The European Commission Guidelines on Vertical Agreements
Vertical agreements are contracts or arrangements between two or more companies operating at different levels of the supply chain, such as manufacturers and retailers. In the European Union, these agreements are subject to competition law, which aims to ensure that they do not harm competition by limiting consumer choice or increasing prices.
To provide guidance on the application of competition law to vertical agreements, the European Commission has published guidelines that set out its approach. These guidelines, which were last updated in 2010, cover a wide range of topics, including:
1. Market share thresholds: The guidelines set out thresholds above which vertical agreements are presumed to have an appreciable impact on competition. These thresholds vary depending on the type of agreement and the market concerned, but in general, agreements between competitors with a combined market share of over 10% are considered problematic.
2. Restrictions on active and passive sales: Vertical agreements may include restrictions on the ability of resellers to sell products outside their designated territory or customer group (active sales) or to respond to unsolicited requests from customers in another territory (passive sales). The guidelines provide a framework for assessing the competitive effects of these restrictions, taking into account factors such as the market structure, the degree of competition and the level of innovation.
3. Resale price maintenance: This is the practice of setting a minimum or fixed resale price for a product. It is generally considered to be a serious infringement of competition law, as it can limit price competition between resellers and lead to higher prices for consumers. The guidelines set out a two-step approach for assessing resale price maintenance, based on whether the supplier has market power and whether the restriction has an anti-competitive effect.
4. Vertical integration: Vertical agreements may also involve the integration of two or more levels of the supply chain, such as a manufacturer acquiring a retailer. The guidelines provide guidance on the competitive effects of such integration, including the potential for foreclosure of rivals and the impact on innovation.
5. Block exemptions: To reduce the regulatory burden on businesses, the European Commission has adopted a number of block exemptions for certain types of vertical agreements that are deemed to have no appreciable impact on competition. These exemptions cover agreements such as franchising, selective distribution and technology transfer. The guidelines provide an overview of the conditions that must be met for an agreement to qualify for a block exemption.
In conclusion, the European Commission Guidelines on Vertical Agreements play a crucial role in ensuring that competition in the EU market is not impeded. Businesses are advised to study these guidelines carefully before entering into any vertical agreements to ensure they are in compliance with EU competition law.