European Competition Law provides a wide-ranging review of the European rules relating to competition: restrictive agreements, abuse of a dominant position, impact of intellectual property rights, procedure, merger control, State aid.

European Competition Law

Vertical restraints generally result from agreements between operators located at different stages of the economic process . Such agreements are found in distribution agreements and are treated with a certain amount of indulgence insofar as, contrary to horizontal agreements , they lead in principle to an increase in inter-brand competition. In addition, whereas in horizontal relationships, the ma …

Concept

Vertical restraints generally result from agreements between operators located at different stages of the economic process . Such agreements are found in distribution agreements and are treated with a certain amount of indulgence insofar as, contrary to horizontal agreements , they lead in principle to an increase in inter-brand competition. In addition, whereas in horizontal relationships, the market power of one of the undertakings may encourage its competitors to adopt anticompetitive behavior, in vertical relationships, market power is theoretically neutralized. When the market is not concentrated and there are a large number of operators, one may consider that vertical restraints do not produce any negative effects. According to the Commission, vertical restraints only give rise to difficulties from the competition point of view, where inter-brand competition is insufficient at one or several stages of trade, i.e. where there is a certain market power from the supplier or buyer or at both levels . After initially only analyzing vertical restraints in the light of Article 101(3) TFEU) , the EU authorities accepted that some vertical restraints were necessary to the very functioning of distribution systems . Such restrictions are consequently not caught by Article 101(1). By empowerment of the European Council , the Commission, in addition, adopted several block exemption regulations covering the principal distribution agreements .

The problems raised by the application of the various regulations  led the Commission to modify its exemptions policy by creating more flexible regulations with a resolutely economic approach. Regulation No 2790/1999 of 22 December 1999,  on the application of Article [101(3)] of the Treaty to categories of vertical agreements and concerted practices was the first of these “new generation” regulations . It was replaced by Regulation No 330/2010 of 20 April 2010  , itself replaced by Regulation No 2022/720 of 10 May 2022 . The scope of application of the regulation remains very wide since it covers all vertical agreements, i.e. all agreements between undertakings each of which operates at a different level of the production and distribution chain  and relating to the purchase, sale or resale of certain goods and services, as well as agreements containing ancillary provisions on the assignment or use of intellectual property rights which are directly related to the use, sale or resale of goods or services . The extending of the scope of application reflects a need to simplify and harmonize the rules on the various systems of distribution. From the Commission's perspective, the challenge is to allow businesses to freely choose their marketing methods, in full knowledge of the facts, according to their strategic interests only and without having to concern themselves with Commission policies on one distribution system or another. The new regulation also pursues a second objective: according to the EU authority: distributors must meet demand from consumers who, wherever they are in the Union, must have the possibility to buy goods or services at the most interesting price. In view of its expiry in 2022, the Commission launched on 8 November 2018 an evaluation roadmap of the Vertical Restraints Regulation, followed, on 12 October 2020, by a public consultation in the context of the expiry of the regulation on 31 May 2023, in order to verify the appropriateness of allowing the latter to lapse, extending it or amending it in order to take account of the most recent market developments. In its evaluation report of 28 May 2021, the Commission considered that no major revision of the regulation was necessary given the absence of significant developments over the last decade. However, the text does need to be updated to take into account, in particular, the importance that access to data is likely to have as a competitive factor. It therefore launched a new public consultation on 6 July 2022 on a draft text that would extend the validity of the current regulation for a further five years, as well as on draft guidelines taking into account current emerging trends, such as those resulting from the digitization of vehicles and new means of mobility.

Only those agreements that, while infringing Article 101(1) TFEU, fulfill with sufficient certainty the applicable conditions laid down in Article 101(3), are included within the block exemption (Article 2). The regulation establishes the presumption of lawfulness for agreements which do not contain any restrictions having serious anticompetitive effects (black or red clauses) as long as the supplier or the distributor each holds a market share that does not exceed 30% (Article 3). If it does, the parties must assess their agreement in the light of the relevant Commission guidelines .

