Friday, March 21, 2014

A vertical agreement1
This occurs when two or more undertakings which operate at different levels of the production/distribution chain enter into an agreement, for example, agreements between producers and retailers. The undertakings involved do not in any event compete with each other because they operate at different levels of the market. The most popular vertical agreements are distribution agreements and franchising agreements. The ECJ in Joined Cases 56 and 58/64 Consten and Grundig confirmed that vertical agreements are within the scope of Article 101 TFEU in the following words: Article [Article 101 TFEU] refers in a general way to all agreements which distort competition within the Common Market [Internal market] and does not lay down any distinction between those agreements based on whether they are made between competitors operating at the same level in the economic process or between non-competing persons operating at different levels. In principle, no distinction can be made where the Treaty does not make any distinction.

Assessment of vertical agreements under Article 101(1) TFEU

The concept of vertical agreements has been defined by the Commission in its Guidelines on Vertical Restraints (hereafter referred as Vertical Guidelines),as agreements or concerted pra ctices entered into between two or more companies each of which operates, for the purposes of the agreement, 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.

Vertical Agreements
The Commissions Vertical Guidelines provide the methodology for assessment of whether a vertical agreement infringes Article 101(1) TFEU and if so, whether it may be justified under Article 101(3) TFEU. Para. 110 of the Vertical Guidelines sets out nine factors relevant to the assessment carried out under Article 101(1) TFEU such as The nature of the agreement; The market position of the parties; The market position of competitors; The position of the buyers of the contract products; Entry barriers; The maturity of the market; The level of trade affected by the agreement The nature of the product; and, Other factors, examples of which are given in para. 121 of the Vertical Guidelines, e.g. whether there is a cumulative effect within the market of similar vertical agreements, whether a restriction under the agreement was imposed by one party on the other rather than agreed by them, and the regulatory environment.

http://europa.eu/legislation_summaries/competition/firms/cc0007_en.htm

Friday, March 21, 2014

Direct and indirect exports bans

The imposition of bans restricts competition by object and thus is contrary to the objective of an integrated market as it prevents parallel imports and partitions the internal market. An example of an indirect ban is a withdrawal, by a French producer of cognac, of discounts previously granted to its French distributor, when the latter exported the product to Italy. Prices for cognac charged to distributors in Italy were 25 per cent higher than those charged to similar distributors in France. Thus the producers aim was to discourage parallel export (Gosme/Martell DMP- ). In DaimlerChrysler, the requirement that foreign customers should pay a 15 per cent deposit for a new vehicle while no such requirement was imposed on locals was considered as an indirect ban.

Selective distribution agreements

In selective distribution agreements the supplier sells the goods or services either directly or indirectly only to distributors selected on the basis of specific criteria, and the distributors undertake not to sell such goods or services to unauthorised distributors. Case 26/76 MetroThe Vertical Guidelines restate the Metro test. The Guidelines make a distinction between purely qualitative and quantitative selective agreements. Purely qualitative selective agreements are outside the prohibition of Article 101(1) TFEU provided three conditions are satisfied: The nature of the product in question necessitates a selective distribution system (but this is no longer required under Regulation 330/2010); Resellers must be chosen on the basis of objective criteria of a qualitative nature; and, The objective criteria laid down must not go beyond what is necessary. Case C-439/09 Pierre Fabre- decided after into force of the Regulation. Held- de facto prohibition of online sales imposed by a producer of products in context of selective distribution agreements could not be justified by the need to provide individual advice to consumers.

Franchising agreements
The nature of franchising agreements is that they contain licences of intellectual property rights relating to trademarks or signs or know-how for the use and distribution of goods and services, and that the franchisor provides technical and commercial assistance to the franchisee during the life of the agreement. The franchisee gets to exercise the rights in question and, in exchange, the franchisee pays a franchise fee for the use of the particular business method. Franchising agreements usually

Friday, March 21, 2014 contain a combination of different vertical restraints relating to the manner in which the products must be distributed. (Case 161/84 Pronuptia)2.Pronuptia de Paris GmbH v Pronuptia de Paris Irmgard Schillgallis. The case was concerned with franchising arrangements for wedding apparel. Under the franchise, the franchisor granted the franchisee the exclusive right to use the Pronuptia mark for a certain area; it agreed not to open another shop in that area, or aid any third party to do so; and it assisted the franchisee in setting up the store, providing the know-how etc. In return the franchisee, who remained the owner of the business, agreed to use the Pronuptia name; to pay the franchisor a royalty on turnover; to purchase 80% of its requirements for wedding dresses from the franchisor; and not to compete with any Pronuptia business. The Court noted the diversity in types of franchise agreement: there were service, production, and distribution franchise agreements. The judgment is directed at distribution franchises.

