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This first section is an introduction, which includes explanations as to the reasons why and the extent to which the Commission provides guidance on vertical agreements. The remainder of this introduction sets out the context in which Article 101 applies to vertical agreements.

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The second section provides an overview of the positive and negative effects created by vertical agreements. The VBER in its entirety, these Guidelines, and the Commission’s enforcement policy in individual cases are based on the consideration of these effects.

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The third section deals with vertical agreements that generally fall outside Article 101(1). While the VBER does not apply to these agreements, it is necessary to provide guidance on the conditions under which vertical agreements fall outside Article 101(1).

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The fourth section provides further guidance on the scope of the VBER. It includes explanations on the safe harbour established by the VBER and the definition of a vertical agreement. This section also deals more specifically with vertical agreements in relation to the online platform economy, which plays an increasingly important role in the distribution of goods and services and where vertical agreements between undertakings may not be easy to categorise under the concepts traditionally associated with vertical agreements. That section also explains the limits of the application of the VBER, as stipulated in Article 2(2) to (4) VBER, and explains the relationship with other block exemption regulations pursuant to Article 2(8) VBER. It also contains a description of the main types of distribution systems. This description is relevant for a number of provisions of the VBER, notably the list of hardcore restrictions provided in Article 4(b) VBER.

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The fifth section addresses the definition of the relevant markets and the calculation of the market shares of the undertakings party to a vertical agreement. It serves to assess whether the market share thresholds provided in Article 3 VBER determining the applicability of the VBER are exceeded.

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The sixth section deals with the hardcore restrictions set out in Article 4 VBER and the excluded restrictions set out in Article 5 VBER, including explanations as to why the qualification as hardcore or excluded restriction is relevant.

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The seventh section contains guidance on the withdrawal of the benefit of the VBER pursuant to Article 29 of Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty (4) and regulations declaring that the VBER does not apply pursuant to Article 6 VBER.

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The eighth section describes the Commission’s enforcement policy in individual cases. To this end, it explains how vertical agreements are assessed under Article 101(1) and 101(3) outside the scope of the VBER, and provides guidance on a non-exhaustive list of specific vertical agreements.

(a)

First, the undertakings involved need to establish the market shares of the supplier and the buyer on the market where they respectively sell and purchase the contract goods or services.

(b)

If the relevant market share of the supplier and the buyer each do not exceed the 30 % market share threshold, the vertical agreement is covered by the safe harbour created by the VBER, provided that it contains neither any hardcore restrictions nor any excluded restrictions that cannot be severed from the rest of the vertical agreement.

(c)

If the relevant market share is above the 30 % threshold for the supplier and/or the buyer, it is necessary to assess whether the vertical agreement falls within Article 101(1).

(d)

If the vertical agreement falls within Article 101(1), it is necessary to examine whether it fulfils the conditions for an individual exemption under Article 101(3).

(a)

The vertical externality issue or double marginalisation problem: The setting of too high of a price by the distributor, not taking into account the effect of its decisions on the supplier, can be avoided by the supplier imposing a maximum resale price on the distributor. To increase the distributor’s sales efforts, the supplier may, for example, use selective distribution or exclusive distribution.

(b)

The free-rider problem: Free-riding between buyers may occur at the wholesale or retail level, in particular where it is not possible for the supplier to impose effective promotion or service requirements on all buyers. Free-riding between buyers can only occur on pre-sales services and other promotional activities, but not on after-sales services for which the distributor can charge its customers individually. Pre-sales efforts on which free-riding may occur may be important, for example, when the goods or services are relatively new, technically complex or of a high value, or when the reputation of the goods or services is an important determinant of their demand. Non-compete restrictions can help overcome free-riding between suppliers.

