Although restrictions in supply and distribution (vertical) agreements are generally of lesser concern to competition authorities, we can expect to see some important cases in 2011 – both in Europe, under the new EU rules on supply and distribution agreements, and in the US, where debate over the assessment of resale price maintenance continues.

In Europe, the new block exemption regulation and guidelines on restrictions in vertical agreements came into force on 1 June 2010. Companies involved in supply and distribution in the EU have until 31 May 2011 to review their pre-existing vertical agreements and adjust them if necessary to comply with the new rules.

  • The key change is a narrowing of the safe harbour for vertical agreements through the introduction of a market share cap for the buyer, to address concerns about the market power of large retailers. To benefit from the block exemption, the market share of the buyer as well as the supplier is now required not to exceed 30 per cent. This change reduces the scope of the block exemption and it may be difficult for the supplier to assess the buyer’s share of the relevant purchase market.
  • Another significant change is the updated guidance on when suppliers can restrict internet sales. We expect online sales restrictions to be a particular area of focus for future cases. There are already cases pending in France and in Switzerland, whose rules on vertical agreements follow those of the EU. The French Pierre Fabre case, referred to the European Court of Justice for a preliminary ruling (anticipated this summer), is expected to set the applicable rules on whether and how a supplier can restrict or regulate internet sales through its selective distribution network.
  • There is also an acknowledgement that it may be possible to demonstrate that the efficiencies arising from a ‘hard-core’ restriction such as resale price maintenance (RPM) justify an exemption from the general prohibition, although this seems a tough prospect in practice, particularly given significant enforcement against RPM in a number of member states.

In the US, the evaluation of RPM agreements remains a contentious issue. Although the 2007 Leegin judgment abolished per se illegality in federal cases, RPM remains illegal if practised within several states. Some states have intensified their enforcement of RPM following Leegin – for example, New York and California. Many of these cases have settled, but mattress maker Tempur-Pedic is contesting a complaint by the New York state attorney general in connection with its alleged RPM policy, which is pending for 2011. In another case initiated in 2010, two states are investigating whether the arrangements between publishers and e-book retailers set a floor price for e-books that limits competition between the retailers.