vertical agreements in ec competition law

VERTICALAGREEMENTS IN

EC COMPETITIONLAW

FRANK WIJCKMANS

FLLIP TUYTSCHAEVER

ALAIN VANDERELST

OXJFORDUNIVERSITY PRESS

CONTENTS

Table ofCases and Decisions xxv

Table of Treaties and Legislation xxxiii

I INTRODUCTORY

1. General Introduction

A. Scope, Methodology, and Plan 1.01

B. Articles 81 and 82 EC

(1) General 1.10(2) Article81 EC 1.12(3) Article82 EC 1.14(4) Relation between Articles 81 and 82 EC 1.16

C. Implementation of Articles 81 and 82 EC 1.18

(1) Implementation of Articles 81 and 82 EC according toRegulation 17Centralized notification and authorization System 1.19Consequences of die centralized notification and authorizationSystem 1.21Adjustments to die centralized notification and authorizationSystem 1.22

(2) Implementation of Articles 81 and 82 EC according toRegulation 1/2003General 1.24Abolition of the notification requirement 1.28Decentralized application of EC competition law 1.29

Decentralized application by NCAs 1.30Decentralized application by national courts 1.31

The importance of the 'effect on trade' concept 1.32Relationship between EC and national competition law

The convergence rule 1.34Convergence and Arricle 81 EC 1.37Convergence and unilateral behaviour (indudingArticle82EC) 1.41

Uniform application of EC competition law 1.47Relevance of block exemption regulations 1.48

Contents

D. Regulation 2790/99 and 1400/2002(1) Introduction 1.49(2) Background to Regulation 2790/99 1.51(3) Background to Regulation 1400/2002 1.56

E. Enforcement of Articles 81 and 82 EC 1.62(1) Public enforcement 1.63

Public enforcement by NCAs 1.66Public enforcement by the Commission 1.67

(2) Private enforcement 1.69Direct effect of Articles 81 and 82 EC 1.70Consequences of infringement of Article 81 (and 82) ECaccording to Article 81(2) EC 1.71Consequences of infringement of Article 81 (and 82) ECaccording to national law 1.72Private enforcement as a 'shield' and a 'sword' 1.73Private enforcement as a 'shield' 1.74Private enforcement as a 'sword' 1.78

F. Hard v Soft EC Competition Law(1) General 1.81(2) The legal nature of the guidelines 1.83(3) The consequences of the guidelines (Regulation 2790/99) 1.87

For the Commission 1.88For third parties 1.89Community courts 1.90NCAs and national courts 1.92Market players 1.94

(4) The legal and practical effects of the Explanatory Brochureand the Frequently Asked Questions (Regulation 1400/2002) 1.96

II VERTICAL AGREEMENTS UNDER REGULATION 2790/99

2. Material Scope of Application of Regulation 2790/99

A. Introduction 2.01

B. Methodology: Seven Key Questions 2.03(1) First question: effect on trade between member states 2.06(2) Second question: vertical agreements 2.09(3) Third question: vertical restraints 2.14(4) Fourth question: applicability of other block exemption regulations 2.16(5) Fifth question: market share limit of 30% 2.18(6) Sixth question: intellectual property rights 2.20(7) Seventh question: involvement of competitors or associations of

undertakings 2.22(8) The outcome of the review of the seven key questions 2.25

Contents

C. First Question: Effect on Trade Criterion(1) Introduction(2) Regulation 1/2003 and the 'effect on trade' concept(3) Guidelines on die 'effect on trade' concept

Effect measured at the level of the agreement as a wholeNo link with a restriction of competition required'May affect'

DefinitionSufficient degree of probabilityInfluence on the pattern of trade between Member StatesDirect or indirect influence on the pattern of tradeActual or potential influence on the pattern of trade

'May affect appreciably'GeneralQuanrification of appreciability: SMEsQuantification of appreciability: presumptionsQuantification of appreciability: negative presumptionQuantification of appreciability: positive presumptionCase-by-case assessment

(4) Summary overview of the effect of vertical agreements oninter-State trade

D. Second Question: Vertical Agreements(1) Introduction

Article 81(1) EC and vertical agreementsRegulation 2790/99 and vertical agreements