(c)

To open up or enter new markets: Where a supplier wishes to enter a new geographic market, for instance by exporting to another country, this may involve special sunk investments by the distributor to establish the brand on the market. In order to persuade a local distributor to make these investments, it may be necessary to provide territorial protection so that the distributor can recoup these investments. This may justify restricting distributors located in other geographic markets from selling on the new market (see also paragraph (167) of these Guidelines). This is a special case of the free-rider problem set out in point b) above.

(d)

The certification free-rider issue: In some sectors, certain distributors have a reputation for stocking only quality goods or providing quality services (so-called “premium distributors”). In such a case, selling through those distributors may be crucial, in particular for the successful launch of a new product. If the supplier cannot limit its sales to such premium distributors, it runs the risk of being de-listed. There may, therefore, be justifications for allowing exclusive distribution or selective distribution.

(e)

The hold-up problem: Sometimes there are client-specific investments to be made by either the supplier or the buyer, such as investments in special equipment or training. For instance, a component manufacturer may have to build new machines and tools in order to satisfy a particular requirement of one of its customers. Where such client-specific investments cannot be contracted directly, or where such contracting is incomplete, the undertaking concerned may not be able to commit to make the optimal level of investments from the point of view of the supplier and, once selected by the supplier, the buyer may only engage in sub-optimal investments. Vertical agreements may help remove or alleviate such a commitment problem.

(f)

The specific hold-up problem that may arise in the case of the transfer of substantial know-how: The know-how, once provided, cannot be taken back and the provider of the know-how may not want it to be used for or by its competitors. In as far as the know-how was not readily available to the buyer, and it is substantial and indispensable for the operation of the agreement, such a transfer may justify a non-compete restriction, which would normally fall outside Article 101(1) in such cases.

(g)

Economies of scale in distribution: To have scale economies exploited and thereby see a lower retail price for its goods or services, the manufacturer may want to concentrate the resale of its goods or services on a limited number of distributors. To do so, it could use exclusive distribution, quantity forcing in the form of a minimum purchasing requirement, selective distribution containing such a requirement or exclusive sourcing.

(h)

Uniformity and quality standardisation: A vertical restraint may help create a brand image by imposing a certain measure of uniformity and quality standardisation on the distributors, thereby increasing the attractiveness of the goods or services concerned for finals customer and thereby sales. This applies, for instance, in selective distribution and franchising.

(i)

Capital market imperfections: Providers of capital such as banks and equity markets may provide capital sub-optimally when they have imperfect information on the solvency of the borrower or where there is an inadequate basis to secure the loan. The buyer or supplier may have better information and may be able, through an exclusive relationship, to obtain extra security for its investment. Where the supplier provides the loan to the buyer, this may lead to the imposition of a non-compete obligation or quantity forcing on the buyer. Where the buyer provides the loan to the supplier, this may be the reason for imposing exclusive supply or quantity forcing on the supplier.

(a)

Anti-competitive foreclosure of other suppliers or other buyers by raising barriers to entry or expansion;

(b)

The softening of competition between the supplier and its competitors and/or the facilitation of (explicit or tacit) collusion (12) among these suppliers, often referred to as the reduction of inter-brand competition.

(c)

The softening of competition between the buyer and its competitors or the facilitation of (explicit or tacit) collusion among these buyers. However, a reduction of intra-brand competition (i.e. competition between distributors of the goods or services of the same supplier) is by itself unlikely to lead to negative effects for consumers if inter-brand competition (i.e. competition between distributors of the goods or services of different suppliers) is strong.

(d)

The creation of obstacles to market integration, including notably limitations on consumer choice to purchase goods or services in any Member State.

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First, there are contract-specific risks, which are directly related to the contracts concluded and/or negotiated by the agent on behalf of the principal, such as financing of stocks.

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Second, there are risks related to market-specific investments. These are investments specifically required for the type of activity for which the agent has been appointed by the principal, that is, which are required to enable the agent to conclude and/or negotiate this type of contract. Such investments are usually sunk, which means that upon leaving that particular field of activity the investment cannot be used for other activities or sold other than at a significant loss.

