ANNEX

DRAFT COMMUNICATION FROM THE COMMISSION

Commission Notice: Guidelines on vertical restraints

TABLE OF CONTENTS

1. Introduction 15

1.1. Purpose and structure of these Guidelines 15

1.2. Applicability of Article 101 to vertical agreements 16

2. Effects of vertical agreements 17

2.1. Positive effects 17

2.2. Negative effects 19

3. Vertical agreements that generally fall outside the scope of Article 101(1) 20

3.1. Lack of effect on trade, agreements of minor importance and SMEs 20

3.2. Agency agreements 21

3.2.1. Definition of agency agreements 21

3.2.2. Application of Article 101(1) to agency agreements 25

3.2.3. Agency and the online platform economy 26

3.3. Subcontracting agreements 26

4. Scope of the VBER 27

4.1. Safe harbour established by the VBER 27

4.2. Definition of vertical agreement 27

4.2.1. Unilateral conduct falls outside the scope of the VBER 28

4.2.2. The undertakings operate at different levels of the production or distribution chain 28

4.2.3. The agreements relate to the purchase, sale or resale of goods or services 29

4.3. Vertical agreements in the online platform economy 29

4.4. Limits to the application of the VBER 30

4.4.1. Associations of retailers 30

4.4.2. Vertical agreements containing provisions on intellectual property rights (IPRs) 31

4.4.3. Vertical agreements between competitors 33

4.5. Relationship with other block exemption regulations 35

4.6. Main types of distribution systems 36

4.6.1. Exclusive distribution systems 37

4.6.2. Selective distribution systems 42

4.6.3. Franchising 46

5. Market definition and market share calculation 48

5.1. Market Definition Notice 48

5.2. The calculation of market shares under the VBER 48

5.3. Calculation of market shares under the VBER 49

6. Application of the VBER 49

6.1. Hardcore restrictions under the VBER 49

6.1.1. Resale price maintenance 51

6.1.2. Hardcore restrictions pursuant to Article 4(b) to (d) VBER 55

6.1.3. Restrictions of the sales of spare parts 63

6.2. Restrictions that are excluded from the VBER 63

6.2.1. Non-compete obligations exceeding a duration of five years 63

6.2.2. Post term non-compete obligations 64

6.2.3. Non-compete obligations imposed on members of a selective distribution system 64

6.2.4. Parity obligations 64

7. Withdrawal and non-application 64

7.1. Withdrawal of the benefit of the VBER (Article 29 Regulation (EC) No 1/2003) 64

7.2. Regulation declaring that the VBER does not apply (Article 6 VBER) 67

8. Enforcement policy in individual cases 67

8.1. The framework of analysis 67

8.1.1. Relevant factors for the assessment under Article 101(1) 68

8.1.2. Relevant factors for the assessment under Article 101(3) 70

8.2. Analysis of specific vertical restraints 71

8.2.1. Single branding 71

8.2.2. Exclusive supply 75

8.2.3. Restrictions on the use of online marketplaces 77

8.2.4. Restrictions on the use of price comparison tools 79

8.2.5. Parity obligations 81

8.2.6. Upfront access payments 84

8.2.7. Category Management Agreements 85

8.2.8. Tying 86

1. INTRODUCTION

1.1. Purpose and structure of these Guidelines

(1) These Guidelines set out the principles for the assessment of vertical agreements and concerted practices under Article 101 of the Treaty on the Functioning of the European Union (hereinafter “Article 101”) ( 1 ) , and Commission Regulation (EU) [No [X]/2022 of [X] 2022] on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices (hereinafter “VBER”) ( 2 ) . For ease of reference, unless otherwise stated, in these Guidelines, the term “agreement” also covers concerted practices.

(2) By issuing these Guidelines, the Commission aims to help companies conduct their own assessment of vertical agreements under the EU competition rules. However, each agreement must be evaluated in the light of its own facts ( 3 ) . These Guidelines cannot therefore be applied mechanically. They are also without prejudice to the case-law of the General Court and the Court of Justice of the European Union (hereinafter “CJEU”).

(3) Vertical agreements may be concluded for intermediate and final goods and services. Unless otherwise stated, these Guidelines apply to all types of goods and services, and to all levels of trade.

(4) These Guidelines are structured as follows: — This first section is an introduction, which includes explanations as to the reasons why and the extent to which the Commission provides guidance on vertical agreements. The remainder of this introduction sets out the context in which Article 101 applies to vertical agreements. — The second section provides an overview of the positive and negative effects created by vertical agreements. The VBER in its entirety, these Guidelines, and the Commission’s enforcement policy in individual cases are based on the consideration of these effects. — The third section deals with vertical agreements that generally fall outside Article 101(1). While the VBER does not apply to these agreements, it is necessary to provide guidance on the conditions under which vertical agreements fall outside Article 101(1). — The fourth section provides further guidance on the scope of the VBER. It includes explanations on the safe harbour established by the VBER and the definition of a vertical agreement. This section also deals more specifically with vertical agreements in relation to the online platform economy, which plays an increasingly important role in the distribution of goods and services and where vertical agreements between undertakings may not be easy to categorise under the concepts traditionally associated with vertical agreements. That section also explains the limits of the application of the VBER, as stipulated in Article 2(2) to (4) VBER, and explains the relationship with other block exemption regulations pursuant to Article 2(8) VBER. It also contains a description of the main types of distribution systems. This description is relevant for a number of provisions of the VBER, notably the list of hardcore restrictions provided in Article 4(b) VBER. — The fifth section addresses the definition of the relevant markets and the calculation of the market shares of the undertakings party to a vertical agreement. It serves to assess whether the market share thresholds provided in Article 3 VBER determining the applicability of the VBER are exceeded. — The sixth section deals with the hardcore restrictions set out in Article 4 VBER and the excluded restrictions set out in Article 5 VBER, including explanations as to why the qualification as hardcore or excluded restriction is relevant. — The seventh section contains guidance on the withdrawal of the benefit of the VBER pursuant to Article 29 of Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty (4) and regulations declaring that the VBER does not apply pursuant to Article 6 VBER. — The eighth section describes the Commission’s enforcement policy in individual cases. To this end, it explains how vertical agreements are assessed under Article 101(1) and 101(3) outside the scope of the VBER, and provides guidance on a non-exhaustive list of specific vertical agreements.

1.2. Applicability of Article 101 to vertical agreements

(5) The objective of Article 101 is to ensure that undertakings do not use agreements, whether horizontal or vertical ( 5 ) , to prevent, restrict or distort competition on the market to the ultimate detriment of consumers. Article 101 also pursues the wider objective of achieving an integrated internal market ( 6 ) , which enhances competition in the European Union. Undertakings may not use vertical agreements to re-establish private barriers between Member States where State barriers have been successfully abolished.

(6) Article 101 applies to vertical agreements and restrictions in vertical agreements that affect trade between Member States and that prevent, restrict or distort competition ( 7 ) . It provides a legal framework for the assessment of vertical restraints ( 8 ) , which takes into consideration the distinction between anti-competitive and pro-competitive effects. Article 101(1) prohibits agreements that appreciably restrict or distort competition, while Article 101(3) exempts those agreements falling within Article 101(1) that provide sufficient benefits to outweigh their anti-competitive effects ( 9 )

(7) While there is no mandatory sequence for the assessment of vertical agreements, it generally involves the following steps: (a) First, the undertakings involved need to establish the market shares of the supplier and the buyer on the market where they respectively sell and purchase the contract goods or services. (b) If the relevant market share of the supplier and the buyer each do not exceed the 30 % market share threshold, the vertical agreement is covered by the safe harbour created by the VBER, provided that it contains neither any hardcore restrictions nor any excluded restrictions that cannot be severed from the rest of the vertical agreement. (c) If the relevant market share is above the 30 % threshold for the supplier and/or the buyer, it is necessary to assess whether the vertical agreement falls within Article 101(1). (d) If the vertical agreement falls within Article 101(1), it is necessary to examine whether it fulfils the conditions for an individual exemption under Article 101(3).

2. EFFECTS OF VERTICAL AGREEMENTS

(8) The assessment of vertical restraints under Article 101 and the application of the VBER must take into account all relevant parameters of competition, such as prices, output in terms of product quantities, product quality and variety, and innovation. They must also take into account that vertical agreements between undertakings operating at different levels of the production or distribution chain are generally less harmful than horizontal agreements between competitors supplying substitutable goods or services. In principle, this is due to the complementary nature of the activities of the parties to a vertical agreement, which normally implies that pro-competitive actions by one of the undertakings benefit the other party to the agreement, and ultimately consumers. In contrast to horizontal agreements, the parties to a vertical agreement therefore tend to have an incentive to agree on lower prices and higher levels of service, which also benefits consumers. The complementary nature of the activities of the parties to a vertical agreement in placing goods or services on the market also implies that vertical restraints may provide substantial scope for efficiencies, for example by optimising manufacturing or distribution processes and services.

(9) Undertakings with market power may try to use vertical restraints to pursue anti-competitive purposes that ultimately harm consumers. Market power is the ability to maintain prices above competitive levels or to maintain output in terms of product quantities, product quality and variety or innovation below competitive levels for a not insignificant period of time. The degree of market power normally required for a finding of an infringement under Article 101(1) is less than the degree of market power required for a finding of dominance under Article 102. However, in view of the complementary nature of the activities of the parties to a vertical agreement, the exercise of market power by an undertaking either upstream or downstream would normally hurt the demand for the contract goods or services by the other undertaking party to the vertical agreement. Undertakings party to a vertical agreement therefore usually have an incentive to prevent the exercise of market power by their contract party.