(2) First component: agreements and concerted practicesGeneralAgreements

Broad Interpretation of the concept 'agreement'Concurrence of wills—irrelevance of die form of dieagreementConcurrence of wills—irrelevance of implementationConcurrence of wills—agreement by tacit acquiescenceVolkswagen I and / /Bayer (adalat)Summary

Concerted practiceDefinitionApplication to vertical relations

(3) Second component: two or more undertakingsGeneralThe concept of 'undertaking'

Definition

2.272.302.312.322.35

2.362.392.412.422.43

2.452.462.492.502.582.59

2.60

2.612.63

2.65

2.66

2.682.692.702.732.772.832.862.872.89

2.91

2.92

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The Performance of an economic activity 2.94No need for legal incorporation 2.97Public bodies 2.98Services of general economic interest 2.101Non-undertakings on the basis of the solidarity principle 2.103

The requirement of more than one undertakingGeneral 2.104Intra-group agreements 2.105No limit on the number of contracting undertakings 2.111

(4) Third component: undertakings operating at a different levelof the production or distribution chain 2.112

(5) Fourth component: agreements or concerted practices whichrelate to the conditions under which the parties may purchase,seil, or resell certain goods or Services 2.115Vertical agieements covered by block exemptions prior toRegulation 2790/99 2.116Vertical agreements covered by Regulation 2790/99 2.119

E. Third Question: Vertical Restraints(1) Introduction 2.123(2) De Minimis Notice

Market share thresholdsDefinition 2.125Different approaches towards the appreciability concept 2.127Combined market share for competitors and individualmarket shares for non-competitors 2.128Cumulative foreclosure effects 2.130Temporary crossing of market share thresholds 2.132

Hardcore restrictions 2.134(3) Case-by-case assessment of the restrictive object or effect 2.137

Restrictive object or effect 2.138Appreciable restriction of competition 2.142

Appreciable restriction of competition by object 2.144Appreciable restriction of competition by effect 2.146

(4) Ancillary restraintsThe concept of ancillary restraints 2.155Conditions for the ancillary nature of certain restraints 2.156Ancillary restraints v Article 81(3) EC analysis 2.157Ancillary vertical restraints in a horizontal or a purelyvertical context 2.158

(5) Objective justificationConcept of objective justification 2.161Scope and conditions of objective justification 2.163Objective Justification and Dominance 2.167

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F. Fourth Question: The Applicability of Other Block ExemptionRegulations(1) Introduction 2.173(2) The relationship with the block exemption regulations on

horizontal co-operation agreementsGeneral 2.178The Relation between Regulations 2658/2000 and 2790/99

The limits to the scope of application of Regulation2790/99 2.180The scope of application of Regulation 2658/2000 2.181

The Relation between Regulations 2659/2000 and 2790/99The limits to the scope of application of Regulation 2790/99 2.189The scope of application of Regulation 2659/2000 2.190

(3) The relation with the technology transfer block exemptionregulationGeneral 2.195The relation between Regulations 772/2004 and 2790/99

The limits to the scope of application of Regulation 2790/99 2.196The scope of application of Regulation 772/2004 2.197Agreements concerning different levels of trade 2.202

(4) The relation with the motor vehicle distribution blockexemption regulation 2.206

G. Fifth Question: Market Share Limit(1) Introduction 2.209(2) Relevant markets

Definition of the relevant product and geographic market 2.220Relevant market—market share of the supplier

General 2.223Relevant product market rule (1): substiturabilityfor input products from a buyer's perspective 2.225Relevant product market rule (2): substitutability forfinal products from a final consumer's perspective 2.227Exception to relevant product market rule (2):substitutability for a portfolio of final products froma buyer's perspective 2.228Relevant product market rule (3): as a rule, thedistribution form is irrelevant 2.229Relevant geographic market 2.231

Relevant market—market share of the buyer 2.232Relevant market—multi-party agreement at differentlevels of trade 2.235Relevant market—portfolio of products distributed throughthe same distribution System 2.238Relevant market—secondary products 2.240

