Commission notice - Guidelines on Vertical Restraints
Date: 2010-05-10
Institutions: European Commission
Subjects: application of EU law, competition policy, goods and services, industrial property, inter-company agreement, restriction on competition

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EUROPEAN COMMISSION 

Brussels, 10.5.2010 
SEC(2010) 411 final 

COMMISSION NOTICE 

Guidelines on Vertical Restraints 

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COMMISSION NOTICE 

Guidelines on Vertical Restraints 

(Text with EEA relevance) 

TABLE OF CONTENTS 

Paragraphs  Page 

I. 

1. 

2. 

II. 

1. 

2. 

2.1 

2.2 

3. 

III. 

1. 

2. 

2.1 

2.2 

2.3 

2.4 

INTRODUCTION 

Purpose of the Guidelines 

Applicability of Article 101 to vertical agreements 

VERTICAL AGREEMENTS WHICH GENERALLY FALL 
OUTSIDE THE SCOPE OF ARTICLE 101(1) 

Agreements of minor importance and SMEs 

Agency agreements 

Definition of agency agreements 

The application of Article 101(1) to agency agreements 

Subcontracting agreements 

APPLICATION  OF  THE  BLOCK  EXEMPTION 
REGULATION 

Safe harbour created by the Block Exemption Regulation 

Scope of the Block Exemption Regulation 

Definition of vertical agreements 

Vertical agreements between competitors 

Associations of retailers 

Vertical  agreements  containing  provisions  on  intellectual 
property rights (IPRs) 

2.5 

Relationship to other block exemption regulations 

1-7 

1-4 

5-7 

8-22 

8-11 

12-21 

12-17 

18-21 

22 

23-73 

23 

24-46 

24-26 

27-28 

29-30 

31-45 

46 

3. 

4. 

Hardcore restrictions under the Block Exemption Regulation 

47-59 

Individual  cases  of  hardcore  sales  restrictions  that  may  fall 
outside  Article  101(1)  or  may  fulfil  the  conditions  of 
Article 101(3) 

60-64 

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5. 

6. 

7. 

IV. 

1. 

2. 

V. 

1. 

2. 

3. 

Excluded restrictions under the Block Exemption Regulation 

65-69 

Severability 

70-71 

Portfolio  of  products  distributed 
distribution system 

through 

the  same 

72-73 

WITHDRAWAL  OF  THE  BLOCK  EXEMPTION  AND 
THE 
OF 
DISAPPLICATION 
BLOCK EXEMPTION REGULATION 

Withdrawal procedure 

Disapplication of the Block Exemption Regulation 

MARKET  DEFINITION  AND  MARKET  SHARE 
CALCULATION 

Commission Notice on definition of the relevant market 

The  relevant  market  for  calculating  the  30 %  market  share 
threshold under the Block Exemption Regulation 

Calculation  of  market  shares  under  the  Block  Exemption 
Regulation 

VI. 

ENFORCEMENT POLICY IN INDIVIDUAL CASES 

1. 

The framework of analysis 

1.1. 

Negative effects of vertical restraints 

1.2. 

Positive effects of vertical restraints 

1.3. 

Methodology of analysis 

74-85 

74-78 

79-85 

86-95 

86 

87-92 

93-95 

96-229 

96-127 

100-105 

106-109 

110-127 

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

111-121 

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

122-127 

2. 

Analysis of specific vertical restraints 

2.1. 

Single branding 

2.2. 

Exclusive distribution 

2.3. 

Exclusive customer allocation 

2.4. 

Selective distribution 

2.5. 

Franchising 

2.6. 

Exclusive supply 

128-229 

129-150 

151-167 

168-173 

174-188 

189-191 

192-202 

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2.7. 

Upfront access payments  

2.8. 

Category management agreements  

2.9. 

Tying 

2.10.  Resale price restrictions 

203-208 

209-213 

214-222 

223-229 

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I. 

1. 