2.1. Positive effects

(10) Vertical agreements may have positive effects, for example lower prices, the promotion of non-price competition or improved quality of services. Arm’s length dealings between a supplier and a buyer, which determine only the price and the quantity of a transaction, can often lead to a sub-optimal level of investments and sales, as they do not take into account externalities arising from the complementary nature of the activities of the supplier and its distributors. These externalities fall into two categories: vertical externalities and horizontal externalities.

(11) Vertical externalities arise because the decisions and actions taken at different levels of the supply and distribution chain determine aspects of the sale of goods or services, such as price, quality, related services and marketing, which affect not only the undertaking making the decisions but also other undertakings at other levels of the supply and distribution chain. For instance, a distributor may not gain all the benefits of its efforts to increase sales, as some of these benefits may go to the supplier. This is because for every extra unit a distributor sells by lowering its resale price or by increasing its sales efforts, the supplier benefits if its wholesale price exceeds its marginal production costs. Thus, there may be a positive externality bestowed on the supplier by such distributor’s actions. Conversely, there may be situations where, from the supplier’s perspective, the distributor may be pricing too high ( 10 ) , and/or making too little sales efforts.

(12) Horizontal externalities may arise between distributors of the same goods or services when a distributor is unable to fully appropriate the benefits of its sales efforts. For instance, demand-enhancing pre-sale services provided by one distributor, such as personalised advice in relation to particular goods or services, may lead to higher sales by competing distributors offering the same goods or services and thus create incentives among distributors to free-ride on costly services provided by others. In an omni-channel distribution environment (online and offline), free-riding can occur in both directions ( 11 ) . For example, customers may visit a brick and mortar shop to test goods or services or to obtain other useful information on which they base their decision to purchase, but then order the product online from a different distributor. Conversely, customers may gather information in the pre-purchase phase (including inspiration, information, and evaluation) from an online shop, and then visit a brick and mortar shop, ask for and test particular goods or services based on this information, and finally purchase offline in a brick and mortar shop. Where such free-riding is possible and where the distributor that provides pre-sales services is unable to fully appropriate the benefits, this may lead to a sub-optimal provision of such services in terms of quantity or quality.

(13) In the presence of such externalities, suppliers have an incentive to control certain aspects of their distributors’ operations. In particular, vertical agreements may allow suppliers to internalise the abovementioned external effects, increase the joint profit of the vertical supply and distribution chain and, under certain circumstances, consumer welfare.

(14) While trying to give a comprehensive overview of the various justifications for vertical restraints, these Guidelines do not claim to be complete or exhaustive. The reasons set out below may justify the application of certain vertical restraints. (a) The vertical externality issue or double marginalisation problem: The setting of too high of a price by the distributor, not taking into account the effect of its decisions on the supplier, can be avoided by the supplier imposing a maximum resale price on the distributor. To increase the distributor’s sales efforts, the supplier may, for example, use selective distribution or exclusive distribution. (b) The free-rider problem: Free-riding between buyers may occur at the wholesale or retail level, in particular where it is not possible for the supplier to impose effective promotion or service requirements on all buyers. Free-riding between buyers can only occur on pre-sales services and other promotional activities, but not on after-sales services for which the distributor can charge its customers individually. Pre-sales efforts on which free-riding may occur may be important, for example, when the goods or services are relatively new, technically complex or of a high value, or when the reputation of the goods or services is an important determinant of their demand. Non-compete restrictions can help overcome free-riding between suppliers. (c) To open up or enter new markets: Where a supplier wishes to enter a new geographic market, for instance by exporting to another country, this may involve special sunk investments by the distributor to establish the brand on the market. In order to persuade a local distributor to make these investments, it may be necessary to provide territorial protection so that the distributor can recoup these investments. This may justify restricting distributors located in other geographic markets from selling on the new market (see also paragraph (167) of these Guidelines). This is a special case of the free-rider problem set out in point b) above. (d) The certification free-rider issue: In some sectors, certain distributors have a reputation for stocking only quality goods or providing quality services (so-called “premium distributors”). In such a case, selling through those distributors may be crucial, in particular for the successful launch of a new product. If the supplier cannot limit its sales to such premium distributors, it runs the risk of being de-listed. There may, therefore, be justifications for allowing exclusive distribution or selective distribution. (e) The hold-up problem: Sometimes there are client-specific investments to be made by either the supplier or the buyer, such as investments in special equipment or training. For instance, a component manufacturer may have to build new machines and tools in order to satisfy a particular requirement of one of its customers. Where such client-specific investments cannot be contracted directly, or where such contracting is incomplete, the undertaking concerned may not be able to commit to make the optimal level of investments from the point of view of the supplier and, once selected by the supplier, the buyer may only engage in sub-optimal investments. Vertical agreements may help remove or alleviate such a commitment problem. (f) The specific hold-up problem that may arise in the case of the transfer of substantial know-how: The know-how, once provided, cannot be taken back and the provider of the know-how may not want it to be used for or by its competitors. In as far as the know-how was not readily available to the buyer, and it is substantial and indispensable for the operation of the agreement, such a transfer may justify a non-compete restriction, which would normally fall outside Article 101(1) in such cases. (g) Economies of scale in distribution: To have scale economies exploited and thereby see a lower retail price for its goods or services, the manufacturer may want to concentrate the resale of its goods or services on a limited number of distributors. To do so, it could use exclusive distribution, quantity forcing in the form of a minimum purchasing requirement, selective distribution containing such a requirement or exclusive sourcing. (h) Uniformity and quality standardisation: A vertical restraint may help create a brand image by imposing a certain measure of uniformity and quality standardisation on the distributors, thereby increasing the attractiveness of the goods or services concerned for finals customer and thereby sales. This applies, for instance, in selective distribution and franchising. (i) Capital market imperfections: Providers of capital such as banks and equity markets may provide capital sub-optimally when they have imperfect information on the solvency of the borrower or where there is an inadequate basis to secure the loan. The buyer or supplier may have better information and may be able, through an exclusive relationship, to obtain extra security for its investment. Where the supplier provides the loan to the buyer, this may lead to the imposition of a non-compete obligation or quantity forcing on the buyer. Where the buyer provides the loan to the supplier, this may be the reason for imposing exclusive supply or quantity forcing on the supplier.

(15) The nine situations listed in the previous paragraph show that generally vertical agreements are likely to help realise efficiencies and develop new markets, and that this may offset possible negative effects. The case is in general strongest for vertical restraints that help the introduction of new and complex goods or services, or protect relationship-specific investments. A vertical restraint is sometimes necessary for as long as the supplier sells its goods or services to the buyer (see in particular the situations described in (a), (b), (f), (g) and (h) of the previous paragraph).

(16) There is a large degree of substitutability between the different vertical restraints. This means that the same inefficiency problem can be solved by different vertical restraints. For instance, it may be possible to achieve economies of scale in distribution by using exclusive distribution, selective distribution, quantity forcing or exclusive sourcing. However, the negative effects on competition may differ between the various vertical restraints, which plays a role when indispensability is assessed under Article 101(3).

2.2. Negative effects

(17) The negative effects on the market which may result from vertical restraints and which EU competition law aims to prevent are notably the following: (a) Anti-competitive foreclosure of other suppliers or other buyers by raising barriers to entry or expansion; (b) The softening of competition between the supplier and its competitors and/or the facilitation of (explicit or tacit) collusion (12) among these suppliers, often referred to as the reduction of inter-brand competition. (c) The softening of competition between the buyer and its competitors or the facilitation of (explicit or tacit) collusion among these buyers. However, a reduction of intra-brand competition (i.e. competition between distributors of the goods or services of the same supplier) is by itself unlikely to lead to negative effects for consumers if inter-brand competition (i.e. competition between distributors of the goods or services of different suppliers) is strong. (d) The creation of obstacles to market integration, including notably limitations on consumer choice to purchase goods or services in any Member State.

(18) Foreclosure, softening of competition and collusion at the supplier level may harm consumers in particular by increasing the wholesale prices of goods or services (which in turn may lead to higher retail prices), limiting the choice of goods or services, lowering their quality or reducing the level of innovation at the supplier level. Foreclosure, softening of competition and collusion at the distributor level may harm consumers in particular by increasing the retail prices of goods or services, limiting the choice of price-service combinations and distribution formats, lowering the availability and quality of retail services and reducing the level of innovation at the distribution level.

(19) In a market where individual retailers distribute the brand(s) of only one supplier, a reduction of competition between the distributors of the same brand will lead to a reduction of intra-brand competition between these distributors, but may not have a negative effect on competition between distributors in general. In such a case, if inter-brand competition is strong, it is unlikely that a reduction of intra-brand competition will have negative effects for consumers.

(20) Possible negative effects of vertical restraints are reinforced when several suppliers and their buyers organise their trade in a similar way, leading to so-called cumulative effects ( 13 )

3. VERTICAL AGREEMENTS THAT GENERALLY FALL OUTSIDE THE SCOPE OF ARTICLE 101(1)

3.1. Lack of effect on trade, agreements of minor importance and SMEs

(21) Before addressing the scope of the VBER, its application, and more generally the assessment of vertical agreements under Article 101(1) and 101(3), it is important to recall that the VBER applies only to agreements falling within the scope of application of Article 101(1).

