A vertical agreement is an agreement between parties at different levels of trade, for example agreements between manufacturers and wholesalers.
The European Commission (the “Commission”) Vertical Agreements Block Exemption Regulation (the “VABER”) and accompanying guidelines provide a safe harbour for vertical agreements that fulfil certain conditions. The Commission’s guidelines on vertical restraints provide guidance on the assessment of vertical restrictions.
Market share threshold
In order to benefit from the block exemption, the supplier must have a market share of 30% or less on the market on which it sells the contract goods or services and the buyer must have a market share of 30% or less on the market on which it buys the contract goods or services.
Vertical agreements containing any of the following ‘hardcore’ restrictions will not benefit from the safe harbour provided for by the VABER:
- any restriction of the buyer’s ability to determine its sales price (maximum or recommended sale prices
- are permitted, as long as they do not operate in practice as fixed or minimum prices);
- any restriction of the territories into which, or the customers to whom, the buyer may sell the contract goods or services, although the following restrictions are permitted:
- the restriction of active sales into an exclusive territory or to an exclusive customer group reserved to the supplier or allocated by the supplier to another buyer;
- the restriction of sales to end users by a buyer operating as a wholesaler;
- the restriction of sales by members of a selective distribution system to unauthorised distributors in a territory where the selective distribution system operates;
- the restriction of the buyer’s ability to sell components (supplied for incorporation into final products) to third parties who would use them to produce competing products;
- any restriction of active or passive sales to end users by members of a retail selective distribution system;
- any restriction of cross-supplies between members of a selective distribution system; and
- in the context of a supply agreement between a supplier of components and a buyer who incorporates those components, any restriction on the supplier’s ability to sell the components to a third party such as independent repairers or service providers.
The following restrictions in a vertical agreement will not benefit from the safe harbour provided for by the VABER, although the remainder of the agreement will still fall within the safe harbour (assuming it fulfils all the relevant criteria):
- any direct or indirect non-compete obligation the duration of which is indefinite or exceeds five years (note that if it is tacitly renewable beyond five years then it will be deemed to last indefinitely);
- any post-termination non-compete obligation which exceeds one year; and
- any direct or indirect obligation on members of a selective distribution system not to sell brands of particular competing suppliers.
Outside the safe harbour
If a vertical agreement does not fulfil the criteria of the VABER and therefore does not benefit from the safe harbour, this does not mean there is a presumption that the agreement is unlawful. The agreement will require individual analysis with regard to the guidance provided in the Commission’s guidelines on vertical restraints.
If you have any questions in relation to the above, or related competition law issues, please do not hesitate to contact Gustaf Duhs, Beverley Whittaker or Beverley Flynn on 01483 302264.
This information is necessarily brief and is not intended to be an exhaustive statement of the law. It is essential that professional advice is sought before any decision is taken.
© Stevens & Bolton LLP 2016