Exemption for vertical supply and distribution agreements

SUMMARY OF:

Regulation (EU) No 330/2010 — application of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices

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

WHAT IS THE AIM OF THE REGULATION AND OF ARTICLE 101 TFEU?

Article 101(1) TFEU prohibits agreements that may affect trade between EU countries and which prevent, restrict or distort competition. However, agreements which create sufficient benefits to outweigh the anti-competitive effects are exempt from this prohibition under Article 101(3) TFEU.

The regulation gives a block exemption from Article 101(1) TFEU to vertical agreements* which fulfil certain requirements. These agreements 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.

KEY POINTS

Requirements for application of the regulation

Certain requirements must be fulfilled before a particular vertical agreement is exempt from Article 101(1) TFEU:

the agreement does not contain any of the ‘hardcore’ restrictions set out in the regulation;
there must be a market share cap of 30% for both suppliers and buyers;
the regulation contains conditions relating to 3 specific restrictions.

‘Hardcore’ restrictions

There are 5 restrictions that lead to the exclusion of the whole agreement from the benefit of the regulation, even if the market shares of the supplier and buyer are below 30%. They 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 them fulfil the conditions of Article 101(3) TFEU:

1.
suppliers are not allowed to fix the (minimum) price at which distributors can resell their products (resale price maintenance);
2.
market-partitioning by territory or by customer is prohibited. Distributors must remain free to decide where and to whom they sell. The regulation contains exceptions to this rule, which, for instance, enable companies to operate an exclusive distribution system or a selective distribution system;
3.
selected distributors, while being prohibited to sell to unauthorised distributors, cannot be restricted in the end-users to whom they may sell;
4.
selected distributors must remain free to sell or purchase the contract goods to or from other selected distributors within the network;
5.
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 regulation if neither the supplier nor the buyer of the goods or services has 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 regulation.

The excluded restrictions

The regulation applies to all vertical restraints other than those mentioned above. However, it does impose specific conditions on 3 vertical restraints:

obligations not to compete during the contract;
obligations not to compete after termination of the contract;
the exclusion of specific brands in a selective distribution system.

When these conditions are not fulfilled, these vertical restraints are excluded from the exemption by the regulation. However, the regulation continues to apply to the remaining part of the vertical agreement if that part can operate independently from the non-exempted vertical restraints.

The European Commission has also published guidelines on vertical restraints. These describe the approach taken towards vertical agreements not covered by the regulation.

FROM WHEN DOES THE REGULATION APPLY?

It has applied since 1 June 2010 and will expire on 31 May 2022.

BACKGROUND

For more information, see:

Vertical agreements (European Commission)
Antitrust: Commission adopts revised competition rules for vertical agreements: frequently asked questions (European Commission).
Following the COVID-19 outbreak and introducing measures to cope with the impact of the crisis, the European Commission adopted: Communication from the Commission — Temporary Framework for assessing antitrust issues related to business cooperation in response to situations of urgency stemming from the current COVID-19 outbreak

KEY TERMS

Vertical agreements: agreements for the sale and purchase of goods or services between companies operating at different levels of the production or distribution chain, for example, distribution agreements between manufacturers and wholesalers or retailers.

MAIN DOCUMENTS

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 (OJ L 102, 23.4.2010, pp. 1-7)

Consolidated version of the Treaty on the Functioning of the European Union — Part Three — Union policies and internal actions — Title VII — Common rules on competition, taxation and approximation of laws — Chapter 1 — Rules on competition — Section 1 — Rules applying to undertakings — Article 101 (ex Article 81 TEC) (OJ C 202, 7.6.2016, pp. 88-89)