{"id":9987,"date":"2022-07-03T15:52:14","date_gmt":"2022-07-03T15:52:14","guid":{"rendered":"http:\/\/legalblog.ie\/eu-vertical-exemptions\/"},"modified":"2022-11-19T15:46:09","modified_gmt":"2022-11-19T15:46:09","slug":"eu-vertical-exemptions","status":"publish","type":"post","link":"https:\/\/legalblog.ie\/eu-vertical-exemptions\/","title":{"rendered":"EU Vertical Exemptions"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_63 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/legalblog.ie\/eu-vertical-exemptions\/#EU_Block_Regulation\" title=\"EU Block Regulation\">EU Block Regulation<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/legalblog.ie\/eu-vertical-exemptions\/#Vertical_Agreements\" title=\"Vertical Agreements\">Vertical Agreements<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/legalblog.ie\/eu-vertical-exemptions\/#Price_Maintenance\" title=\"Price Maintenance\">Price Maintenance<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/legalblog.ie\/eu-vertical-exemptions\/#Passive_Sales\" title=\"Passive Sales\">Passive Sales<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/legalblog.ie\/eu-vertical-exemptions\/#Non-Compete\" title=\"Non-Compete\">Non-Compete<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/legalblog.ie\/eu-vertical-exemptions\/#Vertical_Restraints\" title=\"Vertical Restraints\">Vertical Restraints<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/legalblog.ie\/eu-vertical-exemptions\/#Distribution_Agreements\" title=\"Distribution Agreements\">Distribution Agreements<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/legalblog.ie\/eu-vertical-exemptions\/#Justifying_Restrictions\" title=\"Justifying Restrictions\">Justifying Restrictions<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/legalblog.ie\/eu-vertical-exemptions\/#Withdrawal\" title=\"Withdrawal\">Withdrawal<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/legalblog.ie\/eu-vertical-exemptions\/#Selective_Distribution\" title=\"Selective Distribution\">Selective Distribution<\/a><\/li><\/ul><\/nav><\/div>\n<h3><span class=\"ez-toc-section\" id=\"EU_Block_Regulation\"><\/span>EU Block Regulation<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The 2010 EU Regulation on Vertical Agreements significantly changed the approach of previous block exemptions.\u00a0 It provides exemptions on more general terms, which in effect, allows more restraints to be permissible in principle unless prohibited.<\/p>\n<p>It adopts a so-called black list of prohibited terms and a white list of permissible terms.\u00a0 It gives greater flexibility in vertical agreements.<\/p>\n<p>A safe haven is created where the relevant entities do not have significant market power.\u00a0 This is generally measured at 30% of the relevant market.\u00a0 \u00a0The Commission recognises certain types of vertical agreements may improve economic efficiency within a chain of production or distribution by facilitating better coordination between participating undertakings.\u00a0 This may lead to a reduction in transaction and distribution costs to the parties and an optimisation of their sales and investment levels.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Vertical_Agreements\"><\/span>Vertical Agreements<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Vertical agreements are agreements, or concerted practices entered between two or more undertakings, each of which operates, for the purpose of the agreement or the concerted practice, at a different level of production or place in the distribution chain which relates to the conditions under which the parties may purchase, sell or resell certain goods or services.<\/p>\n<p>Many vertical agreements will not fall within the scope of this definition at all, under general principles.\u00a0 Agreements that fall within the definition may be exempted under other provisions, such as the Technology Transfer Regulation. An assignment of intellectual property rights may be exempt where it is ancillary to the main objective of the agreement, for example, in the case of the establishment of an efficient system of distribution.<\/p>\n<p>The Regulations apply a market share threshold.\u00a0 Where the market share held by the supplier does not exceed 30% of the relevant market in which it sells the relevant goods or services, and the market share of the buyer does not exceed 30% of the relevant market in which it purchases the relevant goods or services, the Regulation does not apply. The European Commission has published notes on the definition of the market for the purpose of market share.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Price_Maintenance\"><\/span>Price Maintenance<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The blacklisted or so-called hard-core restraints, which are prohibited, are set out in the Regulation.\u00a0 They are not capable of being exempted.\u00a0 The most significant types are resale price maintenance and territorial restrictions.<\/p>\n<p>Resale price maintenance may arise directly by fixing a minimum resale price. It may arise indirectly by fixing discount levels or indirect action which imposes penalties or practical obstacles in order to ensure the maintenance of a recommended minimum price.<\/p>\n<p>Maximum prices are not restricted in themselves.\u00a0 Although resale price maintenance is almost invariably regarded as objectionable, there may be highly exceptional circumstances in which it can be justified.