(22) Agreements that are not capable of appreciably affecting trade between Member States (lack of effect on trade) or which do not appreciably restrict competition (agreements of minor importance) fall outside the scope of Article 101(1) ( 14 ) . The Commission has provided guidance on the lack of effect on trade in the Commission Guidelines on the effect on trade concept contained in Articles 81 and 82 of the Treaty (hereinafter “Effect on Trade Guidelines”) ( 15 ) , and on agreements of minor importance in the Commission Notice on agreements of minor importance which do not appreciably restrict competition under 101(1) of the Treaty on the Functioning of the European Union (hereinafter “De Minimis Notice”) ( 16 ) . These Guidelines are without prejudice to the Effect on Trade Guidelines and the De Minimis Notice, as well as any future Commission guidance in this respect.

(23) The Effect on Trade Guidelines set out the principles developed by the Union Courts to interpret the effect on trade concept and indicate when agreements are unlikely to be capable of appreciably affecting trade between Member States. They include a negative rebuttable presumption that applies to all agreements within the meaning of Article 101(1) irrespective of the nature of the restrictions included in such agreements, thus applying also to agreements containing hardcore restrictions ( 17 ) . According to this presumption, vertical agreements are in principle not capable of appreciably affecting trade between Member States when (i) the aggregate market share of the parties on any relevant market within the Union affected by the agreement does not exceed 5 %, and (ii) the aggregate annual Union turnover of the supplier generated with the products covered by the agreement does not exceed EUR 40 million ( 18 ) . The Commission may rebut the presumption if an analysis of the characteristics of the agreement and its economic context demonstrates the contrary.

(24) As set out in the De Minimis Notice, vertical agreements entered into by non-competitors are generally considered to fall outside the scope of Article 101(1) if the market share held by each of the parties to the agreement does not exceed 15 % on any of the relevant markets affected by the agreement ( 19 ) . This general rule is subject to two exceptions. Firstly, as regards hardcore restrictions, Article 101(1) applies irrespective of the parties’ market shares ( 20 ) . This is because an agreement that may affect trade between Member States and which has an anti-competitive object may by its nature and independently of any concrete effect constitute an appreciable restriction on competition ( 21 ) . Secondly, the 15 % market share thresholds are reduced to 5 % where, in a relevant market, competition is restricted by the cumulative effect of parallel networks of agreements. Paragraphs (241) to (243) of these Guidelines deal with cumulative effects in the context of the withdrawal of the benefit of the VBER. The De Minimis Notice clarifies that individual suppliers or distributors with a market share not exceeding 5 % are in general not considered to contribute significantly to a cumulative foreclosure effect ( 22 )

(25) Furthermore, there is no presumption that vertical agreements concluded by undertakings of which one or more has an individual market share exceeding 15 % automatically fall within Article 101(1). Such agreements may still lack an appreciable effect on trade between Member States or they may not constitute an appreciable restriction of competition ( 23 ) . They therefore need to be assessed in their legal and economic context. These Guidelines include criteria for the individual of such agreements.

(26) In addition, the Commission considers that vertical agreements between small and medium-sized undertakings (hereinafter “SMEs”) ( 24 ) are rarely capable of appreciably affecting trade between Member States. The Commission also considers that such agreements rarely appreciably restrict competition within the meaning of Article 101(1), unless they include restrictions of competition by object within the meaning of Article 101(1). Therefore, vertical agreements between SMEs generally fall outside the scope of Article 101(1). In cases where such agreements nonetheless meet the conditions for the application of Article 101(1), the Commission will normally refrain from opening proceedings for lack of sufficient interest for the Union, unless the undertakings collectively or individually hold a dominant position in a substantial part of the internal market.

3.2. Agency agreements

3.2.1. Definition of agency agreements

(27) An agent is a legal or physical person entrusted with the power to negotiate and/or conclude contracts on behalf of another person (‘the principal’), either in the agent’s own name or in the name of the principal, for the purchase of goods or services by the principal, or the sale of goods or services supplied by the principal.

(28) In certain circumstances, the relationship between an agent and its principal may be characterised as one in which the agent no longer acts as an independent economic operator. This applies where the agent does not bear any or only insignificant financial or commercial risk associated with the contracts concluded or negotiated on behalf of the principal, as further explained below ( 25 ) . In that case, the agency agreement falls outside the scope of Article 101(1). The qualification given to their agreement by the parties or by national legislation is not material for the assessment. Since they constitute an exception to the general applicability of Article 101 to agreements between undertakings, the conditions for categorising an agreement as an agency agreement for the purpose of applying Article 101(1) should be interpreted narrowly.

(29) There are three types of financial or commercial risk that are material to the categorisation of an agreement as an agency agreement for the purpose of applying Article 101(1). — First, there are contract-specific risks, which are directly related to the contracts concluded and/or negotiated by the agent on behalf of the principal, such as financing of stocks. — Second, there are risks related to market-specific investments. These are investments specifically required for the type of activity for which the agent has been appointed by the principal, that is, which are required to enable the agent to conclude and/or negotiate this type of contract. Such investments are usually sunk, which means that upon leaving that particular field of activity the investment cannot be used for other activities or sold other than at a significant loss. — Third, there are the risks related to other activities undertaken on the same product market, to the extent that the principal requires under the agency relationship that the agent undertakes such activities not as an agent on behalf of the principal, but at its own risk.

(30) For the purposes of applying Article 101(1) TFEU, an agreement will be qualified as a agency agreement if the agent bears no, or only insignificant, risks of the three aforementioned types. The significance of any such risks undertaken by the agent is generally to be assessed by reference to the revenues generated by the agent from providing the agency services rather than by reference to the revenues generated by the sale of the goods or services covered by the agency agreement. However, risks that are related to the activity of providing agency services in general, such as the risk of the agent’s income being dependent upon its success as an agent or general investments in for instance premises or personnel that could be used for any type of activity, are not material to this assessment.

(31) In light of the above, for the purpose of applying Article 101(1), the following list provides examples of features generally found in agency agreements. This is the case where the agent: (a) does not acquire the property of the goods bought or sold under the agency agreement and does not itself supply the contract services. The fact that the agent may temporarily, for a very brief period of time, acquire the property of the contract goods while selling them on behalf of the principal does not preclude an agency agreement, provided the agent does not incur any costs or risks related to that transfer of property; (b) does not contribute to the costs relating to the supply/purchase of the contract goods or services, including the costs of transporting the goods. This does not preclude the agent from carrying out the transport service, provided that the costs are covered by the principal; (c) does not maintain at its own cost or risk stocks of the contract goods, including the costs of financing the stocks and the costs of loss of stocks and can return unsold goods to the principal without charge, unless the agent is liable for fault (for example, by failing to comply with reasonable security measures to avoid loss of stocks); (d) does not take responsibility for customers’ non-performance of the contract (for instance for non-payments by the customer), with the exception of the loss of the agent's commission, unless the agent is liable for fault (for example, by failing to comply with reasonable security or anti-theft measures or failing to comply with reasonable measures to report theft to the principal or police or to communicate to the principal all necessary information available to him on the customer's financial reliability); (e) does not assume responsibility towards customers or other third parties for loss or damage resulting from the supply of the contract goods or services, unless, as agent, it is liable for fault in this respect; (f) is not, directly or indirectly, obliged to invest in sales promotion, including through contributions to the advertising budget of the principal or to advertising or promotional activities specifically relating to the contract goods or services; (g) does not make market-specific investments in equipment, premises, training of personnel or advertising specific to the contract goods or services, such as for example the petrol storage tank in the case of petrol retailing, specific software to sell insurance policies in the case of insurance agents, or advertising relating to routes or destinations in the case of travel agents selling flights or hotel accommodation, unless these costs are fully reimbursed by the principal; (h) does not undertake other activities within the same product market required by the principal under the agency relationship (e.g. the delivery of the goods), unless these activities are fully reimbursed by the principal.

(32) Where the agent incurs one or more of the risks or costs mentioned in paragraphs (28) to (31) of these Guidelines, the agreement between the agent and principal will not be qualified as an agency agreement. The question of risk must be assessed on a case-by-case basis, and with regard to the economic reality of the situation rather than the legal form. For practical reasons, the risk analysis may start with the assessment of the contract-specific risks. If the agent incurs contract-specific risks which are not insignificant, that will be enough to conclude that the agent is an independent distributor. If the agent does not incur contract-specific risks, then it will be necessary to continue the analysis by assessing the risks relating to market-specific investments. Finally, if the agent does not incur any contract-specific risks or any risks relating to market-specific investments, the risks related to other activities required under the agency relationship within the same product market may have to be considered.