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Third, there are the risks related to other activities undertaken on the same product market, to the extent that the principal requires under the agency relationship that the agent undertakes such activities not as an agent on behalf of the principal, but at its own risk.

(a)

does not acquire the property of the goods bought or sold under the agency agreement and does not itself supply the contract services. The fact that the agent may temporarily, for a very brief period of time, acquire the property of the contract goods while selling them on behalf of the principal does not preclude an agency agreement, provided the agent does not incur any costs or risks related to that transfer of property;

(b)

does not contribute to the costs relating to the supply/purchase of the contract goods or services, including the costs of transporting the goods. This does not preclude the agent from carrying out the transport service, provided that the costs are covered by the principal;

(c)

does not maintain at its own cost or risk stocks of the contract goods, including the costs of financing the stocks and the costs of loss of stocks and can return unsold goods to the principal without charge, unless the agent is liable for fault (for example, by failing to comply with reasonable security measures to avoid loss of stocks);

(d)

does not take responsibility for customers’ non-performance of the contract (for instance for non-payments by the customer), with the exception of the loss of the agent's commission, unless the agent is liable for fault (for example, by failing to comply with reasonable security or anti-theft measures or failing to comply with reasonable measures to report theft to the principal or police or to communicate to the principal all necessary information available to him on the customer's financial reliability);

(e)

does not assume responsibility towards customers or other third parties for loss or damage resulting from the supply of the contract goods or services, unless, as agent, it is liable for fault in this respect;

(f)

is not, directly or indirectly, obliged to invest in sales promotion, including through contributions to the advertising budget of the principal or to advertising or promotional activities specifically relating to the contract goods or services;

(g)

does not make market-specific investments in equipment, premises, training of personnel or advertising specific to the contract goods or services, such as for example the petrol storage tank in the case of petrol retailing, specific software to sell insurance policies in the case of insurance agents, or advertising relating to routes or destinations in the case of travel agents selling flights or hotel accommodation, unless these costs are fully reimbursed by the principal;

(h)

does not undertake other activities within the same product market required by the principal under the agency relationship (e.g. the delivery of the goods), unless these activities are fully reimbursed by the principal.

(a)

limitations on the territory in which the agent may sell these goods or services;

(b)

limitations on the customer groups to whom the agent may sell the contract goods or services; or

(c)

the prices and conditions at which the agent must sell or purchase the contract goods or services.

(a)

Firstly, explicit acquiescence can be deduced from the powers conferred upon the parties in a general agreement drawn up in advance. If the clauses of such a general agreement provide for or authorise a party to adopt subsequently a specific unilateral policy that is binding on the other party, the acquiescence to that policy by the other party can be established on that basis (38).

(b)

Secondly, for tacit acquiescence it is necessary to show, firstly, that one party requires explicitly or implicitly the cooperation of the other party for the implementation of its unilateral policy and, secondly, that the other party has complied with that requirement by implementing that unilateral policy in practice (39). For instance, if after a supplier’s announcement of a unilateral reduction of supplies in order to prevent parallel trade, distributors reduce immediately their orders and stop engaging in parallel trade, then those distributors tacitly acquiesce to the supplier’s unilateral policy. However, this cannot be concluded if the distributors continue to engage in parallel trade or try to find new ways to engage in parallel trade.

(a)

The exemption of non-reciprocal vertical agreements between competitors pursuant to Article 2(4) VBER (see section 4.4 of these Guidelines);

(b)

The calculation of market shares for the application of the thresholds stipulated in Article 3(1) VBER (see section 5 of these Guidelines);

(c)

The removal of the benefit of the VBER pursuant to Article 4 VBER (see section 6.1 of these Guidelines); and

(d)

The exclusion of certain restrictions from the safe harbour provided by the VBER pursuant to Article 5 VBER (see section 6.2 of these Guidelines).