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Passive_Sales\"><\/span>Passive Sales<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Clauses which restrict passive sales into excluded EU territories or customer groups are excluded from the exemption. \u00a0This is based on the EU requirements for an integrated market and the long-standing objection to the compartmentalisation of the single market.<\/p>\n<p>The Commission has published guidelines on the distinction between active and passive sales.\u00a0 The use of the internet in itself does not comprise an active sale if it is a reasonable means of marketing.\u00a0 Provided the website is not aimed at specific customers, primarily located in another state, it does not comprise an active sale.\u00a0 The language on the website is not determinative.\u00a0 Apart from e-commerce marketing, passive selling would include catalogue selling and responding to unsolicited orders.<\/p>\n<p>The guidelines allow for a restriction of passive sales in limited cases.\u00a0 Where the distributor is first in the market selling a new brand or first to bring an established brand into a new market, the significant investment may justify a restriction on passive sales for up to two years.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Non-Compete\"><\/span>Non-Compete<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>There are restrictions on the use of non-compete obligations arising after the term of the agreement and obligations regarding competing products in selective distribution networks. They are restricted, irrespective of market share. They may be severed from an agreement so that the remainder may be capable of benefiting from the exemption.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Vertical_Restraints\"><\/span>Vertical Restraints<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The Commission has published guidelines on vertical restraints.\u00a0 This assists in the interpretation of the Regulations and sets out the Commission\\&#8217;s policy in order to assist businesses in undertaking a self-assessment of the agreements.<\/p>\n<p>There is a four-stage test for analysis.\u00a0 The party should first analyse the relevant market and ascertain the relevant market share.\u00a0 If the shares are each below 30%, then the agreement may be within the exemption.<\/p>\n<p>If the market share is less than 30%, hard-core prohibitions must be considered.\u00a0 If the parties have a share of more than 30%, the agreement must be considered from the perspective of whether it falls within the prohibition and, if it does so, whether it falls within the exemption.<\/p>\n<p>A key issue is whether the agreement is such that it leads to insufficient competition between brands.\u00a0 A reduction between brands is generally more harmful than a reduction of competition within the brand.\u00a0 A combination of restraints may increase the harmful effect on competition and be less easily justified.<\/p>\n<p>Restraints that are required in order to justify a bilateral investment in the context of a specific type of relationship are more easily justified.\u00a0 Restraints imposed in the context of seeking to open up new products or geographic markets are similarly more easily justified.<\/p>\n<p>The Commission emphasises the market position of competitors, the existence and extent of barriers to entry and the maturity of the product markets.\u00a0 The Commission is of the view that negative effects are more likely to follow in a mature market than in an emerging or dynamic market.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Distribution_Agreements\"><\/span>Distribution Agreements<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>There may be justification for exclusive distribution agreements in terms of economic efficiency.\u00a0 \u00a0The Commission has sought to balance the restrictions on competition arising from exclusive distribution agreements with features that enhance competition between brands.<\/p>\n<p>Distribution agreements typically provide for exclusive distribution in a particular territory.\u00a0 This will often be recognised as necessary for start-up goods entering a new market.<\/p>\n<p>The Vertical Agreements Regulation restricts the types of territorial exclusivity which are permissible. Territorial exclusivity may be permissible, but not all territorial restrictions are allowed.<\/p>\n<p>Complete obstruction of parallel imports is not usually permitted, even where agreements grant absolute territorial protection, which could be justified on the basis of an increase in inter-brand competition.<\/p>\n<p>There is a strong presumption that parallel trading should be permitted from outside the relevant territory, subject perhaps to restrictions for a short period, such as the first year, where significant investment is necessary.<\/p>\n<p>The EU Guidelines on Vertical Restraints take into account the effect of e-commerce.\u00a0 It restricts practices such as dual pricing by which online products are sold at a higher rate.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Justifying_Restrictions\"><\/span>Justifying Restrictions<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>While an exclusive distribution agreement breaches the substantive prohibition in Article 101(1), it may still be upheld under Article 101(3).