Sean-Paul Brankin Crowell & Moring March 5, 2009

1. Commercial Agreements Sean-Paul BrankinCrowell & Moring March 5, 2009

2. Overview • Evaluating risk • Issue spotting • Solving problems

3. General principles

4. Quick reminder • Art 81: anti-competitive agreements (1) general prohibition (2) restrictive terms are void (3) exemption possible • Art 82: abuse of dominance • special responsibility

5. Types of risk • Voidness • Fines • Private enforcement • Regulatory intervention • Reputational risk

6. Types of agreement • Horizontal agreements • agreements between competitors • in markets where they compete • Vertical • agreements between undertakings at different levels in the supply chain • e.g. distribution agreements • IP Licences

7. Types of restriction • Hardcore restrictions (object) • e.g. price fixing, RPM, restrictions on cross-boarder trade • near per se illegality • real risk of fines • see BE black lists and De Minimis Notice • Other restrictions (effect) • evidence of anti-competitive effect required • exemption possible

8. Market position • Market definition • relevant product market (substitutes) • relevant geographic market • SSNIP test (5% to 10% price increase) • Market shares (both parties) • combined if horizontal agreement • separately if vertical agreement • Other factors • stability of shares over time • barriers to entry/expansion • market position of competitors

9. Market share • Risk generally increases with market share • Some thresholds 10% de minimis for horizontals 15% de minimis for verticals 30% verticals block exemption 40% risk of dominance 50% legal presumption of dominance 75%+ high risk of dominance

10. Block Exemptions • Automatic safe harbours • Typical structure • limited to specified type of agreement (e.g. verticals) • market share threshold • black listed clauses • excluded clauses • Examples • Vertical Restraints BE (verticals) • Technology Transfer BE (IP licences) • R&D BE and Specialisation BE (horizontals) • various sector specific BEs (cars, air transport)

11. Individual exemption • Self assessment • Conditions (Art 81(3)) • agreement leads to improved production or distribution or technical or economic progress • restrictions on competition are indispensable • a fair share of the resulting benefits go to consumers, and • competition is not ‘eliminated’ • Questions to ask • does the agreement contain hardcore restrictions? • do third parties benefit as well as the parties via efficiencies or otherwise (‘pro-competitive benefits’)? • are the restrictions needed to achieve these benefits? • do the benefits outweigh the restrictions on competition?

12. Vertical agreements

13. Hardcore restrictions • Fixed or minimum resale prices (RPM) • recommended and maximum resale prices permitted • unless strict compliance in practice required e.g. through penalties or threats • Territorial restrictions on resale • restrictions on active marketing to protect territories of exclusive distributors permitted (‘active sales’) • Customer restrictions • restrictions on active marketing to protect distributors with exclusive customer groups permitted (‘active sales’) • certain restrictions ok in context of ‘selective distribution’ • Restricting resale of components as spare parts

14. Examples of other restrictions • Exclusive purchasing/supply • Long term supply contracts • Tying requirements

15. Vertical Restraints BE • Automatic exemption for all restrictions if • the parties are not competitors • supplier’s market share less than 30% • no hardcore restrictions • Does not cover • exclusivity obligations that exceed five years, automatically renew or extend post-term • restrictions on sale of competing brands in selective distribution • Covers agreements between competitors where • the supplier is a manufacturer/distributor who competes with the buyer only at the distribution level • the buyer has an annual turnover of € 100m or less

16. Supplier’s MS is above 30% • Absent dominance • parties must show sufficient benefits to justify exemption • limited risk of fines absent hardcore restrictions • major risk is voidness (unenforceability) • Dominance • evidence of benefits may need to be compelling • potential risk of fines – in particular if restrictions increase barriers to market entry

17. Problem solving • Refer to Vertical Guidelines • If potentially restrictive terms are included • draft them so as to be severable e.g. include obligations imposing exclusivity beyond five years in separate clauses • include an obligation to substitute similar terms (to the extent possible) in the event of voidness • Where supplier’s share is above 30% • limit potential restrictions • include only what is reasonably necessary to achieve benefits

18. Horizontal Agreements

19. Hardcore restrictions • Price fixing • Output or capacity restrictions • Sharing markets or customers • Joint selling • Collective boycotts

20. Other restrictions (examples) • Exchange of confidential information • Joint marketing, production, purchasing or research • Standard setting • Membership and access rules

21. Safe harbours • De Minimis Notice • joint market share 10% or less • no hardcore restrictions • R&D BE • Specialisation BE

22. Horizontal guidelines • ‘An analytical framework for the most common types of horizontal cooperation’ • Including • R&D • production agreements • purchasing agreements • commercialisation (joint sales, distribution and/or marketing) • standard setting • environmental agreements

23. Problem solving • Limit restrictions • include only what is reasonably necessary to achieve benefits • Limit information flows • use fire walls, confidentiality agreements and clean teams • Create paper trails for horizontal contacts • Permit open access • to shared assets, standards and collective bodies • on reasonable, non-discriminatory and proportionate terms

24. Concluding remarks

25. Summary • Risk will depend on • the type of agreement • the type of restrictions included • market position, and • the availability of exemption • Focus on the type of risk • fines not the primary risk for verticals (absent hardcore restrictions or dominance) • a much greater concern for horizontals

26. Top tips • Avoid hardcore restrictions • Make use of the Verticals BE • Adopt a cautious approach to horizontal agreements • Where in doubt • focus on pro-competitive benefits • limit restrictions to what is reasonably necessary to achieve them • draft severable provisions

27. Checklist • Type of agreement? (Horizontal / Vertical) • Type of restrictions? (Hardcore / Other) • Market position(s)? (De Minimis / Dominant / Other (share)) • Block exemption? (Available / Applicable) • Pro-competitive benefits? (Yes / No / Sufficient) • Unnecessary restrictions? (Yes / No)

28. Useful documents • General • De Minimis Notice • Vertical agreements • Vertical Restraints BE • Vertical Guidelines • Horizontal agreements • Horizontal Guidelines • R&D BE • Specialisation BE