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New EU Competition Rules for Purchase and Distribution agreements

Vereniging voor Mededingingsrecht Amsterdam, 24 June 2010. New EU Competition Rules for Purchase and Distribution agreements. Luc Peeperkorn Principal Expert in Antitrust Policy

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New EU Competition Rules for Purchase and Distribution agreements

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  1. Vereniging voor Mededingingsrecht Amsterdam, 24 June 2010 New EU Competition Rules for Purchase and Distribution agreements Luc Peeperkorn Principal Expert in Antitrust Policy “The views expressed are those of the speaker and do not necessarily reflect those of DG Competition or the European Commission”

  2. Outline of the Presentation • Background • Past experience of the Block Exemption Regulation (BER) and Guidelines (GL), objectives and results of the review • Effects based approach • Clarifications and Changes to the Scope • Agency agreements • Vertical agreements between competitors • Extension of the 30% market share threshold to buyers • Clarifications of Hardcore Restrictions • Framework of analysis • Resale price maintenance (RPM) • General rules on hardcore resale restrictions and hardcore online resale restrictions

  3. Background: the review • Positive past experience of the BER/GL: • Strong support in public consultation to keep framework of 1999 which introduced effects based approach • Principle of market share threshold well accepted • Meaningful enforcement: focus on foreclosure & softening of competition + taking account of efficiencies • Since the 2004 decentralisation most enforcement done by NCAs and courts; BER/GL ensure consistent application • Objective of review: to update/improve 1999 BER and GL • Result of review: Commission adopts BER 330/2010(OJ L 102 of 23.4.2010) and GL (OJ C 130 of 19.05.2010) • Comp website: http://ec.europa.eu/competition/antitrust/legislation/vertical.html

  4. Background: effects based approach The effects based approach means: • (a) Authority/plaintiff must show likely negative effects under Article 101(1) • (b) Defendant must show likely efficiencies under Article 101(3) once likely negative effects are established (“consumer welfare test”) • (c) “Safe harbour” as long as market share does not exceed 30% = block exemption => net positive balance presumed Exception: hardcore restrictions • (d) Guidelines provide interpretation of the BER + guidance on a case by case assessment of negative and positive effects where the BER does not apply (above 30% MS)

  5. Scope of the block exemption • Agency agreements (GL § 12 – 21): • No change of policy: intra-brand restrictions fall outside Art 101(1) if no risk borne by agent in relation to activities for which he is an agent • Discussion on risks taken by the agent in other product markets versus risks taken in the same product market • Clarification: only risks taken by the agent in the same product market are relevant => not possible to be “genuine” agent for one product and independent distributor for another product of the principal if these products are in the same product market

  6. Scope of the block exemption Vertical agreements between competitors (Article 2(4) BER): • General rule remains: vertical agreements between competitors not covered • Scope limited: Agreements between competitors where buyer has turnover below €100 mio no longer covered • Coverage by the block exemption limited to dual distribution (for both goods and services)

  7. Scope of the block exemption Market share threshold: benefit of BER depends on both the supplier’s and buyer’s MS not > 30% • Not only suppliers, but also distributors may have market power (e.g. supermarkets) => coverage by the BER should also depend on buyer’s market share • For supplier: share on the market where supplier sells contract products to the buyer • For buyer: share on the market where buyer purchases the contract products from the supplier • Main reason for transitional period of 1 year (art. 9 BER)

  8. Hardcore Restrictions – General (1) • Serious restrictions of competition (Art. 4 BER) • Excludes block exemption for the whole agreement • In principal, no change to list of hardcore restrictions: • RPM remains a hardcore restriction • No fundamental change to the hardcore list of (re)sale restrictions

  9. Hardcore restrictions – General (2) Clarifications on the assessment of hardcore restrictions (GL section III.3) • hardcore = no block exemption + presumption of negative effects under Article 101(1) + presumption it is unlikely that the conditions of Art 101(3) are fulfilled (§47) • but individual exemption is not excluded in case of convincing evidence of likely efficiencies (§ 63-64 and 225) • Effects based approach with reversed order of bringing forward evidence and showing effects (cf. previous slide on effects based approach)

