23.5.2002 EN C 122/1 Official Journal of the European Communities
I
(Information)
EUROPEAN ECONOMIC AREA
EFTA SURVEILLANCE AUTHORITY
Guidelines on Vertical Restraints
(2002/C 122/01)
CONTENTS
Paragraphs Page
I. INTRODUCTION ............................................................. 1 – 7 3
1. Purpose of the Guidelines . . . ............................................... 1 – 4 3
2. Applicability of Article 53 to vertical agreements . . . .......................... 5 – 7 4
II. VERTICAL AGREEMENTS WHICH GENERALLY FALL OUTSIDE ARTICLE 53(1) . . . . . 8–20 4
1. Agreements of minor importance and SMEs . . ................................ 8–11 4
2. Agency agreements . ....................................................... 12–20 5
III. APPLICATION OF THE BLOCK EXEMPTION ..................................... 21–70 7
1. Safe harbour created by the Block Exemption . ............................... 21–22 7
2. Scope of the Block Exemption . . . ........................................... 23–45 7
3. Hardcore restrictions under the Block Exemption ............................. 46–56 12
4. Conditions under the Block Exemption . . .................................... 57–61 15
5. No presumption of illegality outside the Block Exemption ..................... 6 2 1 6
6. No need for precautionary notification . . .................................... 63–65 16
7. Severability . . ............................................................. 66–67 17
8. Portfolio of products distributed through the same distribution system . . ........ 68–69 17
9. Transitional period . ....................................................... 7 0 1 7
IV. WITHDRAWAL OF THE BLOCK EXEMPTION AND DISAPPLICATION OF THE BLOCK
EXEMPTION ................................................................. 71–87 17
1. Withdrawal procedure ..................................................... 71–79 17
2. Disapplication of the Block Exemption . . .................................... 80–87 19
C 122/2 EN 23.5.2002 Official Journal of the European Communities
V. MARKET DEFINITION AND MARKET SHARE CALCULATION ISSUE . . ............ 88–99 20
1. EFTA Surveillance Authority Notice on definition of the relevant market . . . ...... 8 8 2 0
2. The relevant market for calculating the 30 % market share threshold under the
Block Exemption .......................................................... 89–95 20
3. The relevant market for individual assessment ................................ 9 6 2 1
4. Calculation of the market share under the Block Exemption .................... 97–99 22
VI. ENFORCEMENT POLICY IN INDIVIDUAL CASES ................................. 100–229 22
1. The framework of analysis . . . ........................................... 103–136 23
1.1. Negative effects of vertical restraints . . . .................................. 103–114 23
1.2. Positive effects of vertical restraints . . .................................... 115–118 25
1.3. General rules for the evaluation of vertical restraints . ...................... 1 1 9 2 7
1.4. Methodology of analysis . ............................................... 120–136 28
1.4.1. Relevant factors for the assessment under Article 53(1) ..................... 121–133 28
1.4.2. Relevant factors for the assessment under Article 53(3) ..................... 134–136 30
2. Analysis of specific vertical restraints ..................................... 137–229 31
2.1. Single branding . ....................................................... 138–160 31
2.2. Exclusive distribution . . . ............................................... 161–177 35
2.3. Exclusive customer allocation . .......................................... 178–183 38
2.4. Selective distribution . . ................................................. 184–198 39
2.5. Franchising . .......................................................... 199–201 42
2.6. Exclusive supply . . ..................................................... 202–214 44
2.7. Tying . ............................................................... 215–224 46
2.8. Recommended and maximum resale price . ............................... 225–228 47
2.9. Other vertical restraints ................................................ 2 2 9 4 8
23.5.2002 EN C 122/3 Official Journal of the European Communities
A. The present notice is issued pursuant to the rules of the Agreement on the European Economic
Area (EEA Agreement) and the Agreement between the EFTA States on the establishment of aSurveillance Authority and a Court of Justice (Surveillance and Court Agreement).
B. The European Commission has issued a notice entitled ‘Guidelines on vertical restraints’ (
1). That
non-binding act sets out the principles which the European Commission follows for the assessment
of vertical agreements under Article 81 EC.
C. The EFTA Surveillance Authority considers the above-mentioned act to be EEA relevant. In order
to maintain equal conditions of competition and to ensure a uniform application of the EEA
competition rules throughout the European Economic Area, the EFTA Surveillance Authority
adopts the present notice under the power conferred upon it by Article 5(2)(b) of the Surveillanceand Court Agreement. It intends to follow the principles and rules laid down in this notice when
applying the relevant EEA rules to a particular case.
D. The present Notice replaces the Authority’s Notice concerning the acts referred to in points 2 and
3 of Annex XIV to the EEA Agreement (Commission Reg. (EEC) No 1983/83 and (EEC) 1984/83)on the application of Article 53(3) of the EEA Agreement to categories of exclusive distribution
and purchasing agreements (
2).
— Section IV (paragraphs 71 to 87) describes the I.INTRODUCTION
principles concerning the withdrawal of the Block
Exemption and the disapplication of the Block
Exemption;
1. Purpose of the Guidelines
— Section V (paragraphs 88 to 99) addresses market
definition and market share calculation issues;(1) These Guidelines set out the principles for the assess-ment of vertical agreements under Article 53 of the EEA
Agreement. What are considered vertical agreements is
defined in Article 2(1) of the act referred to in point 2of Annex XIV to the EEA Agreement [Regulation (EEC)— Section VI (paragraphs 100 to 229) describes theNo 2790/1999 (
3)] on the application of Article 53(3)general framework of analysis and the enforcementof the EEA Agreement to categories of vertical agree-policy of the EFTA Surveillance Authority inments and concerted practices (the ‘Block Exemption’)individual cases concerning vertical agreements.(see paragraphs 23 to 45). These Guidelines are without
prejudice to the possible parallel application ofArticle 54 of the EEA Agreement to vertical agreements.
The Guidelines are structured in the following way:
(2) Throughout these Guidelines the analysis applies to— Section II (paragraphs 8 to 20) describes verticalboth goods and services falling within the scope of theagreements which generally fall outsideEEA Agreement (4), although certain vertical restraintsArticle 53(1);are mainly used in the distribution of goods. Similarly,
vertical agreements can be concluded for intermediate
and final goods and services. Unless otherwise stated,— Section III (paragraphs 21 to 70) comments on thethe analysis and arguments in the text apply to all typesapplication of the Block Exemption;of goods and services and to all levels of trade. The term
‘products’ includes both goods and services. The terms‘supplier’ and ‘buyer’ are used for all levels of trade.
(1) OJ C 291, 13.10.2000, p. 1.
(2) OJ L 153, 18.6.1994, p. 13 and EEA Supplement to the OJ
No. 15, 18.6.1994, p 12 as modified OJ L 186, 21.7.1994, p. 69
and EEA Supplement to the OJ No 22, 21.7.1994, p. 17. See inthis context also para. 70 below. (
4) It should be noted that the EEA Agreement is limited in scope
compared to the EC Treaty, for instance the absence of a customs (3) OJ L 336, 29.12.1999, p. 21, as incorporated into the EEA
Agreement by EEA Joint Committee Decision No 18/2000 of union and limited application to certain products by virtue of
Article 8 of the EEA Agreement. 18th December 2000, OJ L 103, 12.4.2001, p. 36.
C 122/4 EN 23.5.2002 Official Journal of the European Communities
(3) By issuing these Guidelines the EFTA Surveillance (7) The protection of competition is the primary objective
of EEA competition policy, as this enhances consumer Authority aims to help companies to make their
own assessment of vertical agreements under the EEA welfare and creates an efficient allocation of resources.
In applying the EEA competition rules, the EFTA competition rules. The standards set forth in these
Guidelines must be applied in circumstances specific to Surveillance Authority will adopt an economic
approach which is based on the effects on the market; each case. This rules out a mechanical application. Each
case must be evaluated in the light of its own facts. The vertical agreements have to be analysed in their legal
and economic context. However, in the case of restric- EFTA Surveillance Authority will apply the Guide-
lines (5) reasonably and flexibly. tions by object as listed in Article 4 of the Block
Exemption, the EFTA Surveillance Authority is not
required to assess the actual effects on the market.Within the scope of the EEA Agreement, market
(4) These Guidelines are without prejudice to the interpre-integration is an additional goal of EEA competitiontation that may be given by the EFTA Court, the Courtpolicy (8). Companies should not be allowed to recreateof Justice of the European Communities and the Courtprivate barriers within the territory covered by the EEAof First Instance in relation to the application ofAgreement where State barriers have been successfullyArticles 81 EC (6) and 53 of the EEA Agreement toabolished.vertical agreements.
2. Applicability of Article 53 to vertical agreementsII. VERTICAL AGREEMENTS WHICH GENERALLY FALL
OUTSIDE ARTICLE 53(1)
(5) Article 53 of the EEA Agreement applies to vertical
agreements that may affect trade between States within
the territory covered by the EEA Agreement and thatprevent, restrict or distort competition (hereinafter 1. Agreements of minor importance and SMEs
referred to as ‘vertical restraints’) (
7). For vertical
restraints, Article 53 provides an appropriate legalframework for assessment, recognising the distinction
(8) Agreements which are not capable of appreciably between anti-competitive and pro-competitive effects:
affecting trade within the territory covered by the Article 53(1) prohibits those agreements which appreci-
EEA Agreement or capable of appreciably restricting ably restrict or distort competition, while Article 53(3)
competition by object or effect are not caught by allows for exemption of those agreements which confer
Article 53(1). The Block Exemption applies only to sufficient benefits to outweigh the anti-competitive
agreements falling within the scope of application ofeffects.
Article 53(1). These Guidelines are without prejudice to
the application of the present or any future ‘de minimis’notice (
9).
(6) For most vertical restraints, competition concerns canonly arise if there is insufficient inter-brand competition,i.e. if there is some degree of market power at the level
(9) Subject to the conditions set out in points 11, 18 andof the supplier or the buyer or at both levels. If there is20 of the ‘de minimis’ notice concerning hardcoreinsufficient inter-brand competition, the protection of
restrictions and cumulative effect issues, vertical agree- inter- and intra-brand competition becomes important.
ments entered into by undertakings whose market share
on the relevant market does not exceed 10 % are
generally considered to fall outside the scope of
Article 53(1). There is no presumption that vertical
agreements concluded by undertakings having more (5) The competence to handle individual cases falling under
than 10 % market share automatically infringe Articles 53 and 54 of the EEA Agreement is divided between the
EFTA Surveillance Authority and the European Commission Article 53(1). Agreements between undertakings whose
according to the rules laid down in Article 56 of the EEAAgreement. Only one authority is competent to handle any givencase.
(
6) Such rulings are relevant to the practice of the Authority by virtue
of the provisions of Article 6 of the EEA Agreement and Article 3of the Surveillance and Court Agreement. (
8) The fact that the EEA Agreement is limited in scope compared to
the EC Treaty may affect the assessment of market integration (7) See inter alia judgment of the Court of Justice of the European
Communities in Joined Cases 56/64 and 58/64 Grundig-Consten between the EFTA States and between the EFTA States and the
Community. v Commission [1966] ECR 299; Case 56/65 Technique Minière v
Machinenbau Ulm [1966] ECR 235; and of the Court of First (9) Notice on agreements of minor importance which do not fall
under Article 53(1) of the EEA Agreement, OJ L 200, 16.7.1998, Instance in Case T-77/92 Parker Pen v Commission [1994] ECR
II-549. p. 55 and EEA Supplement to the OJ No 28, 16.7.1998, p. 13.
23.5.2002 EN C 122/5 Official Journal of the European Communities
market share exceeds the 10 % threshold may still not 2. Agency agreements
have an appreciable effect on trade between Stateswithin the territory covered by the EEA Agreement
or may not constitute an appreciable restriction of
(12) Paragraphs 12 to 20 replace the Notice on exclusive competition (10). Such agreements need to be assessed
dealing contracts with commercial agents of 1994 (13). in their legal and economic context. The criteria for the
They must be read in conjunction with the act referred assessment of individual agreements are set out in
to in point 30 of Annex VII to the EEA Agreement paragraphs 100 to 229.
[Council Directive 86/653/EEC on the co-ordination of
the laws of the Member States relating to self-employed
commercial agents (14)]. Agency agreements cover the
situation in which a legal or physical person (the agent)
is vested 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:
(10) As regards hardcore restrictions defined in the ‘deminimis’ notice, Article 53(1) may apply below the
10 % threshold, provided that there is an appreciable
— purchase of goods or services by the principal, or effect on trade between States within the territory
covered by the EEA Agreement and on competition.
The applicable case-law of the EFTA Court, the Court of
Justice of the European Communities and the Court of — sale of goods or services supplied by the principal.
First Instance is relevant in this respect (
11). Reference is
also made to the particular situation of launching a new
product or entering a new market which is dealt with in
these Guidelines (paragraph 119, point 10). (13) In the case of genuine agency agreements, the obli-gations imposed on the agent as to the contractsnegotiated and/or concluded on behalf of the principal
do not fall within the scope of application of
Article 53(1). The determining factor in assessingwhether Article 53(1) is applicable is the financial or
commercial risk borne by the agent in relation to the
activities for which he has been appointed as an agentby the principal. In this respect it is not material for the
(11) In addition, the EFTA Surveillance Authority considers
assessment whether the agent acts for one or several that, subject to cumulative effect and hardcore restric-
principals. Non-genuine agency agreements may be tions, agreements between small and medium-sized
caught by Article 53(1), in which case the Block undertakings as defined in the EFTA Surveillance Auth-
Exemption and the other sections of these Guidelines ority Decision No 112/96/COL of 11 September
will apply. 1996 (12) are rarely capable of appreciably affecting
trade between the Contracting Parties to the EEAAgreement or of appreciably restricting competition
within the meaning of Article 53(1), and therefore
(14) There are two types of financial or commercial risk thatgenerally fall outside the scope of Article 53(1). In cases
are material to the assessment of the genuine nature ofwhere such agreements nonetheless meet the conditionsan agency agreement under Article 53(1). First there arefor the application of Article 53(1), the EFTA Surveil-the risks which are directly related to the contractslance Authority will normally refrain from opening
concluded and/or negotiated by the agent on behalf ofproceedings for lack of sufficient interest under the EEAthe principal, such as financing of stocks. Secondly,Agreement unless those undertakings collectively orthere are the risks related to market-specific investments.individually hold a dominant position in a substantial
These are investments specifically required for the typepart of the territory covered by the EEA Agreement.of activity for which the agent has been appointed by
the principal, i.e. which are required to enable the agent
to conclude and/or negotiate this type of contract. Such
investments are usually sunk, if upon leaving thatparticular field of activity the investment cannot be used
for other activities or sold other than at a significant
loss.
(10) See judgment of the Court of First Instance in Case T-7/93
Langnese-Iglo v Commission [1995] ECR II-1533, paragraph 98.
(11) See judgment of the Court of Justice of the European Communi-
ties in Case 5/69 Völk v Vervaecke [1969] ECR 295; Case 1/71
Cadillon v Höss [1971] ECR 351 and Case C-306/96 Javico vYves Saint Laurent [1998] ECR I-1983, paragraphs 16 and 17. (
13) OJ L 153, 18.6.1994, p. 23 and EEA Supplement to the OJ
No 15, 18.6.1994, p. 22. (12) OJ L 42, 13.2.1997, p. 33. Corresponds to European Commission
Recommendation 96/280/EC OJ L 107, 30.4.1996, p. 4. (14) OJ L 382, 31.12.1986.
C 122/6 EN 23.5.2002 Official Journal of the European Communities
(15) The agency agreement is considered a genuine agency example, by failing to comply with reasonable
security measures to avoid loss of stocks); agreement and consequently falls outside Article 53(1)
if the agent does not bear any, or bears only insignifi-
cant, risks in relation to the contracts concluded and/or
negotiated on behalf of the principal and in relation to— does not create and/or operate an after-sales ser-market-specific investments for that field of activity. Invice, repair service or a warranty service unless itsuch a situation, the selling or purchasing functionis fully reimbursed by the principal;forms part of the principal’s activities, despite the fact
that the agent is a separate undertaking. The principal
thus bears the related financial and commercial risks and
— does not make market-specific investments in the agent does not exercise an independent economic
equipment, premises or training of personnel, such activity in relation to the activities for which he has
as for example the petrol storage tank in the case been appointed as an agent by the principal. In the
of petrol retailing or specific software to sell opposite situation the agency agreement is considered a
insurance policies in case of insurance agents; non-genuine agency agreement and may fall under
Article 53(1). In that case the agent does bear such risksand will be treated as an independent dealer who must
remain free in determining his marketing strategy in — does not undertake responsibility towards third
order to be able to recover his contract- or market- parties for damage caused by the product sold
specific investments. Risks that are related to the activity (product liability), unless, as agent, he is liable for
of providing agency services in general, such as the risk fault in this respect;
of the agent’s income being dependent upon his success
as an agent or general investments in for instance
premises or personnel, are not material to this assess-— does not take responsibility for customers’ non-ment.performance of the contract, 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-theftmeasures or failing to comply with reasonable
measures to report theft to the principal or police
(16) The question of risk must be assessed on a case-by-case
or to communicate to the principal all necessary basis, and with regard to the economic reality of the
information available to him on the customer’s situation rather than the legal form. Nonetheless, the
financial reliability). EFTA Surveillance Authority considers that Article 53(1)
will generally not be applicable to the obligationsimposed on the agent as to the contracts negotiated
and/or concluded on behalf of the principal where
(17) This list is not exhaustive. However, where the agent property in the contract goods bought or sold does not
incurs one or more of the above risks or costs, then vest in the agent, or the agent does not himself supply
Article 53(1) may apply as with any other vertical the contract services and where the agent:
agreement.
— does not contribute to the costs relating to the(18) If an agency agreement does not fall within the scope ofsupply/purchase of the contract goods or services,application of Article 53(1), then all obligationsincluding the costs of transporting the goods. Thisimposed on the agent in relation to the contractsdoes not preclude the agent from carrying out theconcluded and/or negotiated on behalf of the principaltransport service, provided that the costs arefall outside Article 53(1). The following obligations oncovered by the principal;the agent’s part will generally be considered to form an
inherent part of an agency agreement, as each of them
relates to the ability of the principal to fix the scope of
activity of the agent in relation to the contract goods orservices, which is essential if the principal is to take the — is not, directly or indirectly, obliged to invest in
risks and therefore to be in a position to determine the sales promotion, such as contributions to the
commercial strategy: advertising budgets of the principal;
— limitations on the territory in which the agent may
sell these goods or services;— does not maintain at his 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 — limitations on the customers to whom the agent
may sell these goods or services; charge, unless the agent is liable for fault (for
23.5.2002 EN C 122/7 Official Journal of the European Communities
— the prices and conditions at which the agent must market where it purchases the contract goods or services
which may not exceed the threshold of 30 % in order sell or purchase these goods or services.
for the Block Exemption to apply. For market share
issues see Section V (paragraphs 88 to 99).
(19) In addition to governing the conditions of sale or
purchase of the contract goods or services by the agent
on behalf of the principal, agency agreements often(22) From an economic point of view, a vertical agreementcontain provisions which concern the relationshipmay have effects not only on the market betweenbetween the agent and the principal. In particular, theysupplier and buyer but also on markets downstreammay contain a provision preventing the principal fromof the buyer. The simplified approach of the Blockappointing other agents in respect of a given type ofExemption, which only takes into account the markettransaction, customer or territory (exclusive agencyshare of the supplier or the buyer (as the case may be)provisions) and/or a provision preventing the agenton the market between these two parties, is justified byfrom acting as an agent or distributor of undertakingsthe fact that below the threshold of 30 % the effects onwhich compete with the principal (non-compete pro-downstream markets will in general be limited. Invisions). Exclusive agency provisions concern only intra-addition, only having to consider the market betweenbrand competition and will in general not lead to anti-supplier and buyer makes the application of the Blockcompetitive effects. Non-compete provisions, includingExemption easier and enhances the level of legal cer-post-term non-compete provisions, concern inter-brandtainty, while the instrument of withdrawal (see para-competition and may infringe Article 53(1) if they leadgraphs 71 to 87) remains available to remedy possibleto foreclosure on the relevant market where the contractproblems on other related markets.goods or services are sold or purchased (see Sec-
tion VI.2.1).
(20) An agency agreement may also fall within the scope ofArticle 53(1), even if the principal bears all the relevant2. Scope of the Block Exemptionfinancial and commercial risks, where it facilitates
collusion. This could for instance be the case when a
number of principals use the same agents while collec-tively 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
(i) Definition of vertical agreements principals.
(23) Vertical agreements are defined in Article 2(1) of the
Block Exemption as ‘agreements or concerted practices
entered into between two or more undertakings each of
III. APPLICATION OF THE BLOCK EXEMPTION which operates, for the purposes of the agreement, at a
different level of the production or distribution chain,
and relating to the conditions under which the partiesmay purchase, sell or resell certain goods or services’.
