Supply and distribution agreements

1) OBJECTIVE

To exempt certain categories of vertical agreements that, under certain conditions, may improve economic efficiency within a production or distribution chain.

2) ACT

Commission Regulation (EC) No 2790/1999 on the application of Article 81(3) of the Treaty establishing the European Community to categories of vertical agreements and concerted practices [Official Journal L 336 of 29.12.1999].

3) SUMMARY

Background

This Regulation has to be read in conjunction with Regulation No 19/65, as amended by Regulation No 1215/1999, authorising the Commission, subject to compliance with Article 81(3) of the EC Treaty, to exempt certain categories of vertical agreements.

With a view to simplifying the rules applicable to supply and distribution agreements, this single Regulation replaces Regulation No 1983/83 concerning the block exemption for certain exclusive distribution agreements, Regulation No 1984/83 concerning the exemption for certain categories of exclusive purchasing agreements and Regulation No 4087/88 concerning the exemption for certain categories of franchise agreements.

Scope

Since certain vertical agreements may lead to better coordination at the production or distribution level, this Regulation exempts supply and distribution agreements concerning final and intermediate goods as well as services, provided that the combined market share of the parties concerned does not exceed 30% of the relevant market. Generally speaking, serious restraints on competition (such as price fixing and limits on production) will continue to be prohibited.

Agreements exceeding the 30% market share threshold may be subject to an individual examination in the light of Article 81 of the EC Treaty.

The Commission or the national competition authority in the case of effects produced on some or all of the territory of a Member State may withdraw the benefit of the exemption where certain effects are incompatible with the conditions laid down in Article 81(3).

Agreements covered by the exemption

This exemption Regulation applies to agreements entered into by two or more undertakings each of which operates, for the purposes of the agreement, at a different level of the production or distribution chain, provided that the 30% market share threshold is not exceeded.

Additional conditions must be met where:

• an agreement is entered into between an association of undertakings and its members or between an association and its suppliers, with individual association member's total annual turnover not exceeding EUR 50 million;
• an agreement containing provisions which relate to intellectual property rights, provided that those provisions do not constitute the primary object of such agreements and are indispensable to the use, sale or resale of goods;
• an agreement is entered into between competing undertakings and the supplier is a manufacturer/distributor of goods or services while the buyer is a distributor that does not produce competing goods or services, provided that the buyer's total annual turnover does not exceed EUR 100 million.

Agreements not covered by the exemption

The exemption under this Regulation does not apply to vertical agreements where the producer imposes:

• resale prices for its products although maximum or recommended prices are generally authorised;
• territorial or customer restrictions;
• restrictions on sales by way of selective distribution;
• restrictions on its own supplier of spare parts regarding the sale of the latter to end-users or independent repairers.

In addition, certain restrictions not exempted under the Regulation may be exempted if certain circumstances and conditions are met. These restrictions concern:

• any non-compete obligation lasting more than five years;
• any obligation prohibiting the buyer, at the end of the contract, to manufacture, purchase, sell or resell goods or services;
• any obligation prohibiting by way of a selective distribution system the sale of the brands of competing suppliers.

The Commission and the national authorities and courts must ensure that these prohibitions are implemented.

Market share and turnover

The value of the sales of the goods or services concerned or of interchangeable goods or services may not exceed 30%. If the market share reached 35%, the exemption would still apply for a period of two consecutive calendar years following the year in which the 30% market share threshold was exceeded. As regards exclusive supply obligations, the buyer's market share needs to be taken into consideration in order to determine the overall effect of these agreements on the market.

However, calculation of total annual turnover results from adding together the turnover, excluding taxes and other duties, achieved during the previous financial year by the relevant party and the turnover achieved by its connected undertakings.

Last updated: 21.02.2007