The cumulative effect of exclusive purchasing agreements

Exclusive purchasing agreements in many ways closely resemble exclusive distribution agreements. Under exclusive purchasing agreements the buyer is required to purchase goods from the manufacturer. Both parties potentially benefit from that arrangement. Manufacturers are able to calculate the demand for their product for the duration of the agreement, and adjust their production accordingly; buyers, in exchange for their commitment, receive advantageous prices, technical assistance, preference in supply, and so on (Case 23/67 Brasserie de Haecht (No.1)).

Block exemption regulations:

Block exemption regulations exempt classes of agreements (that is why they are called block exemption regulations) such as exclusive distribution agreements, purchasing agreements and agreements licensing IPRs, so long as the agreements conform to any exemption regulations so adopted.

Commission Regulation 330/2010 of 20 April 2010 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
Regulation 330/2010 entered into force on 1 June 2010 and is expected to expire on 31 May 2022

Regulation 330/2010

http://books.google.com/books?id=nLaNiry3if8C&pg=PA979&lpg=PA979&dq=case+161+84+pronuptia&source=bl &ots=Kx_fEOhS0_&sig=Ypl3tk9pXOuaoxsfvQz7PUrwndk&hl=en&sa=X&ei=qUMsU5OZDKiH0AH964DABw&ved=0C GAQ6AEwBw#v=onepage&q=case%20161%2084%20pronuptia&f=false

Friday, March 21, 2014 It applies in the following agreements: 1. All vertical agreements between non-competitors where the supplier of goods or services under the agreement has a share in the relevant product market of less than 30 per cent and the market share of the buyer does not exceed 30 per cent of the relevant market. Vertical agreements entered into between an association of undertakings and its members, or between such an association and its suppliers if: (i) all the members of the association are retailers of goods (not services); and, (ii) each member has a turnover not exceeding 50 million. Vertical non-reciprocal agreements between competitors within the market share thresholds specified in point 1 above but only if: (i) the supplier is a manufacturer and a distributor of goods while the buyer is only a distributor and not a competing undertaking at the manufacturing level; or, (ii) the supplier supplies services at several levels of trade while the buyer does not provide competing services at the same level at which it purchases the contract services. To vertical agreements containing provisions relating to the assignment /use of IPRs and which are within the market share threshold specified in point 1 where five conditions are satisfied.

2.

3.

4.

Para 23 of the Vertical Guidelines states that hard-core restrictions set out in Article 4 of the Regulation restrict competition by object. As a result, they can only be justified under Article 101(3) TFEU

Article 4 of Regulation 330/2010

Article 4(a): the restriction of the buyers ability to determine its sale price (i.e. resale price maintenance), except the setting of maximum resale prices or of recommended resale prices provided that they do not, in practice, amount to fixed or minimum resale prices. Article 4(b): Restrictions of the territory into which, or of the customers to whom, a buyer may sell. In four situations restrictions on territory or customer exclusivity are permitted: (i) Restrictions on active sales into the exclusive territory or to an exclusive group reserved to the supplier or allocated by the supplier to another buyer, where such a restriction does not limit sales by the customers of the buyer. (ii) Restrictions on both active and passive sales to end users by a buyer operating at the wholesale level; (iii) Restrictions on sales, both active and passive, and at any level of trade, by members of a selective distribution system to unauthorised distributors in the territory where that system is currently in operation and also in the territory where the supplier does not yet sell the contract product; and,

Friday, March 21, 2014 (iv) restrictions on sales, active and passive, of goods or services which are supplied for the purpose of incorporation into other products which would compete with those of the supplier. Article 4 (c) prohibits restrictions of active or passive sales to users, whether professional end users or final customers, by members of a selective distribution system operating at the retail level of trade; Article 4 (d) prohibits restriction of cross-supplies between distributors within a selective distribution system, including between distributors at different levels of trade; and, Article 4 (e) prohibits restrictions which prevent end-users, i.e. repairers and service providers, from obtaining spare parts directly from the manufacturers of those parts, in a situation where repairers and service providers are not entrusted by the buyer with the repair or servicing of its goods.

Article 5 of Regulation 330/2010

Article 5 of the Regulation concerns non-compete clauses which, although prohibited, are severable from the agreement. This means that such clauses will be invalid while the remainder of the agreement can benefit from the block exemption. The following are prohibited: Any direct or indirect obligation imposed on members of a selective distribution scheme to sell or not to sell specified brands of competing suppliers; A non-competition obligation on the buyer exceeding five years in duration, unless the goods to which the agreement relates are intended to be resold by the buyer from premises owned or leased by the supplier, provided that the duration of the noncompetition obligation does not exceed the period of occupancy of the premises by the buyer; and, Post-term non-compete obligations. Article 5(1)(b) states that any direct or indirect obligation causing the buyer , after termination of the agreement, not to manufacture, purchase, sell or resell goods or service is prohibited. This is unless the ob ligations: relate to goods or services competing with contract goods or services , are limited to the premises and land from which the buyer has operated during the agreement, are indispensable to protect know-how transferred by the supplier under the agreement, and are limited to a period of one year.