1. Safe harbour created by the Block Exemption
(24) There are three main elements in this definition:
(21) The Block Exemption creates a presumption of legality
for vertical agreements depending on the market share — the agreement or concerted practice is between
two or more undertakings. Vertical agreements of the supplier or the buyer. Pursuant to Article 3 of the
Block Exemption, it is in general the market share of with final consumers not operating as an undertak-
ing are not covered. More generally, agreements the supplier on the market where it sells the contract
goods or services which determines the applicability of with final consumers do not fall under
Article 53(1), as that article applies only to agree- the Block Exemption. This market share may not exceed
the threshold of 30 % in order for the Block Exemption ments between undertakings, decisions by associ-
ations of undertakings and concerted practices. to apply. Only where the agreement contains an exclus-
ive supply obligation, as defined in Article 1(c) of the This is without prejudice to the possible appli-
cation of Article 54 of the EEA Agreement; Block Exemption, is it the buyer’s market share on the
C 122/8 EN 23.5.2002 Official Journal of the European Communities
— the agreement or concerted practice is between indirectly exclude certain vertical agreements from the
application of the Block Exemption. undertakings each operating, for the purposes of
the agreement, at a different level of the production
or distribution chain. This means for instance that
one undertaking produces a raw material whichthe other undertaking uses as an input, or that the
first is a manufacturer, the second a wholesaler
and the third a retailer. This does not preclude anundertaking from being active at more than one
level of the production or distribution chain;
(ii) Vertical agreements between competitors
— the agreements or concerted practices relate to
the conditions under which the parties to theagreement, the supplier and the buyer, ‘may pur-
(26) Article 2(4) of the Block Exemption explicitly excludeschase, sell or resell certain goods or services’. Thisfrom its application ‘vertical agreements entered intoreflects the purpose of the Block Exemption tobetween competing undertakings’. Vertical agreementscover purchase and distribution agreements. Thesebetween competitors will be dealt with, as regardsare agreements which concern the conditions forpossible collusion effects, in forthcoming Guidelines onthe purchase, sale or resale of the goods or servicesthe applicability of Article 53 to horizontal cooper-supplied by the supplier and/or which concern theation (16). However, the vertical aspects of such agree-conditions for the sale by the buyer of the goodsments need to be assessed under these Guidelines.or services which incorporate these goods orArticle 1(a) of the Block Exemption defines competingservices. For the application of the Block Exemp-undertakings as ‘actual or potential suppliers in thetion both the goods or services supplied by thesame product market’, irrespective of whether or notsupplier and the resulting goods or services arethey are competitors on the same geographic market.considered to be contract goods or services. Verti-Competing undertakings are undertakings that are actu-cal agreements relating to all final and intermediateal or potential suppliers of the contract goods or servicesgoods and services are covered. The only exceptionor goods or services that are substitutes for the contractis the automobile sector, as long as this sectorgoods or services. A potential supplier is an undertakingremains covered by a specific block exemptionthat does not actually produce a competing product butsuch as that granted by the act referred to incould and would be likely to do so in the absence of thepoint 4a of Annex XIV of the EEA Agreementagreement in response to a small and permanent(Regulation (EC) No 1475/95 (15)). The goods orincrease in relative prices. This means that the undertak-services provided by the supplier may be resold bying would be able and likely to undertake the necessarythe buyer or may be used as an input by the buyeradditional investments and supply the market withinto produce his own goods or services.1 year. This assessment has to be based on realistic
grounds; the mere theoretical possibility of entering amarket is not sufficient (
17).
(25) The Block Exemption also applies to goods sold and
purchased for renting to third parties. However, rent
and lease agreements as such are not covered, as no
good or service is being sold by the supplier to the (16) Article 5(1)(b) of the Surveillance and Court Agreement provides
that the Authority shall, in accordance with EEA legislation and buyer. More generally, the Block Exemption does not
in order to ensure the proper functioning of the EEA Agreement, cover restrictions or obligations that do not relate to
ensure the application of the EEA competition rules. As concerns the conditions of purchase, sale and resale, such as
non-binding acts adopted by the European Commission after thean obligation preventing parties from carrying outsigning of the EEA Agreement, the Authority is to adoptindependent research and development which the par-corresponding acts when EEA relevant. Pending the adoption ofties may have included in an otherwise vertical agree-its own notices, the Authority intends to apply the principlesment. In addition, Articles 2(2) to (5) directly orset out in the relevant Commission notices, including theCommission’s Guidelines on the applicability of Article 81 tohorizontal co-operation agreements, OJ C 3, 6.1.2001, p. 2.
(
17) EFTA Surveillance Authority Notice on the definition of the
relevant market for the purposes of competition law within theEEA, OJ L 200, 16.7.1998, p. 48 and EEA Supplement to the OJNo 28, 16.7.1998, p. 3, at paras. 20-24, and European Com-
mission Decision 90/410/EEC in Case No IV/32.009 — Elopak/Metal Box-Odin, OJ L 209, 8.8.1990, p. 15. (
15) OJ L 145, 29.6.1995, p. 25.
23.5.2002 EN C 122/9 Official Journal of the European Communities
(27) There are three exceptions to the general exclusion of leads to the conclusion that a cooperation between
undertakings in the area of purchasing or selling is vertical agreements between competitors, all three being
set out in Article 2(4) and relating to non-reciprocal acceptable, a further assessment will be necessary to
examine the vertical agreements concluded by the agreements. Non-reciprocal means, for instance, that
while one manufacturer becomes the distributor of the association with its suppliers or its individual members.
The latter assessment will follow the rules of the products of another manufacturer, the latter does not
become the distributor of the products of the first Block Exemption and these Guidelines. For instance,
horizontal agreements concluded between the members manufacturer. Non-reciprocal agreements between
competitors are covered by the Block Exemption where of the association or decisions adopted by the associ-
ation, such as the decision to require the members to (1) the buyer has a turnover not exceeding EUR
100 million, or (2) the supplier is a manufacturer and purchase from the association or the decision to allocate
exclusive territories to the members have to be assessed distributor of goods, while the buyer is only a distributor
and not also a manufacturer of competing goods, or first as a horizontal agreement. Only if this assessment
is positive does it become relevant to assess the vertical (3) the supplier is a provider of services operating at
several levels of trade, while the buyer does not provide agreements between the association and individual
members or between the association and suppliers. competing services at the level of trade where it
purchases the contract services. The second exception
covers situations of dual distribution, i.e. the manufac-
turer of particular goods also acts as a distributor of thegoods in competition with independent distributors of
his goods. A distributor who provides specifications to
a manufacturer to produce particular goods under thedistributor’s brand name is not to be considered a
(iv) Vertical agreements containing provisions on intel- manufacturer of such own-brand goods. The third
lectual property rights (IPRs) exception covers similar situations of dual distribution,
but in this case for services, when the supplier is also a
provider of services at the level of the buyer.
(30) Article 2(3) of the Block Exemption includes in itsapplication vertical agreements containing certain pro-
visions relating to the assignment of IPRs to or use ofIPRs by the buyer and thereby excludes from the Block
Exemption all other vertical agreements containing IPR
provisions. The Block Exemption applies to vertical(iii) Associations of retailersagreements containing IPR provisions when five con-
ditions are fulfilled:
(28) Article 2(2) of the Block Exemption includes in its
— The IPR provisions must be part of a vertical application vertical agreements entered into by an
agreement, i.e. an agreement with conditions under association of undertakings which fulfils certain con-
which the parties may purchase, sell or resell ditions and thereby excludes from the Block Exemption
certain goods or services; vertical agreements entered into by all other associ-
ations. Vertical agreements entered into between an
association and its members, or between an associationand its suppliers, are covered by the Block Exemption
only if all the members are retailers of goods (not— The IPRs must be assigned to, or for use by, theservices) and if each individual member of the associ-buyer;ation has a turnover not exceeding EUR 50 million.
Retailers are distributors reselling goods to final con-
sumers. Where only a limited number of the membersof the association have a turnover not significantly
— The IPR provisions must not constitute the primary exceeding the EUR 50 million threshold, this will
object of the agreement; normally not change the assessment under Article 53.
— The IPR provisions must be directly related to the
use, sale or resale of goods or services by the buyer
(29) An association of undertakings may involve both hori-zontal and vertical agreements. The horizontal agree- or his customers. In the case of franchising where
marketing forms the object of the exploitation of ments have to be assessed according to the principles set
out in the forthcoming Guidelines on the applicability of the IPRs, the goods or services are distributed by
the master franchisee or the franchisees; Article 53 to horizontal cooperation. If this assessment
C 122/10 EN 23.5.2002 Official Journal of the European Communities
— The IPR provisions, in relation to the contract Exemption. This means in particular that subcontracting
involving the transfer of know-how to a subcontrac- goods or services, must not contain restrictions of
competition having the same object or effect as tor (18) does not fall within the scope of application of
the Block Exemption. However, vertical agreements vertical restraints which are not exempted under
the Block Exemption. under which the buyer provides only specifications to
the supplier which describe the goods or services to be
supplied are covered by the Block Exemption.
(31) These conditions ensure that the Block Exemptionapplies to vertical agreements where the use, sale or
resale of goods or services can be performed moreeffectively because IPRs are assigned to or transferred
(34) The third condition makes clear that in order to be
for use by the buyer. In other words, restrictions covered by the Block Exemption the primary object of
concerning the assignment or use of IPRs can be covered the agreement must not be the assignment or licensing
when the main object of the agreement is the purchase of IPRs. The primary object must be the purchase or
or distribution of goods or services. distribution of goods or services and the IPR provisions
must serve the implementation of the vertical agree-
ment.
(32) 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 orprovide services and not an agreement concerning the
(35) The fourth condition requires that the IPR provisions
assignment or licensing of IPRs for the manufacture of facilitate the use, sale or resale of goods or services by
goods, nor a pure licensing agreement. The Block the buyer or his customers. The goods or services for
Exemption does not cover for instance: use or resale are usually supplied by the licensor but
may also be purchased by the licensee from a third
supplier. The IPR provisions will normally concern the
marketing of goods or services. This is for instance the
— agreements where a party provides another party case in a franchise agreement where the franchisor sells
with a recipe and licenses the other party to to the franchisee goods for resale and in addition
produce a drink with this recipe; licenses the franchisee to use his trademark and know-
how to market the goods. Also covered is the case
where the supplier of a concentrated extract licenses thebuyer to dilute and bottle the extract before selling it as— agreements under which one party provides anoth-a drink.er party with a mould or master copy and licenses
the other party to produce and distribute copies;
(36) The fifth condition signifies in particular that the IPR— the pure licence of a trade mark or sign for theprovisions should not have the same object or effect aspurposes of merchandising;any of the hardcore restrictions listed in Article 4 of the
Block Exemption or any of the restrictions excluded
from the coverage of the Block Exemption by Article 5(see paragraphs 46 to 61).— sponsorship contracts concerning the right to
advertise oneself as being an official sponsor of anevent;
(37) Intellectual property rights which may be considered to
serve the implementation of vertical agreements within— copyright licensing such as broadcasting contractsthe meaning of Article 2(3) of the Block Exemptionconcerning the right to record and/or the right togenerally concern three main areas: trade marks, copy-broadcast an event.right and know-how.
(33) The second condition makes clear that the Block
Exemption does not apply when the IPRs are provided
by the buyer to the supplier, no matter whether the IPRsconcern the manner of manufacture or of distribution.
An agreement relating to the transfer of IPRs to the (18) See the Authority’s Notice on subcontracting, OJ L 153,
supplier and containing possible restrictions on the 18.6.1994, p. 30 and EEA supplement to the OJ No 15,
18.6.1994, p. 29. sales made by the supplier is not covered by the Block
23.5.2002 EN C 122/11 Official Journal of the European Communities
Trade mark (43) Licensing contained in franchise agreements is covered
by the Block Exemption if all five conditions listed inpoint 30 are fulfilled. This is usually the case, as under
most franchise agreements, including master franchise
(38) A trade mark licence to a distributor may be related to
agreements, the franchisor provides goods and/or ser- the distribution of the licensor’s products in a particular
vices, in particular commercial or technical assistance territory. If it is an exclusive licence, the agreement
services, to the franchisee. The IPRs help the franchisee amounts to exclusive distribution.
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 concernsCopyrightlicensing of IPRs, such an agreement is not covered by
the Block Exemption, but it will be treated in a way
similar to those franchise agreements which are covered
(39) Resellers of goods covered by copyright (books, softwa-by the Block Exemption.
re, etc.) may be obliged by the copyright holder only to
resell under the condition that the buyer, whetheranother reseller or the end user, shall not infringe the
copyright. Such obligations on the reseller, to the extent
(44) The following IPR-related obligations are generally
that they fall under Article 53(1) at all, are covered by considered to be necessary to protect the franchisor’s
the Block Exemption. intellectual property rights and are, if these obligations
fall under Article 53(1), also covered by the BlockExemption:
(40) Agreements under which hard copies of software aresupplied for resale and where the reseller does notacquire a licence to any rights over the software but
only has the right to resell the hard copies, are to be (a) an obligation on the franchisee not to engage,
regarded as agreements for the supply of goods for directly or indirectly, in any similar business;
resale for the purpose of the Block Exemption. Under
this form of distribution the licence of the software only
takes place between the copyright owner and the user
(b) an obligation on the franchisee not to acquire of the software. This may take the form of a ‘shrink
financial interests in the capital of a competing wrap’ licence, i.e. a set of conditions included in the
undertaking such as would give the franchisee the package of the hard copy which the end user is deemed
power to influence the economic conduct of such to accept by opening the package.
undertaking;
(41) Buyers of hardware incorporating software protected
by copyright may be obliged by the copyright holder
(c) an obligation on the franchisee not to disclose not to infringe the copyright, for example not to make
to third parties the know-how provided by the copies and resell the software or not to make copies
franchisor as long as this know-how is not in the and use the software in combination with other hard-
public domain; ware. Such use-restrictions, to the extent that they fall
within Article 53(1) at all, are covered by the Block
Exemption.
(d) an obligation on the franchisee to communicate to
the franchisor any experience gained in exploiting
the franchise and to grant it, and other franchisees,
Know-how a non-exclusive licence for the know-how resulting
from that experience;
(42) Franchise agreements, with the exception of industrialfranchise agreements, are the most obvious example
where know-how for marketing purposes is communi- (e) an obligation on the franchisee to inform the
cated to the buyer. Franchise agreements contain franchisor of infringements of licensed intellectual
licences of intellectual property rights relating to trade property rights, to take legal action against
marks or signs and know-how for the use and distri- infringers or to assist the franchisor in any legal
bution of goods or the provision of services. In addition actions against infringers;
to the licence of IPR, the franchisor usually provides
the franchisee during the life of the agreement withcommercial or technical assistance, such as procure-
ment services, training, advice on real estate, financial (f) an obligation on the franchisee not to use know-
how licensed by the franchisor for purposes other planning etc. The licence and the assistance are integral
components of the business method being franchised. than the exploitation of the franchise;
C 122/12 EN 23.5.2002 Official Journal of the European Communities
(g) an obligation on the franchisee not to assign indirect means. Examples of the latter are an agreement
the rights and obligations under the franchise fixing the distribution margin, fixing the maximum
agreement without the franchisor’s consent. level of discount the distributor can grant from a
prescribed price level, making the grant of rebates orreimbursement of promotional costs by the supplier
subject to the observance of a given price level,
linking the prescribed resale price to the resale(v) Relationship to other block exemptionsprices of competitors, threats, intimidation, warnings,
penalties, delay or suspension of deliveries or contractterminations in relation to observance of a given price
(45) Article 2(5) states that the Block Exemption does notlevel. Direct or indirect means of achieving priceapply to vertical agreements the subject matter of whichfixing can be made more effective when combinedfalls within the scope of any other block exemptions.with measures to identify price-cutting distributors,This means that the Block Exemption does not apply tosuch as the implementation of a price monitoringvertical agreements covered by the act referred to insystem, or the obligation on retailers to report otherpoint 5 of Annex XIV to the EEA Agreement onmembers of the distribution network who deviatetechnology transfer [European Commission Regulationfrom the standard price level. Similarly, direct or(EC) No 240/96 (19)], the act referred to in point 4a ofindirect price fixing can be made more effective whenAnnex XIV to the EEA Agreement for car distributioncombined with measures which may reduce the[European Commission Regulation (EC) No 1475/buyer’s incentive to lower the resale price, such as the95 (20)] or the acts referred to in point 6 and 7 ofsupplier printing a recommended resale price on theAnnex XIV to the EEA Agreement respectivelyproduct or the supplier obliging the buyer to apply aexempting vertical agreements concluded in connectionmost-favoured-customer clause. The same indirectwith horizontal agreements [Regulations (EEC) No 417/means and the same ‘supportive’ measures can be85 (15) (21) and (EEC) No 418/85 (22)], or any future
used to make maximum or recommended prices work regulations of that kind incorporated into the EEA
as RPM. However, the provision of a list of Agreement.
recommended prices or maximum prices by the
supplier to the buyer is not considered in itself asleading to RPM.
3. Hardcore restrictions under the Block Exemption
(46) The Block Exemption contains in Article 4 a list of
hardcore restrictions which lead to the exclusion of thewhole vertical agreement from the scope of application
of the Block Exemption. This list of hardcore restrictions
applies to vertical agreements concerning trade withinthe territory covered by the EEA Agreement. In so far as
vertical agreements concern exports outside the EEA or
imports/re-imports from outside EEA see the judgmentin Javico v Yves Saint Laurent (
23). Individual exemption
of vertical agreements containing such hardcore restric-
tions is also unlikely.(48) In the case of agency agreements, the principal
normally establishes the sales price, as the agent doesnot become the owner of the goods. However, where
(47) The hardcore restriction set out in Article 4(a) of thean agency agreement falls within Article 53(1) (seeBlock Exemption concerns resale price maintenanceparagraphs 12 to 20), an obligation preventing or(RPM), that is agreements or concerted practices havingrestricting the agent from sharing his commission,as their direct or indirect object the establishment of afixed or variable, with the customer would be afixed or minimum resale price or a fixed or minimumhardcore restriction under Article 4(a) of the Blockprice level to be observed by the buyer. In the caseExemption. The agent should thus be left free toof contractual provisions or concerted practices thatlower the effective price paid by the customer withoutdirectly establish the resale price, the restriction is clearreducing the income for the principal (24).cut. However, RPM can also be achieved through
(19) OJ L 31, 9.2.1996, p. 2.
(20) OJ L 145, 29.6.1995, p. 25.
(21) OJ L 53, 22.2.1985, p. 1. (24) See, for instance, European Commission Decision 91/562/EEC
in Case No IV/32.737 — Eirpage, OJ L 306, 7.11.1991, p. 22, in (22) OJ L 53, 22.2.1985, p. 5.
(23) See footnote 11, p. 5. particular point (6).
23.5.2002 EN C 122/13 Official Journal of the European Communities
(49) The hardcore restriction set out in Article 4(b) of the customer group by the supplier and all the other buyers
of the supplier inside the territory covered by the EEA Block Exemption concerns agreements or concerted
practices that have as their direct or indirect object Agreement. The supplier is allowed to combine the
allocation of an exclusive territory and an exclusive the restriction of sales by the buyer, in as far as those
restrictions relate to the territory into which or the customer group by for instance appointing an exclusive
distributor for a particular customer group in a certain customers to whom the buyer may sell the contract
goods or services. That hardcore restriction relates to territory. This protection of exclusively allocated terri-
tories or customer groups must, however, permit pass- market partitioning by territory or by customer. That
may be the result of direct obligations, such as the ive sales to such territories or customer groups. For the
application of Article 4(b) of the Block Exemption, the obligation not to sell to certain customers or to
customers in certain territories or the obligation to EFTA Surveillance Authority interprets ‘active’ and
‘passive’ sales as follows: refer orders from these customers to other distributors.