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(3) Calculation of market shares 2.248Market share in value and market share in volume 2.249

Market share in value 2.250Market share in volume 2.251Market data relating to the preceding calendar year 2.252

Market share of connected undertakings, Joint ventures,cases of dual distribution, and intra-group sales

Connected undertakings 2.254Joint ventures 2.257Dual distribution 2.258Intra-group sales 2.259

Market share and captive or in-house production 2.260(4) Practical examples 2.261

H. Sixth question: the role of intellectual property rights(1) Introduction 2.267(2) First condition: IPRs as part of a vertical agreement 2.271(3) Second condition: IPRs assigned to, or for use by, the buyer 2.275(4) Third condition: IPRs which do not constitute the primary

object of the agreement 2.276(5) Fourth condition: IPRs which are directly related to the use,

sale, or resale of goods or Services 2.278(6) Fifth condition: IPRs which do not contain restrictions of

competition having die same object or effect as verticalrestraints which are not exempted 2.281

(7) Trademarks, Copyright, and know-how 2.284Trademarks 2.285Copyright 2.286Know-how 2.288

I. Seventh Question: Agreements Between Competitors andAgreements Entered into by an Association of Undertakings 2.291

(1) Agreements between competitorsThe rule: exclusion from the scope of Regulation 2790/99 2.292The exception: agreements between competitors within thescope of regulation 2790/99

Conditions 2.296Turnover limit 2.298Dual distribution 2.300

(2) Agreements entered into by an association of undertakings 2.302

3. Territorial Scope of Application of Regulation 2790/99 3.01

A. Addressees of Regulation 2790/99 3.02

B. Territorial Application of the Prohibition of Article 81(1)EC and Regulation 2790/99

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(1) Vertical agreements which restrict competition in the EEA 3.05(2) Vertical agreements on exports outside or re-importation

from outside the EEA 3.06(3) Vertical agreements with hardcore restrictions 3.15

4. Application in Time of Regulation 2790/99 4.01

5. Hardcore Restrictions

A. Hardcore Restrictions as 'Object' 5.01(1) Different views on die 'object' concept 5.04(2) Direct imposition of hardcore restrictions 5.06(3) Indirect imposition of hardcore restrictions 5.07

B. Territorial Scope of Application 5.10

C. Article 4(a)—Vertical Price Fixing(1) The principle of the prohibition of vertical price fixing 5.11

Elimination or reduction of intra-brand competition 5.14Price transparency—horizontal collusion 5.15

(2) Different types of vertical price fixingDirect price fixing 5.19Indirect price fixing 5.21Price monitoring 5.22

(3) Recommended and maximum prices 5.25

D. Article 4(b)—Territorial and Customer Restrictions 5.31(1) The rule of the prohibition of customer and territorial

restrictions 5.35Restrictions imposed on buyers and resellers 5.36Restrictions applying in the EEA 5.37Direct customer restrictions 5.38Indirect customer restrictions 5.39Objective justification for customer restrictions 5.42

(2) First exception: restrictions on active salesGeneral 5.43Definition of active and passive sales

Active sales 5.46Passive sales 5.48Active v passive sales 5.49Sales via the Internet 5.51

Restrictions on active sales prior to Regulation 2790/99 5.54Restrictions on active sales according to Regulation 2790/99 5.61

First and second conditions: exdusivity and the parallelImposition of an active sales restriction 5.62

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Third condition: no limitation of sales by the customersof the buyer 5.75Practical Solutions 5.84

Restrictions on active sales to an exclusive customer groupaccording to Regulation 2790/99 5.86Direct sales by the supplier 5.89Location clauses 5.95

(3) Second exception: customer restrictions imposed onwholesalers 5.96

(4) Third exception: restriction of sales to unauthorizeddistributors in the context of a selective distribution System 5.99

(5) Fourth exception: restrictions on the resale of components 5.102(6) Final comments on the exceptions regarding the prohibition

of territorial and customer restrictions 5.110

E. Territorial and Customer Restrictions in the Context of aSelective Distribution System(1) General 5.111(2) Location clauses 5.116(3) Combining exclusive and selective distribution 5.120