(1) 

INTRODUCTION 

Purpose of the Guidelines 

These  Guidelines  set  out  the  principles  for  the  assessment  of  vertical  agreements 
under  Article  101  of  the  Treaty  on  the  Functioning  of  the  European  Union* 
(hereinafter  "Article  101")1.  Article  1(1)(a)  of  Commission  Regulation  (EU) 
No 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on 
the  Functioning  of  the  European  Union  to  categories  of  vertical  agreements  and 
concerted  practices2  (hereinafter  referred  to  as  the  "Block  Exemption  Regulation") 
(see paragraphs (24) to (46)) defines the term "vertical agreement". These Guidelines 
are without prejudice to the possible parallel application of Article 102 of the Treaty 
on  the  Functioning  of  the  European  Union  (hereinafter  "Article  102")  to  vertical 
agreements. These Guidelines are structured in the following way: 

– 

– 

– 

– 

– 

Section  II  (paragraphs  (8)  to  (22))  describes  vertical  agreements  which 
generally fall outside Article 101(1); 

Section III (paragraphs (23) to (73)) clarifies the conditions for the application 
of the Block Exemption Regulation; 

Section  IV  (paragraphs  (74)  to  (85))  describes  the  principles  concerning  the 
withdrawal  of  the  block  exemption  and  the  disapplication  of  the  Block 
Exemption Regulation; 

Section  V  (paragraphs  (86)  to  (95))  provides  guidance  on  how  to  define  the 
relevant market and calculate market shares; 

 Section  VI  (paragraphs  (96)  to  (229))  describes  the  general  framework  of 
analysis  and  the  enforcement  policy  of  the  Commission  in  individual  cases 
concerning vertical agreements. 

(2) 

Throughout  these  Guidelines,  the  analysis  applies  to  both  goods  and  services, 
although  certain  vertical  restraints  are  mainly  used  in  the  distribution  of  goods. 
Similarly, vertical agreements can be concluded for intermediate and final goods and 
services.  Unless  otherwise  stated,  the  analysis  and  arguments  in  these  Guidelines 
apply  to  all  types  of  goods  and  services  and  to  all  levels  of  trade.  Thus,  the  term 
"products"  includes  both  goods  and  services.  The  terms  "supplier"  and  "buyer"  are 
used for all levels of trade. The Block Exemption Regulation and these Guidelines do 

* 

1 

2 

With effect from 1 December 2009, Articles 81 and 82 of the EC Treaty have become Articles 101 and, 
102, respectively, of the Treaty on the Functioning of the European Union ("TFEU"). The two sets of 
provisions are, in substance, identical. For the purposes of these Guidelines, references to Articles 101 
and  102  of  the  TFEU  should  be  understood  as  references  to  Articles  81  and  82,  respectively,  of  the 
EC Treaty  where  appropriate.  The  TFEU  also  introduced  certain  changes  in  terminology,  such  as  the 
replacement of "Community" by "Union" and "common market" by "internal market". The terminology 
of the TFEU will be used throughout these Guidelines.  
These  Guidelines  replace  the  Commission  Notice  –  Guidelines  on  Vertical  Restraints,  OJ  C  291, 
13.10.2000, p. 1. 
OJ L 102, 23.4.2010, p. 1.  

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(3) 

(4) 

2. 

(5) 

(6) 

(7) 

not apply to agreements with final consumers where the latter are not undertakings, 
since Article 101 only applies to agreements between undertakings. 

By issuing these Guidelines, the Commission aims to help companies conduct their 
own  assessment  of  vertical  agreements  under  EU  competition  rules.  The  standards 
set  forth  in  these  Guidelines  cannot  be  applied  mechanically,  but  must  be  applied 
with due consideration for the specific circumstances of each case. Each  case must 
be evaluated in the light of its own facts. 

