Proposal for a Council Regulation (EC) amending Regulation No 19/65/EEC on the application of Article 85(3) of the Treaty to certain categories of agreements and concerted practices (98/C 365/06) (Text with EEA relevance) COM(1998) 546 final - 98/0287(CNS)

(Submitted by the Commission on 20 October 1998)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 87 thereof,

Having regard to the proposal from the Commission,

Having regard to the opinion of the European Parliament,

Having regard to the opinion of the Economic and Social Committee,

(1) Whereas by Regulation No 19/65/EEC (1), as last amended by the Act of Accession of Austria, Finland and Sweden, the Council empowered the Commission, without prejudice to the application of Council Regulation No 17 (2): First Regulation implementing Articles 85 and 86 of the Treaty, as last amended by the Act of Accession of Austria, Finland and Sweden, and in accordance with Article 85(3) of the Treaty, to adopt regulations declaring that Article 85(1) does not apply to certain categories of agreements, and in particular to categories of agreements to which only two undertakings are party and whereby one party agrees with the other to supply only to that other certain goods for resale within a defined area of the common market, or whereby one party agrees with the other to purchase only from that other certain goods for resale, or whereby the two undertakings enter into such obligations with each other in respect of exclusive supply and purchase for resale;

(2) Whereas, pursuant to Regulation No 19/65/EEC, the Commission has in particular adopted Regulations (EEC) No 1983/83 (3) and (EEC) No 1984/83 (4) regarding the application of Article 85(3) of the Treaty to categories of exclusive distribution agreements and to categories of exclusive purchasing agreements, respectively, both of which were last amended by Regulation (EC) No 1582/97 (5), and also Regulation (EEC) No 4087/88 (6), as amended by the Act of Accession of Austria, Finland and Sweden, regarding the application of Article 85(3) of the Treaty to categories of franchise agreements;

(3) Whereas on 22 January 1997 the Commission published a Green Paper on vertical restraints in EC competition policy (7), which was intended to generate a wide-ranging public debate on the application of Article 85(1) and (3) of the Treaty to agreements or concerted practices entered into by undertakings each operating at a different stage of the economic process in respect of the supply or purchase, or both, of goods for resale or processing, or in respect of the marketing of services (vertical agreements), including exclusive distribution agreements, exclusive purchasing agreements, franchising agreements and selective distribution agreements; whereas this class of agreement does not include vertical agreements between actual or potential competitors, unless the agreement is a non-reciprocal one and none of the parties have an annual turnover exceeding ECU 100 million, or is between an association of retailers and its members, or between such an association and its suppliers, and the members of the association are small or medium-sized enterprises as defined in the Annex to Commission Recommendation 96/280/EC (8).

(4) Whereas the response to the Green Paper from the Member States, the European Parliament, the Economic and Social Committee, the Committee of the Regions and interested parties in business and the legal professions has been generally in favour of reform of Community competition policy on vertical agreements; whereas the block exemption regulations already referred to should accordingly be revised;

(5) Whereas any such reform must meet the two requirements of ensuring effective protection of competition and providing adequate legal certainty for firms; whereas the pursuit of those objectives should take account of the need as far as possible to simplify administrative supervision and the legislative framework;

(6) Whereas the exempting regulations already referred to do not confine themselves to defining the categories of agreement to which they apply and to specifying the restrictions or clauses which are not to be contained in the agreements, but also list the restrictive clauses exempted; whereas this legislative approach to contractual relations is generally perceived to be over-rigid in an economic context where distribution structures and techniques are rapidly changing;

(7) Whereas the regulations refer only to those categories of bilateral exclusive agreements entered into with a view to resale which are concerned with the exclusive distribution or purchase of goods, or both, or which include restrictions imposed in relation to the assignment or use of industrial property rights; whereas they exclude from their scope agreements between more than two undertakings operating at different stages of the economic process, selective distribution agreements, agreements for the marketing of services, and agreements concerning the supply or purchase, or both, of goods intended for processing; whereas a substantial number of vertical agreements consequently cannot qualify for exemption under Article 85(3) of the Treaty until they have been examined individually by the Commission, which may reduce the legal certainty available to the undertakings concerned and make administrative supervision unnecessarily burdensome;

(8) Whereas the debate which followed the publication of the Green Paper also drew attention to the fact that in determining the manner in which Article 85(1) and (3) are to apply proper account needed to be taken of the economic effects of vertical agreements; whereas any economic criteria limiting the scope of the block exemption by reason of the anticompetitive effects which an agreement may produce must necessarily take into consideration the share of the relevant market accounted for by the goods covered by the agreement;

(9) Whereas, therefore, it would be advisable to replace the existing legislation with legislation which is simpler, more flexible and better targeted, and which covers all kinds of vertical agreement; whereas if the scope of the exempting regulation covering such agreements is to be broadened in this way, there should be criteria such as market-share thresholds to specify the circumstances where, in view of the economic effects of the agreement, that regulation ceases to be applicable;

