Exemption for vertical supply and distribution agreements (from 2022)

SUMMARY OF:

Regulation (EU) 2022/720 on the application of Article 101(3) of the Treaty on the Functioning of the European Union (TFEU) to categories of vertical agreements and concerted practices

Article 101 TFEU – Common rules on competition, taxation and approximation of laws – Chapter 1 – Rules on competition – Section 1 – Rules applying to undertakings

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

Article 101(1) of the Treaty on the Functioning of the European Union (TFEU) prohibits agreements between companies that may affect trade between European Union (EU) Member States and that prevent, restrict or distort competition. However, Article 101(3) TFEU exempts from this prohibition agreements that create sufficient benefits to outweigh the anti-competitive effects.
The regulation gives a block exemption from Article 101(1) for vertical agreements*, subject to certain conditions.

KEY POINTS

Conditions for the application of the regulation

The regulation applies to vertical agreements on the condition that:

the supplier and the buyer each have a market share not exceeding 30%; and
the vertical agreement does not contain certain severe restrictions on competition (hardcore restrictions).

Hardcore restrictions

If a vertical agreement includes any of the following severe restrictions on competition, the whole agreement is excluded from the block exemption:

restrictions on a buyer’s ability to determine its sale price, although the supplier may impose a maximum sale price or recommend a sale price;
restrictions on the territory in which, or the customers to whom, the buyer may sell goods or services covered by the vertical agreement, subject to certain exceptions that enable the supplier to operate exclusive or selective distribution systems;
restrictions of cross-supplies between the members of a selective distribution system;
restrictions that prevent the buyer from making effective use of the internet to sell goods or services covered by the vertical agreement;
restrictions on the ability of a supplier of components to sell them as spare parts to end users, repairers, wholesalers or other service providers.

Excluded restrictions

The regulation excludes the following restrictions from the block exemption:

non-compete obligations* that are indefinite or that exceed 5 years’ duration;
obligations on the buyer not to manufacture, buy or sell goods or services after the termination of the agreement;
not allowing members of a selective distribution system to sell competitors’ brands;
obligations on the members of a selective distribution system not to sell the brands of particular competing suppliers;
obligations on buyers of online intermediation services not to offer goods or services to end users on more favourable terms via competing online intermediation services.

Although these restrictions are excluded from the block exemption, the rest of the vertical agreement can continue to benefit from that exemption, provided that it can operate without the excluded restrictions.

Withdrawal of the benefit of the block exemption

The European Commission and the competition authorities of the Member States may withdraw the benefit of the block exemption in individual cases where they find that particular vertical agreements nonetheless have effects that are incompatible with Article 101(3) TFEU.

Guidance

The Commission has also published guidelines on vertical restraints (see summary). These provide guidance to help companies interpret the regulation and to assess the compliance with Article 101 TFEU of vertical agreements that do not benefit from the block exemption.

FROM WHEN DOES THE REGULATION APPLY?

It has applied since 1 June 2022 and expires on 31 May 2034.
Vertical agreements that do not meet the conditions of the regulation, but which were already in force on 31 May 2022, and that met the conditions of the previous block exemption regulation for vertical agreements (Regulation (EU) No 330/2010 – see summary) benefit from a transitional period that expires on 31 May 2023.

BACKGROUND

Certain vertical agreements can improve economic efficiency in a production or distribution chain, by facilitating coordination between suppliers and buyers. For example, they can help suppliers and buyers to reduce their costs and increase their sales and investments.
For further information, see:
- Antitrust: Commission adopts new vertical block exemption regulation and vertical guidelines – press release (European Commission).

KEY TERMS

Vertical agreement. An agreement or arrangement between two or more undertakings operating at different levels of the production or distribution chain relating to the conditions under which they buy or sell goods or services.

Non-compete obligation. An obligation on a buyer not to manufacture, buy or sell goods or services that compete with goods or services covered by the vertical agreement, or an obligation to buy more than 80% of the buyer’s total purchases of such goods or services or their substitutes from the supplier or from a company designated by the supplier.

MAIN DOCUMENTS

Commission Regulation (EU) 2022/720 of 10 May 2022 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 134, 11.5.2022, pp. 4–13).

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).