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Guidelines on vertical restraints

The guidelines provide a framework to help companies conduct their own case-by-case assessment of the compatibility of vertical agreements under European Union (EU) competition rules. They describe the method of analysis and the enforcement policy used by the Commission in individual cases concerning vertical agreements under Article 101 of the Treaty on the Functioning of the European Union (TFEU).

ACT

Commission notice of 10 May 2010: Guidelines on vertical restraints [SEC (2010) 411 final].

SUMMARY

Article 101(1) of the Treaty on the Functioning of the European Union (TFEU) 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.

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. 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 Regulation (EU) No 330/2010, the Block Exemption Regulation (the BER), which provides a safe harbour for most vertical agreements. Regulation (EU) No 330/2010 renders, by block exemption, the prohibition of Article 101(1) TFEU inapplicable to vertical agreements which fulfil certain requirements.

Purpose of the guidelines

These guidelines describe the approach taken towards vertical agreements not covered by the BER. In particular, the BER does not apply if the market share of supplier and/or buyer exceeds 30 %. However, exceeding the market share threshold of 30 % does not create a presumption of illegality. This threshold serves only to distinguish those agreements which benefit from a presumption of legality from those which require individual examination. The guidelines assist firms in carrying out such an examination.

The guidelines set out general rules for the assessment of vertical restraints and provide criteria for the assessment of the most common types of vertical restraints: single branding (non-compete obligations), exclusive distribution, customer allocation, selective distribution, franchising, exclusive supply, upfront access payments, category management agreements, tying and resale price restrictions.

General rules for the assessment of vertical restraints

The Commission applies the following general rules when assessing vertical restraints in situations where the BER does not apply.

In the case of an individual examination by the Commission, the Commission will bear the burden of proof that the agreement in question infringes Article 101(1) TFEU. The undertakings claiming the benefit of Article 101(3) TFEU bear the burden of proving that the necessary conditions are fulfilled.

The assessment of whether a vertical agreement has the effect of restricting competition will be made by considering the actual or likely future situation in the relevant market with the vertical restraints in place as opposed to what would have been the situation in the absence of such vertical restraints.

Appreciable anticompetitive effects are likely to occur when at least one of the parties has or obtains some degree of market power and the agreement contributes to the creation, maintenance or strengthening of that market power or allows the parties to exploit such market power.

The negative effects on the market that may result from vertical restraints which EU competition law aims at preventing are the following:

  • anticompetitive foreclosure of other suppliers or other buyers;
  • softening of competition and facilitation of collusion between the supplier and its competitors;
  • softening of competition between and facilitation of collusion the buyer and its competitors;
  • the creation of obstacles to market integration.

On a market where individual distributors distribute the brand(s) of only one supplier, a reduction of competition between the distributors of the same brand will lead to a reduction of intra-brand competition. However, if inter-brand competition is fierce, it is unlikely that a reduction of intra-brand competition will have negative effects for consumers.

Exclusive arrangements are generally worse for competition than non-exclusive arrangements. For instance, under a non-compete obligation the buyer purchases only one brand. A minimum purchase requirement, on the other hand, may leave the buyer scope to purchase competing goods and the degree of foreclosure may therefore be (much) less.

Vertical restraints agreed for non-branded products are in general less harmful than restraints affecting the distribution of branded products. The distinction between non-branded and branded products will often coincide with the distinction between intermediate products and final products.

It is important to recognise that vertical restraints may have positive effects by, in particular, promoting non-price competition and improved quality of services. The case of efficiencies is in general strongest for vertical restraints of a limited duration which help the introduction of new complex products, which protect relationship-specific investments or which facilitate the transfer of know-how.

Last updated: 03.12.2010
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