F. Restrictions on the Säle of Spare Parts 5.124

6. The Non-compete Obligation

A. Definition(1) The non-compete Obligation—a broad definition 6.01(2) The non-compete Obligation—a narrow definition 6.05(3) The exclusive purchase Obligation 6.08

B. Conditions Applicable to Non-Compete Obligations(1) Non-compete obligations during die term of the agreement 6.13

Indefinite duration 6.14Tacit renewal 6.15Express renewal 6.17Exception 6.20

(2) The non-compete Obligation after termination ofthe agreement 6.23

(3) Non-compete obligations imposed on members of selectivedistribution Systems 6.30

C. Consequences if the Conditions Are Not Met(1) The severability principle 6.33(2) Consequences for the relevant provision 6.34(3) The Delimitis test 6.35(4) Consequences for the remaining provisions 6.41

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7. Frequently Used Distribution Formulas


B. Exclusive distribution 7.04(1) Territorial protection

Territorial protection against the supplier 7.05Territorial protection against odier distributors 7.07

(2) Territorial restrictions 7.08(3) Customer restrictions 7.10(4) Non-compete Obligation 7.13(5) Exclusive purchasing 7.14

C. Non-Exclusive Distribution(1) Territorial protection

Territorial protection against the supplier 7.16Territorial protection against other distributors 7.18


D. Selective Distribution 7.25(1) Territorial protection

Territorial protection against the supplier 7.28Territorial protection against other members of theselective distribution System 7.29

(2) Tetritorial restrictions 7.31(3) Customer restrictions

End-users 7.33Resellers 7.34

(4) Non-compete Obligation 7.35(5) Exclusive purchasing 7.37

E. Franchising(1) General 7.38

Importance of Article 2(3) of Regulation 2790/99 7.40Commercial franchising 7.41Industrial franchising 7.42

(2) Territorial protectionTerritorial protection against the supplier 7.44Territorial protection against other franchisees 7.45


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F. Agency(1) Introduction 7.52

Agency under die Regulation 7.53Agency under the Guidelines 7.55Commercial Agency Directive 7.56

(2) Agency agreements in the case law of the court of justice 7.59(3) Agency agreements under the Guidelines

Introduction 7.63The distinction between genuine and non-genuineagency agreements 7.66

Costs of supply (or purchase), including transportation 7.71Sales promotion 7.72Stocks 7.73Service 7.74Investments 7.75Product liability 7.76Liability for non-performance by the customer 7.77

Consequences of the distinction between genuine andnon-genuine agency agreements 7.80

(4) Clauses defining the price and other conditions of sale 7.84(5) Territorial protection

Territorial protection against the principal 7.88Territorial protection against the principal's other agents 7.90

(6) Territorial restrictions 7.91(7) Customer restrictions 7.94(8) Non-compete Obligation 7.95

8. Subcontracting Agreements


B. Legal Framework 8.05

C. Subcontracting Between Competitors(1) Methodology: six questions 8.12(2) First question: does the subcontracting agreement come

within die scope of Article 81(1) EC? 8.13(3) Second question: does the subcontracting agreement

appreciably restrict competition in die sense ofArticle 81(1) EC? 8.14

(4) Third question: is the subcontracting agreement a technologytransfer agreement covered by the TTBER? 8.16

(5) Fourdi question: is die subcontracting agreement a unilateralspecialization agreement covered by Regulation 2658/2000? 8.20

(6) Fifth question: is the subcontracting agreement covered byRegulation 1400/2002 or Regulation 2790/99? 8.22

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(7) Sixth question: are the restrictions of competition which thesubcontracting agreement contains enforceable according tothe Horizontal Guidelines? 8.25Foreclosure problems 8.26Spill-over effects 8.28

D. Subcontracting Between Non-Competitors(1) Methodology 8.32(2) First question: does the subcontracting agreement come

within the scope of Article 81(1) EC? 8.33(3) Second question: does the subcontracting agreement

appreciably affect competition in the sense of Article 81(1) EC?General 8.34Subcontracting between non-competitors according to theHorizontal Guidelines 8.35Subcontracting between non-competitors according to theSubcontracting Notice 8.37Subcontracting agreements between non-competitorsaccording to die De Minimis Notice 8.44

