Guidelines on vertical restraints

SUMMARY OF:

European Commission Notice: Guidelines on vertical restraints

WHAT IS THE AIM OF THE GUIDELINES?

The guidelines set out the principles for assessing vertical agreements* and concerted practices under Article 101 of the Treaty on the Functioning of the European Union (TFEU) (see summary) and European Commission Regulation (EU) 2022/720 (the new vertical block exemption regulation – see summary).
They are intended to help businesses assess the compatibility of their vertical agreements with European Union (EU) competition rules. The Commission emphasises that the guidelines should not be applied mechanically and that each agreement must be assessed on its own facts.

KEY POINTS

The guidelines cover eight main issues.

Assessment of a vertical agreement depending on whether the supplier and/or buyer have a market share above 30%

If neither the supplier nor the buyer exceed the threshold and the agreement does not contain certain severe restrictions on competition (‘hardcore restrictions’), the agreement automatically benefits from an exemption from Article 101 TFEU.
If either the supplier or the buyer has a market share above the 30% threshold or the agreement contains one or more hardcore restrictions, the agreement must be assessed to determine, first, whether it falls within the scope of Article 101(1) TFEU and, if so, whether it meets the conditions of the exception provided by Article 101(3) TFEU.

Possible effects of vertical agreements

Positive. Lower prices, promotion of non-price competition, improved quality and other positive effects for competition.
Negative. Anti-competitive foreclosure of other suppliers or buyers by raising barriers to entry or expansion, restricting consumer choice or increasing prices.

Agreements generally falling outside the scope of Article 101(1) TFEU. These include:

agreements which do not appreciably affect trade between Member States (‘no effect on trade’), which do not appreciably restrict competition (‘agreements of minor importance’) or which involve small and medium-sized enterprises;
agency agreements, where one undertaking negotiates and/or concludes sale or purchase contracts on behalf of another undertaking and does not assume any significant economic risks in relation to that selling or purchasing activity.

Scope of Regulation (EU) 2022/720. This includes:

the ‘safe harbour’ established by the regulation for agreements that meet its conditions;
definition of a vertical agreement: ‘an agreement or concerted practice entered into between two or more undertakings, each of which operates, for the purposes of the agreement or the concerted practice, at a different level of the production or distribution chain, and relating to the condition under which the parties may purchase, sell or resell certain goods and services’;
vertical agreements in the online platform economy, which generally do not qualify as agency agreements falling outside the scope of Article 101(1) TFEU;
specific limits to the application of Regulation (EU) 2022/720, including for:
- agreements involving associations of retailers;
- agreements relating to intellectual property rights;
- agreements between competitors;
- agreements with online intermediation services providers that have a hybrid function (‘hybrid platforms’);
- agreements covered by other block exemption regulations.

Market definition and market share calculation

The Commission’s Market Definition Notice provides guidance on the rules, criteria and evidence taken into account by the Commission.
Regulation (EU) 2022/720 specifies that the market shares of the supplier and buyer are in principle calculated on the basis of value data, taking into account all sources of revenue from the sale of goods and services. Where value data are not available, substantiated estimates can be made, based on other reliable market information such as volume figures.

Hardcore restrictions in Regulation (EU) 2022/720. These restrictions:

should generally be prohibited because of the harm they cause consumers;
lead to the exclusion of the entire vertical agreement from the benefit of the block exemption;
include resale price maintenance and restrictions on the territory or customers to which the buyer may actively or passively sell the contract goods or services.

Withdrawal and disapplication rules. These concern:

the powers of the Commission and national competition authorities to withdraw the benefit of the block exemption in respect of individual vertical agreements where the relevant authority finds that the agreement does not fulfil one or more of the conditions of Article 101(3) TFEU;
the power of the Commission to adopt regulations declaring that Regulation (EU) 2022/720 no longer applies, notably when parallel networks of similar vertical restraints cover more than 50% of a relevant market.

Enforcement policy in individual cases. This:

explains how the Commission assesses, under Articles 101(1) and 101(3) TFEU, vertical agreements that do not benefit from the block exemption provided by Regulation (EU) 2022/720;
provides guidance on the assessment of specific vertical restraints, such as single branding, exclusive supply, restrictions on the use of online marketplaces or price comparison services, and parity obligations.

FROM WHEN DO THE GUIDELINES APPLY?

They apply together with the new vertical block exemption regulation, which entered into force on 1 June 2022, and replace guidelines dating from 2010.

BACKGROUND

Article 101(1) TFEU prohibits agreements between undertakings that prevent, restrict or distort competition. Vertical agreements involve two or more undertakings operating at different levels of the production or distribution chain.
Article 101(3) TFEU allows such agreements if they:
- improve the production or distribution of goods or promote technical and economic progress;
- allow consumers a fair share of the benefits;
- do not contain restrictions which are not indispensable to the achievement of the benefits;
- do not entirely eliminate competition.
The vertical block exemption regulation exempts vertical agreements that meet certain conditions enabling the creation of a ‘safe harbour’.
The regulation and the accompanying guidelines on vertical restraints have been revised to make them fit for a business environment that has been reshaped by the growth of e-commerce.
For further information, see:
- Block exemptions – vertical agreements (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.

MAIN DOCUMENT

Communication from the Commission – Commission Notice: Guidelines on vertical restraints (OJ C 248, 30.6.2022, pp. 1–85).