Revised competition rules relating to vertical agreements and concerted practices have been adopted by the European Commission and replace, as of June 1, 2010, the former block exemption regulation, Regulation No 2790/1999, which expired on May 31, 2010. The new block exemption regulation — Regulation (EU) No 330/2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union (the “TFEU”) to categories of vertical agreements and concerted practices (the “Block Exemption Regulation”) — was adopted on April 20, 2010, while revised Guidelines for the assessment of vertical restraints were adopted on May 19, 2010.
The new Regulation modifies the scope of vertical agreements benefiting from the block exemption to the prohibition of anti-competitive practices set forth by Article 101(1) of the TFEU (formerly Article 81 of the EC-Treaty). Vertical agreements are agreements setting out conditions under which two or more undertakings — operating, for the purposes of the agreement, at a different level on the production or distribution chain — may purchase, sell or resell certain goods or services. Typical vertical agreements are those entered into by vendors of raw materials with manufacturers, by manufacturers with distributors and by wholesalers with retailers. Although such agreements may contain provisions restricting competition, including exclusivities or non-compete obligations, the European Commission considers the pro-competitive effects of these agreements to generally outweigh any secondary restraints on competition. If they meet the conditions set out in the Block Exemption Regulation, such agreements benefit from an exemption pursuant to Article 101 (3) of the TFEU, without the need for individual scrutiny.
Vertical agreements covered by the Block Exemption Regulation are generally those entered into between non-competing undertakings. In addition, vertical agreements entered into between an association of undertakings and its members, or between such an association and its suppliers, or vertical agreements between competing undertakings may, under certain conditions, fall within the scope of the block exemption. In all cases, however, an agreement may benefit from the block exemption only if the market share of the supplier does not exceed 30% of the relevant market on which it sells the contract goods or services and — this is the principal modification to the former rules — the market share held by the buyer does not exceed 30% of the relevant market on which it purchases such goods or services.
Agreements entered into before June 1, 2010 and exempted pursuant to the 1999 Block Exemption Regulation could thus lose, as of May 31, 2011, the benefit of the exemption, solely due to the fact that the buyer’s relevant market position exceeds 30%, even if nothing has changed in such regard. The agreement and all potentially restrictive provisions it contains will then have to be individually scrutinized under the general provisions of Article 101 of the TFEU.
Another major innovation of the revised rules is addressing online sales which are qualified as “passive sales” and expressly regulated in the Guidelines. The right for distributors to freely sell their products on their website is set out as the general rule of law. Any restriction to online sales may qualify as a hardcore restriction, resulting in the distribution agreement losing the benefit of the Block Exemption Regulation. The Guidelines provide concrete examples of forbidden restraints, such as: obliging a distributor to re-route customers located outside of the exclusive territory to the website of the manufacturer or of another distributor, or to abort such customers’ transactions; limiting the distributor’s proportion of overall sales made online; or charging a higher price for products intended to be resold by the distributor online. Some restraints are nevertheless allowed, such as obliging the distributor to have at least one retail store in which he achieves a minimum turnover set by the supplier.
As under the 1999 Block Exemption Regulation, hardcore restrictions remove the benefit of the exemption for the whole agreement; hardcore restrictions are deemed to exist where an agreement’s purpose is to restrict the buyer’s ability to determine the sale price, restrict the territory into which, or the customers to whom, a buyer may sell or restrict the sales to end users by members of a selective retail distribution system. Other types of contractual obligations restricting competition, on the other hand, are themselves disqualified from the benefit of the exemption but do not affect the entire agreement. Examples of such non-exempt provisions include non-compete obligations lasting for more than five years, or for an indefinite term; provisions prohibiting the buyer, after termination of the agreement, from manufacturing, purchasing, selling or reselling competing goods or services (where such provisions are not necessary to protect know-how and are not limited geographically and temporally); or those prohibiting the members of a selective distribution system from selling the brands of competing suppliers. In either case, if the agreement or some of its provisions are not covered by the block exemption, general rules on anti-competitive agreements apply to the agreement or the particular provision, as the case may be.
The new Block Exemption Regulation applies to all vertical agreements entered into on or after June 1, 2010. It will expire on May 31, 2022. Agreements in force on May 31, 2010 remain subject to the 1999 Block Exemption Regulation until May 31, 2011. After such deadline, agreements that do not satisfy conditions set out in the new Block Exemption Regulation must either be renegotiated to render them compliant with the new Regulation or examined in order to make sure that they are otherwise compatible with European competition rules.