude from the prohibition those clauses of the contract in respect of which there was found no effect capable of restricting competition and that it thereby failed to define the infringement.
The ECJ clarified the provision in article 85(2 ) that agreements prohibited according to Article 85 shall be automatically void applies only to those parts of the deal which are subject to the prohibition or the agreement as a whole if those parts do not appear to be severable from the contract itself.
Consequently, the ECJ ruled that Article 1 of the contested decision must be annulled so far as it renders void, without any valid reason, all the agreement clauses under Article 85(2).
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