The Competition Authority issued a new category declaration in relation to vertical agreements and concerted practices in 2010. This exempts certain types of agreements and practices from the general prohibition. The declaration closely follows the 2010 EU Commission equivalent block exemption regulation.
The following types of vertical agreement comply with the conditions in S. 4(5) of the Competition Act to the extent that such agreements contain restrictions on competitions which would otherwise constitute a breach of S.4(1) of the Act.
The declaration applies to vertical agreements containing provisions which relate to the assignment to or use by the buyer of intellectual property rights, provided they do not constitute the primary objective of the agreement and are directly related to the use, sale and re-sale of goods and services by the buyer or its customer. The declaration applies on condition that the provisions do not contain restrictions of competition having the same effect as vertical restraints, which are not covered by the declaration.
The declaration is inapplicable to vertical agreements between competing undertakings. It does apply where competing undertakings enter into a non-reciprocal vertical agreement and the supplier is a manufacturer and distributor of goods while the buyer is a distributor and not a competing undertaking at the manufacturer level.
The declaration applies where the supplier is the provider of the service at several levels of trade, while the buyer provides its goods and service at the retail level and is not a competing undertaking at the level of trade where it purchases the contract services.
The declaration applies provided the market share held by the supplier does not exceed 30 percent of the relevant market on which it sells the contract goods or services and the market share held by the buyer does not exceed 30 percent of the relevant market on which it purchases the contract good and services.
Where in a multi-party agreement, an undertaking buys the contract goods and services from one undertaking party to the agreement and sells the contract goods or services to another undertaking party to the agreement, the market share of the first must meet the market share threshold above, both as a buyer and supplier.
The declaration does not apply to vertical agreements which, directly or indirectly, in isolation or in combination with other factors under the control of the party, have as their objective the restriction of the buyer’s ability to determine its sale price. This does not affect the ability of suppliers to impose a maximum sale price or a recommended sale price, provided they do not amount to a fixed or minimum sale price as a result of pressures from or incentives offered by any of the parties.
The agreement must not have as its objective the restriction of the territory into which, or of the customers to whom, a buyer party of the agreement, without prejudice to the supplier’s ability to place restrictions on the buyer’s place for the establishment, may sell the contract goods or services. This does not apply to
- the restriction of active sales into the exclusive territory or to an exclusive customer group reserved to the supplier or allocated to another buyer, where such restrictions do not limited sales by the customers of the buyer;
- the restriction of sales to end users by a buyer operating at the wholesale level;
- the restriction of sales by members of a selected distribution system to unauthorised distributors within the territory reserved by the supplier to operate that system and
- the restriction of the buyer’s ability to sell components supplied for the purposes of incorporation to customers who would use them to manufacture the same time of goods as those produced by the supplier.
Prohibited Restrictions I
The declaration does not apply to vertical agreements, which directly or indirectly, in isolation or in combination with other factors under the control of the parties, have as their objective;
- the restriction of active or passive sales to end users by the members of a selective distribution system at the retail level;
- the restriction of cross supplies between distributors within a selective distribution system, including those operating at different levels of trade;
- restrictions agreed between a supplier of components and a buyer who incorporates components of the supplier’s ability to sell the components and spare parts to end users, repairers or the other service providers not entrusted by the buyer with the repair or servicing of its goods.
The declarations do not apply to the following obligations in vertical agreements;
- any direct or indirect non-compete obligation with indefinite duration or duration and excess of five years;
- any direct or indirect obligation, causing the buyer, after the termination of the agreement, not to manufacture, purchase, sell or resell goods or services;
- any direct or indirect obligation causing the members of a selective distribution system not to sell the brands of particular competing suppliers.
Prohibited Restrictions II
For the above purposes, a non-complete obligation which is tacitly renewable beyond the period of five years is deemed indefinite. By way of derogation, the time limit of five years does not apply when the contract goods or services are sold by the buyer from premises and land owned by the supplier or leased by the supplier from third parties, not connected with the buyer. This is provided that the duration of the non-complete obligation does not exceed the period of occupancy of the premises and land by the buyer.
By way of derogation from the obligation not to manufacture, sell or resell goods after termination, the declaration does not apply to any direct or indirect obligation which causes the buyer after termination, not to manufacture, purchase or resell goods or services where the following conditions are fulfilled.
- the obligation relates to goods or services which compete with the contract goods or services;
- the obligation is limited to premises and land from which the buyer has operated during the contract period;
- the obligation is indispensable to protect know-how transferred by the supplier to the buyer;
- the duration of the obligation is limited to a period of one year after the termination of the agreement.
The above is without prejudice of the possibility of imposing a restriction, which is unlimited in time on the use and disclosure of know-how which has not entered the public domain.
Market Share in Detail
The market share thresholds are calculated based on market sale share data or market purchase value data, as the case may be. Where the data is not available, estimates based on other reliable market information may be used, including sales and purchase volumes. The market shares are calculated on the basis of data relating to the preceding calendar year.
The market share of the supplier includes goods and services supplied to partially integrated distributors for the purpose of sale. If the market share is initially not more than 30 percent, but subsequently rises above that level without exceeding 35 percent, the declaration shall continue to apply for a period of two consecutive calendar years following the year in which the 30 percent market share threshold is first exceeded.
If the market share is initially not more than 30 percent, but subsequently rises above 35 percent, the declaration shall continue to apply for one year following the year in which the 35 percent was first exceeded. These two points may not be used in combination.