These Guidelines are without prejudice to the case-law of the General Court and the 
Court of Justice of the European Union concerning the application of Article 101 to 
vertical agreements. The Commission will continue to  monitor the operation of the 
Block  Exemption  Regulation  and  Guidelines  based  on  market  information  from 
stakeholders  and  national  competition  authorities  and  may  revise  this  notice  in  the 
light of future developments and of evolving insight. 

Applicability of Article 101 to vertical agreements 

Article  101  applies  to  vertical  agreements  that  may  affect  trade  between  Member 
States  and  that  prevent,  restrict  or  distort  competition  ("vertical  restraints")3. 
Article 101  provides  a  legal  framework  for  the  assessment  of  vertical  restraints, 
which  takes  into  consideration  the  distinction  between  anti-competitive  and 
pro-competitive effects. Article 101(1) prohibits those agreements which appreciably 
restrict or distort competition, while Article 101(3) exempts those agreements which 
confer sufficient benefits to outweigh the anti-competitive effects4. 

For  most  vertical  restraints,  competition  concerns  can  only  arise  if  there  is 
insufficient competition at one or more levels of trade, that is, if there is some degree 
of market power at the level of the supplier or the buyer or at both levels. Vertical 
restraints  are  generally  less  harmful  than  horizontal  restraints  and  may  provide 
substantial scope for efficiencies.  

The objective of Article 101 is to ensure that undertakings do not use agreements – in 
this  context,  vertical  agreements  –  to  restrict  competition  on  the  market  to  the 
detriment of consumers. Assessing vertical restraints is also important in the context 
of the wider objective of achieving an integrated internal market. Market integration 
enhances  competition  in  the  European  Union.  Companies  should  not  be  allowed  to 
re-establish private barriers between Member States where State barriers have been 
successfully abolished. 

3 

4 

See  inter  alia  judgments  of  the  Court  of  Justice  in  Joined Cases 56/64  and  58/64  Grundig-Consten  v 
Commission [1966]  ECR  299;  Case  56/65  Technique  Minière  v  Maschinenbau Ulm [1966] ECR 235; 
and  judgment  of  the  Court  of  First  Instance  in  Case  T-77/92  Parker  Pen  v Commission 
[1994] ECR II-549. 
See Communication from the Commission - Notice – Guidelines on the application of Article 81(3) of 
the Treaty, OJ C 101, 27.4.2004, p. 97 for the Commission’s general methodology and interpretation of 
the conditions for applying Article 101(1) and in particular Article 101(3). 

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II. 

1. 

(8) 

(9) 

(10) 

(11) 

VERTICAL  AGREEMENTS  WHICH  GENERALLY  FALL  OUTSIDE  THE 
SCOPE OF ARTICLE 101(1) 

Agreements of minor importance and SMEs 

Agreements  that  are  not  capable  of  appreciably  affecting  trade  between  Member 
States or of appreciably restricting competition by object or effect do not fall within 
the  scope  of  Article 101(1).  The  Block  Exemption  Regulation  applies  only  to 
agreements  falling  within  the  scope  of  application  of  Article 101(1).  These 
Guidelines  are  without  prejudice  to  the  application  of  Commission  Notice  on 
agreements of minor importance which do not appreciably restrict competition under 
Article  81(1)  of  the  Treaty  establishing  the  European  Community  (de  minimis)5  or 
any future de minimis notice. 

Subject  to  the  conditions  set  out  in  the  de  minimis  notice  concerning  hardcore 
restrictions  and  cumulative  effect  issues,  vertical  agreements  entered  into  by  non-
competing undertakings whose individual market share on the relevant market does 
not exceed 15 % are generally considered to fall outside the scope of Article 101(1)6. 
There is no presumption that vertical agreements concluded by undertakings having 
more  than  15 %  market  share  automatically  infringe  Article 101(1).  Agreements 
between undertakings whose market share exceeds the 15 % threshold may still not 
have an appreciable effect on trade between Member States or may not constitute an 
appreciable restriction of competition7. Such agreements need to be assessed in their 
legal and economic context. The criteria for the assessment of individual agreements 
are set out in paragraphs (96) to (229). 