(33) A principal may use various methods to reimburse the relevant risks, as long as such methods ensure that the agent bears no, or only insignificant, risks of the types set out in paragraphs (28) to (31) of these Guidelines. For example, a principal may choose to reimburse the precise costs incurred, or it may cover the costs by way of a fixed lump sum, or it may pay the agent a fixed percentage of the revenues from the goods or services sold under the agency agreement. To ensure that all relevant risks are covered, it may be necessary to provide a simple method for the agent to declare and request the reimbursement of any costs exceeding the agreed lump sum or fixed percentage. It may also be necessary for the principal to systematically monitor any changes to the relevant costs and to adapt the lump sum or fixed percentage accordingly. Where the relevant costs are reimbursed by way of a percentage of the price of the products sold under the agency agreement, the principal should also take into account that the agent may incur relevant market-specific investments costs even where it makes limited or no sales for a certain period of time. Such costs have to be reimbursed by the principal.

(34) An independent distributor of some goods or services of a supplier may also act as an agent for other goods or service of that same supplier, provided that the activities and risks covered by the agency agreement can be effectively delineated (for example because they concern goods or services presenting additional functionalities or new features). For the agreement to be considered an agency agreement for the purpose of applying Article 101, the independent distributor must be genuinely free to enter into the agency agreement (for example the agency relationship must not be de facto imposed by the principal through a threat to terminate or worsen the terms of the distribution relationship) and, as mentioned in paragraphs (28) to (31) of these Guidelines, all relevant risks linked to the sale of the goods or services covered by the agency agreement, including market-specific investments, must be borne by the principal.

(35) Where an agent undertakes other activities for the same or other suppliers at its own risk, there is a risk that the conditions imposed on the agent for its agency activity will influence its incentives and limit its decision-making freedom when it sells products as an independent activity. In particular, there is a risk that the pricing policy of the principal for the products sold under the agency agreement will influence the incentives of the agent/distributor to price independently the products that it sells as an independent distributor. In addition, the combination of agency and independent distribution for the same supplier raises difficulties in distinguishing between investments and costs that relate to the agency function, including market-specific investments, and those only related to the independent activity. In such cases, the assessment of whether an agency relationship meets the conditions set out in paragraphs (28) to (31) of these Guidelines can therefore be particularly complex ( 26 )

(36) The risks described in paragraphs (28) to (31) of these Guidelines are of particular concern if the agent undertakes other activities as an independent distributor for the same principal in the same product market. Conversely, those risks are less likely to arise if the other activities the agent undertakes as an independent distributor concern a different product market ( 27 ) . More generally, the less interchangeable the products are, the less likely are those risks to occur. In product markets comprising products not presenting objectively distinct characteristics, such as higher quality, novel features or additional functions, such delineation appears more difficult and there may therefore be a significant risk of the agent being influenced by the terms of the agency agreement, notably regarding the price setting, for the products it distributes independently.

(37) To identify the market-specific investments to be reimbursed when entering into an agency agreement with one of its independent distributors that is already active on the relevant market, the principal should consider the hypothetical situation of an agent that is not yet active in the relevant market in order to assess which investments are relevant to the type of activity for which the agent is appointed. The only market-specific investments that the principal would not have to cover would be those that relate exclusively to the sale of differentiated products in the same product market that are not sold under the agency agreement but are distributed independently, by contrast to market-specific investments needed to operate in the relevant product market, which the principal would have to cover in all cases. This is because the agent would not incur the market-specific costs corresponding to the differentiated products if it did not also act as an independent distributor for those products in addition to the products it distributes as an agent, provided that it can operate on the relevant market without selling the former. To the extent that the relevant investments have already been depreciated (e.g. investments in activity-specific furniture), the reimbursement may be adjusted proportionately.

(38) Example of how the costs can be allocated in case of a distributor that also acts as agent for certain products for the same supplier. An independent distributor sells products A, B and C. Products A and B belong to the same product market, which comprises differentiated products presenting objectively different characteristics. Product C belongs to a different product market. A supplier of product B generally distributes its products using independent distributors. However, for the distribution of a particular type of the same product, namely product A which features a new functionality, it wishes to use an agency agreement, which it offers to its existing independent distributors in the same product market without de iure or de facto requiring them to enter into this agreement. For the agency agreement not to fall in the scope of Article 101(1) TFEU and to meet the conditions of paragraphs (28) to (31) of these Guidelines, the principal has to cover all relevant investments to the activity of selling each of products A and B (and not only A products) as they belong to the same product market. For example, all costs incurred to adapt or furnish a shop in order to display and sell products A and B are likely to be market-specific. Similarly, the costs of training personnel in order to sell products A and B and costs related to specific storage equipment, which may be needed for products A and B, are also likely to be market-specific. These relevant investments, which would normally be required for an agent to enter the market and start selling products A and B, should be borne by the principal even if the specific agent is already established on that market as an independent distributor. However, the principal would not have to cover investments for the sale of product C, which does not belong to the same product market as products A and B. Moreover, in case the sale of product B requires specific investments that are not necessary for the sale of product A (e.g. dedicated furniture or staff training), such investments would not be relevant and would therefore not have to be covered by the principal, provided that a distributor can operate on the relevant market comprising products A and B by selling only product A. As regards advertising, investments in advertising for the agent’s shop as such (instead of advertising specific to product A) would benefit both the agent’s shop in general as well as the sales of products A, B and C, while only product A is sold under the agency agreement. These costs would therefore be partly relevant for the assessment of the agency agreement, to the extent they relate to the sale of product A which is sold under the agency agreement, while they are also relevant to the general activity of selling products A and B. The cost of an advertising campaign relating exclusively to products B or C, however, would not be relevant and would therefore not have to be covered by the principal, provided that a distributor can operate on the relevant market selling only product A. The same principles apply to investments in a website or an online store, since part of these investments would not be relevant, as they would have to be made irrespective of the products sold under the agency agreement. Therefore, general investments in the design of a website would not have to be reimbursed, insofar as the website structure itself could be used to sell products other than those belonging to the relevant product market (e.g. C products or, more generally, products other than A and B). However, investments related to the activity of selling or advertising products in the relevant product market (i.e. both products A and B) on the website would be relevant. Therefore, depending on the level of investment required to advertise and sell A and B products on the website, the principal would have to cover part of the costs of setting up the website or the online store. Any specific investments for advertising or selling product B only would not have to be covered, provided that a distributor can operate on the relevant market selling only product A.

3.2.2. Application of Article 101(1) to agency agreements

(39) Where an agreement meets the conditions to be categorised as an agency agreement for the purpose of applying Article 101(1), the selling or purchasing function of the agent forms part of the principal’s activities. Since the principal bears the commercial and financial risks related to the selling and purchasing of the contract goods or services, all obligations imposed on the agent in relation to the contracts concluded and/or negotiated on behalf of the principal fall outside Article 101(1). The assumption by the agent of the obligations listed at the end of this paragraph will be considered to form an inherent part of an agency agreement, as these obligations relate to the ability of the principal to determine the scope of the agent’s activity in relation to the contract goods or services. This is essential if the principal is to assume the risks in respect of the contracts concluded and/or negotiated by the agent on the principal’s behalf. Thus, the principal is able to determine the commercial strategy in relation to: (a) limitations on the territory in which the agent may sell these goods or services; (b) limitations on the customer groups to whom the agent may sell the contract goods or services; or (c) the prices and conditions at which the agent must sell or purchase the contract goods or services.

(40) By contrast, where the agent bears one or more of the relevant risks described in paragraphs (28) to (31) of these Guidelines, the agreement between agent and principal does not constitute an agency agreement for the purpose of applying Article 101(1). In that situation, the agent will be treated as an independent undertaking and the agreement between agent and principal will be subject to Article 101(1), like any other vertical agreement. For that reason, Article 1(1)(k) VBER clarifies that an undertaking which, under an agreement falling within Article 101(1), sells goods or services on behalf of another undertaking, is a buyer.

(41) Even if the agent bears no, or only insignificant, risks described in paragraphs (28) to (31) of these Guidelines, it remains a separate undertaking from the principal and therefore the provisions concerning the relationship between the agent and the principal may infringe Article 101(1), irrespective of whether they form part of the agreement governing the sale or purchase of the contract products or a separate agreement. Such provisions may benefit from the VBER, in particular when the conditions provided in Article 5 VBER are fulfilled, or, outside the VBER, they may satisfy the conditions of Article 101(3) in individual cases, as described in section 8.1.2 of these Guidelines. For instance, agency agreements may contain a provision preventing the principal from appointing other agents in respect of a given type of transaction, customer or territory (exclusive agency provisions) and/or a provision preventing the agent from acting as an agent or distributor of undertakings which compete with the principal (single branding provisions). Exclusive agency provisions will in general not lead to anti-competitive effects. However, single branding provisions and post-term non-compete provisions, which concern inter-brand competition, may infringe Article 101(1) if they contribute to a (cumulative) foreclosure effect on the relevant market where the contract goods or services are sold or purchased (see in particular sections 8.2.1 and 6.2.2 of these Guidelines).

(42) An agency agreement may also fall within the scope of Article 101(1), even if the principal bears all the relevant financial and commercial risks, where it facilitates collusion. That could, for instance, be the case when a number of principals use the same agents while collectively excluding others from using these agents, or when they use the agents to collude on marketing strategy or to exchange sensitive market information between the principals.