It may also result from indirect measures aimed at
inducing the distributor not to sell to such customers,
such as refusal or reduction of bonuses or discounts,
refusal to supply, reduction of supplied volumes orlimitation of supplied volumes to the demand within
the allocated territory or customer group, threat of
contract termination or profit pass-over obligations. It— ‘Active’ sales mean actively approaching individualmay further result from the supplier not providing ancustomers inside another distributor’s exclusiveEEA-wide guarantee service, whereby all distributorsterritory or exclusive customer group by forare obliged to provide the guarantee service and areinstance direct mail or visits; or actively approach-reimbursed for this service by the supplier, even ining a specific customer group or customers in arelation to products sold by other distributors intospecific territory allocated exclusively to anothertheir territory. These practices are even more likely todistributor through advertisement in media orbe viewed as a restriction of the buyer’s sales whenother promotions specifically targeted at that cus-used in conjunction with the implementation by thetomer group or targeted at customers in thatsupplier of a monitoring system aimed at verifyingterritory; or establishing a warehouse or distri-the effective destination of the supplied goods, e.g.bution outlet in another distributor’s exclusivethe use of differentiated labels or serial numbers.territory.However, a prohibition imposed on all distributors to
sell to certain end users is not classified as a hardcore
restriction if there is an objective justification related
to the product, such as a general ban on sellingdangerous substances to certain customers for reasons
of safety or health. It implies that also the supplier
himself does not sell to these customers. Nor are
— ‘Passive’ sales mean responding to unsolicited obligations on the reseller relating to the display of
requests from individual customers including deliv- the supplier’s brand name classified as hardcore.
ery of goods or services to such customers. General
advertising or promotion in media or on the
Internet that reaches customers in other distribu-tors’ exclusive territories or customer groups but
which is a reasonable way to reach customers
outside those territories or customer groups, forinstance to reach customers in non-exclusive terri-
tories or in one’s own territory, are passive sales.
(50) There are four exceptions to the hardcore restriction in
Article 4(b) of the Block Exemption. The first exception
allows a supplier to restrict active sales by his direct (51) Every distributor must be free to use the Internet to
advertise or to sell products. A restriction on the use of buyers to a territory or a customer group which has
been allocated exclusively to another buyer or which the Internet by distributors could only be compatible
with the Block Exemption to the extent that promotion the supplier has reserved to itself. A territory or
customer group is exclusively allocated when the sup- on the Internet or sales over the Internet would lead to
active selling into other distributors’ exclusive territories plier agrees to sell his product only to one distributor
for distribution in a particular territory or to a particular or customer groups. In general, the use of the Internet
is not considered a form of active sales into such customer group and the exclusive distributor is protect-
ed against active selling into his territory or to his territories or customer groups, since it is a reasonable
C 122/14 EN 23.5.2002 Official Journal of the European Communities
way to reach every customer. The fact that it may have distribution network. This means that dealers in a
selective distribution system, as defined in Article 1(d) effects outside one’s own territory or customer group
results from the technology, i.e. the easy access from of the Block Exemption, cannot be restricted in the
users or purchasing agents acting on behalf of these everywhere. If a customer visits the website of a
distributor and contacts the distributor and if such users to whom they may sell. For instance, also in a
selective distribution system the dealer should be free to contact leads to a sale, including delivery, then that is
considered passive selling. The language used on the advertise and sell with the help of the Internet. Selective
distribution may be combined with exclusive distri- website or in the communication normally plays no
role in that respect. Insofar as a website is not specifically bution provided that active and passive selling is not
restricted anywhere. The supplier may therefore commit targeted at customers primarily inside the territory
or customer group exclusively allocated to another itself to supplying only one dealer or a limited number
of dealers in a given territory. distributor, for instance with the use of banners or links
in pages of providers specifically available to these
exclusively allocated customers, the website is not
considered a form of active selling. However, unsolicited
e-mails sent to individual customers or specific customergroups are considered active selling. The same consider-
ations apply to selling by catalogue. Notwithstanding
(54) In addition, in the case of selective distribution, restric-what has been said before, the supplier may requiretions can be imposed on the dealer’s ability to determinequality standards for the use of the Internet site to resellthe location of his business premises. Selected dealershis goods, just as the supplier may require qualitymay be prevented from running their business fromstandards for a shop or for advertising and promotiondifferent premises or from opening a new outlet in ain general. The latter may be relevant in particular fordifferent location. If the dealer’s outlet is mobile (‘shopselective distribution. An outright ban on Internet oron wheels’), an area may be defined outside which thecatalogue selling is only possible if there is an objectivemobile outlet cannot be operated.justification. In any case, the supplier cannot reserve to
itself sales and/or advertising over the Internet.
(55) The hardcore restriction set out in Article 4(d) of theBlock Exemption concerns the restriction of cross-
supplies between appointed distributors within a selec-tive distribution system. This means that an agreement
or concerted practice may not have as its direct or
indirect object to prevent or restrict the active or passiveselling of the contract products between the selected
(52) There are three other exceptions to the second hardcore
distributors. Selected distributors must remain free to restriction set out in Article 4(b) of the Block Exemption.
purchase the contract products from other appointed All three exceptions allow for the restriction of both
distributors within the network, operating either at the active and passive sales. Thus, it is permissible to restrict
same or at a different level of trade. This means that a wholesaler from selling to end users, to restrict an
selective distribution cannot be combined with vertical appointed distributor in a selective distribution system
restraints aimed at forcing distributors to purchase the from selling, at any level of trade, to unauthorised
contract products exclusively from a given source, for distributors in markets where such a system is operated,
instance exclusive purchasing. It also means that within and to restrict a buyer of components supplied for
a selective distribution network no restrictions can be incorporation from reselling them to competitors of the
imposed on appointed wholesalers as regards their sales supplier. The term ‘component’ includes any intermedi-
of the product to appointed retailers. ate goods and the term ‘incorporation’ refers to the use
of any input to produce goods.
(56) The hardcore restriction set out in Article 4(e) of the
Block Exemption concerns agreements that prevent or
restrict end-users, independent repairers and serviceproviders from obtaining spare parts directly from
the manufacturer of these spare parts. An agreement
between a manufacturer of spare parts and a buyer whoincorporates these parts into his own products [original
(53) The hardcore restriction set out in Article 4(c) of the
Block Exemption concerns the restriction of active or equipment manufacturer (OEM)], may not, either
directly or indirectly, prevent or restrict sales by the passive sales to end users, whether professional end
users or final consumers, by members of a selective manufacturer of these spare parts to end users, indepen-
23.5.2002 EN C 122/15 Official Journal of the European Communities
dent repairers or service providers. Indirect restrictions compete obligation and the supplier provides a loan to
the buyer, the repayment of that loan should not hinder may arise in particular when the supplier of the spare
parts is restricted in supplying technical information the buyer from effectively terminating the non-compete
obligation at the end of the five-year period; the and special equipment which are necessary for the use
of spare parts by users, independent repairers or service repayment needs to be structured in equal or decreasing
instalments and should not increase over time. This is providers.
without prejudice to the possibility, in the case for
instance of a new distribution outlet, to delay repaymentfor the first one or two years until sales have reached a
certain level. The buyer must have the possibility
However, the agreement may place restrictions on the to repay the remaining debt where there is still an
supply of the spare parts to the repairers or service outstanding debt at the end of the non-compete obli-
providers entrusted by the original equipment manufac- gation. Similarly, when the supplier provides the buyer
turer with the repair or servicing of his own goods. In with equipment which is not relationship-specific, the
other words, the original equipment manufacturer may buyer should have the possibility to take over the
require his own repair and service network to buy the equipment at its market asset value at the end of the
spare parts from it. non-compete obligation.
4. Conditions under the Block Exemption
(59) The five-year duration limit does not apply when the
goods or services are resold by the buyer ‘from premises(57) Article 5 of the Block Exemption excludes certainand land owned by the supplier or leased by the supplierobligations from the coverage of the Block Exemptionfrom third parties not connected with the buyer’. Ineven though the market share threshold is not exceeded.such cases the non-compete obligation may be of theHowever, the Block Exemption continues to apply tosame duration as the period of occupancy of thethe remaining part of the vertical agreement if that partpoint of sale by the buyer (Article 5(a) of the Blockis severable from the non-exempted obligations.Exemption). The reason for this exception is that it is
normally unreasonable to expect a supplier to allow
competing products to be sold from premises and land
owned by the supplier without his permission. Artificialownership constructions intended to avoid the five-year
(58) The first exclusion is provided in Article 5(a) of thelimit cannot benefit from this exception.Block Exemption and concerns non-compete obli-
gations. Non-compete obligations are obligations that
require the buyer to purchase from the supplier or from
another undertaking designated by the supplier more
than 80 % of the buyer’s total purchases during the
previous year of the contract goods and services andtheir substitutes (see the definition in Article 1(b) of the
Block Exemption), thereby preventing the buyer from
purchasing competing goods or services or limitingsuch purchases to less than 20 % of total purchases.
Where for the year preceding the conclusion of the
contract no relevant purchasing data for the buyer are
(60) The second exclusion from the Block Exemption isprovided for in Article 5(b) of the Block Exemption and available, the buyer’s best estimate of his annual total
requirements may be used. Such non-compete obli- concerns post term non-compete obligations. Such
obligations are normally not covered by the Block gations are not covered by the Block Exemption when
their duration is indefinite or exceeds five years. Non- Exemption, unless the obligation is indispensable to
protect know-how transferred by the supplier to the compete obligations that are tacitly renewable beyond a
period of five years are also not covered by the Block buyer, is limited to the point of sale from which the
buyer has operated during the contract period, and is Exemption. However, non-compete obligations are
covered when their duration is limited to five years or limited to a maximum period of one year. According to
the definition in Article 1(f) of the Block Exemption the less, or when renewal beyond five years requires explicit
consent of both parties and no obstacles exist that know-how needs to be ‘substantial’, meaning ‘that the
know-how includes information which is indispensable hinder the buyer from effectively terminating the non-
compete obligation at the end of the five-year period. If to the buyer for the use, sale or resale of the contract
goods or services’. for instance the agreement provides for a five-year non-
C 122/16 EN 23.5.2002 Official Journal of the European Communities
(61) The third exclusion from the Block Exemption is cation needs to be made. If a dispute arises, an
undertaking can still notify the competent authority provided for in Article 5(c) of the Block Exemption and
concerns the sale of competing goods in a selective under the EEA Agreement (27), in which case the EFTA
Surveillance Authority, if notified, can exempt the distribution system. The Block Exemption covers the
combination of selective distribution with a non-com- vertical agreement with retroactive effect from the date
of entry into force of the agreement if all four conditions pete obligation, obliging the dealers not to resell
competing brands in general. However, if the supplier of Article 53(3) are fulfilled. A notifying party does not
have to explain why the agreement was not notified prevents his appointed dealers, either directly or
indirectly, from buying products for resale from specific earlier and will not be denied retroactive exemption
simply because it did not notify earlier. Any notification competing suppliers, such an obligation cannot enjoy
the benefit of the Block Exemption. The objective of the will be reviewed on its merits. This amendment to
Article 4(2) of Chapter II of Protocol 4 to the Surveil- exclusion of this obligation is to avoid a situation
whereby a number of suppliers using the same selective lance and Court Agreement should eliminate artificial
litigation before national courts and thus strengthen the distribution outlets prevent one specific competitor or
certain specific competitors from using these outlets to civil enforceability of contracts. It also takes account of
the situation where undertakings have not notified distribute their products (foreclosure of a competing
supplier which would be a form of collective boy- because they assumed the agreement was covered by
the Block Exemption. cott) (25).
5. No presumption of illegality outside the Block Exemption
(64) Since the date of notification no longer limits the
possibility of exemption by the EFTA SurveillanceAuthority, national courts have to assess the likelihood
(62) Vertical agreements falling outside the Block Exemption that Article 53(3) will apply in respect of vertical
will not be presumed to be illegal but may need agreements falling within Article 53(1). If such likeli-
individual examination. Companies are encouraged to hood exists, they should suspend proceedings pending
do their own assessment without notification. In the adoption of a position by the EFTA Surveillance Auth-
case of an individual examination by the EFTA Surveil- ority. However, national courts may adopt interim
lance Authority, the latter will bear the burden of proof measures pending the assessment by the EFTA Surveil-
that the agreement in question infringes Article 53(1). lance Authority of the applicability of Article 53(3), in
When appreciable anti-competitive effects are demon- the same way as they do when they refer a preliminary
strated, undertakings may substantiate efficiency claims question to the EFTA Court under Article 34 of the
and explain why a certain distribution system is likely Surveillance and Court Agreement. No suspension is
to bring about benefits which are relevant to the necessary in respect of injunction proceedings, where
conditions for exemption under Article 53(3). national courts themselves are empowered to assess the
likelihood of application of Article 53(3) (28).
6. No need for precautionary notification
(65) Unless there is litigation in national courts or com-
plaints, notifications of vertical agreements will not be(63) Pursuant to Article 4(2) of Chapter II of Protocol 4 togiven priority in the EFTA Surveillance Authority’sthe Surveillance and Court Agreement, as last amendedenforcement policy. Notifications as such do not pro-by Agreement between the EFTA States of 11thMayvide provisional validity for the execution of agree-2000 (26), vertical agreements can benefit from anments. Where undertakings have not notified an agree-exemption under Article 53(3) from their date of entryment because they assumed in good faith that theinto force, even if notification occurs after that date.market share threshold under the Block Exemption wasThis means in practice that no precautionary notifi-not exceeded, the EFTA Surveillance Authority will not
impose fines.
(25) An example of indirect measures having such exclusionary effects
can be found in European Commission Decision 92/428/EEC inCase No IV/33.542 — Parfum Givenchy (OJ L 236, 19.8.1992,
p. 11).
(26) ‘Agreement between the EFTA States Amending Protocol 4 to (27) Sea footnote 5, p. 4.
(28) See judgment of the Court of Justice of the European Communi- the Agreement between the EFTA States on the Establishment of
a Surveillance Authority and a Court of Justice’, 11th May 2000 ties in Case C-234/89 Delimitis v Henninger Bräu [1991] ECR
I-935, at paragraph 52. (not published).
23.5.2002 EN C 122/17 Official Journal of the European Communities
7. Severability transitional period for vertical agreements already in
force before 1 June 2000 which do not satisfy theconditions for exemption provided in the Block Exemp-
tion, but which do satisfy the conditions for exemption
(66) The Block Exemption exempts vertical agreements on
under the block exemptions which expired on 31 May condition that no hardcore restriction, as set out in
2000 (the acts referred to at points 2 and 3 of Article 4, is contained in or practised with the vertical
Annex XIV to the EEA Agreement before the changes agreement. If there are one or more hardcore restric-
brought about by EEA Joint Committee Decision tions, the benefit of the Block Exemption is lost for the
No. 18/2000 came into force on 1 June 2000 [European entire vertical agreement. There is no severability for
Commission Regulations (EEC) No 1983/83, (EEC) hardcore restrictions.
No 1984/83 and (EEC) No 4087/88)]. The EFTA
Surveillance Authority’s Notice concerning these outgo-
ing acts also ceases to apply on 31 May 2000. The latter(67) The rule of severability does apply, however, to theagreements may continue to benefit from the outgoingconditions set out in Article 5 of the Block Exemption.acts until 31 December 2001. Agreements of suppliersTherefore, the benefit of the Block Exemption is onlywith a market share not exceeding 30 % who signedlost in relation to that part of the vertical agreementwith their buyers non-compete agreements with awhich does not comply with the conditions set out induration exceeding five years are covered by the BlockArticle 5.Exemption if on 1 January 2002 the non-compete
agreements have no more than five years to run.
8. Portfolio of products distributed through the same
distribution system
(68) Where a supplier uses the same distribution agreementto distribute several goods/services some of these may,
IV. WITHDRAWAL OF THE BLOCK EXEMPTION AND DIS-
in view of the market share threshold, be covered by APPLICATION OF THE BLOCK EXEMPTION
the Block Exemption while others may not. In that case,
the Block Exemption applies to those goods and services
for which the conditions of application are fulfilled.
(69) In respect of the goods or services which are not
covered by the Block Exemption, the ordinary rules of1. Withdrawal procedurecompetition apply, which means:
— there is no block exemption but also no presump-
tion of illegality;(71) The presumption of legality conferred by the Block
Exemption may be withdrawn if a vertical agreement,
considered either in isolation or in conjunction with — if there is an infringement of Article 53(1)which is
similar agreements enforced by competing suppliers or not exemptable, consideration may be given to
buyers, comes within the scope of Article 53(1) and whether there are appropriate remedies to solve
does not fulfil all the conditions of Article 53(3). This the competition problem within the existing distri-
may occur when a supplier, or a buyer in the case of bution system;
exclusive supply agreements, holding a market share
not exceeding 30 %, enters into a vertical agreement
— if there are no such appropriate remedies, the which does not give rise to objective advantages such as
supplier concerned will have to make other distri- to compensate for the damage which it causes to
bution arrangements. competition. This may particularly be the case with
respect to the distribution of goods to final consumers,
who are often in a much weaker position than pro- This situation can also arise where Article 54 applies in
fessional buyers of intermediate goods. In the case of respect of some products but not in respect of others.
sales to final consumers, the disadvantages caused by a
vertical agreement may have a stronger impact than ina case concerning the sale and purchase of intermediate
goods. When the conditions of Article 53(3) are not
9. Transitional period fulfilled, the EFTA Surveillance Authority may, in cases
where it is competent to act by virtue of the provisions
of Article 56 of the EEA Agreement, withdraw the
benefit of the Block Exemption under Article 6 and
(70) The Block Exemption applies from 1 June 2000.Article 12 of the Block Exemption provides for a establish an infringement of Article 53(1).
C 122/18 EN 23.5.2002 Official Journal of the European Communities
(72) Where the withdrawal procedure is applied by the EFTA EEA competition law or at least to withdraw the benefit
of the Block Exemption, the EFTA State may ask the Surveillance Authority, the latter bears the burden of
proof that the agreement falls within the scope of EFTA Surveillance Authority to initiate proceedings to
this effect. Article 53(1) and that the agreement does not fulfil all
four conditions of Article 53(3).
(73) The conditions for an exemption under Article 53(3)
(77) The European Commission and the EFTA Surveillance may in particular not be fulfilled when access to the
Authority share, in accordance with the provisions of relevant market or competition therein is significantly
Article 56 of the EEA Agreement regarding the allo- restricted by the cumulative effect of parallel networks
cation of cases between the two authorities, the exclus- of similar vertical agreements practised by competing
ive power to withdraw the benefit of the Block Exemp- suppliers or buyers. Parallel networks of vertical agree-
tion in respect of vertical agreements restricting compe- ments are to be regarded as similar if they contain
tition on a relevant geographic market which is wider restraints producing similar effects on the market.
than the territory of a single EEA State. When the Similar effects will normally occur when vertical
territory of a single EEA State, or a part thereof, restraints practised by competing suppliers or buyers
constitutes the relevant geographic market, the com- come within one of the four groups listed in para-
petent surveillance authority and the EEA State con- graphs 104 to 114. Such a situation may arise for
cerned have concurrent competence for withdrawal. example when, on a given market, certain suppliers
Often, such cases lend themselves to decentralised practise purely qualitative selective distribution while
enforcement by national competition authorities. How- other suppliers practise quantitative selective distri-
ever, the EFTA Surveillance Authority reserves the bution. In such circumstances, the assessment must take
right, within the EFTA pillar, to take on certain cases account of the anti-competitive effects attributable
displaying a particular interest under the EEA Agree- to each individual network of agreements. Where
ment, such as cases raising a new point of law. appropriate, withdrawal may concern only the quanti-
tative limitations imposed on the number of authoriseddistributors. Other cases in which a withdrawal decision
may be taken include situations where the buyer, for
example in the context of exclusive supply or exclusive
(78) National decisions of withdrawal must be taken indistribution, has significant market power in the relevantaccordance with the procedures laid down underdownstream market where he resells the goods ornational law and will only have effect within theprovides the services.territory of the EEA State concerned. Such national
decisions must not prejudice the uniform application ofthe EEA competition rules and the full effect of the
(74) Responsibility for an anti-competitive cumulative effectmeasures adopted in implementation of those rules (30).can only be attributed to those undertakings whichCompliance with this principle implies that nationalmake an appreciable contribution to it. Agreementscompetition authorities must carry out their assessmententered into by undertakings whose contribution to theunder Article 53 in the light of the relevant criteriacumulative effect is insignificant do not fall under thedeveloped by the EFTA Court, the Court of Justice ofprohibition provided for in Article 53(1) (29) and arethe European Communities and the Court of Firsttherefore not subject to the withdrawal mechanism. TheInstance and in the light of notices and previousassessment of such a contribution will be made indecisions adopted by the European Commission andaccordance with the criteria set out in paragraphs 137the EFTA Surveillance Authority.to 229.
(75) A withdrawal decision can only have ex nunc effect,
which means that the exempted status of the agreements(79) The EFTA Surveillance Authority considers that theconcerned will not be affected until the date at whichconsultation mechanisms provided for in its Notice onthe withdrawal becomes effective.cooperation between national competition authorities
and the EFTA Surveillance Authority (31) should be used
to avert the risk of conflicting decisions and duplication(76) Under Article 7 of the Block Exemption, the competentof procedures.authority of an EEA State may withdraw the benefit of
the Block Exemption in respect of vertical agreementswhose anti-competitive effects are felt in the territory of
the EEA State concerned or a part thereof, which has all
the characteristics of a distinct geographic market.Where an EFTA State has not enacted legislation
enabling the national competition authority to apply (30) Judgment of the Court of Justice of the European Communities
in Case 14/68 Walt Wilhelm and Others v Bundeskartellamt[1969] ECR 1, paragraph 4, and judgment in the Delimitis case.
