TGS Baltic Scored Significant Victory for Coffee IN Against Apollo Cinema

26.01.2021 TGS Baltic Scored Significant Victory for Coffee IN Against Apollo Cinema

TGS Baltic’s litigation and competition team in the participation of Martti Peetsalu, Triinu Järviste and Silvia Urgas scored a significant interim judgment in recent judicial proceedings which explains admissibility of exclusivity clauses in distribution agreements in terms of competition law and confirms to Coffee IN in a positive way that Apollo cannot use its high market share on the cinema market to free itself from contractual obligations on other markets based on competition law arguments.

The dispute relates to a situation where Apollo Kino OÜ (Apollo) and OÜ Coffee IN (Coffee IN) agreed that Apollo will operate Coffee IN’s self-service Yo! cafes in its cinemas. To protect Coffee IN’s investments, uniform reputation of the trademark and high level of service, exclusivity was also agreed on. Regardless of that, Apollo replaced Yo! cafes with competing Ice Café cafes in its cinemas in Mustamäe, Solaris Centre and Lõunakeskus. Yo! cafes were relocated to places rarely visited by customers. As a result, Coffee IN filed an action with Harju County Court by demanding compensation for damage from Apollo for breaching the exclusivity clause.

Since Apollo cinema attempted to avoid validity of the exclusivity obligation with an argument as if the exclusivity obligation was contrary to competition law, the court first made an interim judgment regarding whether the exclusivity obligation was in compliance with competition law and, therefore, valid. In particular, Apollo claimed in judicial proceedings that its market share on the cinema market is very high and, consequently, the exclusivity obligation between the parties is not permissible in terms of competition law. The court disagreed with this argument and provided several substantial explanations in its interim judgment regarding how to assess exclusivity clauses, i.e., non-compete obligations, in similar distribution agreements.

The judgment rendered on 21 January 2021 confirms to Coffee IN in a positive manner that upon assessing non-compete obligations in distribution agreements, precisely markets related to that agreement and not other markets where one of the parties may be a dominant undertaking must be considered. The judicial decision explains further that in a situation where the legality of provisions contained in distribution agreements is assessed based on a block exemption, what is most important in the context of the agreement is buyers’ market share on the market where they buy respective goods and sellers’ market share on the market where they sell goods—in principle, it must be assessed whether they are major buyers and major sellers in the context of the agreement. The judicial decision also confirms that in the case of a product like frozen yoghurt, the geographic market cannot be narrowly defined as cinemas (which is why Apollo’s market share on the cinema market is not important) but must be defined more widely as Estonia (the entire area where the respective product is in circulation, i.e., where it can be sold and bought). The court judgment has not entered into force yet.