(43) In the case of an independent distributor that also acts as an agent for certain goods or service of the same supplier, compliance with the requirements set out in paragraphs (34) to (37) of these Guidelines has to be assessed strictly. This is necessary to avoid a misuse of the agency concept in scenarios where the supplier does not actually become active at the retail level, taking all associated distribution decisions and assuming all related risks in accordance with the principles set out in paragraphs (28) to (31), but rather establishes an easy way to control retail prices for those products that allow high resale margins. Since resale price maintenance is a hardcore restriction under Article 4 VBER, as set out in section 6.1.1 of these Guidelines, the agency concept should not be misused by suppliers to circumvent the application of Article 101(1) TFEU

3.2.3. Agency and the online platform economy

(44) Undertakings providing online intermediation services are categorised as suppliers under the VBER (see also paragraphs (60) to (64) of these Guidelines) and can therefore in principle not qualify as agents for the purpose of applying Article 101(1). Moreover, providers of online intermediation services generally act as independent economic operators and not as part of the undertakings of the sellers to which they provide online intermediation services. Strong network effects and other features of the online platform economy can contribute to a significant imbalance in the size and bargaining power of the contract parties and result in a situation where the conditions of sale of the contract goods or services and the commercial strategy are determined by the provider of online intermediation services rather than the sellers of the goods or services that are intermediated. In addition, providers of online intermediation services often serve a very large number of sellers in parallel, which prevents them from effectively forming a part of any of the sellers’ undertakings. In addition, providers of online intermediation services typically make significant market-specific investments, for example, in software, advertising and after-sales services, indicating that these undertakings bear significant financial or commercial risks associated with the contracts negotiated on behalf of the sellers using their online intermediation services.

3.3. Subcontracting agreements

(45) Subcontracting agreements, as defined in the Commission notice of 18 December 1978 concerning the assessment of certain subcontracting agreements in relation to Article 85(1) of the EEC Treaty (hereinafter “Subcontracting Notice”) ( 28 ) , generally fall outside the scope of Article 101(1). The Subcontracting Notice remains applicable and includes further guidance on the application of this general rule. In particular, the Subcontracting Notice states that, where a contractor imposes limits on the use of technology or equipment that it provides to a subcontractor, this technology or equipment must be necessary to enable the subcontractor to produce the products concerned ( 29 ) . It also clarifies the scope of application of this general rule, in particular that other restrictions imposed on the subcontractor generally fall within the scope of Article 101, such as the obligation not to conduct or exploit its own research and development or not to produce for third parties ( 30 )

4. SCOPE OF THE VBER

4.1. Safe harbour established by the VBER

(46) The block exemption in Article 2(1) VBER establishes a safe harbour for vertical agreements within the meaning of the VBER, provided the market shares held by the supplier and the buyer in the respectively relevant market(s) do not exceed the thresholds in Article 3 of the VBER (see section 5.2. of these Guidelines) ( 31 ) , and the agreement does not include hardcore restrictions pursuant to Article 4 of the VBER (see section 6.1. of these Guidelines) ( 32 ) . This safe harbour applies as long as the benefit of the block exemption has not been withdrawn in a particular case by the Commission or the competition authority of a Member State (hereafter “NCA”) pursuant to Article 29 Regulation (EC) No 1/2003 (see section 7.1. of these Guidelines).

(47) Article 2(1) VBER also establishes a safe harbour where a supplier uses the same agreement(s) to distribute several types of goods or services. In such a case of portfolio distribution, the VBER applies to the vertical agreement to the extent, and in relation to those goods or services for which, the conditions of the application of the VBER are fulfilled. Conversely, Article 101 applies to the vertical agreements in relation to those goods or services that the VBER does not cover. This means that there is no block exemption pursuant to Article 2(1) VBER but also no presumption of illegality of such agreements.

4.2. Definition of vertical agreement

(48) Article 101(1) refers to agreements between undertakings, decisions by associations of undertakings and concerted practices. It makes no distinction as to whether these undertakings operate at the same level or at different levels of the production or distribution chain. Article 101(1) thus applies to both horizontal agreements and concerted practices, as well as vertical agreements and concerted practices ( 33 )

(49) Regulation No 19/65/EEC of 2 March 1965 of the Council on application of Article 85(3) of the Treaty to certain categories of agreements and concerted practices ( 34 ) , as amended by Council Regulation (EC) No 1215/1999 of 10 June 1999 ( 35 ) (hereinafter “Empowerment Regulation”), empowers the Commission, in accordance with Article 101(3), to block exempt by regulation vertical agreements and concerted practices.

(50) In accordance with Articles 1 and 3 Empowerment Regulation, Article 1(1)(a) VBER defines a vertical agreement as “an agreement or concerted practice entered into between two or more undertakings each of which operates, for the purposes of the agreement or the concerted practice, at a different level of the production or distribution chain, and relating to the conditions under which the parties may purchase, sell or resell certain goods or services” ( 36 ) . This definition reflects at least three main requirements, which are addressed in turn below.

4.2.1. Unilateral conduct falls outside the scope of the VBER

(51) The VBER applies to vertical agreements and concerted practices. It does not apply to unilateral conduct by undertakings. Such unilateral conduct can fall within the scope of Article 102 of the Treaty on the Functioning of the European Union (hereinafter “Article 102”) which prohibits the abuse of a dominant position ( 37 ) . For there to be an agreement within the meaning of Article 101, it is sufficient that the parties have expressed their joint intention to conduct themselves on the market in a specific way (so-called concurrence of wills). The form in which that intention is expressed is irrelevant as long as it constitutes a faithful expression of the parties’ intention.

(52) If there is no explicit agreement expressing the parties’ concurrence of wills, the Commission has to prove for the purpose of applying Article 101 that the unilateral policy of one party receives the acquiescence of the other party. For vertical agreements, there are two ways in which acquiescence with a specific unilateral policy can be established. (a) Firstly, explicit acquiescence can be deduced from the powers conferred upon the parties in a general agreement drawn up in advance. If the clauses of such a general agreement provide for or authorise a party to adopt subsequently a specific unilateral policy that is binding on the other party, the acquiescence to that policy by the other party can be established on that basis (38). (b) Secondly, for tacit acquiescence it is necessary to show, firstly, that one party requires explicitly or implicitly the cooperation of the other party for the implementation of its unilateral policy and, secondly, that the other party has complied with that requirement by implementing that unilateral policy in practice (39). For instance, if after a supplier’s announcement of a unilateral reduction of supplies in order to prevent parallel trade, distributors reduce immediately their orders and stop engaging in parallel trade, then those distributors tacitly acquiesce to the supplier’s unilateral policy. However, this cannot be concluded if the distributors continue to engage in parallel trade or try to find new ways to engage in parallel trade.

(53) In light of the above, general sales terms and conditions, even if imposed by one party and accepted tacitly by the other party amount to an agreement for the purposes of the application of Article 101(1) of the Treaty ( 40 )

4.2.2. The undertakings operate at different levels of the production or distribution chain

(54) The VBER applies to agreements or concerted practices between two or more undertakings irrespective of their business model. As final consumers do not operate as undertakings, the VBER does not cover vertical agreements or concerted practices with consumers.

(55) Furthermore, to fall within the definition of Article 1(1)(a) VBER, an agreement must be entered into between undertakings operating, for the purposes of the agreement, at different levels of the production or distribution chain. For example, a vertical agreement exists where one of the undertakings produces a raw material or provides a service, and sells it to another undertaking that uses it as an input. Likewise, a vertical agreement exists, for example, where a manufacturer sells a product to a wholesaler that resells it to a retailer.

(56) As the definition in Article 1(1)(a) VBER refers to the purpose of the specific agreement, the fact that one undertaking party to the agreement is active at more than one level of the supply or distribution chain does not preclude the application of the VBER. However, in case agreements between competing undertakings, Article 2(4) VBER must be taken into account. For guidance on Article 2(4) VBER, see section 4.4.3. of these Guidelines.

4.2.3. The agreements relate to the purchase, sale or resale of goods or services

(57) Article 1(1)(a) VBER provides that, to fall within the scope of the VBER, vertical agreements must relate to the conditions under which the supplier and the buyer “may purchase, sell or resell certain goods or services” . In accordance with the general purpose of a block exemption regulation, which is to provide legal certainty, Article 1(1)(a) VBER must be interpreted broadly as applying to all vertical agreements, irrespective of whether they relate to intermediate or final goods or services. Both the goods or services supplied and, in the case of intermediate goods or services, the resulting final goods or services, are considered contract goods or services for the purpose of applying the VBER to the respective agreements.

(58) Vertical agreements in the online platform economy, including those entered into with providers of online intermediation services as referred to in Article 1(1)(d) VBER, are covered by Article 1(1)(a) VBER. Both the provision of online intermediation services and the goods or services subject to the transactions it facilitates are considered contract goods or services for the purpose of applying the VBER to the agreement on the basis of which online intermediation services are provided and the agreement on the basis of which the intermediated goods or services are supplied.

(59) The VBER does not cover vertical restraints that do not relate to the conditions of purchase, sale and resale of certain contract goods or services. These agreements have to be assessed individually, namely whether they, in the individual case fall within the scope of Article 101(1) and, if so, whether the conditions of Article 101(3) are satisfied. For example, the VBER does not apply to an obligation preventing the parties from carrying out independent research and development, which the parties may have included in their vertical agreement. Another example concerns rent and lease agreements. While the VBER applies to goods sold and purchased for renting to third parties, rent and lease agreements as such are not covered as no good or service is being sold by the supplier to the buyer.