(31) OJ C 307, 12.12.2000, p. 6 and EEA Supplement to the OJ No 1,
12.12.2000, p. 5, points 49 to 53. (29) Judgment in the Delimitis case.
23.5.2002 EN C 122/19 Official Journal of the European Communities
2. Disapplication of the Block Exemption (84) In assessing the need to apply Article 8, the competent
surveillance authority will consider whether individualwithdrawal would be a more appropriate remedy. This
may depend, in particular, on the number of competing
undertakings contributing to a cumulative effect on amarket or the number of affected geographic markets
(80) Article 8 of the Block Exemption enables the competentwithin the EEA.surveillance authority to exclude from the scope of the
Block Exemption parallel networks of similar vertical
restraints where these cover more than 50 % of arelevant market. Such a measure is not addressed to
individual undertakings but concerns all undertakings
whose agreements are defined in the act disapplying the
Block Exemption.
(85) Any act adopted under Article 8 must clearly set out its
scope. This means, first, that the competent surveillance
authority must define the relevant product and geo-
graphic market(s) and, secondly, that it must identify(81) Whereas the withdrawal of the benefit of the Blockthe type of vertical restraint in respect of which theExemption under Article 6 implies the adoption of aBlock Exemption will no longer apply. As regards thedecision establishing an infringement of Article 53 bylatter aspect, the competent surveillance authority mayan individual company, the effect of an act undermodulate the scope of its disapplication act accordingArticle 8 is merely to remove, in respect of theto the competition concern which it intends to address.restraints and the markets concerned, the benefit of theFor instance, while all parallel networks of single-application of the Block Exemption and to restore thebranding type arrangements shall be taken into accountfull application of Article 53(1) and (3). Following thein view of establishing the 50 % market coverage ratio,adoption of an act declaring the Block Exemptionthe competent surveillance authority may neverthelessinapplicable in respect of certain vertical restraints on arestrict the scope of the disapplication act only to non-particular market, the criteria developed by the relevantcompete obligations exceeding a certain duration. Thus,case-law of the EFTA Court, the Court of Justice of theagreements of a shorter duration or of a less restrictiveEuropean Communities and the Court of First Instancenature might be left unaffected, in consideration ofand by notices and previous decisions adopted bythe lesser degree of foreclosure attributable to suchthe EFTA Surveillance Authority and the Europeanrestraints. Similarly, when on a particular market selec-Commission will guide the application of Article 53 totive distribution is practised in combination withindividual agreements. Where appropriate, the EFTAadditional restraints such as non-compete or quantity-Surveillance Authority will take a decision in an individ-forcing on the buyer, the disapplication act may concernual case which can provide guidance to all the undertak-only such additional restraints. Where appropriate, theings operating on the market concerned.competent surveillance authority may also provide
guidance by specifying the market share level which,
in the specific market context, may be regarded as
insufficient to bring about a significant contribution byan individual undertaking to the cumulative effect.
(82) For the purpose of calculating the 50 % market coverage
ratio, account must be taken of each individual networkof vertical agreements containing restraints, or combi-
nations of restraints, producing similar effects on the
market. Similar effects normally result when therestraints come within one of the four groups listed in
paragraphs 104 to 114.
(86) The transitional period of not less than six months thatthe competent surveillance authority will have to set
under Article 8(2) should allow the undertakings con-cerned to adapt their agreements to take account of the
act disapplying the Block Exemption.
(83) Article 8 does not entail an obligation on the part of the
competent surveillance authority to act where the
50 % market-coverage ratio is exceeded. In general,
disapplication is appropriate when it is likely thataccess to the relevant market or competition therein is
appreciably restricted. This may occur in particular
when parallel networks of selective distribution coveringmore than 50 % of a market make use of selection
criteria which are not required by the nature of the
(87) An act disapplying the Block Exemption will not affect
the exempted status of the agreements concerned for relevant goods or discriminate against certain forms of
distribution capable of selling such goods. the period preceding its entry into force.
C 122/20 EN 23.5.2002 Official Journal of the European Communities
V. MARKET DEFINITION AND MARKET SHARE CALCU- (91) For the application of the Block Exemption, the
LATION ISSUES market share of the supplier is his share on the
relevant product and geographic market on which he
sells to his buyers (33). In the example given in
paragraph 92, this is market A. The product marketdepends in the first place on substitutability from the
buyers’ perspective. When the supplied product is 1. EFTA Surveillance Authority Notice on definition of the
used as an input to produce other products and is relevant market
generally not recognisable in the final product, the
product market is normally defined by the direct
buyers’ preferences. The customers of the buyers will
(88) The EFTA Surveillance Authority Notice on definition normally not have a strong preference concerning the
of the relevant market for the purpose of competition inputs used by the buyers. Usually the vertical
law within the EEA (32) provides guidance on the rules, restraints agreed between the supplier and buyer of
criteria and evidence which the EFTA Surveillance the input only relate to the sale and purchase of the
Authority uses when considering market definition intermediate product and not to the sale of the
issues. That Notice will not be further explained in these resulting product. In the case of distribution of final
Guidelines and should serve as the basis for market goods, what are substitutes for the direct buyers
definition issues. These Guidelines will only deal with will normally be influenced or determined by the
specific issues that arise in the context of vertical preferences of the final consumers. A distributor, as
restraints and that are not dealt with in the general reseller, cannot ignore the preferences of final
notice on market definition. consumers when he purchases final goods. In addition,
at the distribution level the vertical restraints usually
concern not only the sale of products between
supplier and buyer, but also their resale. As differentdistribution formats usually compete, markets are in
general not defined by the form of distribution that is2. The relevant market for calculating the 30 % marketapplied. Where suppliers generally sell a portfolio ofshare threshold under the Block Exemptionproducts, the entire portfolio may determine the
product market when the portfolios and not the
individual products are regarded as substitutes by thebuyers. As the buyers on market A are professional
(89) Under Article 3 of the Block Exemption, it is in general
buyers, the geographic market is usually wider than the market share of the supplier that is decisive for the
the market where the product is resold to final application of the Block Exemption. In the case of
consumers. Often, this will lead to the definition of vertical agreements concluded between an association
national markets or wider geographic markets. of retailers and individual members, the association is
the supplier and needs to take into account its marketshare as a supplier. Only in the case of exclusive supply
as defined in Article 1(c) of the Block Exemption is it
the market share of the buyer, and only that marketshare, which is decisive for the application of the Block
Exemption.
(92) In the case of exclusive supply, the buyer’s market
share is his share of all purchases on the relevant
(90) In order to calculate the market share, it is necessary to purchase market (34). In the example below, this is
determine the relevant market. For this, the relevant also market A.
product market and the relevant geographic market
must be defined. The relevant product market comprises
any goods or services which are regarded by the buyeras interchangeable, by reason of their characteristics,
prices and intended use. The relevant geographic market
comprises the area in which the undertakings concernedare involved in the supply and demand of relevant goods
or services, in which the conditions of competition are
(33) For example, the Dutch market for new replacement truck andsufficiently homogeneous, and which can be dis-bus tyres in the Michelin case (judgment of the Court of Justicetinguished from neighbouring geographic areas because,of the European Communities in Case 322/81 Nederlandschein particular, conditions of competition are appreciablyBanden-Industrie Michelin v Commission [1983] ECR 3461),different in those areas.the various meat markets in the Danish slaughterhouse case:
European Commission Decision 2000/42/EC in Case No IV/M.1313 — Danish Crown/Vestjyske Slagterier, OJ L 20,25.1.2000, p. 1.
(34) For an example of purchase markets, see European Commission
Decision 1999/674/EC in Case No IV/M.1221 — Rewe/Meinl, (32) OJ L 200, 16.7.1998, p. 48 and EEA Supplement to the OJ
No 28, 16.7.1998, p. 3. OJ L 274, 23.10.1999, p. 1.
23.5.2002 EN C 122/21 Official Journal of the European Communities
(93) Where a vertical agreement involves three parties, each (95) Where the vertical agreement, in addition to the supply
of the contract goods, also contains IPR provisions — operating at a different level of trade, their market
shares will have to be below the market share threshold such as a provision concerning the use of the supplier’s
trademark — which help the buyer to market the of 30 % at both levels in order to benefit from the Block
Exemption. If for instance, in an agreement between a contract goods, the supplier’s market share on the
market where he sells the contract goods is decisive for manufacturer, a wholesaler (or association of retailers)
and a retailer, a non-compete obligation is agreed, then the application of the Block Exemption. Where a
franchisor does not supply goods to be resold but the market share of both the manufacturer and the
wholesaler (or association of retailers) must not exceed provides a bundle of services combined with IPR
provisions which together form the business method 30 % in order to benefit from the Block Exemption.
being franchised, the franchisor needs to take account
of his market share as a provider of a business method.For that purpose, the franchisor needs to calculate his
market share on the market where the business method
is exploited, which is the market where the franchiseesexploit the business method to provide goods or services
(94) Where a supplier produces both original equipment andto end users. The franchisor must base his market sharethe repair or replacement parts for this equipment, theon the value of the goods or services supplied by hissupplier will often be the only or the major supplier onfranchisees on this market. On such a market thethe after-market for the repair and replacement parts.competitors may be providers of other franchisedThis may also arise where the supplier (OEM supplier)business methods but also suppliers of substitutablesubcontracts the manufacturing of the repair or replace-goods or services not applying franchising. For instance,ment parts. The relevant market for application of thewithout prejudice to the definition of such market, ifBlock Exemption may be the original equipment marketthere was a market for fast-food services, a franchisorincluding the spare parts or a separate original equip-operating on such a market would need to calculate hisment market and after-market depending on the circum-market share on the basis of the relevant sales figures ofstances of the case, such as the effects of the restrictionshis franchisees on this market. If the franchisor, ininvolved, the lifetime of the equipment and importanceaddition to the business method, also supplies certainof the repair or replacement costs (35).inputs, such as meat and spices, then the franchisor also
needs to calculate his market share on the market where
these goods are sold.
(35) See for example Pelikan/Kyocera in European Commission
XXV Report on Competition Policy, point 87, and European
3. The relevant market for individual assessment Commission Decision 91/595/EEC in Case No IV/M.12 — Varta/
Bosch, OJ L 320, 22.11.1991, p. 26, Commission Decision inCase No IV/M.1094 — Caterpillar/Perkins Engines, OJ C 94,28.3.1998, p. 23, and Commission Decision in Case No IV/M.768 — Lucas/Varity, OJ C 266, 13.9.1996, p. 6. See also(96)
For individual assessment of vertical agreements notEastman Kodak Co v Image Technical Services, Inc et al, Supreme
covered by the Block Exemption, additional markets Court of the United States, No. 90 1029. See also point 56 of
may need to be investigated besides the relevant market the EFTA Surveillance Authority’s Notice on the definition of
relevant market for the purpose of EEA competition law. defined for the application of the Block Exemption. A
C 122/22 EN 23.5.2002 Official Journal of the European Communities
vertical agreement may not only have effects on the mally reduce possible anti-competitive effects on
the after-market. market between supplier and buyer but may also have
effects on downstream markets. For an individual
assessment of a vertical agreement the relevant markets
at each level of trade affected by restraints contained inthe agreement will be examined:
4. Calculation of the market share under the Block Exemp-
tion
(97) The calculation of the market share needs to be basedin principle on value figures. Where value figures are(i) For ‘intermediate goods or services’ that are incor-not available substantiated estimates can be made.porated by the buyer into his own goods orSuch estimates may be based on other reliable marketservices, vertical restraints generally have effectsinformation such as volume figures (see Article 9(1) ofonly on the market between supplier and buyer. Athe Block Exemption).non-compete obligation imposed on the buyer for
instance may foreclose other suppliers but will notlead to reduced in-store competition downstream.
However, in cases of exclusive supply the position
(98) In-house production, that is production of an intermedi-of the buyer on his downstream market is alsoate product for own use, may be very important in arelevant because the buyer’s foreclosing behaviourcompetition analysis as one of the competitive con-may only have appreciable negative effects if hestraints or to accentuate the market position of ahas market power on the downstream market.company. However, for the purpose of market defi-
nition and the calculation of market share for intermedi-
ate goods and services, in-house production will not be
taken into account.
(99) However, in the case of dual distribution of final goods, (ii) For ‘final products’ an analysis limited to the
i.e. where a producer of final goods also acts as a market between supplier and buyer is less likely to
distributor on the market, the market definition and be sufficient since vertical restraints may have
market share calculation need to include the goods sold negative effects of reduced inter-brand and/or
by the producer and competing producers through their intra-brand competition on the resale market, that
integrated distributors and agents (see Article 9(2)(b) is on the market downstream of the buyer. For
of the Block Exemption). ‘Integrated distributors’ are instance, exclusive distribution may not only lead
connected undertakings within the meaning of to foreclosure effects on the market between the
Article 11 of the Block Exemption. supplier and the buyer, but may above all lead to
less intra-brand competition in the resale territoriesof the distributors. The resale market is in particular
important if the buyer is a retailer selling to
final consumers. A non-compete obligation agreedbetween a manufacturer and a wholesaler may
VI. ENFORCEMENT POLICY IN INDIVIDUAL CASESforeclose this wholesaler to other manufacturers
but a loss of in-store competition is not verylikely at the wholesale level. The same agreement
concluded with a retailer may however cause this
(100) Vertical restraints are generally less harmful than hori-
added loss of in-store inter-brand competition on zontal restraints. The main reason for treating a vertical
the resale market. restraint more leniently than a horizontal restraint lies
in the fact that the latter may concern an agreementbetween competitors producing identical or substitut-
able goods or services. In such horizontal relationships
the exercise of market power by one company (higherprice of its product) may benefit its competitors. This
may provide an incentive to competitors to induce
each other to behave anti-competitively. In vertical (iii) In cases of individual assessment of an ‘after-
market’, the relevant market may be the original relationships the product of the one is the input for the
other. This means that the exercise of market power by equipment market or the after-market depending
on the circumstances of the case. In any event, either the upstream or downstream company would
normally hurt the demand for the product of the other. the situation on a separate after-market will be
evaluated taking account of the situation on the The companies involved in the agreement therefore
usually have an incentive to prevent the exercise of original equipment market. A less significant pos-
ition on the original equipment market will nor- market power by the other.
23.5.2002 EN C 122/23 Official Journal of the European Communities
(101) However, this self-restraining character should not be (104) Such negative effects may result from various vertical
restraints. Agreements which are different in form may over-estimated. When a company has no market power
it can only try to increase its profits by optimising have the same substantive impact on competition. To
analyse these possible negative effects, it is appropriate its manufacturing and distribution processes, with or
without the help of vertical restraints. However, when to divide vertical restraints into four groups: a single
branding group, a limited distribution group, a resale it does have market power it can also try to increase its
profits at the expense of its direct competitors by raising price maintenance group and a market partitioning
group. The vertical restraints within each group have their costs and at the expense of its buyers and
ultimately consumers by trying to appropriate some of largely similar negative effects on competition.
their surplus. This can happen when the upstream and
downstream company share the extra profits or whenone of the two uses vertical restraints to appropriate all
the extra profits.
(105) The classification into four groups is based upon what
can be described as the basic components of vertical
restraints. In paragraphs 103 to 136, the four different
groups are analysed. In paragraphs 137 to 229, vertical (102) In the assessment of individual cases in respect of which
agreements are analysed as they are used in practice it has jurisdiction, the EFTA Surveillance Authority will
because many vertical agreements make use of more adopt an economic approach in the application of
than one of these components. Article 53 to vertical restraints. This will limit the scope
of application of Article 53 to undertakings holding a
certain degree of market power where inter-brandcompetition may be insufficient. In those cases, the
protection of inter-brand and intra-brand competition
is important to ensure efficiencies and benefits forconsumers.
Single branding group
(106) Under the heading of ‘single branding’ come those1. The framework of analysisagreements which have as their main element that the
buyer is induced to concentrate his orders for aparticular type of product with one supplier. This
component can be found amongst others in non-
compete and quantity-forcing on the buyer, where an
1.1. Negative effects of vertical restraints obligation or incentive scheme agreed between the
supplier and the buyer makes the latter purchase his
requirements for a particular product and its substitutes
(103) The negative effects on the market that may result from only, or mainly, from one supplier. The same com-vertical restraints which EEA competition law aims at ponent can be found in tying, where the obligation or
preventing are the following: incentive scheme relates to a product that the buyer is
required to purchase as a condition of purchasing
another distinct product. The first product is referred to
as the ‘tied’product and the second is referred to as the (i) foreclosure of other suppliers or other buyers by
‘tying’ product. raising barriers to entry;
(ii) reduction of inter-brand competition between the
companies operating on a market, including facili-
(107) There are four main negative effects on competition: (1)tation of collusion amongst suppliers or buyers; byother suppliers in that market cannot sell to thecollusion is meant both explicit collusion and tacitparticular buyers and this may lead to foreclosure of thecollusion (conscious parallel behaviour);market or, in the case of tying, to foreclosure of the
market for the tied product; (2) it makes market shares
more rigid and this may help collusion when applied by
(iii) reduction of intra-brand competition between dis- several suppliers; (3) as far as the distribution of final
tributors of the same brand; goods is concerned, the particular retailers will only sell
one brand and there will therefore be no inter-brand
competition in their shops (no in-store competition);and (4) in the case of tying, the buyer may pay a higher (iv) the creation of obstacles to market integration,
including, above all, limitations on the freedom of price for the tied product than he would otherwise do.
All these effects may lead to a reduction in inter-brand consumers to purchase goods or services in any
EEA State they may choose. competition.
C 122/24 EN 23.5.2002 Official Journal of the European Communities
(108) The reduction in inter-brand competition may be Resale price maintenance group
mitigated by strong initial competition between sup-pliers to obtain the single branding contracts, but the
longer the duration of the non-compete obligation, the
more likely it will be that this effect will not be strongenough to compensate for the reduction in inter-brand
competition.
(111) Under the heading of ‘resale price maintenance’ (RPM)
come those agreements whose main element is that the
buyer is obliged or induced to resell not below a certain
price, at a certain price or not above a certain price.This group comprises minimum, fixed, maximum and
recommended resale prices. Maximum and recommend- Limited distribution group
ed resale prices, which are not hardcore restrictions,
may still lead to a restriction of competition by effect.
(109) Under the heading of ‘limited distribution’ come thoseagreements which have as their main element that the
manufacturer sells to only one or a limited number ofbuyers. This may be to restrict the number of buyers for
a particular territory or group of customers, or to select
(112) There are two main negative effects of RPM on compe-a particular kind of buyers. This component can betition: (1) a reduction in intra-brand price competition,found amongst others in:and (2) increased transparency on prices. In the case of
fixed or minimum RPM, distributors can no longer
compete on price for that brand, leading to a totalelimination of intra-brand price competition. A— exclusive distribution and exclusive customer allo-maximum or recommended price may work as a focalcation, where the supplier limits his sales to onlypoint for resellers, leading to a more or less uniformone buyer for a certain territory or class ofapplication of that price level. Increased transparencycustomers;on price and responsibility for price changes makes
horizontal collusion between manufacturers or distribu-
tors easier, at least in concentrated markets. The
reduction in intra-brand competition may, as it leads to— exclusive supply and quantity-forcing on the sup-less downward pressure on the price for the particularplier, where an obligation or incentive schemegoods, have as an indirect effect a reduction of inter-agreed between the supplier and the buyer makesbrand competition.the former sell only or mainly to one buyer;
— selective distribution, where the conditions
imposed on or agreed with the selected dealers
usually limit their number;
Market partitioning group— after-market sales restrictions which limit the com-
ponent supplier’s sales possibilities.
(110) There are three main negative effects on competition:
(1) certain buyers within that market can no longer buy (113) Under the heading of ‘market partitioning’ come agree-
ments whose main element is that the buyer is restricted from that particular supplier, and this may lead in
particular in the case of exclusive supply, to foreclosure in where he either sources or resells a particular product.
This component can be found in exclusive purchasing, of the purchase market, (2) when most or all of the
competing suppliers limit the number of retailers, this where an obligation or incentive scheme agreed between
the supplier and the buyer makes the latter purchase his may facilitate collusion, either at the distributor’s level
or at the supplier’s level, and (3) since fewer distributors requirements for a particular product, for instance beer
of brand X, exclusively from the designated supplier, will offer the product it will also lead to a reduction of
intra-brand competition. In the case of wide exclusive but leaving the buyer free to buy and sell competing
products, for instance competing brands of beer. It also territories or exclusive customer allocation the result
may be total elimination of intra-brand competition. includes territorial resale restrictions, the allocation of
an area of primary responsibility, restrictions on the This reduction of intra-brand competition can in turn
lead to a weakening of inter-brand competition. location of a distributor and customer resale restrictions.