(4) Third question: is die subcontracting agreement a technologytransfer agreement covered by the TTBER? 8.47

(5) Fourth question: is the subcontracting agreement covered byRegulation 1400/2002 or Regulation 2790/99? 8.50The regime of Regulation 2790/99 8.51The regime of Regulation 1400/2002 8.54

(6) Fifth question: are the restrictions of competition which thesubcontracting agreement contains enforceable pursuant todie (Vertical) Guidelines? 8.57

(7) Conduding remarks 8.58

9. Disapplication and Withdrawal

A. Introduction(1) Block exemption 9.01(2) Corrective measures 9.02

B. Disapplication(1) Parallel networks 9.03(2) The 50% rule 9.04(3) Transition period 9.05(4) No retroactive effect 9.06(5) Disapplication by Commission regulation 9.07

C. Withdrawal(1) Individual agreements 9.08(2) Withdrawal by Commission decision 9.09(3) No retroactive effect 9.10

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(4) Inapplicability to future agreements 9.11(5) Withdrawal procedure 9.12

III VERTICAL AGREEMENTS OUTSIDE THE SCOPEOF REGULATION 2790/99

10. Vertical Agreements for Companies with a Large Market Share


B. Frequently Used Distribution Formulas(1) Exclusive distribution(2) Non-exdusive distribution(3) Quantitative selective distribution(4) Qualitative selective distribution(5) Franchising(6) Agency

C. Assessment of Individual Vertical Restraints(1) Structure(2) General principles

No individual exemption for hardcore restraintsAbuses of dominance not eligible for an individual exemptionMarket power as central conceptDistinction between the reduction of inter-brandComperition v intra-brand competitionSummary

(3) Methodology for assessment(4) Territorial protection

Competitive concernsReduction of intra-brand competitionForeclosure of the purchase marketFacilitating collusionMarket partitioning

Measurement of restrictive intensityMarket characteristicsFeatures of the vertical restraint

EfficienciesFree-rider problemCertification free-rider issueHold-up problemEconomies of scale

Concrete guidance(5) Territorial restrictions

Competitive concernsMeasurement of restrictive intensity

10.0610.0910.1110.1310.1710.1910.21

10.2210.2310.2410.2710.29

10.3310.3410.3610.3810.3910.4010.4110.4210.4310.4410.4510.4610.4710.4810.5110.5210.5310.5410.5510.5610.57

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Market characteristicsFeatures of die vertical restraint

EfficienciesConcrete guidance

(6) Exclusive customer allocationCompetitive concernsMeasurement of restrictive intensity

Market characteristicsFeatures of the vertical restraint


(7) Customer restrictionsProtection of customers allocated to other distributorsSelective distribution

(8) Non-compete obligations and quantity forcing on thedistributorsCompetitive concerns

Foreclosure of the marketFacilitating collusionReduction of inter-brand competition

Measurement of restrictive intensityMarket characteristicsFeatures of the vertical restraint

EfficienciesFree-rider problemHold-up problemSpecific hold-up problemEconomies of scaleCapital market imperfections

Concrete guidance(9) Exclusive supply and quantity forcing on the supplier

Competitive concernsMeasurement of restrictive intensity



(10) Exclusive purchasingCompetitive concernsMeasurement of restrictive intensity



10.5810.5910.6010.6110.6210.64

10.6610.6710.6810.6910.7210.7310.75

10.7610.7710.7810.7910.8010.8110.8210.8910.9210.9310.9410.9510.9610.9710.9810.99

10.10210.10310.10410.11010.11110.11210.11310.11410.11610.11710.11910.12010.121

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D. Combinations of Vertical Restraints 10.122(1) Exclusive distribution and territorial restrictions 10.124(2) Exclusive distribution and non-compete Obligation 10.125(3) Exclusive distribution and exclusive purchasing 10.127(4) Selective distribution and non-compete Obligation 10.129(5) Selective distribution and exclusive distribution 10.130(6) Selective distribution and exclusive customer allocation 10.132(7) Exclusive supply and non-compete Obligation 10.133