4.3. Vertical agreements in the online platform economy

(60) The online platform economy plays an increasingly important role for the distribution of goods and services. Undertakings active in the online platform economy enable new ways of doing business, some of which are not easy to categorise under the concepts traditionally associated with vertical relationships between suppliers and distributors in the brick and mortar environment.

(61) The VBER categorises undertakings active in the supply and distribution chain as suppliers or buyers. Depending on whether an undertaking falls within one category or the other, the VBER may apply differently, notably in the following areas: (a) The exemption of non-reciprocal vertical agreements between competitors pursuant to Article 2(4) VBER (see section 4.4 of these Guidelines); (b) The calculation of market shares for the application of the thresholds stipulated in Article 3(1) VBER (see section 5 of these Guidelines); (c) The removal of the benefit of the VBER pursuant to Article 4 VBER (see section 6.1 of these Guidelines); and (d) The exclusion of certain restrictions from the safe harbour provided by the VBER pursuant to Article 5 VBER (see section 6.2 of these Guidelines).

(62) The VBER includes definitions of the concepts of supplier, namely Article 1(1)(d) VBER, and buyer, namely Article 1(1)(j) VBER. To reconcile the difficulty of defining these concepts exhaustively with the objective of the VBER of providing as much legal certainty as possible, these provisions are limited to clarifying that certain types of undertakings fall within one or the other category.

(63) Article 1(1)(d) VBER stipulates that an undertaking which provides online intermediation services qualifies as a supplier under the VBER. This means that, in accordance with the distinction between suppliers and buyers provided by the VBER, the undertaking cannot qualify simultaneously as a buyer within the meaning of Article 1(1)(j) VBER in relation to the transaction that it facilitates. Furthermore, it is clarified in Article 1(1)(d) VBER that a provider of online intermediation services is a supplier under the VBER including where it is party to a transaction that it facilitates. This means that, where an undertaking provides online intermediation services and therefore falls within the scope of the definition provided in Article 1(1)(d) VBER, this undertaking cannot circumvent its qualification as supplier in relation to the online intermediation services provided, for example by becoming a party to the transaction it facilitates or stipulating contractually that it is a buyer of the goods or services supplied on the basis of such a transaction.

(64) The definition of supplier of online intermediation services in Article 1(1)(d) VBER is based on definitions in Regulation (EU) 2019/1150 of the European Parliament and of the Council of 20 June 2019 on promoting fairness and transparency for business users of online intermediation services (hereafter “P2B Regulation”) ( 41 ) . It builds on the notion that an undertaking providing online intermediation services provides such services with a view to facilitating direct transactions between sellers and buyers, or between sellers and consumers using its online intermediation services. Article 1(1)(d) VBER is based on the consideration that a provider of online intermediation services generally provides an infrastructure that allows undertakings to meet and transact with other undertakings or consumers online, without being legally or factually responsible for their transactions.

4.4. Limits to the application of the VBER

4.4.1. Associations of retailers

(65) Article 2(2) of the VBER includes in the scope of application of the VBER vertical agreements entered into by an association of undertakings which fulfils certain conditions, thereby excluding from the safe harbour vertical agreements entered into by all other associations. This means that vertical agreements entered into between an association and individual members, or between an association and individual suppliers, are covered by the VBER only if all the members are retailers, selling goods (and not services) to final consumers, and if each individual member of the association has an annual turnover not exceeding EUR 50 million ( 42 ) . However, where only a limited number of the members of the association have an annual turnover exceeding the EUR 50 million threshold and where these members together represent less than 15 % of the collective turnover of all the members combined, this will not normally change the assessment under Article 101.

(66) An association of undertakings may involve both horizontal and vertical agreements. The horizontal agreements must be assessed according to the principles set out in the Guidelines on the applicability of Article 101 of the Treaty to horizontal cooperation agreements (hereinafter “Horizontal Guidelines”) ( 43 ) . If that assessment leads to the conclusion that a cooperation between undertakings in the area of purchasing or selling is acceptable, because it meets the specific conditions laid down in those Guidelines relating to purchasing and/or commercialisation agreements, a further assessment will be necessary to examine the vertical agreements concluded by the association with individual suppliers or individual members according to the rules of the VBER, in particular the conditions laid down in Articles 3 to 5, and these Guidelines. For instance, horizontal agreements concluded between the members of the association or decisions adopted by the association, such as the decision to require the members to purchase from the association or the decision to allocate exclusive territories to the members must first be assessed as a horizontal agreement. Only if that assessment leads to the conclusion that the horizontal agreement is not anti-competitive is it necessary to assess the vertical agreements between the association and individual members or between the association and individual suppliers.

4.4.2. Vertical agreements containing provisions on intellectual property rights (IPRs)

(67) Article 2(3) VBER provides that vertical agreements containing certain provisions which relate to the assignment or use of IPRs can fall within the scope of application of the VBER. Conversely, Article 2(3) VBER excludes all other vertical agreements containing IPR provisions from the scope of application of the VBER.

(68) The VBER applies to vertical agreements containing IPR provisions where five conditions are fulfilled: (a) The IPR provisions must be part of a vertical agreement, that is, an agreement with conditions under which the parties may purchase, sell or resell certain goods or services; (b) The IPRs must be assigned to or licensed for use by the buyer; (c) The IPR provisions must not constitute the primary object of the agreement; (d) The IPR provisions must be directly related to the use, sale or resale of goods or services by the buyer or its customers. In the case of franchising where marketing forms the object of the exploitation of the IPRs, the goods or services are distributed by the master franchisee or the franchisees; and (e) The IPR provisions, in relation to the contract goods or services, must not contain restrictions of competition having the same object as vertical restraints that are not exempted under the VBER.

(69) Such conditions ensure that the VBER applies to vertical agreements where the use, sale or resale of goods or services can be performed more effectively because IPRs are assigned to or licensed for use by the buyer. This means that restrictions concerning the assignment or use of IPRs can be covered by the VBER when the main object of the agreement is the purchase or distribution of goods or services.

(70) The first condition makes clear that the context in which the IPRs are provided is an agreement to purchase or distribute goods, or an agreement to purchase or provide services, and not an agreement concerning the assignment or licensing of IPRs for the manufacture of goods, nor a pure licensing agreement. The VBER does not cover for instance: (a) agreements where a party provides another party with a recipe and licenses the other party to produce a drink with this recipe; (b) agreements under which one party provides another party with a mould or master copy and licenses the other party to produce and distribute copies; (c) the pure licence of a trade mark or sign for the purposes of merchandising; (d) sponsorship contracts concerning the right to advertise oneself as being an official sponsor of an event; (e) copyright licensing such as broadcasting contracts concerning the right to record and/or broadcast an event.

(71) The second condition makes clear that the VBER does not apply when the buyer provides the IPRs to the supplier, no matter whether the IPRs concern the manner of manufacture or of distribution. An agreement relating to the transfer of IPRs to the supplier and containing possible restrictions on the sales made by the supplier is not covered by the VBER. That means in particular that subcontracting involving the transfer of know-how to a subcontractor does not fall within the scope of application of the VBER (see also section 3.3 these Guidelines). However, vertical agreements under which the buyer provides only specifications to the supplier which describe the goods or services to be supplied fall within the scope of application of the VBER.

(72) The third condition makes clear that in order to be covered by the VBER, the primary object of the agreement must not be the assignment or licensing of IPRs. The primary object must be the purchase, sale or resale of goods or services and the IPR provisions must serve the implementation of the vertical agreement.

(73) The fourth condition requires that the IPR provisions facilitate the use, sale or resale of goods or services by the buyer or its customers. The goods or services for use or resale are usually supplied by the licensor, but may also be purchased by the licensee from a third party supplier. The IPR provisions will normally concern the marketing of goods or services. An example would be a franchise agreement where the franchisor sells goods for resale to the franchisee and licenses the franchisee to use its trade mark and know-how to market the goods or where the supplier of a concentrated extract licenses the buyer to dilute and bottle the extract before selling it as a drink.

(74) The fifth condition highlights the fact that the IPR provisions should not have the same object as any of the hardcore restrictions listed in Article 4 VBER or any of the restrictions excluded from the coverage of the VBER pursuant to Article 5 VBER (see section 6 of these Guidelines).

(75) IPRs relevant to the implementation of vertical agreements within the meaning of Article 2(3) VBER generally concern three main areas: trademarks, copyright and know-how.

4.4.2.1. Trademarks

(76) A trademark licence to a distributor may be related to the distribution of the licensor’s products in a particular territory. If it is an exclusive licence, the agreement amounts to exclusive distribution.

4.4.2.2. Copyright

(77) Resellers of goods or services covered by copyright (e.g. books and software) may be obliged by the copyright holder to only resell under the condition that the buyer, irrespective of whether it is another reseller or the end user, shall not infringe the copyright. Such obligations on the reseller, to the extent that they fall under Article 101(1) at all, are covered by the VBER.

(78) Agreements under which hard copies of software are supplied for resale and the reseller does not acquire a licence to any rights over the software but only has the right to resell the hard copies are to be regarded as agreements for the supply of goods for resale for the purpose of the VBER. Under that form of distribution, licensing the software only occurs between the copyright owner and the user of the software. It may take the form of a “shrink wrap“ licence, that is, a set of conditions included in the package of the hard copy which the end user is deemed to accept by opening the package.