23.5.2002 EN C 122/25 Official Journal of the European Communities
(114) The main negative effect on competition is a reduction supplier to impose on all buyers, by contract,
of intra-brand competition that may help the supplier to effective service requirements concerning pre-sales
partition the market and thus hinder market integration. services.
This may facilitate price discrimination. When most or
all of the competing suppliers limit the sourcing orresale possibilities of their buyers this may facilitate
collusion, either at the distributors’ level or at the
suppliers’ level.
Free-riding between suppliers is also restricted to
specific situations, namely in cases where thepromotion takes place at the buyer’s premises andis generic, not brand specific.
1.2. Positive effects of vertical restraints
(115) It is important to recognise that vertical restraints often
have positive effects by, in particular, promoting non-
price competition and improved quality of services.
When a company has no market power, it can only tryto increase its profits by optimising its manufacturing2) To ‘open up or enter new markets’. Where aor distribution processes. In a number of situationsmanufacturer wants to enter a new geographicvertical restraints may be helpful in this respect sincemarket, for instance by exporting to anotherthe usual arm’s length dealings between supplier andcountry for the first time, this may involve specialbuyer, determining only price and quantity of a certain‘first time investments’ by the distributor to estab-transaction, can lead to a sub-optimal level of invest-lish the brand in the market. In order to persuadements and sales.a local distributor to make these investments it
may be necessary to provide territorial protectionto the distributor so that he can recoup these
investments by temporarily charging a higherprice. Distributors based in other markets should
(116) While trying to give a fair overview of the variousthen be restrained for a limited period from sellingjustifications for vertical restraints, these Guidelines doin the new market. This is a special case of thenot claim to be complete or exhaustive. The following
free-rider problem described under point 1. reasons may justify the application of certain vertical
restraints:
1) To ‘solve a “free-rider” problem’. One distributor
may free-ride on the promotion efforts of another
distributor. This type of problem is most commonat the wholesale and retail level. Exclusive distri-
bution or similar restrictions may be helpful in
avoiding such free-riding. Free-riding can also3) The ‘certification free-rider issue’. In some sectors,occur between suppliers, for instance where onecertain retailers have a reputation for stocking onlyinvests in promotion at the buyer’s premises, in‘quality’ products. In such a case, selling throughgeneral at the retail level, that may also attractthese retailers may be vital for the introduction ofcustomers for its competitors. Non-compete typea new product. If the manufacturer cannot initiallyrestraints can help to overcome this situation oflimit his sales to the premium stores, he runs thefree-riding. For there to be a problem, there needs
risk of being de-listed and the product introduction to be a real free-rider issue. Free-riding between
may fail. This means that there may be a reason buyers can only occur on pre-sales services and
for allowing for a limited duration a restriction not on after-sales services. The product will usually
such as exclusive distribution or selective distri- need to be relatively new or technically complex
bution. It must be enough to guarantee the intro- as the customer may otherwise very well know
duction of the new product but not so long as to what he or she wants, based on past purchases.
hinder large-scale dissemination. Such benefits are And the product must be of a reasonably high
more likely with ‘experience’ goods or complex value as it is otherwise not attractive for a customer
goods that represent a relatively large purchase for to go to one shop for information and to another
to buy. Lastly, it must not be practical for the the final consumer.
C 122/26 EN 23.5.2002 Official Journal of the European Communities
4) The so-called ‘hold-up problem’. Sometimes there 6) ‘Economies of scale in distribution’. In order to
have scale economies exploited and thereby see a are client-specific investments to be made by either
the supplier or the buyer, such as in special lower retail price for his product, the manufacturer
may want to concentrate the resale of his products equipment or training. For instance, a component
manufacturer that has to build new machines and on a limited number of distributors. For this he
could use exclusive distribution, quantity forcing tools in order to satisfy a particular requirement of
one of his customers. The investor may not in the form of a minimum purchasing requirement,
selective distribution containing such a require- commit the necessary investments before particu-
lar supply arrangements are fixed. ment or exclusive purchasing.
However, as in the other free-riding examples,
there are a number of conditions that have to be 7) ‘Capital market imperfections’. The usual providers
met before the risk of under-investment is real of capital (banks, equity markets) may provide
or significant. Firstly, the investment must be capital sub-optimally when they have imperfect
relationship-specific. An investment made by the information on the quality of the borrower or
supplier is considered to be relationship-specific there is an inadequate basis to secure the loan. The
when, after termination of the contract, it cannot buyer or supplier may have better information and
be used by the supplier to supply other customers be able, through an exclusive relationship, to
and can only be sold at a significant loss. An obtain extra security for his investment. Where the
investment made by the buyer is considered to be supplier provides the loan to the buyer this may
relationship-specific when, after termination of the lead to non-compete or quantity forcing on the
contract, it cannot be used by the buyer to purchase buyer. Where the buyer provides the loan to the
and/or use products supplied by other suppliers supplier this may be the reason for having exclusive
and can only be sold at a significant loss. An supply or quantity forcing on the supplier.
investment is thus relationship-specific because for
instance it can only be used to produce a brand-specific component or to store a particular brand
and thus cannot be used profitably to produce or
resell alternatives. Secondly, it must be a long-terminvestment that is not recouped in the short run.
And thirdly, the investment must be asymmetric;
i.e. one party to the contract invests more than the8) ‘Uniformity and quality standardisation’. A verticalother party. When these conditions are met, thererestraint may help to increase sales by creating ais usually a good reason to have a vertical restraintbrand image and thereby increasing the attractive-for the duration it takes to depreciate the invest-ness of a product to the final consumer byment. The appropriate vertical restraint will be ofimposing a certain measure of uniformity andthe non-compete type or quantity-forcing typequality standardisation on the distributors. Thiswhen the investment is made by the supplier andcan for instance be found in selective distributionof the exclusive distribution, exclusive customerand franchising.allocation or exclusive supply type when the
investment is made by the buyer.
(117) The eight situations mentioned in paragraph 116 makeclear that under certain conditions vertical agreements 5) The ‘specific hold-up problem that may arise in the
case of transfer of substantial know-how’. The are likely to help realise efficiencies and the development
of new markets and that this may offset possible know-how, once provided, cannot be taken back
and the provider of the know-how may not want negative effects. The case is in general strongest for
vertical restraints of a limited duration which help the it to be used for or by his competitors. In as far as
the know-how was not readily available to the introduction of new complex products or protect
relationship-specific investments. A vertical restraint is buyer, is substantial and indispensable for the
operation of the agreement, such a transfer may sometimes necessary for as long as the supplier sells his
product to the buyer (see in particular the situations justify a non-compete type of restriction. This
would normally fall outside Article 53(1). described in paragraph 116, points 1, 5, 6 and 8).
23.5.2002 EN C 122/27 Official Journal of the European Communities
(118) There is a large measure of substitutability between the ful when more efficient distributors or distributors
with a different distribution format are foreclosed. different vertical restraints. This means that the same
inefficiency problem can be solved by different vertical This can reduce innovation in distribution and
denies consumers the particular service or price- restraints. For instance, economies of scale in distri-
bution may possibly be achieved by using exclusive service combination of these distributors.distribution, selective distribution, quantity forcing or
exclusive purchasing. This is important as the negative
effects on competition may differ between the variousvertical restraints. This plays a role when indispensa-
bility is discussed under Article 53(3).
4) Exclusive dealing arrangements are generally worse
for competition than non-exclusive arrangements.1.3. General rules for the evaluation of vertical restraintsExclusive dealing makes, by the express language
of the contract or its practical effects, one party
fulfil all or practically all its requirements from
another party. For instance, under a non-competeobligation the buyer purchases only one brand.
(119) In evaluating vertical restraints from a competitionQuantity forcing, on the other hand, leaves thepolicy perspective, some general rules can be formu-buyer some scope to purchase competing goods.lated:The degree of foreclosure may therefore be less
with quantity forcing.
1) For most vertical restraints competition concerns
can only arise if there is insufficient inter-brand
competition, i.e. if there exists a certain degree of
market power at the level of the supplier or thebuyer or both. Conceptually, market power is the
power to raise price above the competitive level
and, at least in the short term, to obtain supra-normal profits. Companies may have market pow- 5) Vertical restraints agreed for non-branded goods
er below the level of market dominance, which is and services are in general less harmful than
the threshold for the application of Article 54. restraints affecting the distribution of branded
Where there are many firms competing in an goods and services. Branding tends to increase
unconcentrated market, it can be assumed that product differentiation and reduce substitutability
non-hardcore vertical restraints will not have of the product, leading to a reduced elasticity of
appreciable negative effects. A market is deemed demand and an increased possibility to raise price.
unconcentrated when the HHI index, i.e. the sum The distinction between branded and non-branded
of the squares of the individual market shares of goods or services will often coincide with the
all companies in the relevant market, is below distinction between intermediate goods and ser-
1 000. vices and final goods and services. Intermediate
goods and services are sold to undertakings for useas an input to produce other goods or services and
are generally not recognisable in the final goods or
2) Vertical restraints which reduce inter-brand com- services. The buyers of intermediate products are
petition are generally more harmful than vertical usually well-informed customers, able to assess
restraints that reduce intra-brand competition. For quality and therefore less reliant on brand and
instance, non-compete obligations are likely to image. Final goods are, directly or indirectly, sold
have more net negative effects than exclusive to final consumers who often rely more on brand
distribution. The former, by possibly foreclosing and image. As distributors (retailers, wholesalers)
the market to other brands, may prevent those have to respond to the demand of final consumers,
brands from reaching the market. The latter, while competition may suffer more when distributors
limiting intra-brand competition, does not prevent are foreclosed from selling one or a number of
goods from reaching the final consumer. brands than when buyers of intermediate products
are prevented from buying competing products
from certain sources of supply. The undertakings
buying intermediate goods or services normallyhave specialist departments or advisers who moni- 3) Vertical restraints from the limited distribution
group, in the absence of sufficient inter-brand tor developments in the supply market. Because
they effect sizeable transactions, search costs are in competition, may significantly restrict the choices
available to consumers. They are particularly harm- general not prohibitive. A loss of intra-brand
C 122/28 EN 23.5.2002 Official Journal of the European Communities
competition is therefore less important at the with a limited customer group, the distributors
appointed to sell the new product on the test intermediate level.
market can be restricted in their active selling
outside the test market for a maximum period of
1 year without being caught by Article 53(1).
6) In general, a combination of vertical restraints
aggravates their negative effects. However, certain
combinations of vertical restraints are better for
1.4. Methodology of analysis competition than their use in isolation from each
other. For instance, in an exclusive distribution
system, the distributor may be tempted to increase(120) The assessment of a vertical restraint involves in generalthe price of the products as intra-brand compe-the following four steps:tition has been reduced. The use of quantity forcing
or the setting of a maximum resale price may limitsuch price increases.1) First, the undertakings involved need to define the
relevant market in order to establish the marketshare of the supplier or the buyer, depending on
the vertical restraint involved (see paragraphs 88
to 99, in particular 89 to 95). 7) Possible negative effects of vertical restraints are
reinforced when several suppliers and their buyers
organise their trade in a similar way. These so-2) If the relevant market share does not exceed thecalled cumulative effects may be a problem in a30 % threshold, the vertical agreement is coverednumber of sectors.by the Block Exemption, subject to the hardcore
restrictions and conditions set out in that act.
8) The more the vertical restraint is linked to the 3) If the relevant market share is above the 30 %
transfer of know-how, the more reason there may threshold, it is necessary to assess whether the
be to expect efficiencies to arise and the more a vertical agreement falls within Article 53(1).
vertical restraint may be necessary to protect the
know-how transferred or the investment costs
4) If the vertical agreement falls within Article 53(1), incurred.
it is necessary to examine whether it fulfils the
conditions for exemption under Article 53(3).
9) The more the vertical restraint is linked to invest-
ments which are relationship-specific, the more 1.4.1. R elevant factors for the assessment
justification there is for certain vertical restraints. under Article 53(1)
The justified duration will depend on the time
necessary to depreciate the investment.
(121) In assessing cases above the market share threshold of30 %, the EFTA Surveillance Authority will make a full
competition analysis. The following factors are the most
important to establish whether a vertical agreement10) In the case of a new product, or where an existingbrings about an appreciable restriction of competitionproduct is sold for the first time on a differentunder Article 53(1):geographic market, it may be difficult for the
company to define the market or its market sharemay be very high. However, this should not bea) market position of the supplier;considered a major problem, as vertical restraints
linked to opening up new product or geographicmarkets in general do not restrict competition. b) market position of competitors;
c) market position of the buyer;This rule holds, irrespective of the market share of
the company, for two years after the first puttingon the market of the product. It applies to all non-d) entry barriers;hardcore vertical restraints and, in the case of a
new geographic market, to restrictions on activeand passive sales imposed on the direct buyers of e) maturity of the market;
the supplier located in other markets to intermedi-
aries in the new market. In the case of genuinetesting of a new product in a limited territory or f) level of trade;
23.5.2002 EN C 122/29 Official Journal of the European Communities
g) nature of the product; restraints from the limited distribution and market
partitioning groups such as exclusive supply, exclusivedistribution and quantitative selective distribution.h) other factors.
(122) The importance of individual factors may vary from
case to case and depends on all other factors. Forinstance, a high market share of the supplier is usually
a good indicator of market power, but in the case of Entry barriers
low entry barriers it may not indicate market power. It
is therefore not possible to provide strict rules on the
importance of the individual factors. However the
following can be said:
(126) Entry barriers are measured by the extent to which
incumbent companies can increase their price above the
competitive level, usually above minimum average total
Market position of the supplier cost, and make supra-normal profits without attracting
entry. Without any entry barriers, easy and quick entry
would eliminate such profits. In as far as effective entry,(123) The market position of the supplier is established firstwhich would prevent or erode the supra-normal profits,and foremost by his market share on the relevantis likely to occur within one or two years, entry barriersproduct and geographic market. The higher his marketcan be said to be low.share, the greater his market power is likely to be. The
market position of the supplier is further strengthened
if he has certain cost advantages over his competitors.These competitive advantages may result from a first
(127) Entry barriers may result from a wide variety of factors mover advantage (having the best site, etc.), holding
such as economies of scale and scope, government essential patents, having superior technology, being the
regulations, especially where they establish exclusive brand leader or having a superior portfolio.
rights, state aid, import tariffs, intellectual property
rights, ownership of resources where the supply is
limited due to for instance natural limitations, (36)
Market position of competitors essential facilities, a first mover advantage and brand
loyalty of consumers created by strong advertising.
Vertical restraints and vertical integration may also(124) The same indicators, that is market share and possiblework as an entry barrier by making access more difficultcompetitive advantages, are used to describe the marketand foreclosing (potential) competitors. Entry barriersposition of competitors. The stronger the establishedmay be present at only the supplier or buyer level or atcompetitors are and the greater their number, the lessboth levels.risk there is that the supplier or buyer in question will
be able to foreclose the market individually and the lessthere is a risk of a reduction of inter-brand competition.
However, if the number of competitors becomes rather
(128) The question whether certain of these factors should be small and their market position (size, costs, R&D
described as entry barriers depends on whether they are potential, etc.) is rather similar, this market structure
related to sunk costs. Sunk costs are those costs that may increase the risk of collusion. Fluctuating or rapidly
have to be incurred to enter or be active on a market changing market shares are in general an indication of
but that are lost when the market is exited. Advertising intense competition.
costs to build consumer loyalty are normally sunk costs,
unless an exiting firm could either sell its brand name
or use it somewhere else without a loss. The more costsMarket position of the buyerare sunk, the more potential entrants have to weigh the
risks of entering the market and the more credibly
incumbents can threaten that they will match new(125) Buying power derives from the market position of thecompetition, as sunk costs make it costly for incumbentsbuyer. The first indicator of buying power is the marketto leave the market. If, for instance, distributors are tiedshare of the buyer on the purchase market. This shareto a manufacturer via a non-compete obligation, thereflects the importance of his demand for his possibleforeclosing effect will be more significant if setting upsuppliers. Other indicators focus on the market position
of the buyer on his resale market including character-
istics such as a wide geographic spread of his outlets,
own brands of the buyer/distributor and his imageamongst final consumers. The effect of buying power
on the likelihood of anti-competitive effects is not thesame for the different vertical restraints. Buying power
(36) See Commission Decision 97/26/EC (Case No. IV/M.619 —
Gencor/Lonrho), (OJ L 11, 14.1.1997, p. 30). may in particular increase the negative effects in case of
C 122/30 EN 23.5.2002 Official Journal of the European Communities
its own distributors will impose sunk costs on the indicate or facilitate collusion like price leadership, pre-
announced price changes and discussions on the ‘right’ potential entrant.
price, price rigidity in response to excess capacity, price
discrimination and past collusive behaviour.
(129) In general, entry requires sunk costs, sometimes minorand sometimes major. Therefore, actual competition is
in general more effective and will weigh more in theassessment of a case than potential competition.1.4.2. R elevant factors for the assessment
under Article 53(3)
Maturity of the market
(134) There are four cumulative conditions for the application
of Article 53(3):
(130) A mature market is a market that has existed for some
time, where the technology used is well known and— the vertical agreement must contribute to improv-widespread and not changing very much, where thereing production or distribution or to promotingare no major brand innovations and in which demandtechnical or economic progress;is relatively stable or declining. In such a market negative
effects are more likely than in more dynamic markets.
— the vertical agreement must allow consumers a fair
share of these benefits;
Level of trade
— the vertical agreement must not impose on the
undertakings concerned vertical restraints which(131) The level of trade is linked to the distinction betweenare not indispensable to the attainment of theseintermediate and final goods and services. As indicatedbenefits;earlier, negative effects are in general less likely at the
level of intermediate goods and services.
— the vertical agreement must not afford such under-
takings the possibility of eliminating competitionin respect of a substantial part of the products in
Nature of the product question.
(132) The nature of the product plays a role in particular for(135) The last criterion of elimination of competition for afinal products in assessing both the likely negative andsubstantial part of the products in question is related tothe likely positive effects. When assessing the likelythe question of dominance. Where an undertaking isnegative effects, it is important whether the products ondominant or becoming dominant as a consequence ofthe market are more homogeneous or heterogeneous,the vertical agreement, a vertical restraint that haswhether the product is expensive, taking up a large partappreciable anti-competitive effects can in principle notof the consumer’s budget, or is inexpensive and whetherbe exempted. The vertical agreement may however fallthe product is a one-off purchase or repeatedly pur-outside Article 53(1) if there is an objective justification,chased. In general, when the product is more hetero-for instance if it is necessary for the protection ofgeneous, less expensive and resembles more a one-offrelationship-specific investments or for the transfer ofpurchase, vertical restraints are more likely to havesubstantial know-how without which the supply ornegative effects.purchase of certain goods or services would not take
place.
Other factors (136) Where the supplier and the buyer are not dominant,
the other three criteria become important. The first,
concerning the improvement of production or distri-
bution and the promotion of technical or economic (133) In the assessment of particular restraints other factorsmay have to be taken into account. Among these factors progress, refers to the type of efficiencies described in
paragraphs 115 to 118. These efficiencies have to be can be the cumulative effect, i.e. the coverage of the
market by similar agreements, the duration of the substantiated and must produce a net positive effect.
Speculative claims on avoidance of free-riding or general agreements, whether the agreement is ‘imposed’ (mainly
one party is subject to the restrictions or obligations) or statements on cost savings will not be accepted. Cost
savings that arise from the mere exercise of market ‘agreed’ (both parties accept restrictions or obligations),
the regulatory environment and behaviour that may power or from anti-competitive conduct cannot be
23.5.2002 EN C 122/31 Official Journal of the European Communities
accepted. Secondly, economic benefits have to favour (139) Single branding is exempted by the Block Exemption
when the supplier’s market share does not exceed 30 % not only the parties to the agreement, but also the
consumer. Generally the transmission of the benefits to and subject to a limitation in time of five years for
the non-compete obligation. Above the market share consumers will depend on the intensity of competition
on the relevant market. Competitive pressures will threshold or beyond the time limit of five years, the
following guidance is provided for the assessment of normally ensure that cost-savings are passed on by way
of lower prices or that companies have an incentive to individual cases.
bring new products to the market as quickly as possible.Therefore, if sufficient competition which effectively
constrains the parties to the agreement is maintained
on the market, the competitive process will normallyensure that consumers receive a fair share of the
(140) The ‘market position of the supplier’ is of main import- economic benefits. The third criterion will play a role in
ance to assess possible anti-competitive effects of non- ensuring that the least anti-competitive restraint is
compete obligations. In general, this type of obligation chosen to obtain certain positive effects.
is imposed by the supplier and the supplier has similar
agreements with other buyers.