IV MOTOR VEHICLE DISTRIBUTION UNDERREGULATION 1400/2002

11. The Motor Vehide Distribution Block Exemption

A. Introduction(1) Historical background 11.01(2) A more economic and less prescriptive approach 11.02(3) Aims of Regulation 1400/2002: radical promotion of

intra-brand competition 11.09(4) Structure of Regulation 1400/2002 11.13

Article 3 11.15Article 4 11.19Article 5 11.20Articles 6 to 12 11.21

B. Scope of Application(1) Type of agreements covered 11.22(2) Applicability of Article 81(1) EC 11.24(3) Vertical agreements 11.31(4) Purchase, sale, or resale 11.36(5) The relevant goods and Services 11.37

New motor vehides 11.38Spare parts for motor vehicles 11.41Repair and maintenance Services for motor vehicles 11.46

(6) Territorial scope of application 11.47(7) Application ratione temporis 11.48

C. Distribution Formulas 11.50(1) Calculation of market shares 11.52(2) Definition of relevant markets 11.53(3) Motor vehicles 11.56(4) Spare parts 11.63(5) Repair and maintenance Services 11.65(6) Calculation method 11.66(7) Distribution formulas: general overview of possibilities 11.73(8) Distribution formulas: definition 11.77

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1111.11.

.78

.81

.84

.86

.88

.90

.9911.105

Contents

Selective distribution: generalQualitative selective distributionQuantitative selective distributionDistribution formulas other than selective distribution

D . Conditions of the Block Exemption

(1) General(2) Transfer rights(3) Term and termination(4) Dispute resolution

E. Hardcore Restrictions

(1) General 11.109(2) Hardcore restrictions concerning the sale of new motor

vehicles, repair and maintenance Services, or spare partsVertical price fixingTerritorial and customer restrictions

Territorial restrictionsCustomer restrictions

Practical implicationsProhibition of registration requirementRepair, warranty, free servicing, recallOrdering and delivery SystemsSales targetsBonuses on cross-suppliesIntermediariesLeasing companies

(3) Hardcore restrictions only concerning the sale of new motorvehiclesAvailability dauseSubcontracting repair and maintenance Services

(4) Hardcore restrictions only concerning the sale of repairand maintenance Services and of spare partsWorkshop-only scenarioSupply of spare parts to independent repairersDirect supplies by producers of parts, equipment, or tooling

Original spare partsSpare parts of matching quality

Freedom of distributors or repairers to source parts fromdiird partiesTrademark or logo of component supplier

F. Mandatory Access to Technical Information, Training, Tools,and Diagnostic and Other Equipment(1) Object of the access rights

Technical Information

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11.11,11.

11.11.11.11.11.11.

11.11.

11.11.11.

.112

.113

.115

.118

.119

.120

.121

.122

.124

.125

.126

.127

.128

.129

.130

.134

.141142145148151152

155159

161163164

Contents

Training 11.165Tools and equipment 11.166

(2) Beneficiaries 11.167(3) Party subject to the Obligation 11.169(4) Conditions 11.172

Non-discrimination 11.174Prompt 11.175Proportionate 11.176

G. Specific Conditions 11.177(1) Non-compete obligations 11.180(2) Standard non-compete Obligation 11.181

Brand-specific areas 11.184Separate showrooms 11.185Brand-specific personnel 11.186Display of füll ränge 11.187Separate entrances 11.188Separate reception desks 11.189Corporate identity 11.190

(3) Extended non-compete obligations 11.192(4) Quasi non-compete obligations 11.197(5) Post-term non-compete Obligation 11.202(6) Leasing Services 11.203(7) Location clauses 11.204

Passenger cars and light commercial vehicles 11.205Trucks and buses 11.208Repair and maintenance 11.209Spare parts 11.211

H. Non-Application and Withdrawal 11.212

Appendix 1 Commission Regulation (EC) No 2790/1999 381Appendix 2 Commission Notice—Guidelines on Vertical

Restraints (2000/C 29101) 388Appendix 3 Commission Regulation (EC) No 1400/2002 437

Index 453

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vertical agreements in ec competition law

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