 Regulation No 330/2010 defines vertical agreement as “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 conditions under which the parties may purchase, sell or resell certain goods or services”. In the same way as a horizontal agreement can involve a vertical restraint (Commission Guidelines on vertical restraints, see Ns 29 et seq., relative to retailers' associations), a vertical agreement can also lead to a horizontal agreement (see French Competition Council decision No 03-D-40 of 5 September 2003, LawLex200300003479JBJ). According to Article 1(b), a restriction of competition in a vertical agreement falling within the scope of Article 101(1), is a vertical restraint. 

Which are concluded between competing producers of the same or substitutable goods or services. 

Regulation No 2022/70, OJ L 134 of 11 May 2022, 4.

Case T-691/14 Servier SAS, Judgment of 12 December 2018, LawLex201900001337JBJ, holding that the Vertical Restraints Regulation does not apply to exclusivity agreements concluded between two competing undertakings.

As a rule, commercial agency contracts are not covered by the regulation because agents do not, in principle, constitute undertakings within the meaning of Article 101(1) TFEU, unless the agent bears the financial or commercial risks in relation to the contract: See Guidelines on vertical restraints No 2010/C 130/01, at pts 12 et seq.

Commission Notice No 2010/C 130/01, Guidelines on Vertical Restraints OJ No C130 of 19 May 2010. The assessment of an agreement involves four steps: (1) Definition of the relevant market in order to establish the market share; (2) if the relevant market share does not exceed the 30% threshold, the agreement is exempted, subject to the hardcore restrictions and conditions set out in article 5 of that regulation; (3) if the relevant market share is above the 30% threshold, it is necessary to assess whether the vertical agreement falls within Article 101(1) TFEU; (4) if the vertical agreement falls within Article 101(1) TFEU, it is necessary to examine whether it fulfills the conditions for individual exemption.

Commission Guidelines on vertical restraints, at pt 6.

Case 56/64 and 58/64 Consten v Commission EEC [1966] ECR 556, LawLex200400002598JBJ, emphasizing that improvements in distribution must in particular show appreciable objective advantages of such a character as to compensate for the disadvantages which they cause in the field of competition.

Case 26/76 Metro v Commission [1977] ECR 1875, LawLex200400002980JBJ; Case 31/80 L'Oréal v De Nieuwe AMCK [1980] ECR 3775, LawLex200400002967JBJ.

Council Regulation No 19/65 of 2 March 1965 concerning the application of Article 81(3) of the Treaty [now 101(3) TFEU] to certain categories of agreements and concerted practices, OJ 36, 6.03.1965, 533, amended by Regulation No 1215/99 of 10 June 1999 in order to increase the Commission's mandate.

Regulation No 1983/83 and 1984/83 of 22 June 1983 (OJ, L 173 of 30 June 1983, respectively 1 and 5, rectified. OJ L 79, 23.03.1984, 38, replacing Regulation No 67/67 of 23 March 1967, OJ 57, 25.03.1967, 849), concerning, respectively, the application of Article 101(3) TFEU, to categories of exclusive distribution and exclusive purchasing agreements; EC Regulation No 1475/95 of 28 June 1995, OJ L 145, 2906.1995, 25, replacing Regulation No 123/85 of 12 December 1984, OJ L 15, 18.01.1985, 16, on the application of Article 101(3) TFEU to certain categories of motor vehicle distribution and servicing agreements; Regulation No 4087/88 of 30 November 1988, OJ L 359, 28.12.1988, 46, on the application of Article 101(3) TFEU to categories of franchise agreements.

Traditional regulations were criticized for being too formal, imposing the way to draft agreements and for the narrow scope of their application.

OJ L 336, 29.12.1999, 21, which replaced the exemption regulations No 1983/83, No 1984/83 and No 4087/88 on exclusive distribution, exclusive purchasing and franchise, respectively.

European Competition Law

105. Concept

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105. Concept

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