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Exemption for vertical supply and distribution agreements

Certain types of vertical agreements can improve economic efficiency within a production or distribution chain by facilitating better coordination between the participating undertakings, leading to a reduction in the transaction and distribution costs of the parties and to an optimisation of their sales and investment levels. Following the overall positive experience with the application of Regulation No 2790/1999, the Commission has adopted this new block exemption regulation.

ACT

Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices.

SUMMARY

Article 101(1) of the Treaty on the Functioning of the European Union (TFEU) (ex-Article 81(1) of the Treaty Establishing the European Community (TEC)) prohibits agreements that may affect trade between European Union (EU) countries and which prevent, restrict or distort competition. Agreements which create sufficient benefits to outweigh the anti-competitive effects are exempt from this prohibition under Article 101(3) TFEU (ex-Article 81(3) TEC).

Vertical agreements are agreements for the sale and purchase of goods or services which are entered into between companies operating at different levels of the production or distribution chain. Distribution agreements between manufacturers and wholesalers or retailers are typical examples of vertical agreements. Vertical agreements which simply determine the price and quantity for a specific sale and purchase transaction do not normally restrict competition. However, a restriction of competition may occur if the agreement contains restraints on the supplier or the buyer, for instance an obligation on the buyer not to purchase competing brands. These vertical restraints may not only have negative effects, but also positive effects. They may, for instance, help a manufacturer to enter a new market, or avoid the situation whereby one distributor ‘free rides’ on the promotional efforts of another distributor, or allow a supplier to depreciate an investment made for a particular client.

Whether a vertical agreement actually restricts competition and whether in that case the benefits outweigh the anti-competitive effects will often depend on the market structure. In principle, this requires an individual assessment. However, the Commission has adopted this Regulation (EU) No 330/2010, the Block Exemption Regulation (the BER), which provides a safe harbour for most vertical agreements. The BER renders, by block exemption, the prohibition of Article 101(1) TFEU inapplicable to vertical agreements which fulfil certain requirements. The Commission has also published guidelines on vertical restraints. These describe the approach taken towards vertical agreements not covered by the BER.

Requirements for application of the Block Exemption Regulation

The BER contains certain requirements that must be fulfilled before a particular vertical agreement is exempt from the prohibition of Article 101(1) TFEU. The first requirement is that the agreement does not contain any of the hardcore restrictions set out in the BER. The second requirement concerns a market share cap of 30 % for both suppliers and buyers. Thirdly, the BER contains conditions relating to three specific restrictions.

Hardcore restrictions

This BER contains five hardcore restrictions that lead to the exclusion of the whole agreement from the benefit of the BER, even if the market shares of the supplier and buyer are below 30 %. Hardcore restrictions are considered to be severe restrictions of competition because of the likely harm they cause to consumers. In most cases they will be prohibited and it is considered unlikely that vertical agreements containing such hardcore restrictions fulfil the conditions of Article 101(3) TFEU.

The first hardcore restriction concerns resale price maintenance: suppliers are not allowed to fix the (minimum) price at which distributors can resell their products.

The second hardcore restriction concerns restrictions concerning the territory into which or the customers to whom the buyer may sell. This hardcore restriction relates to market partitioning by territory or by customer. Distributors must remain free to decide where and to whom they sell. The BER contains exceptions to this rule, which, for instance, enable companies to operate an exclusive distribution system or a selective distribution system.

The third and fourth hardcore restrictions concern selective distribution. Firstly, selected distributors, while being prohibited to sell to unauthorised distributors, cannot be restricted in the end-users to whom they may sell. Secondly, the appointed distributors must remain free to sell or purchase the contract goods to or from other appointed distributors within the network.

The fifth hardcore restriction concerns the supply of spare parts. An agreement between a manufacturer of spare parts and a buyer which incorporates these parts into its own products may not prevent or restrict sales by the manufacturer of these spare parts to end users, independent repairers or service providers.

The 30% market share cap

A vertical agreement is covered by this BER if both the supplier and the buyer of the goods or services do not have a market share exceeding 30 %. For the supplier, it is its market share on the relevant supply market, i.e. the market on which it sells the goods or services that is decisive for the application of the block exemption. For the buyer, it is its market share on the relevant purchase market, i.e. the market on which it purchases the goods or services, which is decisive for the application of the BER.

The excluded restrictions

This regulation applies to all vertical restraints other than the abovementioned hardcore restraints. However, it does impose specific conditions on three vertical restraints:

  • non-compete obligations during the contract;
  • non-compete obligations after termination of the contract;
  • the exclusion of specific brands in a selective distribution system.

When the conditions are not fulfilled, these vertical restraints are excluded from the exemption by the BER. However, the BER continues to apply to the remaining part of the vertical agreement if that part is severable (i.e. can operate independently) from the non-exempted vertical restraints.

This regulation is adopted following the expiration of Regulation No 2790/1999.

REFERENCES

ActEntry into force – Date of expiryDeadline for transposition in the Member StatesOfficial Journal
Regulation No 330/2010

1.6.2010 – 31.5.2022

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OJ L 102 of 23.4.2010

Last updated: 24.11.2010
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