(a)

The IPR provisions must be part of a vertical agreement, that is, an agreement with conditions under which the parties may purchase, sell or resell certain goods or services;

(b)

The IPRs must be assigned to or licensed for use by the buyer;

(c)

The IPR provisions must not constitute the primary object of the agreement;

(d)

The IPR provisions must be directly related to the use, sale or resale of goods or services by the buyer or its customers. In the case of franchising where marketing forms the object of the exploitation of the IPRs, the goods or services are distributed by the master franchisee or the franchisees; and

(e)

The IPR provisions, in relation to the contract goods or services, must not contain restrictions of competition having the same object as vertical restraints that are not exempted under the VBER.

(a)

agreements where a party provides another party with a recipe and licenses the other party to produce a drink with this recipe;

(b)

agreements under which one party provides another party with a mould or master copy and licenses the other party to produce and distribute copies;

(c)

the pure licence of a trade mark or sign for the purposes of merchandising;

(d)

sponsorship contracts concerning the right to advertise oneself as being an official sponsor of an event;

(e)

copyright licensing such as broadcasting contracts concerning the right to record and/or broadcast an event.

(a)

an obligation on the franchisee not to engage, directly or indirectly, in any similar business;

(b)

an obligation on the franchisee not to acquire financial interests in the capital of a competing undertaking so as to give the franchisee the power to influence the economic conduct of such undertaking;

(c)

an obligation on the franchisee not to disclose to third parties the know-how provided by the franchisor as long as this know-how is not in the public domain;

(d)

an obligation on the franchisee to communicate to the franchisor any experience gained in exploiting the franchise and to grant the franchisor and other franchisees a non-exclusive licence for the know-how resulting from that experience;

(e)

an obligation on the franchisee to inform the franchisor of infringements of licensed IPRs, to take legal action against infringers or to assist the franchisor in any legal actions against infringers;

(f)

an obligation on the franchisee not to use know-how licensed by the franchisor for purposes other than the exploitation of the franchise;

(g)

an obligation on the franchisee not to assign the rights and obligations under the franchise agreement without the franchisor’s consent.

(a)

the subject matter of the agreement does not fall within the scope of another block exemption regulation, as set out in Article 2(8) VBER;

(b)

the supplier’s and the buyer’s aggregate market share in the relevant market at retail level does not exceed [10] %, thus not appreciably restricting competition within the meaning of Article 101(1) (46), and the agreement does not contain hardcore restrictions pursuant to Article 4 VBER;

(c)

the conditions of Article 2(4)(a) or (b) VBER are fulfilled; and

(d)

the agreement does not include horizontal restrictions of competition by object, as set out in Article 2(6) VBER.

(a)

the subject matter of the agreement does not fall within the scope of another block exemption regulation, as set out in Article 2(8) VBER;

(b)

the market share threshold of Article 3 VBER is complied with and the agreement does not contain hardcore restrictions pursuant to Article 4 VBER;

(c)

the conditions of Article 2(4)(a) or (b) VBER are fulfilled;

(d)

any exchange of information between the parties is compatible with the relevant chapter of the Horizontal Guidelines dealing with the competitive assessment of the exchange of information; and

(e)

the agreement does not include horizontal restrictions of competition by object, as set out in Article 2(6) VBER.

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Commission Regulation (EU) No 316/2014 of 21 March 2014 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of technology transfer agreements (48);

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Commission Regulation (EU) No 1217/2010 of 14 December 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of research and development agreements (49);

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Commission Regulation (EU) No 1218/2010 of 14 December 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of specialisation agreements (50).

(a)

Where a hardcore restriction within the meaning of Article 4 VBER is included in a vertical agreement, this agreement is likely to fall within Article 101(1).

(b)

An agreement that includes a hardcore restriction within the meaning of Article 4 VBER is unlikely to fulfil the conditions of Article 101(3) (74).