(10) Whereas the powers conferred on the Commission by Regulation No 19/65/EEC do not allow it to conduct such a reform of the rules currently in force; whereas the scope of Article 1(1)(a) and (2)(b) thereof should consequently be broadened to cover all kinds of vertical agreement caught by Article 85(1) of the Treaty which are entered into by two or more undertakings, each operating at a different stage of the economic process, and which concern the supply or purchase, or both, of goods for resale or processing, or the marketing of services, including exclusive distribution agreements, exclusive purchasing agreements, franchising agreements and selective distribution agreements, or any combination of these;

(11) Whereas the exempting regulations already referred to empower the Commission, in accordance with Article 7 of Regulation No 19/65/EEC, to withdraw the benefit of application of those regulations wherever, in a particular case, an agreement has certain effects which are incompatible with the conditions laid down in Article 85(3); whereas in order to ensure effective supervision of markets and greater decentralisation in the application of the Community competition rules, it is appropriate to provide that where the effects of such an agreement are felt in a Member State which possesses all the characteristics of a distinct market the competent authority in that Member State may withdraw the benefit of the block exemption in its territory and adopt a decision aimed at eliminating those effects; whereas Article 7 thereof should accordingly be supplemented so as to specify the circumstances in which the competent authorities in the Member States may withdraw the benefit of application of the block-exemption regulation;

(12) Whereas, in order to guarantee an effective control of the effects arising in a given market from the existence of parallel networks of similar agreements, a block-exemption regulation may establish the conditions under which those networks of agreements are excluded from its application; whereas such conditions may be based on structural criteria, such as the market coverage rate of these agreements; whereas such conditions will not be applicable automatically because the companies concerned may not have access to precise sector-wide data; whereas the Commission will accordingly be empowered to establish that in a given market the relevant agreements fulfil the conditions; whereas in such a case, the Commission will have to fix a transitional period of not less than six months, at the expiry of which the block exemption will cease to be applicable to the relevant agreements,

HAS ADOPTED THIS REGULATION:

Article 1

Regulation No 19/65/EEC is hereby amended as follows:

1. Article 1 is amended as follows:

(a) paragraph 1 is replaced by the following:

'1. Without prejudice to the application of Regulation No 17 and in accordance with Article 85(3) of the Treaty the Commission may by regulation declare that Article 85(1) shall not apply to:

(a) categories of agreements between two or more undertakings, each operating at a different stage of the economic process, in respect of the supply or purchase, or both, of goods for resale or processing, or in respect of the marketing of services, except where:

- the agreement is between actual or potential competitors, unless it is a non-reciprocal agreement none of the parties to which have an annual turnover exceeding ECU 100 million, or

- the agreement is between an association of retailers and its members, or between such an association and its suppliers, unless the members of the association are small or medium-sized enterprises as defined in Commission Recommendation 96/280/EC (*);

(b) categories of agreements to which only two undertakings are party and which include restrictions imposed in relation to the acquisition or use of industrial property rights - in particular of patents, utility models, designs or trade marks - or to the rights arising out of contracts for assignment of, or the right to use, a method of manufacture or knowledge relating to the use or to the application of industrial processes.

(*) OJ L 107, 30.4.1996, p. 4.`

(b) In paragraph 2(b), the words 'the clauses which must be contained in the agreements, or` are deleted.

(c) paragraph 3 is replaced by the following:

'3. Paragraphs 1 and 2 shall apply by analogy to categories of concerted practices.`

(d) the following paragraph 4 is added:

'4. For purposes of paragraph 1, an agreement between competitors means an agreement which is entered into by manufacturers or distributors of identical products or products considered by consumers to be similar by reason of their characteristics, price and use, and which relates to such products.`

2. in Article 7 the following two paragraphs are added:

'A regulation pursuant to Article 1 may stipulate the conditions which exclude from its application certain parallel networks of similar agreements or concerted practices operating on a particular market; when these circumstances are fulfilled the Commission may establish this by means of decision and fix a period at the expiry of which the regulation would no longer be applicable in respect of the relevant agreements or concerted practices; such period must not be shorter than six months.

Where in any particular case agreements or concerted practices to which a regulation adopted pursuant to Article 1 applies have certain effects which are incompatible with the conditions laid down in Article 85(3) of the Treaty in the territory of a Member State, or in a part thereof, which has all the characteristics of a distinct market, the competent authority in that Member State may on its own initiative or at the request of the Commission or of natural or legal persons claiming a legitimate interest withdraw the benefit of application of that regulation.`

Article 2

This Regulation shall enter into force on the third day following that of its publication in the Official Journal of the European Communities.

This Regulation shall be binding in its entirety and directly applicable in all Member States.

(1) OJ 36, 6.3.1965, p. 533/65.

(2) OJ 13, 21.2.1962, p. 204/62.

(3) OJ L 173, 30.6.1983, p. 1.

(4) OJ L 173, 30.6.1983, p. 5.

(5) OJ L 214, 6.8.1997, p. 27.

(6) OJ L 359, 28.12.1988, p. 46.

(7) COM(96) 721 final.

(8) OJ L 107, 30.4.1996, p. 4.