(141) It is not only the market position of the supplier that isof importance but also the extent to and the duration
for which he applies a non-compete obligation. The
2. Analysis of specific vertical restraints higher his tied market share, i.e. the part of his market
share sold under a single branding obligation, the more
significant foreclosure is likely to be. Similarly, thelonger the duration of the non-compete obligations, the
more significant foreclosure is likely to be. Non-compete
obligations shorter than one year entered into by non-dominant companies are in general not considered to
(137) Vertical agreements may contain a combination of
give rise to appreciable anti-competitive effects or net two or more of the components of vertical restraints
negative effects. Non-compete obligations between one described in paragraphs 103 to 114. The most common
and five years entered into by non-dominant companies vertical restraints and combinations of vertical restraints
usually require a proper balancing of pro- and anti- are analysed below following the methodology of
competitive effects, while non-compete obligations analysis developed in paragraphs 120 to 136.
exceeding five years are for most types of investments
not considered necessary to achieve the claimedefficiencies or the efficiencies are not sufficient to
outweigh their foreclosure effect. Dominant companies
may not impose non-compete obligations on theirbuyers unless they can objectively justify such commer-
cial practice within the context of Article 54.
2.1. Single branding
(142) In assessing the supplier’s market power, the ‘market
position of his competitors’ is important. As long as the
competitors are sufficiently numerous and strong, noappreciable anti-competitive effects can be expected. It
(138) A non-compete arrangement is based on an obligation
or incentive scheme which makes the buyer purchase is only likely that competing suppliers will be foreclosed
if they are significantly smaller than the supplier apply- practically all his requirements on a particular market
from only one supplier. It does not mean that the buyer ing the non-compete obligation. Foreclosure of com-
petitors is not very likely where they have similar can only buy directly from the supplier, but that the
buyer will not buy and resell or incorporate competing market positions and can offer similarly attractive
products. In such a case foreclosure may however occur goods or services. The possible competition risks are
foreclosure of the market to competing suppliers and for potential entrants when a number of major suppliers
enter into non-compete contracts with a significant potential suppliers, facilitation of collusion between
suppliers in case of cumulative use and, where the buyer number of buyers on the relevant market (cumulative
effect situation). This is also a situation where non- is a retailer selling to final consumers, a loss of in-store
inter-brand competition. All three restrictive effects compete agreements may facilitate collusion between
competing suppliers. If individually these suppliers are have a direct impact on inter-brand competition.
C 122/32 EN 23.5.2002 Official Journal of the European Communities
covered by the Block Exemption, a withdrawal of the on the market. The stronger his dominance, the higher
the risk of foreclosure of other competitors. Block Exemption may be necessary to deal with such a
negative cumulative effect. A tied market share of less
than 5 % is not considered in general to contribute
significantly to a cumulative foreclosure effect.
(147) Where the agreement concerns supply of a final product
at the wholesale level, the question whether a compe-(143) In cases where the market share of the largest suppliertition problem is likely to arise below the level ofis below 30 % and the market share of the five largestdominance depends in large part on the type ofsuppliers (concentration rate CR5) is below 50 %,wholesaling and the entry barriers at the wholesale level.there is unlikely to be a single or a cumulative anti-There is no real risk of foreclosure if competingcompetitive effect situation. If a potential entrant cannotmanufacturers can easily establish their own wholesal-penetrate the market profitably, this is likely to be dueing operation. Whether entry barriers are low dependsto factors other than non-compete obligations, suchin part on the type of wholesaling, i.e. whether or notas consumer preferences. A competition problem iswholesalers can operate efficiently with only the productunlikely to arise when, for instance, 50 companies, ofconcerned by the agreement (for example ice cream) orwhich none has an important market share, competewhether it is more efficient to trade in a whole range offiercely on a particular market.products (for example frozen foodstuffs). In the latter
case, it is not efficient for a manufacturer selling only
one product to set up his own wholesaling operation.
In that case anti-competitive effects may arise below the
level of dominance. In addition, cumulative effectproblems may arise if several suppliers tie most of the
(144) ‘Entry barriers’ are important to establish whether there available wholesalers.
is real foreclosure. Wherever it is relatively easy for
competing suppliers to create new buyers or find
alternative buyers for the product, foreclosure is unlikelyto be a real problem. However, there are often entry
barriers, both at the manufacturing and at the distri-
bution level.
(148) For final products, foreclosure is in general more likelyto occur at the retail level, given the significant entry
barriers for most manufacturers to start retail outlets
just for their own products. In addition, it is at the retaillevel that non-compete agreements may lead to reduced
(145) ‘Countervailing power’ is relevant, as powerful buyersin-store inter-brand competition. It is for these reasonswill not easily allow themselves to be cut off from thethat for final products at the retail level, significant anti-supply of competing goods or services. Foreclosurecompetitive effects may start to arise, taking intowhich is not based on efficiency and which has harmfulaccount all other relevant factors, if a non-dominanteffects on ultimate consumers is therefore mainly a risksupplier ties 30 % or more of the relevant market. For ain the case of dispersed buyers. However, where non-dominant company, even a modest tied market sharecompete agreements are concluded with major buyersmay already lead to significant anti-competitive effects.this may have a strong foreclosure effect.The stronger its dominance, the higher the risk of
foreclosure of other competitors.
(146) Lastly, ‘the level of trade’ is relevant for foreclosure.Foreclosure is less likely in case of an intermediateproduct. When the supplier of an intermediate product
is not dominant, the competing suppliers still have a
(149) At the retail level a cumulative foreclosure effect may
also arise. When all companies have market shares substantial part of demand that is ‘free’. Below the level
of dominance a serious foreclosure effect may however below 30 % a cumulative foreclosure effect is unlikely if
the total tied market share is less than 40 % and arise for actual or potential competitors where there is
a cumulative effect. A serious cumulative effect is withdrawal of the Block Exemption is therefore unlikely.
This figure may be higher when other factors like the unlikely to arise as long as less than 50 % of the market
is tied. When the supplier is dominant, any obligation number of competitors, entry barriers etc. are taken
into account. When not all companies have market to buy the products only or mainly from the dominant
supplier may easily lead to significant foreclosure effects shares below the threshold of the Block Exemption but
23.5.2002 EN C 122/33 Official Journal of the European Communities
none is dominant, a cumulative foreclosure effect is (capital market imperfections) may be particularly rel-
evant. unlikely if the total tied market share is below 30 %.
(154) In the case of an efficiency as described in para-
graph 116, points 1, 4 and 7, quantity forcing on the
(150) Where the buyer operates from premises and land buyer could possibly be a less restrictive alternative. A
owned by the supplier or leased by the supplier from a non-compete obligation may be the only viable way to
third party not connected with the buyer, the possibility achieve an efficiency as described in paragraph 116,
of imposing effective remedies for a possible foreclosure point 5 (hold-up problem related to the transfer of
effect will be limited. In that case intervention by know-how).
the EFTA Surveillance Authority below the level of
dominance is unlikely.
(155) In the case of a relationship-specific investment madeby the supplier (see efficiency 4 in paragraph 116), anon-compete or quantity forcing agreement for the
period of depreciation of the investment will in general
(151) In certain sectors the selling of more than one brandfulfil the conditions of Article 53(3). In the case offrom a single site may be difficult, in which case ahigh relationship-specific investments, a non-competeforeclosure problem can better be remedied by limitingobligation exceeding five years may be justified. Athe effective duration of contracts.relationship-specific investment could, for instance, be
the installation or adaptation of equipment by the
supplier when this equipment can be used afterwards
only to produce components for a particular buyer.General or market-specific investments in (extra)
capacity are normally not relationship-specific invest-
ments. However, where a supplier creates new capacity
(152) A so-called ‘English clause’, requiring the buyer to report
specifically linked to the operations of a particular any better offer and allowing him only to accept such
buyer, for instance a company producing metal cans an offer when the supplier does not match it, can be
which creates new capacity to produce cans on the expected to have the same effect as a non-compete
premises of or next to the canning facility of a food obligation, especially when the buyer has to reveal who
producer, this new capacity may only be economically makes the better offer. In addition, by increasing the
viable when producing for this particular customer, in transparency of the market it may facilitate collusion
which case the investment would be considered to be between the suppliers. An English clause may also work
relationship-specific. as quantity-forcing. Quantity-forcing on the buyer is a
weaker form of non-compete, where incentives or
obligations agreed between the supplier and the buyer
make the latter concentrate his purchases to a largeextent with one supplier. Quantity-forcing may for
(156) Where the supplier provides the buyer with a loanexample take the form of minimum purchase require-or provides the buyer with equipment which is notments or non-linear pricing, such as quantity rebaterelationship-specific, this in itself is normally not suf-schemes, loyalty rebate schemes or a two-part tariffficient to justify the exemption of a foreclosure effect(fixed fee plus a price per unit). Quantity-forcing on theon the market. The instances of capital market imperfec-buyer will have similar but weaker foreclosure effectstion, whereby it is more efficient for the supplier of athan a non-compete obligation. The assessment of allproduct than for a bank to provide a loan, will bethese different forms will depend on their effect on thelimited (see efficiency 7 in paragraph 116). Even if themarket. In addition, Article 54 specifically preventssupplier of the product were to be the more efficientdominant companies from applying English clauses orprovider of capital, a loan could only justify a non-fidelity rebate schemes.compete obligation if the buyer is not prevented from
terminating the non-compete obligation and repayingthe outstanding part of the loan at any point in time
and without payment of any penalty. This means that
the repayment of the loan should be structured in equalor decreasing instalments and should not increase over
time and that the buyer should have the possibility to
(153) Where appreciable anti-competitive effects are estab-
lished, the question of a possible exemption under take over the equipment provided by the supplier at its
market asset value. This is without prejudice to the Article 53(3) arises as long as the supplier is not
dominant. For non-compete obligations, the efficiencies possibility, in case for example of a new point of
distribution, to delay repayment for the first one or two described in paragraph 116, points 1 (free riding
between suppliers), 4, 5 (hold-up problems) and 7 years until sales have reached a certain level.
C 122/34 EN 23.5.2002 Official Journal of the European Communities
(157) The transfer of substantial know-how (efficiency 5 specific. Accordingly, it is unlikely that the conditions
for exemption are fulfilled. in paragraph 116) usually justifies a non-compete
obligation for the whole duration of the supply agree-
ment, as for example in the context of franchising.
(158) Below the level of dominance the combination of non-
compete with exclusive distribution may also justify the
(160) Example of quantity forcing:non-compete obligation lasting the full length of the
agreement. In the latter case, the non-compete obli-gation is likely to improve the distribution efforts of the
exclusive distributor in his territory (see paragraphs 161
to 177).
A producer X with a 40 % market share sells 80 % of its
products through contracts which specify that thereseller is required to purchase at least 75 % of its
(159) Example of non-compete: requirements for that type of product from X. In
return X is offering financing and equipment at favour-able rates. The contracts have a duration of five years in
which repayment of the loan is foreseen in equal
instalments. However, after the first two years buyers
The market leader in a national market for an impulse have the possibility to terminate the contract with a six-
consumer product, with a market share of 40 %, sells month notice period if they repay the outstanding loan
most of its products (90 %) through tied retailers (tied and take over the equipment at its market asset value.
market share 36 %). The agreements oblige the retailers At the end of the five-year period the equipment
to purchase only from the market leader for at least becomes the property of the buyer. Most of the
four years. The market leader is especially strongly competing producers are small, twelve in total with the
represented in the more densely populated areas like biggest having a market share of 20 %, and engage in
the capital. Its competitors, 10 in number, of which similar contracts with different durations. The producers
some are only locally available, all have much smaller with market shares below 10 % often have contracts
market shares, the biggest having 12 %. These 10 com- with longer durations and with less generous termin-
petitors together supply another 10 % of the market ation clauses. The contracts of producer X leave 25 %
via tied outlets. There is strong brand and product of requirements free to be supplied by competitors. In
differentiation in the market. The market leader has the the last three years, two new producers have entered the
strongest brands. It is the only one with regular national market and gained a combined market share of around
advertising campaigns. It provides its tied retailers with 8 %, partly by taking over the loans of a number of
special stocking cabinets for its product. resellers in return for contracts with these resellers.
The result on the market is that in total 46 % (36 % + Producer X’s tied market share is 24 % (0,75 × 0,80 ×
40 %). The other producers’ tied market share is around 10 %) of the market is foreclosed to potential entrants
and to incumbents not having tied outlets. Potential 25 %. Therefore, in total around 49 % of the market is
foreclosed to potential entrants and to incumbents not entrants find entry even more difficult in the densely
populated areas where foreclosure is even higher, having tied outlets for at least the first two years of the
supply contracts. The market shows that the resellers although it is there that they would prefer to enter the
market. In addition, owing to the strong brand and often have difficulty in obtaining loans from banks and
are too small in general to obtain capital through other product differentiation and the high search costs relative
to the price of the product, the absence of in-store inter- means like the issuing of shares. In addition, producer X
is able to demonstrate that concentrating his sales on a brand competition leads to an extra welfare loss for
consumers. The efficiencies of the outlet exclusivity, limited number of resellers allows him to plan his sales
better and to save transport costs. In the light of the which the market leader claims result from reduced
transport costs and a possible hold-up problem concern- 25 % non-tied part in the contracts of producer X, the
real possibility for early termination of the contract, the ing the stocking cabinets, are limited and do not
outweigh the negative effects on competition. The recent entry of new producers and the fact that around
half the resellers are not tied, the quantity forcing of efficiencies are limited, as the transport costs are linked
to quantity and not exclusivity and the stocking cabinets 75 % applied by producer X is likely to fulfil the
conditions for exemption. do not contain special know-how and are not brand
23.5.2002 EN C 122/35 Official Journal of the European Communities
2.2. Exclusive distribution dealerships, i.e. when different suppliers appoint the
same exclusive distributor in a given territory, mayfurther increase the risk of collusion. If a dealer is
granted the exclusive right to distribute two or more
important competing products in the same territory,inter-brand competition is likely to be substantially
restricted for those brands. The higher the cumulative
(161) In an exclusive distribution agreement the suppliermarket share of the brands distributed by the multipleagrees to sell his products only to one distributor fordealer, the higher the risk of collusion and the moreresale in a particular territory. At the same time theinter-brand competition will be reduced. Such cumulat-distributor is usually limited in his active selling intoive effect situations may be a reason to withdraw theother exclusively allocated territories. The possiblebenefit of the Block Exemption when the market sharescompetition risks are mainly reduced intra-brand com-of the suppliers are below the threshold of the Blockpetition and market partitioning, which may in particu-Exemption.lar facilitate price discrimination. When most or all of
the suppliers apply exclusive distribution this may
facilitate collusion, both at the suppliers’ and distribu-
tors’ level.
(165) ‘Entry barriers’ that may hinder suppliers from creatingnew distributors or finding alternative distributors are
(162) Exclusive distribution is exempted by the Block Exemp-
less important in assessing the possible anti-competitive tion when the supplier’s market share does not exceed
effects of exclusive distribution. Foreclosure of other 30 %, even if combined with other non-hardcore vertical
suppliers does not arise as long as exclusive distributionrestraints, such as a non-compete obligation limited to
is not combined with single branding. five years, quantity-forcing or exclusive purchasing. A
combination of exclusive distribution and selective
distribution is only exempted by the Block Exemption
if active selling in other territories is not restricted.Above the 30 % market share threshold, the following
guidance is provided for the assessment of exclusive
distribution in individual cases.
(166) Foreclosure of other distributors is not a problem ifthe supplier which operates the exclusive distributionsystem appoints a high number of exclusive distributors
in the same market and these exclusive distributors
are not restricted in selling to other non-appointed
(163) The market position of the supplier and his competitors
distributors. Foreclosure of other distributors may how- is of major importance, as the loss of intra-brand
ever become a problem where there is ‘buying power’ competition can only be problematic if inter-brand
and market power downstream, in particular in the case competition is limited. The stronger the ‘position of the
of very large territories where the exclusive distributor supplier’, the more serious is the loss of intra-brand
becomes the exclusive buyer for a whole market. An competition. Above the 30 % market share threshold
example would be a supermarket chain which becomes there may be a risk of a significant reduction of intra-
the only distributor of a leading brand on a national brand competition. In order to be exemptable, the loss
food retail market. The foreclosure of other distributors of intra-brand competition needs to be balanced with
may be aggravated in the case of multiple exclusive real efficiencies.
dealership. Such a case, covered by the Block Exemption
when the market share of each supplier is below 30 %,may give reason for withdrawal of the Block Exemption.
(164) The ‘position of the competitors’ can have a dual
significance. Strong competitors will generally mean
that the reduction in intra-brand competition is out-weighed by sufficient inter-brand competition. How-
ever, if the number of competitors becomes rather small
and their market position is rather similar in terms of
(167) ‘Buying power’ may also increase the risk of collusionon the buyers’ side when the exclusive distribution market share, capacity and distribution network, there
is a risk of collusion. The loss of intra-brand competition arrangements are imposed by important buyers, poss-
ibly located in different territories, on one or several can increase this risk, especially when several suppliers
operate similar distribution systems. Multiple exclusive suppliers.
C 122/36 EN 23.5.2002 Official Journal of the European Communities
(168) ‘Maturity of the market’ is important, as loss of intra- (172) The combination of exclusive distribution with exclusive
purchasing increases the possible competition risks of brand competition and price discrimination may be a
serious problem in a mature market but may be less reduced intra-brand competition and market partition-
ing which may in particular facilitate price discrimi- relevant in a market with growing demand, changing
technologies and changing market positions. nation. Exclusive distribution already limits arbitrage by
customers, as it limits the number of distributors and
usually also restricts the distributors in their freedom
of active selling. Exclusive purchasing, requiring theexclusive distributors to buy their supplies for the
particular brand directly from the manufacturer, elimin-
ates in addition possible arbitrage by the exclusivedistributors, who are prevented from buying from other
(169) ‘The level of trade’ is important as the possible negative
distributors in the system. This enhances the possibilities effects may differ between the wholesale and retail
for the supplier to limit intra-brand competition while level. Exclusive distribution is mainly applied in the
applying dissimilar conditions of sale. The combination distribution of final goods and services. A loss of intra-
of exclusive distribution and exclusive purchasing is brand competition is especially likely at the retail level
therefore unlikely to be exempted for suppliers with a if coupled with large territories, since final consumers
market share above 30 % unless there are very clear and may be confronted with little possibility of choosing
substantial efficiencies leading to lower prices to all final between a high price/high service and a low price/low
consumers. Lack of such efficiencies may also lead to service distributor for an important brand.
withdrawal of the Block Exemption where the market
share of the supplier is below 30 %.
(170) A manufacturer which chooses a wholesaler to be his (173) The ‘nature of the product’ is not very relevant to
exclusive distributor will normally do so for a larger assessing the possible anti-competitive effects of exclus-
territory, such as a whole EEA State. As long as the ive distribution. It is, however, relevant when the issue
wholesaler can sell the products without limitation to of possible efficiencies is discussed, that is after an
downstream retailers there are not likely to be appreci- appreciable anti-competitive effect is established.
able anti-competitive effects if the manufacturer is not
dominant. A possible loss of intra-brand competition
at the wholesale level may be easily outweighed by
efficiencies obtained in logistics, promotion etc,especially when the manufacturer is based in a different
(174) Exclusive distribution may lead to efficiencies wherecountry. Foreclosure of other wholesalers within thatinvestments by the distributors are required to protectterritory is not likely as a supplier with a market shareor build up the brand image. In general, the case forabove 30 % usually has enough bargaining power notefficiencies is strongest for new products, for complexto choose a less efficient wholesaler. The possibleproducts, for products whose qualities are difficultrisks for inter-brand competition of multiple exclusiveto judge before consumption (so-called experiencedealerships are however higher at the wholesale than atproducts) or of which the qualities are difficult to judgethe retail level.even after consumption (so-called credence products).
In addition, exclusive distribution may lead to savingsin logistic costs due to economies of scale in transport
and distribution.