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Fixing the distribution margin;

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Fixing the maximum level of a discount that the distributor can grant from a prescribed price level;

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Making the grant of rebates or the reimbursement of promotional costs by the supplier subject to the observance of a given price level;

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Linking the prescribed resale price to the resale prices of competitors; and

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Threats, intimidations, warnings, penalties, the delay or suspension of deliveries or contract terminations in relation to the observance of a given price level.

(a)

The direct effect of RPM is the elimination of intra-brand price competition by preventing all or certain distributors from lowering their sales price for the brand concerned, thus resulting in a price increase for that brand.

(b)

RPM may facilitate collusion between suppliers, notably in markets prone to collusive outcomes, for instance, where suppliers form a tight oligopoly and a significant part of the market is covered by RPM agreements. This may also be the case where suppliers distribute their goods or services through the same distributors, thus allowing them to use the latter as a vehicle for implementing the collusive equilibrium. RPM makes it generally easier to detect whether a supplier deviates from the collusive equilibrium by cutting its price. This means that if a supplier decided not to enforce its RPM policy with a view to increasing its retail sales, RPM would allow the other suppliers to detect the resulting retail price decrease more easily and react accordingly.

(c)

RPM may facilitate collusion between buyers at the distribution level. The resulting loss of price competition seems particularly problematic when RPM is inspired by the buyers. Strong or well organised buyers may be able to force or convince one or more of their suppliers to fix their resale price above the competitive level, thereby helping the buyers reach or stabilise a collusive equilibrium. RPM serves as a commitment device for retailers not to deviate from the collusive equilibrium through discounting prices.

(d)

RPM may reduce the pressure on the supplier’s margin, in particular where the manufacturer has a commitment problem, that is, where it has an interest in lowering the price charged to subsequent distributors. In such a situation, the manufacturer may prefer to agree to RPM, so as to help it to commit not to lower the price for subsequent distributors and to reduce the pressure on its own margin.

(e)

By avoiding price competition between distributors, RPM may prevent or hinder the entry and expansion of more efficient or new distribution formats, thus reducing innovation at the distribution level.

(f)

RPM may be implemented by a supplier with market power to foreclose smaller rivals. The increased margin that RPM may offer distributors may entice them to favour the supplier’s brand over rival brands when advising customers, even where such advice is not in the interest of these customers, or not to sell these rival brands at all.

(a)

When a manufacturer introduces a new product, RPM may be an efficient means to induce distributors to better take into account the manufacturer’s interest to promote this product, in particular if it is a completely new product, and to increase sales efforts. If the distributors on the respective market face competitive pressure, this pressure may induce them to expand overall demand for the product and make the launch of the product a success, also for the benefit of consumers. Article 101(3) requires that less restrictive means do not exist. To meet this requirement, suppliers may, for example, demonstrate that it is not feasible in practice to impose on all buyers effective promotion requirements by contract. Under such circumstances, the imposition of fixed or minimum retail prices for a limited period of time in order to facilitate the introduction of a new product may be considered on balance pro-competitive.

(b)

Fixed resale prices, and not just maximum resale prices, may be necessary to organise a coordinated short term low price campaign (of 2 to 6 weeks in most cases), which will also benefit consumers. In particular, they may be necessary to organise such a campaign in a distribution system in which the supplier applies a uniform distribution format, such as a franchise system. Given its temporary character, the imposition of fixed retail prices may be considered on balance pro-competitive.

(c)

In some situations, the extra margin provided by RPM may allow retailers to provide (additional) pre-sales services, in particular in case of experience or complex products. If enough customers take advantage of such services to make their choice but subsequently purchase at a lower price with retailers that do not provide such services (and hence do not incur these costs), high-service retailers may reduce or eliminate these services that enhance the demand for the supplier's product. RPM may help to prevent such free-riding at the distribution level. The supplier will have to convincingly demonstrate that the RPM agreement is necessary in order to overcome free riding between retailers on these services. In this case, the likelihood that RPM is found pro-competitive is higher when competition between suppliers is fierce and the supplier has limited market power.