(79) Buyers of hardware incorporating software protected by copyright may be obliged by the copyright holder not to infringe the copyright and must therefore not make copies and resell the software or make copies and use the software in combination with other hardware. Such use restrictions, to the extent that they fall within Article 101(1) at all, are covered by the VBER.

4.4.2.3. Know-how

(80) Franchise agreements, with the exception of industrial franchise agreements, are the most obvious example of know-how for marketing purposes being communicated to the buyer ( 44 ) . Franchise agreements contain licences of IPRs relating to trademarks or signs, and know-how for the use and distribution of goods or the provision of services. In addition to the licence of IPRs, the franchisor usually provides the franchisee during the duration of the agreement with commercial or technical assistance, such as procurement services, training, advice on real estate and financial planning. The licence and the assistance provided are integral components of the business method being franchised.

(81) Licensing contained in franchise agreements is covered by the VBER where all five conditions listed in paragraph (70) of the Guidelines are met. Those conditions are usually fulfilled as under most franchise agreements, including master franchise agreements, the franchisor provides goods or services, in particular commercial or technical assistance services, to the franchisee. The IPRs help the franchisee to resell the products supplied by the franchisor or by a supplier designated by the franchisor, or to use those products and sell the resulting goods or services. Where the franchise agreement only or primarily concerns licensing of IPRs, it is not covered by the VBER, but the Commission will, as a general rule, apply the principles set out in the VBER and these Guidelines to such an agreement.

(82) The following IPR-related obligations are generally considered necessary to protect the franchisor’s IPRs and are, where these obligations fall under Article 101(1), also covered by the VBER: (a) an obligation on the franchisee not to engage, directly or indirectly, in any similar business; (b) an obligation on the franchisee not to acquire financial interests in the capital of a competing undertaking so as to give the franchisee the power to influence the economic conduct of such undertaking; (c) an obligation on the franchisee not to disclose to third parties the know-how provided by the franchisor as long as this know-how is not in the public domain; (d) an obligation on the franchisee to communicate to the franchisor any experience gained in exploiting the franchise and to grant the franchisor and other franchisees a non-exclusive licence for the know-how resulting from that experience; (e) an obligation on the franchisee to inform the franchisor of infringements of licensed IPRs, to take legal action against infringers or to assist the franchisor in any legal actions against infringers; (f) an obligation on the franchisee not to use know-how licensed by the franchisor for purposes other than the exploitation of the franchise; (g) an obligation on the franchisee not to assign the rights and obligations under the franchise agreement without the franchisor’s consent.

4.4.3. Vertical agreements between competitors

(83) Whereas pursuant to Article 2(8) VBER, on which guidance is provided in section 4.5 of these Guidelines, the VBER does not apply to vertical agreements if their subject matter falls within the scope of any other block exemption regulation, unless otherwise provided for in such a regulation, the first sentence of Article 2(4) VBER also explicitly excludes vertical agreements entered into between competing undertakings from the scope of application of the VBER, unless the vertical agreements fall within the scope of the exceptions in Article 2(4)(a) and 2(4)(b) VBER. Thus, vertical agreements between competitors that are excluded from the scope of the VBER have to be assessed by reference to the Horizontal Guidelines, including the guidance on the exchange of information in the context of vertical agreements between competing undertakings. Where a vertical agreement falls within the scope of an exception in Article 2(4)(a) or (b) VBER and does not include a horizontal restriction of competition by object, this agreement has to be assessed only by reference to these Guidelines.

(84) Article 1(1)(c) VBER defines a competing undertaking as an actual or potential competitor. Two companies are treated as actual competitors if they are active on the same relevant (product and geographic) market. A company is treated as a potential competitor of another company if, absent the agreement, in case of a small but permanent increase in relative prices, it is likely that the former would, within a short period of time normally not longer than one year, undertake the necessary additional investments or incur other necessary switching costs to enter the relevant market on which the other company is active. This assessment must be based on realistic grounds, having regard to the structure of the market and the economic and legal context within which it operates. This means that the mere theoretical possibility of entering a market is not sufficient. There must be real and concrete possibilities for that undertaking to enter the market without any insurmountable barriers to entry. Conversely, there is no need to demonstrate with certainty that that undertaking will in fact enter the market concerned and, a fortiori, that it will be capable, thereafter, of retaining its place there ( 45 )

(85) A distributor that provides specifications to a manufacturer to produce particular goods under the distributor’s brand name is not to be considered a manufacturer of such own-brand goods and thus a competitor of the manufacturer. Consequently, the exemption in Article 2(1) VBER applies to agreements between a distributor selling such own-brand goods manufactured by a third party and a supplier of branded goods on the same relevant market. In contrast, distributors that produce goods in-house under their brand name are considered manufacturers. This means that the exemption in Article 2(1) VBER does not apply to agreements between those distributors and suppliers of branded goods in the same relevant market. Such agreements must therefore be assessed under the Horizontal Guidelines.

(86) The second sentence in Article 2(4) VBER contains two exceptions to the general rule that vertical agreements between competitors are excluded from the safe harbour provided by the VBER. Both exceptions, namely Article 2(4)(a) and (b) VBER, concern dual distribution agreements between a supplier of goods or services also active on the retail market and its distributors. These are typically scenarios where the supplier is mainly active on the upstream market and has limited ancillary activities in the retail market. In cases where the aggregate market share of the supplier and the buyer in the relevant market at retail level does not exceed [10] %, horizontal concerns are unlikely to arise and any potential impact on horizontal competition between the parties at the retail level is considered of lesser importance than the potential impact of the parties’ vertical agreement on general competition at the supply or distribution level.

(87) Therefore, a vertical agreement between competitors falling under Article 2(4)(a) and (b) VBER is block exempted pursuant to Article 2(1) VBER if the following conditions are fulfilled: (a) the subject matter of the agreement does not fall within the scope of another block exemption regulation, as set out in Article 2(8) VBER; (b) the supplier’s and the buyer’s aggregate market share in the relevant market at retail level does not exceed [10] %, thus not appreciably restricting competition within the meaning of Article 101(1) (46), and the agreement does not contain hardcore restrictions pursuant to Article 4 VBER; (c) the conditions of Article 2(4)(a) or (b) VBER are fulfilled; and (d) the agreement does not include horizontal restrictions of competition by object, as set out in Article 2(6) VBER. This exemption relates to all aspects of the non-reciprocal vertical agreement and any horizontal restrictions by effect, including those resulting from the exchange of information between the competing undertakings. Horizontal restrictions of competition by object are not covered by the exceptions of Article 2(4)(a) or (b) (47). Whether an agreement can be considered a dual distribution agreement for the purpose of applying Article 2(4)(a) or (b) VBER should be interpreted narrowly due to the exceptional nature of this provision.

(88) The exception provided by Article 2(4)(a) VBER concerns situations where the supplier is either a manufacturer, wholesaler or importer and is also a distributor of goods, while the buyer is only a distributor that does not compete with the manufacturer at the upstream level.

(89) The exception provided by Article 2(4)(b) VBER concerns situations where the supplier is a provider of services operating at several levels of trade, while the buyer only operates at the retail level and does not compete with the supplier at the level of trade where it purchases the contract services.

(90) Article 2(5) VBER provides that a vertical agreement between competing undertakings whose aggregate market share at retail level exceeds [10] % is still block exempted pursuant to Article 2(1) VBER if the following conditions are fulfilled: (a) the subject matter of the agreement does not fall within the scope of another block exemption regulation, as set out in Article 2(8) VBER; (b) the market share threshold of Article 3 VBER is complied with and the agreement does not contain hardcore restrictions pursuant to Article 4 VBER; (c) the conditions of Article 2(4)(a) or (b) VBER are fulfilled; (d) any exchange of information between the parties is compatible with the relevant chapter of the Horizontal Guidelines dealing with the competitive assessment of the exchange of information; and (e) the agreement does not include horizontal restrictions of competition by object, as set out in Article 2(6) VBER.

(91) Article 2(7) VBER provides that suppliers of online intermediation services within the meaning of Article 1(1)(d) VBER that have a hybrid function, namely where they provide online intermediation services and sell goods or services in competition with undertakings to which they provide such services, cannot benefit from the exceptions for dual distribution. As the retail activities of suppliers of online intermediation services that have such a hybrid function typically raise non-negligible horizontal concerns. they do not fulfil the rationale of the dual distribution exception, which in any case must be interpreted narrowly. For the same reason, any restriction regarding the extent to which or the conditions under which online intermediation services can be provided to third parties shall not be covered by the VBER. This does not only apply to restrictions that are stipulated in an agreement with a buyer of online intermediation services, but also to agreements regarding the purchase of the goods or services sold by the provider of online intermediation services that has a hybrid function.

(92) Vertical agreements with hybrid online intermediation services providers must be assessed on a case-by-case basis, notably by reference to both these Guidelines (see section 8 of these Guidelines) and the Horizontal Guidelines. This assessment must cover all aspects of relationships between providers of online intermediation services that have a hybrid function and the undertakings to which they provide online intermediation services, including for instance any exchange of information between them.

