Selective and Exclusive Distribution: What Suppliers Can Legally Control

Selective and exclusive distribution are the two structures through which most branded goods reach the market — and the two most commonly misapplied. Each permits real protection for distributors and brands; each has boundaries that suppliers routinely cross, usually while trying to solve a legitimate commercial problem. This guide sets out both systems, the active/passive sales rule, and the network-management discipline they require — part of the vertical-agreements pillar of our Competition & Antitrust hub.

When can you refuse to supply a would-be dealer?

Whenever your selective system is lawfully constituted and the applicant does not meet its published criteria. That is the practical value of selective distribution: it converts an otherwise risky refusal to supply into a defensible application of objective standards. The conditions come from the Court of Justice’s Metro line: the product’s characteristics must require selection to preserve quality or ensure proper use; criteria must be qualitative (staff training, showroom standards, after-sales capability, stock breadth, technical competence) and laid down uniformly; they must be applied without discrimination; and they must not exceed what is necessary.

Luxury and prestige goods enjoy explicit recognition — the Court’s Coty judgment (2017) confirmed that preserving a luxury image is a legitimate aim capable of justifying selective distribution and associated restrictions, including a ban on selling through visibly third-party marketplaces. Outside luxury, the justification must be grounded in real product characteristics; “we prefer premium retailers” is not a criterion, it is a preference. Quantitative criteria (limiting dealer numbers) are permitted but only inside the block exemption‘s 30% share harbour, since they no longer fall outside Article 101(1) on the Metro reasoning.

What may selective distributors be prevented from doing?

Three things, and the list is closed. They may be prohibited from selling to unauthorised resellers — the rule that gives the system its integrity, and which the block exemption protects in the territory where the system operates. They may be restricted from active sales into territories the supplier has reserved exclusively for itself or allocated exclusively to another distributor. And they may be required to observe the network’s quality criteria in all channels, including online.

They may not be prevented from cross-supplying other authorised members of the network at any level of trade — a rule protecting the internal market’s plumbing — nor from making passive sales anywhere, nor from selling online in any way that amounts to preventing effective internet use. Suppliers repeatedly test the last boundary through advertising rules, minimum offline turnover requirements and platform bans, and the case law has drawn careful lines that our online-sales guide maps in detail.

How does exclusive distribution differ — and where does it break?

Exclusive distribution allocates a territory or customer group to one distributor (or, since 2022, up to five under shared exclusivity), and protects that allocation by restricting other distributors’ active sales into it. Its logic is investment protection: a distributor who must build a market, hold stock and train staff will not do so if free-riders can harvest the demand it creates.

The system breaks in two predictable ways. First, suppliers try to protect exclusivity against passive sales — refusing to service cross-border orders, imposing export bans, or requiring customers be turned away — which is hardcore and, in the EU, aggravated by the single-market dimension that produced the Guess and long line of parallel-trade decisions. Second, suppliers try to run selective and exclusive systems simultaneously in the same territory without aligning them, producing contradictory obligations that authorities read against the supplier. The 2022 VBER expressly permits combining models across different territories and clarified the active-sales rules for each; the drafting must nonetheless be deliberate rather than accreted.

How should networks be managed in practice?

Write the criteria down, publish them to applicants, and apply them mechanically. A selective system’s legal protection comes from its uniformity, so the greatest operational risk is discretionary application: approving a favoured retailer who misses a criterion, or rejecting a discounter who meets them all. Keep an application register with reasons, and audit it annually for consistency — that register is the defence file if a rejected applicant complains, which is how most selective-distribution cases start.

Termination discipline matters equally: terminate for stated, evidenced breaches of criteria with proper notice, never in response to pricing. Train the field force on the active/passive rule with concrete examples, because the sales organisation is where export refusals and territory-policing actually happen. And re-review the whole structure whenever the share estimate approaches the harbour limits or the product mix changes — a system justified by technical complexity does not automatically extend to a simpler adjacent range.

How do you handle parallel imports and grey-market goods?

Carefully, because the instinct to stop them collides directly with single-market law. Within the EEA, goods placed on the market with the rightholder’s consent may circulate freely — trademark rights are exhausted, and contractual attempts to block the flow are hardcore passive-sales restrictions. What suppliers may legitimately do: enforce selective-system rules against authorised dealers who sell to unauthorised resellers, act against genuinely altered or repackaged goods that damage the mark, and pursue actual counterfeits.

What they may not do: instruct dealers to refuse cross-border orders, use serial-number tracking to identify and punish exporting dealers, operate supply quotas calibrated to prevent exports, or make warranty coverage conditional on purchase through the local channel. The last one recurs constantly in consumer electronics and automotive, and is treated as an obstruction of parallel trade. Where the commercial problem is price differentials, the lawful answers are supply-chain and pricing redesign, not contractual barriers.

How do you defend a selective system against a rejected applicant?

With the register. A complaint from a rejected retailer — often a discounter or pure-play online seller — is the standard trigger for national-authority interest, and the supplier’s defence is documentary: published criteria, an application file showing which criteria the applicant failed, and comparable decisions demonstrating uniform application. Suppliers who cannot produce that file lose the Metro protection in practice, whatever their contracts say.

Two frequent weaknesses: criteria drafted so vaguely that any decision looks discretionary (“appropriate retail environment”), and inconsistent history where similar applicants were treated differently. Both are fixable prospectively — tighten the criteria into observable standards, re-assess the existing network against them, and document any legacy exceptions with a rationale and a sunset. The exercise also improves the network commercially, which is the argument that gets it funded.

Do these rules differ for spare parts and aftermarkets?

Yes, and the differences are deliberately pro-competitive. The block exemption specifically prevents suppliers from restricting an authorised repairer’s ability to buy spare parts from component makers, and from stopping component suppliers selling parts to independent repairers and end users. Motor vehicles have their own regime layered on top, protecting independent aftermarket access to parts, tools and technical information.

The rationale is that aftermarkets are where consumers are most locked in: having bought the primary product, they cannot escape a restricted service market. That same logic drives dominance analysis of single-brand aftermarkets, and it is why restrictions on independent repair — from parts availability to diagnostic-software access — attract scrutiny in sectors from agricultural machinery to consumer electronics well beyond the automotive rules.

Can a network combine selective and exclusive distribution?

Yes, and the 2022 rules made it workable: a supplier may run exclusive distribution in some territories and selective distribution in others, with defined rules on protecting each from the other’s active sales — including the ability to require selective distributors not to sell to unauthorised resellers in territories where the selective system operates. What the drafting must avoid is applying both models to the same territory in ways that produce contradictory obligations, which authorities read as territorial partitioning by complexity.

Frequently Asked Questions