(a)

the requirement to request the supplier’s prior approval (85);

(b)

the refusal or reduction of bonuses or discounts (86), and compensatory payments by the supplier if the distributor stops sales to such customers;

(c)

the termination of supply;

(d)

the limitation or reduction of supplied volumes, for instance, to the demand within the allocated territory or of the allocated customer group;

(e)

the threat of contract termination (87) or non-renewal;

(f)

the threat or carrying out of audits to verify compliance with the request not to sell to certain customer groups or to customers in certain territories;

(g)

requiring a higher price for products to be sold to certain customer groups or to customers in certain territories;

(h)

limiting the proportion of sales to certain customer groups or to customers in certain territories;

(i)

limiting the languages to be used on the packaging or for the promotion of the products;

(j)

the supply of another product in return for stopping such sales

(k)

payments to stop such sales;

(l)

the obligation to pass-on to the supplier profits from such sales.

(a)

a requirement that the distributor, irrespective of the distribution system it operates, shall prevent customers located in another territory from viewing its website or shall automatically re-route its customers to the manufacturer's or other distributors' websites. This does not exclude an obligation on the distributor to offer on its website links to websites of other distributors and/or the supplier (89);

(b)

a requirement that the distributor, irrespective of the distribution system it operates, shall terminate consumers' online transactions once their credit card data reveal an address that is not within the distributor's territory (90);

(c)

a requirement that the distributor shall only sell in a physical space or in the physical presence of specialised personnel (91);

(d)

a requirement that the distributor shall seek the supplier’s prior authorisation for selling online;

(e)

a requirement that the distributor shall not use the supplier’s trademarks or brand names on its website;

(f)

a direct or indirect prohibition to use a specific online advertising channel, such as price comparison tools or advertising on search engines, or other online advertising restrictions indirectly prohibiting the use of a specific online advertising channel, such as an obligation on the distributor not to use the suppliers’ trademarks or brand names for bidding to be referenced in search engines, or a restriction to provide price related information to price comparison tools. While a prohibition in the use of one specific price comparison tool or search engine would typically not prevent the effective use of the internet for the purposes of selling online, as other price comparison tools or search engines could be used to raise awareness of a buyer’s online sales activities, a prohibition in the use of all most widely used advertising services in the respective online advertising channel could amount to such prevention, if the remaining price comparison tools or search engines are de facto not capable to attract customers to the buyer’s online shop.

(a)

a direct or indirect ban on sales on online marketplaces (93);

(b)

a requirement that the buyer operates one or more brick and mortar shops or showrooms as a condition for becoming a member of the supplier’s distribution system;

(c)

a requirement that the buyer sells at least a certain absolute amount (in value or volume, but not in proportion of its total sales) of the contract goods or services offline to ensure an efficient operation of its brick and mortar shop. This absolute amount of required offline sales can be the same for all buyers, or determined individually for each buyer on the basis of objective criteria, such as the buyer's size in the network or its geographic location.

(a)

the nature of the agreement;

(b)

the market position of the parties;

(c)

the market position of competitors (upstream and downstream);

(d)

the market position of buyers of the contract goods or services;

(e)

the level of trade affected;

(f)

the nature of the product; and

(g)

the dynamics of the market.

(302)

(a)

They may soften competition and facilitate collusion between suppliers of online intermediation services. In particular, it is more likely that a supplier which imposes this type of parity obligation will be able to raise the price or reduce the quality of its intermediation services without losing market share. Irrespective of the price or quality of its services, sellers of goods or services which choose to use its platform are obliged to offer conditions on the platform that are at least as good as the conditions they offer on competing platforms.

(b)

They may foreclose entry or expansion by new or smaller suppliers of online intermediation services, by restricting their ability to offer buyers and end users differentiated price-service combinations.