(171) The combination of exclusive distribution with single
branding may add the problem of foreclosure of the
(175) Example of exclusive distribution at the wholesale level:market to other suppliers, especially in case of a dense
network of exclusive distributors with small territories
or in case of a cumulative effect. This may necessitateapplication of the principles set out above on single
branding. However, when the combination does not In the market for a consumer durable, A is the market
leader. A sells its product through exclusive wholesalers. lead to significant foreclosure, the combination of
exclusive distribution and single branding may be pro- Territories for the wholesalers correspond to the entire
EEA State for small EEA States, and to a region for competitive by increasing the incentive for the exclusive
distributor to focus his efforts on the particular brand. larger EEA States. These exclusive distributors take care
of sales to all the retailers in their territories. They do Therefore, in the absence of such a foreclosure effect,
the combination of exclusive distribution with non- not sell to final consumers. The wholesalers are in
charge of promotion in their markets. This includes compete is exemptable for the whole duration of the
agreement, particularly at the wholesale level. sponsoring of local events, but also explaining and
23.5.2002 EN C 122/37 Official Journal of the European Communities
promoting the new products to the retailers in their producers sell their products in general through other
retailers, in particular because the exclusive distributors territories. Technology and product innovation are
evolving fairly quickly on this market, and pre-sale of the four largest suppliers show in general little
interest in selling less well-known and cheaper brands. service to retailers and to final consumers plays an
important role. The wholesalers are not required to There is strong brand and product differentiation on the
market. The four market leaders have large national purchase all their requirements of the brand of sup-
plier A from the producer himself, and arbitrage by advertising campaigns and strong brand images, where-
as the fringe producers do not advertise their products wholesalers or retailers is practicable because the trans-
port costs are relatively low compared to the value of at the national level. The market is rather mature, with
stable demand and no major product and technological the product. The wholesalers are not under a non-
compete obligation. Retailers also sell a number of innovation. The product is relatively simple.brands of competing suppliers, and there are no exclus-
ive or selective distribution agreements at the retail
level. On the EEA market of sales to wholesalers A has
around 50 % market share. Its market share on the In such an oligopolistic market, there is a risk of
various national retail markets varies between 40 % and collusion between the four market leaders. This risk
60 %. A has between 6 and 10 competitors on every is increased through multiple dealerships. Intra-brand
national market: B, C and D are its biggest competitors competition is limited by the territorial exclusivity.
and are also present on each national market, with Competition between the four leading brands is reduced
market shares varying between 20 % and 5 %. The at the retail level, since one retailer fixes the price of all
remaining producers are national producers, with small- four brands in each territory. The multiple dealership
er market shares. B, C and D have similar distribution implies that, if one producer cuts the price for its brand,
networks, whereas the local producers tend to sell their the retailer will not be eager to transmit this price cut to
products directly to retailers. the final consumer as it would reduce its sales and
profits made with the other brands. Hence, producers
have a reduced interest in entering into price compe-
tition with one another. Inter-brand price competitionexists mainly with the low brand image goods of theOn the wholesale market described above, the risk of
fringe producers. The possible efficiency arguments forreduced intra-brand competition and price discrimi-(joint) exclusive distributors are limited, as the productnation is low. Arbitrage is not hindered, and the absenceis relatively simple, the resale does not require anyof intra-brand competition is not very relevant at the
specific investments or training and advertising iswholesale level. At the retail level neither intra- normainly carried out at the level of the producers.inter-brand competition are hindered. Moreover, inter-
brand competition is largely unaffected by the exclusive
arrangements at the wholesale level. This makes it likely,
if anti-competitive effects exist, that the conditions for
Even though each of the market leaders has a market exemption are fulfilled.
share below the threshold, exemption under
Article 53(3) may not be justified and withdrawal of the
Block Exemption may be necessary.
(176) Example of multiple exclusive dealerships in an oligopo-listic market:
(177) Example of exclusive distribution combined with exclus-ive purchasing:
In a national market for a final product, there are four
market leaders, who each have a market share of around
20 %. These four market leaders sell their product Manufacturer A is the EEA market leader for a bulky
consumer durable, with a market share of between 40 % through exclusive distributors at the retail level. Retailers
are given an exclusive territory which corresponds to and 60 % in most national retail markets. In every EEA
State, it has about seven competitors with much smaller the town in which they are located or a district of the
town for large towns. In most territories, the four market shares, the largest of these competitors having a
market share of 10 %. These competitors are present on market leaders happen to appoint the same exclusive
retailer (‘multiple dealership’), often centrally located only one or two national markets. A sells its product
through its national subsidiaries to exclusive distributors and rather specialised in the product. The remaining
20 % of the national market is composed of small local at the retail level, which are not allowed to sell actively
into each other’s territories. In addition, the retailers are producers, the largest of these producers having a
market share of 5 % on the national market. These local obliged to purchase manufacturer A’s products
C 122/38 EN 23.5.2002 Official Journal of the European Communities
exclusively from the national subsidiary of manufac- (179) Exclusive customer allocation is exempted by the Block
Exemption when the supplier’s market share does not turer A in their own country. The retailers selling the
brand of manufacturer A are the main resellers of exceed the 30 % market share threshold, even if
combined with other non-hardcore vertical restraints that type of product in their territory. They handle
competing brands, but with varying degrees of success such as non-compete, quantity-forcing or exclusive
purchasing. A combination of exclusive customer allo- and enthusiasm. A applies price differences of 10 % to
15 % between markets and smaller differences within cation and selective distribution is normally hardcore,
as active selling to end-users by the appointed distribu- markets. This is translated into smaller price differences
at the retail level. The market is relatively stable on the tors is usually not left free. Above the 30 % market share
threshold, the guidance provided in paragraphs 161 to demand and the supply side, and there are no significant
technological changes. 177 applies mutatis mutandis to the assessment of
exclusive customer allocation, subject to the following
specific remarks.
In these markets, the loss of intra-brand competition
results not only from the territorial exclusivity at theretail level but is aggravated by the exclusive purchasing
obligation imposed on the retailers. The exclusive
purchase obligation helps to keep markets and territori-es separate by making arbitrage between the exclusive
retailers impossible. The exclusive retailers also cannot
(180) The allocation of customers normally makes arbitrage
sell actively into each other’s territory and in practice by the customers more difficult. In addition, as each
tend to avoid delivering outside their own territory. This appointed distributor has his own class of customers,
renders price discrimination possible. Arbitrage by non-appointed distributors not falling within such a
consumers or independent traders is limited due to the class may find it difficult to obtain the product. This will
bulkiness of the product. reduce possible arbitrage by non-appointed distributors.
Therefore, above the 30 % market share threshold of
the Block Exemption exclusive customer allocation is
unlikely to be exemptable unless there are clear and
substantial efficiency effects. The possible efficiency arguments of this system, linked
to economies of scale in transport and promotion
efforts at the retailers’ level, are unlikely to outweigh the
negative effect of price discrimination and reduced
intra-brand competition. Consequently, it is unlikely
that the conditions for exemption are fulfilled.
(181) Exclusive customer allocation is mainly applied tointermediate products and at the wholesale level whenit concerns final products, where customer groups with
different specific requirements concerning the product
can be distinguished.
2.3. Exclusive customer allocation
(182) Exclusive customer allocation may lead to efficiencies,
especially when the distributors are required to make
investments in for instance specific equipment, skills or
know-how to adapt to the requirements of their class of (178) In an exclusive customer allocation agreement, thesupplier agrees to sell his products only to one distribu- customers. The depreciation period of these investments
indicates the justified duration of an exclusive customer tor for resale to a particular class of customers. At the
same time, the distributor is usually limited in his allocation system. In general the case is strongest for
new or complex products and for products requiring active selling to other exclusively allocated classes of
customers. The possible competition risks are mainly adaptation to the needs of the individual customer.
Identifiable differentiated needs are more likely for reduced intra-brand competition and market partition-
ing, which may in particular facilitate price discrimi- intermediate products, that is products sold to different
types of professional buyers. Allocation of final con- nation. When most or all of the suppliers apply exclusive
customer allocation, this may facilitate collusion, both sumers is unlikely to lead to any efficiencies and is
therefore unlikely to be exempted. at the suppliers’ and the distributors’ level.
23.5.2002 EN C 122/39 Official Journal of the European Communities
(183) Example of exclusive customer allocation: (185) The possible competition risks are a reduction in intra-
brand competition and, especially in case of cumulativeeffect, foreclosure of certain type(s) of distributors and
facilitation of collusion between suppliers or buyers. To
assess the possible anti-competitive effects of selectiveA company has developed a sophisticated sprinklerdistribution under Article 53(1), a distinction needs toinstallation. The company has currently a market sharebe made between purely qualitative selective distributionof 40 % on the market for sprinkler installations. Whenand quantitative selective distribution. Purely qualitativeit started selling the sophisticated sprinkler it had aselective distribution selects dealers only on the basis ofmarket share of 20 % with an older product. Theobjective criteria required by the nature of the productinstallation of the new type of sprinkler depends on thesuch as training of sales personnel, the service providedtype of building that it is installed in and on the use ofat the point of sale, a certain range of the productsthe building (office, chemical plant, hospital etc.). Thebeing sold etc (
37). The application of such criteria doescompany has appointed a number of distributors to sellnot put a direct limit on the number of dealers. Purelyand install the sprinkler installation. Each distributorqualitative selective distribution is in general consideredneeded to train its employees for the general and specificto fall outside Article 53(1) for lack of anti-competitiverequirements of installing the sprinkler installationeffects, provided that three conditions are satisfied. First,for a particular class of customers. To ensure thatthe nature of the product in question must necessitate adistributors would specialise the company assigned toselective distribution system, in the sense that such aeach distributor an exclusive class of customers andsystem must constitute a legitimate requirement, havingprohibited active sales to each other’s exclusive cus-regard to the nature of the product concerned, totomer classes. After five years, all the exclusive distribu-preserve its quality and ensure its proper use. Secondly,tors will be allowed to sell actively to all classes ofresellers must be chosen on the basis of objective criteriacustomers, thereby ending the system of exclusiveof a qualitative nature which are laid down uniformlycustomer allocation. The supplier may then also startfor all potential resellers and are not applied in aselling to new distributors. The market is quite dynamic,discriminatory manner. Thirdly, the criteria laid downwith two recent entries and a number of technologicalmust not go beyond what is necessary (38). Quantitativedevelopments. Competitors, with market sharesselective distribution adds further criteria for selectionbetween 25 % and 5 %, are also upgrading theirthat more directly limit the potential number of dealersproducts.by, for instance, requiring minimum or maximum sales,
by fixing the number of dealers, etc.
As the exclusivity is of limited duration and helps to
ensure that the distributors may recoup their invest-
ments and concentrate their sales efforts first on a
certain class of customers in order to learn the trade,and as the possible anti-competitive effects seem limited
in a dynamic market, the conditions for exemption are
likely to be fulfilled.
(186) Qualitative and quantitative selective distribution is
exempted by the Block Exemption up to 30 % market2.4. Selective distributionshare, even if combined with other non-hardcore verti-
cal restraints, such as non-compete or exclusive distri-
bution, provided active selling by the authorised dis-
tributors to each other and to end users is not restricted.
The Block Exemption exempts selective distribution
(184) Selective distribution agreements, like exclusive distri-regardless of the nature of the product concerned.bution agreements, restrict on the one hand the numberHowever, where the nature of the product does not
of authorised distributors and on the other the possibilit-require selective distribution, such a distribution systemies of resale. The difference with exclusive distribution
is that the restriction of the number of dealers does not
depend on the number of territories but on selection
(37) See for example judgment of the Court of First Instance in Casecriteria linked in the first place to the nature of theT-88/92 Groupement d’achat E ´douard Leclerc v Commissionproduct. Another difference with exclusive distribution[1996] ECR II-1961.is that the restriction on resale is not a restriction on(38) See judgments of the Court of Justice of the European Communi-active selling to a territory but a restriction on any salesties in Case 31/80 L’Oréal v PVBA [1980] ECR 3775, para-to non-authorised distributors, leaving only appointedgraphs 15 and 16; Case 26/76 Metro I [1977] ECR 1875,
dealers and final customers as possible buyers. Selective paragraphs 20 and 21; Case 107/82 AEG [1983] ECR 3151,
distribution is almost always used to distribute branded paragraph 35; and of the Court of First Instance in Case T-19/91
Vichy v Commission [1992] ECR II-415, paragraph 65. final products.
C 122/40 EN 23.5.2002 Official Journal of the European Communities
does not generally bring about sufficient efficiency (189) Where the Block Exemption applies to individual
networks of selective distribution, withdrawal of the enhancing effects to counterbalance a significant
reduction in intra-brand competition. If appreciable block exemption or disapplication of the Block
Exemption may be considered in case of cumulative anti-competitive effects occur, the benefit of the Block
Exemption is likely to be withdrawn. In addition, the effects. However, a cumulative effect problem is
unlikely to arise when the share of the market covered following guidance is provided for the assessment of
selective distribution in individual cases which are not by selective distribution is below 50 %. Also, no
problem is likely to arise where the market coverage covered by the Block Exemption or in the case of
cumulative effects resulting from parallel networks of ratio exceeds 50 %, but the aggregate market share of
the five largest suppliers (CR5) is below 50 %. Where selective distribution.
both the CR5 and the share of the market covered byselective distribution exceed 50 %, the assessment may
vary depending on whether or not all five largest
suppliers apply selective distribution. The stronger the
position of the competitors not applying selective
distribution, the less likely the foreclosure of otherdistributors. If all five largest suppliers apply selective
distribution, competition concerns may in particular
(187) The market position of the supplier and his competitors arise with respect to those agreements that apply
is of central importance in assessing possible anti- quantitative selection criteria by directly limiting the
competitive effects, as the loss of intra-brand compe- number of authorised dealers. The conditions of
tition can only be problematic if inter-brand compe- Article 53(3) are in general unlikely to be fulfilled if
tition is limited. The stronger the position of the the selective distribution systems at issue prevent
supplier, the more problematic is the loss of intra-brand access to the market by new distributors capable of
competition. Another important factor is the number adequately selling the products in question, especially
of selective distribution networks present in the same price discounters, thereby limiting distribution to the
market. Where selective distribution is applied by only advantage of certain existing channels and to the
one supplier in the market which is not a dominant detriment of final consumers. More indirect forms of
undertaking, quantitative selective distribution does not quantitative selective distribution, resulting for instance
normally create net negative effects provided that the from the combination of purely qualitative selection
contract goods, having regard to their nature, require criteria with the requirement imposed on the dealers
the use of a selective distribution system and on to achieve a minimum amount of annual purchases,
condition that the selection criteria applied are necessary are less likely to produce net negative effects, if such
to ensure efficient distribution of the goods in question. an amount does not represent a significant proportion
The reality, however, seems to be that selective distri- of the dealer’s total turnover achieved with the type
bution is often applied by a number of the suppliers in of products in question and it does not go beyond
a given market. what is necessary for the supplier to recoup his
relationship-specific investment and/or realise econom-
ies of scale in distribution. As regards individual
contributions, a supplier with a market share of less
than 5 % is in general not considered to contribute
significantly to a cumulative effect.
(188) The position of competitors can have a dual significanceand plays in particular a role in case of a cumulative
effect. Strong competitors will mean in general that the
reduction in intra-brand competition is easily out-weighed by sufficient inter-brand competition. How-
ever, when a majority of the main suppliers apply
selective distribution there will be a significant loss ofintra-brand competition and possible foreclosure of
certain types of distributors as well as an increased risk
of collusion between those major suppliers. The risk offoreclosure of more efficient distributors has always
been greater with selective distribution than with exclus-
ive distribution, given the restriction on sales to non-
(190) ‘Entry barriers’ are mainly of interest in the case offoreclosure of the market to non-authorised dealers. In authorised dealers in selective distribution. This is
designed to give selective distribution systems a closed general entry barriers will be considerable as selective
distribution is usually applied by manufacturers of character, making it impossible for non-authorised
dealers to obtain supplies. This makes selective distri- branded products. It will in general take time and
considerable investment for excluded retailers to launch bution particularly well suited to avoid pressure by price
discounters on the margins of the manufacturer, as well their own brands or obtain competitive supplies else-
where. as on the margins of the authorised dealers.
23.5.2002 EN C 122/41 Official Journal of the European Communities
(191) ‘Buying power’ may increase the risk of collusion (195) Selective distribution may be efficient when it leads to
savings in logistical costs due to economies of scale in between dealers and thus appreciably change the analy-
sis of possible anti-competitive effects of selective transport and this may happen irrespective of the nature
of the product (efficiency 6 in paragraph 116). However, distribution. Foreclosure of the market to more efficient
retailers may especially result where a strong dealer this is usually only a marginal efficiency in selective
distribution systems. To help solve a free-rider problem organisation imposes selection criteria on the supplier
aimed at limiting distribution to the advantage of its between the distributors (efficiency 1 in paragraph 116)
or to help create a brand image (efficiency 8 in members.
paragraph 116), the nature of the product is very
relevant. In general the case is strongest for new
products, for complex products, for products of whichthe qualities are difficult to judge before consumption
(so-called experience products) or of which the qualities
are difficult to judge even after consumption (so-called
credence products). The combination of selective and
(192) Article 5(c) of the Block Exemption provides that the
exclusive distribution is likely to infringe Article 53 if it supplier may not impose an obligation causing the
is applied by a supplier whose market share exceeds authorised dealers, either directly or indirectly, not to
30 % or in case of cumulative effects, even though sell the brands of particular competing suppliers. This
active sales between the territories remain free. Such a condition aims specifically at avoiding horizontal col-
combination may exceptionally fulfil the conditions of lusion to exclude particular brands through the creation
Article 53(3) if it is indispensable to protect substantial of a selective club of brands by the leading suppliers.
and relationship-specific investments made by the auth- This kind of obligation is unlikely to be exemptable
orised dealers (efficiency 4 in paragraph 116). when the CR5 is equal to or above 50 %, unless none
of the suppliers imposing such an obligation belongs tothe five largest suppliers in the market.
(196) To ensure that the least anti-competitive restraint is
chosen, it is relevant to see whether the same efficiencies
can be obtained at a comparable cost by for instance(193) Foreclosure of other suppliers is normally not a problemservice requirements alone.as long as other suppliers can use the same distributors,
i.e. as long as the selective distribution system is not
combined with single branding. In the case of a densenetwork of authorised distributors or in the case of a
cumulative effect, the combination of selective distri-
bution and a non-compete obligation may pose a risk
of foreclosure to other suppliers. In that case the
(197) Example of quantitative selective distribution:principles set out above on single branding apply.
Where selective distribution is not combined with a
non-compete obligation, foreclosure of the market to
competing suppliers may still be a problem when theleading suppliers apply not only purely qualitative
selection criteria, but impose on their dealers certain In a market for consumer durables, the market leader
additional obligations such as the obligation to reserve (brand A), with a market share of 35 %, sells its product
a minimum shelf-space for their products or to ensure to final consumers through a selective distribution
that the sales of their products by the dealer achieve a network. There are several criteria for admission to the
minimum percentage of the dealer’s total turnover. Such network: the shop must employ trained staff and
a problem is unlikely to arise if the share of the market provide pre-sales services, there must be a specialised
covered by selective distribution is below 50 % or, area in the shop devoted to the sales of the product and
where this coverage ratio is exceeded, if the market similar hi-tech products, and the shop is required to sell
share of the five largest suppliers is below 50 %. a wide range of models of the supplier and to display
them in an attractive manner. Moreover, the number ofadmissible retailers in the network is directly limited
through the establishment of a maximum number of
retailers per number of inhabitants in each province orurban area. Manufacturer A has 6 competitors in this
market. Its largest competitors, B, C and D, have market
shares of respectively 25, 15 and 10 %, whilst the other
(194) Maturity of the market is important, as loss of intra-brand competition and possible foreclosure of suppliers producers have smaller market shares. A is the only
manufacturer to use selective distribution. The selective or dealers may be a serious problem in a mature market
but is less relevant in a market with growing demand, distributors of brand A always handle a few competing
brands. However, competing brands are also widely changing technologies and changing market positions.
C 122/42 EN 23.5.2002 Official Journal of the European Communities
sold in shops which are not member of A’s selective the supply and on the demand side, and there is strong
brand image and product differentiation. The five distribution network. Channels of distribution are vari-
ous: for instance, brands B and C are sold in most of A’s market leaders have strong brand images, acquired
through advertising and sponsoring, whereas the two selected shops, but also in other shops providing a high
quality service and in hypermarkets. Brand D is mainly smaller manufacturers have a strategy of cheaper prod-
ucts, with no strong brand image. sold in high service shops. Technology is evolving quite
rapidly in this market, and the main suppliers maintain
a strong quality image for their products throughadvertising.In this market, access by general price discounters to
the five leading brands is denied. Indeed, the require-
ment that this type of article represents at least 30 % ofthe activity of the dealers and the criteria on presentationIn this market, the coverage ratio of selective distri-and pre-sales services rule out most price discountersbution is 35 %. Inter-brand competition is not directlyfrom the network of authorised dealers. As a conse-affected by the selective distribution system of A. Intra-quence, consumers have no choice but to buy the fivebrand competition for brand A may be reduced, butleading brands in high service/high price shops. Thisconsumers have access to low service/low price retailersleads to reduced inter-brand competition between thefor brands B and C, which have a comparable qualityfive leading brands. The fact that the two smallestimage to brand A. Moreover, access to high servicebrands can be bought in low service/low price shopsretailers for other brands is not foreclosed, since theredoes not compensate for this, because the brand imageis no limitation on the capacity of selected distributorsof the five market leaders is much better. Inter-brandto sell competing brands, and the quantitative limitationcompetition is also limited through multiple dealership.on the number of retailers for brand A leaves other highEven though there exists some degree of intra-brandservice retailers free to distribute competing brands. Incompetition and the number of retailers is not directlythis case, in view of the service requirements and thelimited, the criteria for admission are strict enough toefficiencies these are likely to provide and the limitedlead to a small number of retailers for the five leadingeffect on intra-brand competition the conditions forbrands in each territory.exempting A’s selective distribution network are likely
to be fulfilled.