  10. Hardcore restrictions: RPM Resale Price Maintenance (GL section VI.2.10): • Possible negative effects: • facilitation of collusion (both up- and down-stream), in particular if interlocking relations • elimination of intra-brand price competition: direct effect is price increase • loss of pressure on the supplier’s margin • foreclosure of smaller suppliers • loss of dynamism and innovation in distribution (from discounters) • Possible positive effects: • Launching a new product • Support short term low price advertisement campaigns (2 – 6 weeks) • Prevent free riding on pre-sales services between distributors

  11. Hardcore Sale Restrictions (1) • Hardcore (re)sale restriction: market partitioning by territory or customer group • No fundamental change to the hardcore list of sale restrictions • Passive sale restrictions are hardcore (main exception selective distribution) • Active sale restrictions are hardcore except to protect areas where there is exclusive distribution • Change and Clarification – all distribution systems • Restrictions on the buyer’s place of establishment are not hardcore (Art. 4(b) + GL § 50) • Possible to restrict a wholesaler from selling to end users (in general), while allowing it to sell to certain (e.g. bigger) end-users (Art. 4(b) + GL § 55)

  12. Hardcore sale restrictions (2) • Change and Clarification - exclusive distribution • Restrictions of active sales by a buyer party to the agreement are not hardcore, i.e., possibility to restrict active sales at more than one level of trade (Art 4(b)) • Exclusivity requires protection against active sales of all other distributors but not of the supplier, i.e., possibility to share exclusive territory with the supplier (§ 51) • Change and clarification - selective distribution • Restrictions of sales to unauthorised distributors is not hardcore in the territory reserved to operate selective distribution, i.e. possibility to reserve territory for future expansion of distribution network (Art 4(b)(iii) and § 55)

  13. HardcoreOnline Sale Restrictions (1) • General rules on (re)sale restrictions apply to offline and online sales • Distinction between active and passive sales only relevant for exclusive distribution. GL further clarify how the distinction applies to online sales • Difficult balance: to allow consumers to benefit from the internet while allowing suppliers to choose distributors/distribution format and prevent possible free riding between them

  14. HardcoreOnline Sale Restrictions (2) On the one hand: Distributors should be free to have a website and engage in internet sales . . . • Restrictions on the distributors’ use of the internet are generally considered as hardcore restrictions of passive sales • Examples (§ 52): • Obligation to automatically reroute customers located outside the distributor’s territory or terminate their transactions • Obligation to limit the proportion of sales a distributor can make over the internet • Requiring a distributor to pay a higher purchase price for units to be resold online than offline (dual pricing)

  15. Hardcore Online Sale Restrictions (3) On the other hand: Suppliers should be free to choose distributors/distribution format and prevent possible free riding between them • Exclusive distribution: • Possibility to restrict active sales to protect exclusive distribution • Active selling: any efforts to be found specifically in a certain territory/by a certain customer group, e.g., unsolicited e-mails, targeted (online) advertisement (§ 53) • Cf. passive selling: having a website, responding to customer demand without soliciting them, different language options (§ 52)

  16. Hardcore Online Sale Restrictions (4) On the other hand . . . (cont.) : • To preserve quality of distribution and prevent free riding, GL clarify that the BER covers obligations to: • have one or more “brick and mortar” shops (but not to punish successful online sales) (§ 54) • impose a minimum amount of sales offline (also possible for the supplier to offer a fixed fee to support the distributor’s offline efforts) (§ 52(c)) • require quality and service conditions to be fulfilled for online sales that are overall equivalent to those applicable to offline sales (§ 56) • use third party platforms only in accordance with standards and conditions agreed between the parties (§ 54)

  17. Conclusion New BER and GL: • are an evolution and adaptation of the effects-based approach • give more attention to buyer power and online resale restrictions in light of recent market developments • do not impose or favour certain distribution formats but leave it to the consumers to “pick the winners”

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