You are on page 1of 16

2nd FEB – IEJE Competition Day 

Brussels , 30 September 2009

Review of the Vertical Restraints 
Framework

Luc Peeperkorn
Principal Expert in Antitrust Policy

European Commission,  1
DG Competition, Directorate A
Outline of the presentation
ƒ Introduction
¾ Past experience & objectives of the ongoing review
¾ Presentation of the Vertical Restraints Framework

ƒ Clarifications and changes to the scope of the block exemption


¾ Agency agreements
¾ Notion of agreement
¾ Agreements between competitors
¾ Market share threshold

ƒ Clarifications to the assessment of hardcore restrictions


¾ Framework of analysis
¾ Resale price maintenance
¾ Resale restrictions & Online sales
ƒ New specific restraints
¾ Upfront access payments (slotting allowances)
¾ Category management

European Commission,  2
DG Competition, Directorate A
Introduction

ƒ Positive past experience:

¾ Current framework = effects based approach
¾ Principle of market share threshold well accepted
¾ Meaningful enforcement = relevant issues of foreclosure & 
softening of competition (collusion) + taking account of efficiencies 
¾ Satisfactory interaction between NCAs & Commission post 
modernisation

ƒ Objective: to update current effects based approach

European Commission,  3
DG Competition, Directorate A
Introduction

This effects based approach means:

¾ (a) Authority/plaintiff must show likely negative effects under Article 81(1)

¾ (b) Defendant must show likely efficiencies under Article 81(3) once likely
negative effects are established (“consumer welfare test”)

¾ (c) “Safe harbour” as long as market share does not exceed 30% = block
exemption => net positive balance presumed

¾ (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)

European Commission,  4
DG Competition, Directorate A
Scope of the block exemption

ƒ Agency agreements:
¾ No change of policy: determining factor is risk borne by 
agent in relation to activities for which he is an agent
¾ Risks taken by the agent for after‐sales services or in other 
product markets are relevant if they are indispensable to 
engage in selling or purchasing goods or services on behalf 
of the principal 
¾ Case T‐325/01, Daimler Chrysler, point 113

European Commission,  5
DG Competition, Directorate A
Scope of the block exemption
Notion of agreement:
ƒ If no express agreement => unilateral request + acquiescence

¾ Acquiescence can be deduced from a general agreement 
drawn up in advance
¾ Tacit acquiescence = implementation of the unilateral 
policy by distributors

ƒ Agreements between undertakings at different levels of the 
supply chain => exclusion of B2C agreements

European Commission,  6
DG Competition, Directorate A
Scope of the block exemption

Vertical agreements between competitors 
(Article 2(4) draft BER):

ƒ Coverage by the block exemption limited to 
dual distribution at the retail level
=> no turnover threshold anymore

European Commission,  7
DG Competition, Directorate A
Scope of the block exemption
Market share threshold: benefit of BER depends not 
only on the supplier’s MS, but also the buyer’s MS:

¾ 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
¾ To bring rules on vertical agreements in line with other
competition rules (e.g. De minimis Notice & technology
transfer BER)
¾ Change supported by NCAs

European Commission,  8
DG Competition, Directorate A
Hardcore restrictions

ƒ Draft BER does not change the scope of the hardcore 
restrictions:

¾ RPM remains a hardcore restriction
¾ Passive sales restrictions are hardcore (but selective distribution)
¾ Active sales restrictions are hardcore except to protect areas where 
there is exclusive distribution
¾ Active and passive sales restrictions necessary to protect market entry 
(new brand or new geographic market): outside Art 81(1) for 2 years 
(GL §56)

European Commission,  9
DG Competition, Directorate A
Hardcore restrictions

Clarifications on “hardcore approach”

ƒ hardcore = no block exemption + presumption of negative effects under


Article 81(1) + presumption it is unlikely that the conditions of Art 81(3)
are fulfilled, but individual exemption is not excluded in case of convincing
evidence of likely efficiencies

ƒ Hardcore approach = a “rule of reason” approach where the order of


bringing forward evidence and showing effects is reversed

¾ first likely efficiencies need to be shown by the firm


¾ before the likely negative effects are shown by the authority

European Commission,  10
DG Competition, Directorate A
Hardcore restrictions

RPM:
ƒ Possible negative effects: 
¾ facilitation of collusion (both up- and down-stream), in particular if
interlocking relations
¾ elimination of intra-brand price competition: direct effect is price increase
¾ loss of pressure on the supplier’s margin
¾ loss of dynamism and innovation from in particular discounters

ƒ Possible positive effects:
¾ New entry (efficiency already recognized for resale restrictions)
¾ Avoid delisting of product in case of sale as loss leader
¾ Support short term low price advertisement campaigns

European Commission,  11
DG Competition, Directorate A
Online sales

ƒ Guidelines maintain current distinction 
between active & passive sales
ƒ Attempt to refine notion of active and passive 
sales as concerns on‐line sales
ƒ Approach generally supported by national 
competition authorities

European Commission,  12
DG Competition, Directorate A
Online sales
ƒ Internet sales are generally passive sales => distributors should be free to 
engage in internet sales and Guidelines provide examples of restrictions of 
passive sales: obligation to automatically reroute customers or terminate 
their transactions, obligation to limit the proportion of sales made online, 
dual pricing

ƒ But possibility to restrict active sales to protect exclusive distribution: 
unsolicited e‐mails, targeted (online) advertisement

ƒ To preserve the quality of distribution and prevent free riding the 
Guidelines clarify that the BER covers obligations to have a « brick and 
mortar » shop, to impose a minimum amount of sales off‐line and to 
require quality and service conditions to be fulfilled for on‐line sales that 
are equivalent to the conditions applicable for off‐line sales

European Commission,  13
DG Competition, Directorate A
Specific vertical restraints
Upfront access payments
ƒ Block exempted up to 30% MS
ƒ Possible negative effects: 
¾ Downstream foreclosure
¾ Upstream foreclosure
¾ Downstream collusion
ƒ Possible positive effects:
¾ Asymmetry of information between supplier & distributor =>
successful market entry through better allocation of shelf space
¾ Risk shifting back to suppliers (no free riding of suppliers on sales
efforts of distributors)

European Commission,  14
DG Competition, Directorate A
Specific vertical restraints
Category Management
ƒ Block exempted up to 30% MS
ƒ Possible negative effects: 
¾ Foreclosure of other suppliers
¾ Collusion between distributors
¾ Collusion between suppliers (exchange of info)
ƒ Possible positive effects:
¾ Improved presentation and assortment of products, 
leading to higher consumer satisfaction

European Commission,  15
DG Competition, Directorate A
Thank you for your attention

The views expressed are those of the author and do not necessarily reflect 
those of DG COMP or the European Commission

European Commission,  16
DG Competition, Directorate A