The efficiencies associated with these quantitative selec-
tive distribution systems are low: the product is not
very complex and does not justify a particularly highservice. Unless the manufacturers can prove that there
are clear efficiencies linked to their network of selective
distribution, it is probable that the Block Exemption
(198) Example of selective distribution with cumulativewill have to be withdrawn because of its cumulativeeffects:effects resulting in less choice and higher prices for
consumers.
On a market for a particular sports article, there are
seven manufacturers, whose respective market shares
are: 25 %, 20 %, 15 %, 15 %, 10 %, 8 % and 7 %. Thefive largest manufacturers distribute their products
through quantitative selective distribution, whilst the2.5. Franchisingtwo smallest use different types of distribution systems,
which results in a coverage ratio of selective distribution
of 85 %. The criteria for access to the selective distri-
bution networks are remarkably uniform amongstmanufacturers: shops are required to have trained
personnel and to provide pre-sale services, there must
be a specialised area in the shop devoted to the sales of
(199) Franchise agreements contain licences of intellectualproperty rights relating in particular to trade marks or the article and a minimum size for this area is specified.
The shop is required to sell a wide range of the brand in signs and know-how for the use and distribution of
goods or services. In addition to the licence of IPRs, the question and to display the article in an attractive
manner, the shop must be located in a commercial franchisor usually provides the franchisee during the
life of the agreement with commercial or technical street, and this type of article must represent at least
30 % of the total turnover of the shop. In general, the assistance. The licence and the assistance are integral
components of the business method being franchised. same dealer is appointed selective distributor for all five
brands. The two brands which do not use selective The franchisor is in general paid a franchise fee by the
franchisee for the use of the particular business method. distribution usually sell through less specialised retailers
with lower service levels. The market is stable, both on Franchising may enable the franchisor to establish,
23.5.2002 EN C 122/43 Official Journal of the European Communities
with limited investments, a uniform network for the also produces the colouring liquids. The quality and
freshness of the liquid is of vital importance to produc- distribution of his products. In addition to the provision
of the business method, franchise agreements usually ing good sweets. The manufacturer made a success of
its sweets through a number of own retail outlets all contain a combination of different vertical restraints
concerning the products being distributed, in particular operating under the same trade name and with the
uniform fun image (style of lay-out of the shops, selective distribution and/or non-compete and/or
exclusive distribution or weaker forms thereof. common advertising etc.). In order to expand sales
the manufacturer started a franchising system. Thefranchisees are obliged to buy the sweets, liquid and
colouring machine from the manufacturer, to have the
same image and operate under the trade name, pay afranchise fee, contribute to common advertising and
(200) The coverage by the Block Exemption of the licensingensure the confidentiality of the operating manualof IPRs contained in franchise agreements is dealt withprepared by the franchisor. In addition, the franchiseesin paragraphs 23 to 45. As for the vertical restraints onare only allowed to sell from the agreed premises, arethe purchase, sale and resale of goods and servicesonly allowed to sell to end users or other franchiseeswithin a franchising arrangement, such as selectiveand are not allowed to sell other sweets. The franchisordistribution, non-compete or exclusive distribution, theis obliged not to appoint another franchisee nor operateBlock Exemption applies up to the 30 % market sharea retail outlet himself in a given contract territory. Thethreshold for the franchisor or the supplier designatedfranchisor is also under the obligation to update andby the franchisor (39). The guidance provided earlier infurther develop its products, the business outlook andrespect of these types of restraints applies also tothe operating manual and make these improvementsfranchising, subject to the following specific remarks:available to all retail franchisees. The franchise agree-
ments are concluded for a duration of 10 years.
1) In line with general rule 8 (see paragraph 119), the
more important the transfer of know-how, themore easily the vertical restraints fulfil the con-
ditions for exemption.
Sweet retailers buy their sweets on a national market
from either national producers that cater for national
tastes or from wholesalers which import sweets from 2) A non-compete obligation on the goods or services
foreign producers in addition to selling products from purchased by the franchisee falls outside
national producers. On this market the franchisor’s Article 53(1) when the obligation is necessary to
products compete with other brands of sweets. The maintain the common identity and reputation of
franchisor has a market share of 30 % on the market the franchised network. In such cases, the duration
for sweets sold to retailers. Competition comes from a of the non-compete obligation is also irrelevant
number of national and international brands, sometimes under Article 53(1), as long as it does not exceed
produced by large diversified food companies. There are the duration of the franchise agreement itself.
many potential points of sale of sweets in the form
of tobacconists, general food retailers, cafeterias andspecialised sweet shops. On the market for machines
for colouring food the franchisor’s market share is
below 10 %.
(201) Example of franchising:
A manufacturer has developed a new format for selling
sweets in so-called fun shops where the sweets can be
coloured specially on demand from the consumer. The
manufacturer of the sweets has also developed the Most of the obligations contained in the franchise
machines to colour the sweets. The manufacturer agreements can be assessed as being necessary to protect
the intellectual property rights or maintain the common
identity and reputation of the franchised network and
fall outside Article 53(1). The restrictions on selling(contract territory and selective distribution) provide an
incentive to the franchisees to invest in the colouring
machine and the franchise concept and, if not necessary(39) See also judgment of the Court of Justice of the Europeanfor, at least help to maintain the common identity,Communities in Case 107/82 AEG [1983] ECR 3151, para-
thereby offsetting the loss of intra-brand competition. graph 35; and of the Court of First Instance in Case T-19/91
The non-compete clause excluding other brands of Vichy v Commission [1992] ECR II-415, paragraph 65. See also
paragraphs 89 to 95, in particular paragraph 95. sweets from the shops for the full duration of the
C 122/44 EN 23.5.2002 Official Journal of the European Communities
agreements does allow the franchisor to keep the outlets exceeds 30 %. In such cases withdrawal of the Block
Exemption may be required. Where a company is uniform and prevent competitors from benefiting from
its trade name. It does not lead to any serious foreclosure dominant on the downstream market, any obligation to
supply the products only or mainly to the dominant in view of the great number of potential outlets available
to other sweet producers. The franchise agreements of buyer may easily have significant anti-competitive
effects. this franchisor are likely to fulfil the conditions for
exemption under Article 53(3) in as far as the obli-
gations contained therein fall under Article 53(1).
(205) It is not only the market position of the buyer on theupstream and downstream market that is important but
also the extent to and the duration for which he applies2.6. Exclusive supplyan exclusive supply obligation. The higher the tied
supply share, and the longer the duration of the
exclusive supply, the more significant the foreclosure is
likely to be. Exclusive supply agreements shorter than
five years entered into by non-dominant companies
(202) Exclusive supply as defined in Article 1(c) of the Block usually require a balancing of pro- and anti-competitive
Exemption is the extreme form of limited distribution effects, while agreements lasting longer than five years
in as far as the limit on the number of buyers isare for most types of investments not considered
concerned: in the agreement it is specified that there is necessary to achieve the claimed efficiencies or the
only one buyer inside the EEA to which the supplier efficiencies are not sufficient to outweigh the foreclosure
may sell a particular final product. For intermediate effect of such long-term exclusive supply agreements.
goods or services, exclusive supply means that there is
only one buyer inside the EEA or that there is only one
buyer inside the EEA for the purposes of a specific use.
For intermediate goods or services, exclusive supply isoften referred to as industrial supply.
(206) The market position of the competing buyers on the
upstream market is important as it is only likely that
competing buyers will be foreclosed for anti-competitive
(203) Exclusive supply as defined in Article 1(c) of the reasons, i.e. to increase their costs, if they are signifi-
Block Exemption is exempted by Article 2(1) read in cantly smaller than the foreclosing buyer.
conjunction with Article 3(2) of the Block Exemption
up to 30 % market share of the buyer, even if combined
with other non-hardcore vertical restraints such as
non-compete. Above the market share threshold thefollowing guidance is provided for the assessment of
exclusive supply in individual cases.
Foreclosure of competing buyers is not very likely where
these competitors have similar buying power and can
offer the suppliers similar sales possibilities. In such acase, foreclosure could only occur for potential entrants,
who may not be able to secure supplies when a number
(204) The main competition risk of exclusive supply is
of major buyers all enter into exclusive supply contracts foreclosure of other buyers. The market share of the
with the majority of suppliers on the market. Such a buyer on the upstream purchase market is obviously
cumulative effect may lead to withdrawal of the benefit important for assessing the ability of the buyer to
of the Block Exemption. ‘impose’ exclusive supply which forecloses other buyers
from access to supplies. The importance of the buyer
on the downstream market is however the factor whichdetermines whether a competition problem may arise.
If the buyer has no market power downstream, then no
appreciable negative effects for consumers can beexpected. Negative effects can however be expected
when the market share of the buyer on the downstream
(207) Entry barriers at the supplier level are relevant to
establishing whether there is real foreclosure. In as far supply market as well as the upstream purchase market
exceeds 30 %. Where the market share of the buyer on as it is efficient for competing buyers to provide the
goods or services themselves via upstream vertical the upstream market does not exceed 30 %, significant
foreclosure effects may still result, especially when the integration, foreclosure is unlikely to be a real problem.
However, often there are significant entry barriers. market share of the buyer on his downstream market
23.5.2002 EN C 122/45 Official Journal of the European Communities
(208) Countervailing power of suppliers is relevant, as (212) In the case of a hold-up problem and even more so in
the case of scale economies in distribution, quantity important suppliers will not easily allow themselves to
be cut off from alternative buyers. Foreclosure is forcing on the supplier, such as minimum supply
requirements, could well be a less restrictive alternative. therefore mainly a risk in the case of weak suppliers and
strong buyers. In the case of strong suppliers theexclusive supply may be found in combination with
non-compete. The combination with non-compete
brings in the rules developed for single branding. Wherethere are relationship-specific investments involved on
both sides (hold-up problem) the combination of exclus-
ive supply and non-compete i.e. reciprocal exclusivity
(213) Example of exclusive supply: in industrial supply agreements is usually justified below
the level of dominance.
On a market for a certain type of components (inter-
mediate product market) supplier A agrees with buyerB to develop, with his own know-how and considerable
(209) Lastly, the level of trade and the nature of the productinvestment in new machines and with the help ofare relevant for foreclosure. Foreclosure is less likely inspecifications supplied by buyer B, a different version ofthe case of an intermediate product or where thethe component. B will have to make considerableproduct is homogeneous. Firstly, a foreclosed manufac-investments to incorporate the new component. It isturer that uses a certain input usually has more flexibilityagreed that A will supply the new product only to buyerto respond to the demand of his customers than theB for a period of five years from the date of first entrywholesaler/retailer has in responding to the demand ofon the market. B is obliged to buy the new product onlythe final consumer for whom brands may play anfrom A for the same period of five years. Both A and Bimportant role. Secondly, the loss of a possible sourcecan continue to sell and buy respectively other versionsof supply matters less for the foreclosed buyers in theof the component elsewhere. The market share of buyercase of homogeneous products than in the case ofB on the upstream component market and on thea heterogeneous product with different grades anddownstream final goods market is 40 %. The marketqualities.share of the component supplier is 35 %. There are two
other component suppliers with around 20-25 %
market share and a number of small suppliers.
Given the considerable investments, the agreement is
likely to fulfil the conditions for exemption in view of (210) For homogeneous intermediate products, anti-competi-
the efficiencies and the limited foreclosure effect. Other tive effects are likely to be exemptable below the
buyers are foreclosed from a particular version of a level of dominance. For final branded products or
product of a supplier with 35 % market share and there differentiated intermediate products where there are
are other component suppliers that could develop entry barriers, exclusive supply may have appreciable
similar new products. The foreclosure of part of buyer anti- competitive effects where the competing buyers
B’s demand to other suppliers is limited to maximum are relatively small compared to the foreclosing buyer,
40 % of the market. even if the latter is not dominant on the downstream
market.
(214) Exclusive supply is based on a direct or indirect
obligation causing the supplier only to sell to one buyer. (211) Where appreciable anti-competitive effects are estab-
lished, an exemption under Article 53(3) is possible as Quantity forcing on the supplier is based on incentives
agreed between the supplier and the buyer that make long as the company is not dominant. Efficiencies
can be expected in the case of a hold-up problem the former concentrate his sales mainly with one buyer.
Quantity forcing on the supplier may have similar but (paragraph 116, points 4 and 5), and this is more likely
for intermediate products than for final products. Other more mitigated effects than exclusive supply. The
assessment of quantity forcing will depend on the efficiencies are less likely. Possible economies of scale in
distribution (paragraph 116, point 6) do not seem likely degree of foreclosure of other buyers on the upstream
market. to justify exclusive supply.
C 122/46 EN 23.5.2002 Official Journal of the European Communities
2.7. Tying may also lead to higher entry barriers both on the
market of the tying and on the market of the tiedproduct.
(215) Tying exists when the supplier makes the sale of one
product conditional upon the purchase of another
distinct product from the supplier or someone desig-nated by the latter. The first product is referred to as the
(218) Tying is exempted by Article 2(1) read in conjunctiontying product and the second is referred to as the tiedwith Article 3 of the Block Exemption when the marketproduct. If the tying is not objectively justified by theshare of the supplier on both the market of the tiednature of the products or commercial usage, suchproduct and the market of the tying product does notpractice may constitute an abuse within the meaning ofexceed 30 %. It may be combined with other non-Article 54 (40). Article 53 may apply to horizontalhardcore vertical restraints such as non-compete oragreements or concerted practices between competingquantity forcing in respect of the tying product, orsuppliers which make the sale of one product con-exclusive purchasing. Above the market share thresholdditional upon the purchase of another distinct product.the following guidance is provided for the assessmentTying may also constitute a vertical restraint fallingof tying in individual cases.under Article 53 where it results in a single branding
type of obligation (see paragraphs 138 to 160) for thetied product. Only the latter situation is dealt with in
these Guidelines.
(219) The market position of the supplier on the market of
the tying product is obviously of main importance to
(216) What is to be considered as a distinct product is assess possible anti-competitive effects. In general this
determined first of all by the demand of the buyers. type of agreement is imposed by the supplier. The
Two products are distinct if, in the absence of tying, importance of the supplier on the market of the tying
from the buyers’ perspective, the products are purchased product is the main reason why a buyer may find it
by them on two different markets. For instance, since difficult to refuse a tying obligation.
customers want to buy shoes with laces, it has become
commercial usage for shoe manufacturers to supplyshoes with laces. Therefore, the sale of shoes with laces
is not a tying practice. Often combinations have become
accepted practice because the nature of the product
(220) To assess the supplier’s market power, the market makes it technically difficult to supply one product
position of his competitors on the market of the tying without the supply of another product.
product is important. As long as his competitors are
sufficiently numerous and strong, no anti-competitive
effects can be expected, as buyers have sufficientalternatives to purchase the tying product without the
(217) The main negative effect of tying on competition is
tied product, unless other suppliers are applying similar possible foreclosure on the market of the tied product.
tying. In addition, entry barriers on the market of the Tying means that there is at least a form of quantity-
tying product are relevant to establish the market forcing on the buyer in respect of the tied product.
position of the supplier. When tying is combined with Where in addition a non-compete obligation is agreed
a non-compete obligation in respect of the tying in respect of the tied product, this increases the possible
product, this considerably strengthens the position of foreclosure effect on the market of the tied product.
the supplier. Tying may also lead to supra-competitive prices,
especially in three situations. Firstly, when the tying andtied product are partly substitutable for the buyer.
Secondly, when the tying allows price discrimination
according to the use the customer makes of the tyingproduct, for example the tying of ink cartridges to the
(221) Buying power is relevant, as important buyers will notsale of photocopying machines (metering). Thirdly,easily be forced to accept tying without obtaining atwhen in the case of long-term contracts or in the caseleast part of the possible efficiencies. Tying not basedof after-markets with original equipment with a longon efficiency is therefore mainly a risk where buyers doreplacement time, it becomes difficult for the customersnot have significant buying power.to calculate the consequences of the tying. Lastly, tying
(222) Where appreciable anti-competitive effects are estab- (40) Judgment of the Court of Justice of the European Communities
lished, the question of a possible exemption under in Case C-333/94 P Tetrapak v Commission [1996] ECR I-5951,
paragraph 37. Article 53(3) arises as long as the company is not
23.5.2002 EN C 122/47 Official Journal of the European Communities
dominant. Tying obligations may help to produce (224) Withdrawal of the Block Exemption is likely where no
efficiencies result from tying or where such efficiencies efficiencies arising from joint production or joint
distribution. Where the tied product is not produced are not passed on to the consumer (see paragraph 222).
Withdrawal is also likely in the case of a cumulative by the supplier, an efficiency may also arise from the
supplier buying large quantities of the tied product. effect where a majority of the suppliers apply similar
tying arrangements without the possible efficiencies For tying to be exemptable, it must, however, be
shown that at least part of these cost reductions are being transmitted at least in part to consumers.
passed on to the consumer. Tying is thereforenormally not exemptable when the retailer is able to
obtain, on a regular basis, supplies of the same or
equivalent products on the same or better conditionsthan those offered by the supplier which applies the
tying practice. Another efficiency may exist where
tying helps to ensure a certain uniformity and quality2.8. Recommended and maximum resale pricesstandardisation (see efficiency 8 in paragraph 116).
However, it needs to be demonstrated that the positiveeffects cannot be realised equally efficiently by
requiring the buyer to use or resell products satisfying
minimum quality standards, without requiring thebuyer to purchase these from the supplier or someone
(225) The practice of recommending a resale price to a reseller
designated by the latter. The requirements concerning or requiring the reseller to respect a maximum resale
minimum quality standards would not normally fall price is — subject to the comments in paragraphs 46 to
within Article 53(1). Where the supplier of the tying 56 concerning RPM — covered by the Block Exemption
product imposes on the buyer the suppliers from when the market share of the supplier does not exceed
which the buyer must purchase the tied product, for the 30 % threshold. For cases above the market share
instance because the formulation of minimum quality threshold and for cases of withdrawal of the Block
standards is not possible, this may also fall outside Exemption the following guidance is provided.
Article 53(1), especially where the supplier of the
tying product does not derive a direct (financial)
benefit from designating the suppliers of the tied
product.
(226) The possible competition risk of maximum and rec-ommended prices is firstly that the maximum orrecommended price will work as a focal point for the
resellers and might be followed by most or all of
them. A second competition risk is that maximum orrecommended prices may facilitate collusion between
suppliers.
(227) The most important factor for assessing possible anti-
competitive effects of maximum or recommended resaleprices is the market position of the supplier. The
stronger the market position of the supplier, the higher
the risk that a maximum resale price or a recommendedresale price leads to a more or less uniform application
of that price level by the resellers, because they may use
it as a focal point. They may find it difficult to deviatefrom what they perceive to be the preferred resale price
proposed by such an important supplier on the market.
(223) The effect of supra-competitive prices is consideredUnder such circumstances the practice of imposing aanti-competitive in itself. The effect of foreclosuremaximum resale price or recommending a resale pricedepends on the tied percentage of total sales on themay infringe Article 53(1) if it leads to a uniform pricemarket of the tied product. On the question of whatlevel.can be considered appreciable foreclosure under
Article 53(1), the analysis for single branding can be
applied. Above the 30 % market share threshold
exemption of tying is unlikely, unless there are clearefficiencies that are transmitted, at least in part, to
consumers. Exemption is even less likely when tying
(228) The second most important factor for assessing possible
anti-competitive effects of the practice of maximum and is combined with non-compete, either in respect of
the tied or in respect of the tying product. recommended prices is the market position of
C 122/48 EN 23.5.2002 Official Journal of the European Communities
competitors. Especially in a narrow oligopoly, the 2.9. Other vertical restraints
practice of using or publishing maximum or rec-ommended prices may facilitate collusion between the
(229) The vertical restraints and combinations described suppliers by exchanging information on the preferred
above are only a selection. There are other restraints price level and by reducing the likelihood of lower resale
and combinations for which no direct guidance is prices. The practice of imposing a maximum resale
provided here. They will however be treated according price or recommending resale prices leading to such
to the same principles, with the help of the same general effects may also infringe Article 53(1).
rules and with the same emphasis on the effect on the
market.