Danish Supreme Court: German Engine Manufacturer and Danish Distributor Infringed Competition Law

Jakob Hald, Director General of the Danish Competition and Consumer Authority, stated:

This case involves serious infringements of competition law. Deutz has both abused its dominant position and entered into an anti-competitive agreement with its Danish distributor, Diesel Motor Nordic.

When DSB [the Danish State Railways] chose another supplier than Diesel Motor Nordic to renovate its IC3 trains, Deutz and Diesel Motor Nordic obstructed the supplier’s access to the necessary Deutz spare parts. This was done for their own gain, with the consequence that several trains were out of service for longer periods, inconveniencing passengers.

DSB was unable to renovate its trains on time and at the agreed price. DSB was forced to purchase spare parts at higher prices from Diesel Motor Nordic and, in some instances, use spare parts for other engines, which DSB had to modify themselves. The illegal conduct further harmed a small competitor which was unable to fulfill its contract with DSB.

The German engine manufacturer Deutz and its Danish distributor Diesel Motor Nordic infringed competition law. Both companies infringed the prohibition against anti-competitive agreements. In addition, Deutz abused its dominant position. The Supreme Court confirmed this in its ruling.

Regarding Deutz’ abuse of dominance, the Supreme Court found that the Competition Council were correct in finding that Deutz refused to supply and obstructed parallel import of unique spare parts to Fleco, in violation of the competition rules. The aim of Deutz’ conduct was to prevent Fleco from fulfilling its contract with DSB.

On the anti-competitive agreement entered into by Deutz and Diesel Motor Nordic, the Supreme Court stated that the aim of the agreement was to ensure absolute territorial protection for Diesel Motor Nordic. This amounted to a restriction by object which meant that it was not necessary for the Competition Council to demonstrate anti-competitive effects.

The case has been pending before the courts for several years. The Danish Competition Council issued its decision in 2013 which was upheld by the Danish Competition Appeals Tribunal later that year. The case was then appealed to the Maritime and Commercial Court, which confirmed the Council’s decision in 2021. The judgment from the Maritime and Commercial Court was further appealed to the Eastern High Court, which in 2023 referred the case back to the Council for renewed assessment by the competition authorities. The Council appealed this decision to the Supreme Court the same year.

The European Commission submitted observations to the Supreme Court with the aim of ensuring a consistent application of EU competition rules across Member States. This marked the first time for the Commission to submit observations in a competition case before a Danish court.

In December 2013, the Danish Competition and Consumer Authority reported Deutz and Diesel Motor Nordic to the police for criminal prosecution of the infringement. The criminal proceedings have awaited the final result of the case before the courts.

Case facts

In 2010, Deutz and its official Danish distributor, Diesel Motor Nordic, prevented the Danish company Fleco from receiving Deutz spare parts which were necessary for renovating the engines of DSB’s IC3 trains. Fleco was part of a consortium that had won the renovation contract.

The conduct resulted in engine failures, causing significant inconvenience for passengers.

By refusing to supply to Fleco and blocking parallel imports, Deutz and Diesel Motor Nordic succeeded in ensuring that Fleco could not get hold of the necessary spare parts for DSB’s IC3 engines. This way, the two companies forced DSB to buy spare parts at higher prices from Diesel Motor Nordic or buy spare parts for other engines which DSB the had to modify to fit an IC3-engine-.

Evidence in the case revealed that a member of the consortium that won the DSB contract had attempted to order Deutz spare parts but was informed that they could only procure them through Diesel Motor Nordic. Even after ordering from Diesel Motor Nordic, the parts were withheld under the pretext that they had to be returned to Deutz for a safety approval. However, an internal email at Diesel Motor Nordic revealed that the explanation regarding safety approval was false. Instead, the parts were hidden “in a corner or in the attic” to protect Diesel Motor Nordic’s business with DSB.

The consortium only managed to secure parts in a few instances by ordering small quantities or providing false information about their intended use.

The Vertical Block Exemption Regulation

The Supreme Court’s landmark ruling addressed the interpretation of the EU Commission’s Vertical Block Exemption Regulation.

The Supreme Court noted that the agreement – if not already excluded from the Vertical Block Exemption Regulation under Article 3 of the regulation – would not qualify for block exemption due to its nature, irrespective of the fact that it does not prohibit DMN itself but other Deutz distributors from engaging in passive sales to DSB.

The Eastern High Court had previously referred the case back to the Council for renewed assessment by the competition authorities. Among other things, the Eastern High Court suggested that the agreement could fall under the Vertical Block Exemption Regulation which exempts certain agreements between suppliers and distributors from the prohibition against anti-competitive agreements.

During the proceedings before the Supreme Court, the European Commission submitted both written and oral observations in support of the Danish Competition Council’s interpretation of the Vertical Block Exemption Regulation. This marked the first time for the Commission to submit observations in a competition case before a Danish court, and the Commission generally only submits observations in national cases if it finds it necessary to do so to ensure a consistent application of EU competition rules across Member States.

The Supreme Court agreed with the Commission’s interpretation of the Vertical Block Exemption Regulation, ruling that agreements which restrict passive sales and parallel trade (absolute territorial protection) cannot benefit from the exemption in the Block Exemption Regulation.

For Further Information

Contact:Hanne Arentoft, Head of Communications, Danish Competition and Consumer Authority
Phone: +45 41 71 50 98

Read the Supreme Court's judgment here (in Danish)