4.5. Relationship with other block exemption regulations

(93) As explained in sections 4.1 and 4.2 of these Guidelines, the VBER applies to agreements between undertakings operating at a different level of the production or distribution chain and relating to the conditions under which the parties may purchase, sell or resell certain goods or services. Such vertical agreements are exclusively assessed under the VBER and these Guidelines, irrespective of the outcome of such assessment. They will benefit from the safe harbour established by the VBER if the market shares thresholds are not exceeded and the agreements do not contain any hardcore restrictions.

(94) However, Article 2(8) VBER states that the VBER does “not apply to vertical agreements the subject matter of which falls within the scope of any other block exemption regulation, unless otherwise provided for in such a regulation”. It is therefore important to verify from the outset if a vertical agreement falls within the scope of application of any other block exemption regulation. For example, as set out in Article 2(4) VBER, vertical agreements concluded between competing undertakings are in principle excluded from the scope of the VBER and have to be assessed under the rules applicable to horizontal agreements. Article 2(4)(a) and (b) VBER provide exceptions to this principle, which must be read in conjunction with Article 2(5) VBER in case the market share threshold of Article 2(4)(a) and (b) VBER is exceeded but the market share threshold of Article 3 VBER is not exceeded. These provisions take into account that the effects that dual distribution agreements have on the market and the possible competition concerns can be similar to horizontal agreements.

(95) Therefore, the VBER does not apply to vertical agreements covered by the following block exemption regulations or any future block exemption regulations relating to the types of agreements mentioned in the following sub-paragraphs, unless otherwise provided for in the respective regulation: — Commission Regulation (EU) No 316/2014 of 21 March 2014 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of technology transfer agreements (48); — Commission Regulation (EU) No 1217/2010 of 14 December 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of research and development agreements (49); — Commission Regulation (EU) No 1218/2010 of 14 December 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of specialisation agreements (50).

(96) The VBER does also not apply to the types of agreements between competitors mentioned in the Horizontal Guidelines, unless otherwise provided for in the relevant chapter of the Horizontal Guidelines.

(97) The VBER applies to vertical agreements relating to the purchase, sale or resale of spare parts for motor vehicles and to the provision of repair and maintenance services for motor vehicles. Such agreements only benefit from the VBER if, in addition to the conditions for exemption set out in the VBER, they comply with the additional requirements of Commission Regulation (EU) No 461/2010 of 27 May 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices in the motor vehicle sector ( 51 ) , and its accompanying guidelines.

4.6. Main types of distribution systems

(98) A supplier is free to set up its distribution system as it sees fit. The supplier can, for instance, choose vertical integration, which implies selling its goods or services directly to end users or distributing them through its vertically integrated distributors, which are connected undertakings within the meaning of Article 1(2) VBER. Such a distribution system only concerns the organisation inside one specific undertaking and thus falls outside the scope of Article 101(1).

(99) The supplier can also decide to appoint independent distributors. To that end, the supplier may set up one or a combination of other distribution systems. The most common are exclusive distribution, selective distribution and franchising. Since the vertical agreements required to set up such distribution systems are concluded between independent undertakings, they can fall within the scope of Article 101(1) and benefit from the VBER or an individual exemption under Article 101(3), provided that the respective conditions are fulfilled.

4.6.1. Exclusive distribution systems

4.6.1.1. Definition of exclusive distribution systems

(100) In an exclusive distribution system, the supplier allocates a territory or customer group exclusively to one or a limited number of buyers and/or reserves it to itself, while restricting its other buyers within the Union from actively selling into the exclusive territory or to the exclusive customer group ( 52 )

(101) Suppliers often use this type of system to incentivise distributors to make the financial and non-financial investments needed to develop their brand in a territory where it is not well-known or to sell a new product in a particular territory or to a particular customer group or to increase the focus of the distributors’ activities on a particular product (e.g. special marketing or display efforts). As for distributors, through the size of the territory or the customer group exclusively allocated and the protection provided by exclusivity, they seek to secure a certain volume of business and a margin that justifies their investment efforts.

(102) In line with this rationale, the number of exclusive distributors should be restricted to one or a limited number (i.e. shared exclusivity) for a particular territory or customer group. Exclusive distribution shall not be used to shield a large number of distributors from competition located outside the exclusive territory, as this would lead to partition of the internal market. To that end, the number of appointed distributors should be determined in proportion to the allocated territory or customer group in such a way as to secure a certain volume of business that preserves their investment efforts.

(103) The appointed distributors are protected from active sales into the exclusive territory or to the exclusive customer group by other buyers from the supplier. When a supplier allocates an exclusive territory or customer group to more than one distributor, all these distributors benefit from the same protection against active sales from other buyers, while active and passive sales between these distributors cannot be restricted.

(104) The vertical agreements used for exclusive distribution should define the scope of the territory or the customer group exclusively allocated to the distributors. The exclusive territory may cover the territory of a Member State or an area that is smaller or larger in size. The exclusive customer group can be defined, for instance, by the occupation of the customers or through a list of specific customers selected on the basis of one or more objective criteria. Depending on those criteria, the customer group may be limited to a single customer.

(105) When a territory or a customer group has not yet been exclusively allocated to one or more distributors, the supplier can reserve such a territory or customer group for itself and should inform its other distributors. This does not require the supplier to be commercially active in the reserved territory or towards the reserved customer group since the supplier may wish to reserve them for the purpose of allocating them to other distributors in the future.

4.6.1.2. Application of Article 101 to exclusive distribution systems

(106) In a distribution system where the supplier exclusively allocates a territory or a customer group to one or more buyers, the main possible competition risks are market partitioning, which may facilitate price discrimination, and reduced intra-brand competition, in particular in the context of sole exclusivity. When most, all, or the strongest of the suppliers active in a market operate an exclusive distribution system, this may also soften inter-brand competition and facilitate collusion, both at the supplier and the distribution level. Lastly, exclusive distribution may lead to the foreclosure of other distributors and thereby reduce intra-brand competition at the distribution level.

(107) Exclusive distribution agreements are exempted by the VBER where both the supplier's and the buyer's market share each do not exceed 30 % and where they do not contain any hardcore restrictions. An exclusive distribution agreement can still benefit from the safe harbour provided by the VBER if combined with other non-hardcore vertical restraints, such as a non-compete obligation limited to five years, quantity forcing or exclusive purchasing. However, where the number of exclusive distributors is not limited and determined in proportion to the allocated territory or customer group in such a way as to secure a certain volume of business that preserves their investment efforts, such a distribution system is unlikely to bring about efficiency-enhancing effects. Where appreciable anti-competitive effects occur, the benefit of the VBER is likely to be withdrawn.

(108) The remainder of this section provides guidance for the assessment of exclusive distribution agreements in individual cases above the 30 % market share threshold.

(109) The number of distributors to which a territory or a customer groups has been exclusively allocated is important for the assessment of the exclusive distribution system. The higher the number of distributors, the lower the reduction of intra-brand competition is but also the lower the likelihood that the exclusive distributors have an incentive to invest in order to develop that brand and promote the product(s) of the supplier.

(110) The market position of the supplier and its competitors is of major importance, as the loss of intra-brand competition will only be problematic if inter-brand competition is limited. The stronger the position of the supplier, notably above the 30 % threshold, the higher the likelihood that inter-brand competition is weak and the greater the risk for competition resulting from the reduction in intra-brand competition.

(111) The position of the supplier’s competitors can have a dual significance. The existence of strong competitors will generally indicate that any reduction in intra-brand competition, which can be particularly important in the context of sole distribution, is outweighed by sufficient inter-brand competition. However, if the number of suppliers in a market is rather limited and their market position is rather similar in terms of market share, capacity and distribution network, there is a risk of collusion and/or softening of competition. The loss of intra-brand competition can increase that risk, especially when several suppliers operate similar distribution systems. Multiple exclusive dealerships, that is, when multiple suppliers appoint the same exclusive distributor(s) in a given territory, may further increase the risk of collusion and/or softening of competition both at supplier and distributor level. If one or more distributors are granted the exclusive right to distribute two or more important competing products in the same territory, inter-brand competition may be substantially restricted for those brands, especially in the case of linear wholesale tariffs. The higher the cumulative market share of the brands distributed by the exclusive multiple brand distributors, the higher the risk of collusion and/or softening of competition and the more inter-brand competition will be reduced. If one or more retailers are the exclusive distributor for a number of brands, there is a risk that the reduction of the wholesale price by one supplier for its brand will not be passed on by any exclusive retailers to the final consumer, as it would reduce the retailers’ sales and profits made with the other brands. Hence, compared to the situation without multiple exclusive dealerships, suppliers will have a reduced incentive to enter into price competition with one another. Such cumulative effects situations may be a reason to withdraw the benefit of the VBER where the market shares of the suppliers and buyers are below the 30 % threshold of the VBER.

(112) Entry barriers that may hinder suppliers from creating their own integrated distribution network or finding alternative distributors are less important in assessing the possible anti-competitive effects of exclusive distribution, especially in the context of shared exclusivity. Foreclosure of other suppliers does not arise as long as exclusive distribution is not combined with single branding, which obliges or induces the distributor to concentrate its orders for a particular type of product with one supplier. Although single branding does not require the distributor to purchase the products from the supplier itself, the combination of exclusive distribution and single branding can make it more difficult for other suppliers to find alternative distributors.

(113) Foreclosure of other distributors is not an issue where the supplier operating the exclusive distribution system appoints a large number of exclusive distributors on the same market and those exclusive distributors are not restricted in selling