A new block exemption amends EU competition law by simplifying the regime that governs exclusive distribution, franchise and similar 'vertical agreements'. The regulation entered into force on January 1 2000 and has applied since June 1 2000. The regulation is accompanied by guidelines which set out how it should be applied.

Where the regulation's market share thresholds are not exceeded and where the parties to the vertical agreement avoid the inclusion of hard-core restrictions, the parties can be assured that Article 81(1) of the EC Treaty - which outlaws anti-competitive behaviour - does not apply to the agreement. Accordingly, the arrangement will benefit automatically without prior notification to the EU Commission for an exemption.

Scope of the Regulation

The regulation applies to all vertical agreements which involve two or more parties operating at a different level of the production or distribution chain under which the purchase, sale or resale of goods or services is conducted. The regulation will not apply where the supplier's market share exceeds 30%. In the case of exclusive supply agreements, the regulation will apply only where the buyer's market share does not exceed 30%.

The regulation will not apply to:

  • agreements which have no effect on trade between member states (national competition law will apply to these agreements);

  • many agency agreements (which fall outside the Article 81(1) prohibition);

  • agreements relating primarily to intellectual property rights;

  • motor vehicle distribution and servicing arrangements (which are subject to separate regulations); or

  • vertical agreements entered into between competing undertakings.

Hard-core Restrictions

The regulation sets out a list of 'hard-core' restrictions. If any of these are included, the benefit of the regulation will be lost for the entire agreement. The hard-core restrictions provide that parties to vertical agreements may not restrict:

  • the buyer's ability to determine its resale prices, although the supplier may impose a maximum sale price or recommend a resale price;

  • active/passive selling to end users by retailers in a selective distribution network;

  • cross-supplies between distributors in a selective distribution system;

  • sales by manufacturers of spare parts to independent persons; or

  • the territory in which, or the customers to whom, a buyer may sell if the sale results from an unsolicited order from the customer. However, a supplier may restrict active sales by its direct buyers to a territory or a customer group which has been allocated exclusively to another buyer, or which the supplier has reserved to himself.

Unacceptable Restrictions

The regulation also includes a list of restrictive obligations which the commission regards as unacceptable. These include:

  • any direct or indirect non-compete obligation which is indefinite or exceeds five years. The five-year time limit conflicts with Irish competition rules, which allow distribution agreements and petrol 'solus' agreements to operate for 10 years; or

  • any post-termination non-compete obligation (although a one-year restriction may be acceptable in some cases); or

  • any obligation on dealers in a selective distribution system not to sell the brands of particular competing suppliers.

The inclusion of these restrictions will not deprive the whole of a vertical agreement from the benefit of the regulation. The exemption is only lost in relation to the individual restrictive obligation.

Transitional Arrangements

The regulation applies to vertical agreements concluded from June 1 2000 onwards. Agreements already in force on June 1 2000 which satisfy the previous block exemptions but which would not qualify under the new regime will be valid until December 31 2001. After that date all agreements must comply with the regulation.

Implications for E-commerce

The guidelines make clear that buyers must be free to use the Internet to respond to orders. If a customer outside a distributor's exclusive territory visits the web site of that distributor and the visit leads to a sale, the sale is considered passive and must be permitted. However, unsolicited e-mails sent by distributors to individuals or specific customer groups outside of its exclusive territory are considered as active sales and may therefore be prohibited by parties to a vertical agreement.

For further information on this topic please contact Gerald FitzGerald or John Darby at McCann FitzGerald by telephone (+353 1 829 0000) or by fax (+353 1 829 0010) or by e-mail ([email protected] or [email protected]).

The materials contained on this web site are for general information purposes only and are subject to the disclaimer