As regards hardcore restrictions referred to in the de minimis notice, Article 101(1) 
may apply below the 15 % threshold, provided that there is an appreciable effect on 
trade  between  Member  States  and  on  competition.  The  applicable  case-law  of  the 
Court of Justice and the General Court is relevant in this respect8. Reference is also 
made  to  the  possible  need  to  assess  positive  and  negative  effects  of  hardcore 
restrictions as described in particular in paragraph (47) of these Guidelines.  

In addition, the Commission considers that, subject to cumulative effect and hardcore 
restrictions,  vertical  agreements  between  small  and  medium-sized  undertakings  as 
defined  in  the  Annex  to  Commission  Recommendation  of  6  May  2003  concerning 
the  definition  of  micro,  small  and  medium-sized  enterprises9  are  rarely  capable  of 
appreciably  affecting  trade  between  Member  States  or  of  appreciably restricting 
competition  within  the  meaning  of  Article 101(1),  and  therefore  generally  fall 
outside  the  scope  of  Article 101(1).  In  cases  where  such  agreements  nonetheless 
meet  the  conditions  for  the  application  of  Article 101(1),  the  Commission  will 
normally  refrain  from  opening  proceedings  for  lack  of  sufficient  interest  for  the 

5 
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7 

8 

9 

OJ C 368, 22.12.2001, p. 13. 
For  agreements  between  competing  undertakings  the  de  minimis  market  share  threshold  is  10 %  for 
their collective market share on each affected relevant market. 
See  judgment  of  the  Court  of  First  Instance  in  Case  T-7/93  Langnese-Iglo  v  Commission  [1995] 
ECR II-1533, paragraph 98. 
See  judgments  of  the  Court  of  Justice  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  v  Yves  Saint  Laurent  [1998] 
ECR I-1983, paragraphs 16 and 17. 
OJ L 124, 20.5.2003, p. 36. 

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European  Union  unless  those  undertakings  collectively  or  individually  hold  a 
dominant position in a substantial part of the internal market. 

2. 

Agency agreements 

2.1 

Definition of agency agreements 

(12) 

An  agent  is  a  legal  or  physical  person  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: 

– 

– 

purchase of goods or services by the principal, or 

sale of goods or services supplied by the principal. 

(13) 

(14) 

(15) 

The  determining  factor  in  defining  an  agency  agreement  for  the  application  of 
Article 101(1) is the financial or commercial risk borne by the agent in relation to the 
activities  for  which  it  has  been  appointed  as  an  agent  by  the  principal.10  In  this 
respect it is not material for the assessment whether the agent acts for one or several 
principals.  Neither  is  material  for  this  assessment  the  qualification  given  to  their 
agreement by the parties or national legislation. 

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

For  the  purposes  of  applying  Article  101(1),  the  agreement  will  be  qualified  as  an 
agency agreement if the agent does not bear any, or bears only insignificant, risks in 
relation  to  the  contracts  concluded  and/or  negotiated  on  behalf  of  the  principal,  in 
relation  to  market-specific  investments  for  that  field  of  activity,  and  in  relation  to 
other  activities  required  by  the  principal  to  be  undertaken  on  the  same  product 
market. However, risks that are related to the activity of providing agency services in 
general, such as the risk of the agent's income being dependent upon its success as an 
agent or general investments in for instance premises or personnel, are not material 
to this assessment. 

10 

See judgment of the Court of First Instance in Case T-325/01 Daimler Chrysler v Commission [2005] 
ECR  II-3319;  judgments  of  the  Court  of  Justice  in  Case  C-217/05  Confederación  Espanola  de 
Empresarios  de  Estaciones  de  Servicio  v  CEPSA  [2006]  ECR  I-11987;  and  Case  C-279/06  CEPSA 
Estaciones de Servicio SA v LV Tobar e Hijos SL [2008] ECR I-6681. 