\u00a0 Article 101(3) defences are unlikely to justify absolute territorial exclusivity or resale price maintenance.<\/p>\n<p>The Vertical Agreement Guidelines refer to single branding agreements as non-compete obligations, the main element of which is that the buyers are obliged to concentrate their orders for a particular type of product with one supplier.\u00a0 This runs the risk of closing the market to actual or potential competitors.<\/p>\n<p>If the participants have less than 30% market share, and the agreement is for less than five years, then the block exemption applies. The exemption applies to direct and indirect non-compete obligations.\u00a0 This includes exclusive purchasing obligations.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Withdrawal\"><\/span>Withdrawal<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The Commission may withdraw the benefit of the exemption where the agreement does not fulfil the criteria in Article 101(3).\u00a0 The guidelines indicate that the exemption may be withdrawn where a number of major suppliers enter into single branding agreements with a significant number of buyers in the market, causing a cumulative effect.\u00a0 The Commission may exclude from the exemption parallel networks of similar vertical agreements where the networks cover more than 50% of the relevant market.<\/p>\n<p>Where the block exemption is not applicable, the guidelines set out considerations for the analysis of whether the single branding agreement is caught by the substantive prohibition.\u00a0 They include the supplier\u2019s market position, the length of non-compete obligations and the likelihood of significant foreclosure of the market.<\/p>\n<p>The guidelines emphasise the possibility of a reduction in inter-brand competition for final products at the retail level.\u00a0 Significant anticompetitive effects may start to arise if 30% or more of the relevant market is tied. Guidance is given in relation to cumulative foreclosure effects.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Selective_Distribution\"><\/span>Selective Distribution<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Selective distribution agreements typically involve the restriction of branded products based on criteria related to the products. In order to be eligible to join the network of distributors, resellers must meet certain standards provided by the manufacturer. In contrast to exclusive distribution agreements, the number of distributors is not necessarily limited.<\/p>\n<p>Qualitative criteria, such as staff training or service quality requirements based on the nature of the product, without restriction on the number of dealers, is regarded as low risk in respect of anticompetitive effect.\u00a0 The Commission recognises that in some product cases, non-price factors are a significant competitive force. The enhancement of quality through selective networks with provisions which seek to eliminate free riders who damage the brand by lower standards is generally permissible.<\/p>\n<p>The 2010 Regulation allows both qualitative and quantitative restrictions.\u00a0 Restrictions on the number of outlets in an area are usually allowed, provided that the market share is below 30% and there are no hard-core restrictions, including, in particular, restrictions on active selling by distributors to each other and to end-users.<\/p>\n<p>Where there is no significant market power, inter-brand restrictions in selective distribution agreements are generally acceptable on the basis that there is competition from other brands.\u00a0 The Commission may withdraw the exemption if over half the market is subject to similar restrictions.<\/p>\n<p>The internet raises difficult questions for selective distribution.\u00a0 There is a risk of free riders who compete unfairly with high-quality retailers who have invested in physical infrastructure.\u00a0 Selective distribution agreements may be justified in imposing proportionate restrictions, requiring minimal infrastructural investment.<\/p>\n<!--themify_builder_content-->\n<div id=\"themify_builder_content-9987\" data-postid=\"9987\" class=\"themify_builder_content themify_builder_content-9987 themify_builder tf_clear\">\n    <\/div>\n<!--\/themify_builder_content-->\n","protected":false},"excerpt":{"rendered":"<p>EU Block Regulation The 2010 EU Regulation on Vertical Agreements significantly changed the approach of previous block exemptions.\u00a0 It provides exemptions on more general terms, which in effect, allows more restraints to be permissible in principle unless prohibited. It adopts a so-called black list of prohibited terms and a white list of permissible terms.\u00a0 It [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[158,159],"tags":[],"_links":{"self":[{"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/posts\/9987"}],"collection":[{"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/comments?post=9987"}],"version-history":[{"count":4,"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/posts\/9987\/revisions"}],"predecessor-version":[{"id":20515,"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/posts\/9987\/revisions\/20515"}],"wp:attachment":[{"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/media?parent=9987"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/categories?post=9987"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/tags?post=9987"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}