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(16) 

For  the  purpose  of  applying  Article  101(1),  an  agreement  will  thus  generally  be 
considered an agency agreement where property in the contract goods bought or sold 
does not vest in the agent, or the agent does not himself supply the contract services 
and where the agent: 

(a) 

does not contribute to the costs relating to the supply/purchase of the contract 
goods or services, including the costs of transporting the goods. This does not 
preclude  the  agent  from  carrying  out  the  transport  service,  provided  that  the 
costs are covered by the principal; 

(b)  does not maintain at its own cost or risk stocks of the contract goods, including 
the costs of financing the stocks and the costs of loss of stocks and can return 
unsold goods to the principal without charge, unless the agent is liable for fault 
(for example, by failing to comply with reasonable security measures to avoid 
loss of stocks); 

(c) 

does  not  undertake  responsibility  towards  third  parties  for  damage  caused  by 
the product sold (product liability), unless, as agent, it is liable for fault in this 
respect; 

(d)  does  not  take  responsibility  for  customers'  non-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-theft  measures  or  failing  to  comply  with  reasonable  measures  to  report 
theft to the principal or police or to communicate to the principal all necessary 
information available to him on the customer's financial reliability); 

(e) 

(f) 

is  not,  directly  or  indirectly,  obliged  to  invest  in  sales  promotion,  such  as 
contributions to the advertising budgets of the principal; 

does not make market-specific investments in equipment, premises or training 
of personnel, such as for example the petrol storage tank in the case of petrol 
retailing  or  specific  software  to  sell  insurance  policies  in  case  of  insurance 
agents, unless these costs are fully reimbursed by the principal; 

(g)  does not undertake other activities within the same product market required by 
the principal, unless these activities are fully reimbursed by the principal. 

This list is not exhaustive. However, where the agent incurs one or more of the risks 
or costs mentioned  in paragraphs  (14), (15) and (16), the agreement between  agent 
and principal will not be qualified as an agency agreement. The question of risk must 
be assessed on a case-by-case basis, and with regard to the economic reality of the 
situation rather than the legal form. For practical reasons, the risk analysis may start 
with  the  assessment  of  the  contract-specific  risks.  If  contract-specific  risks  are 
incurred by the agent, it will be enough to conclude that the agent is an independent 
distributor. On the contrary, if the agent does not incur contract-specific risks, then it 
will  be  necessary  to  continue  further  the  analysis  by  assessing  the  risks  related  to 
market-specific investments. Finally, if the agent does not incur any contract-specific 
risks  and  risks  related  to  market-specific  investments,  the  risks  related  to  other 
required activities within the same product market may have to be considered. 

(17) 

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2.2 

The application of Article 101(1) to agency agreements 

(18) 

In the case of agency agreements as defined in section 2.1, the selling or purchasing 
function of the agent forms part of the principal's activities. Since the principal bears 
the  commercial  and  financial  risks  related  to  the  selling  and  purchasing  of  the 
contract  goods  and  services  all  obligations  imposed  on  the  agent  in  relation  to  the 
contracts  concluded  and/or  negotiated  on  behalf  of  the  principal  fall  outside 
Article 101(1).  The  following  obligations  on  the  agent's  part  will  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 
or services, which is essential if the principal is to take the risks and therefore to be 
in a position to determine the commercial strategy: 

(19) 

(a) 

limitations on the territory in which the agent may sell these goods or services; 

(b) 

(c) 

limitations  on  the  customers  to  whom  the  agent  may  sell  these  goods 
or services; 

the prices and conditions at which the agent must sell or purchase these goods 
or services. 

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  contain 
provisions  which  concern  the  relationship  between  the  agent  and  the  principal.  In 
particular,  they  may  contain  a  provision  preventing  the  principal  from  appointing 
other agents in respect of a given type of transaction, customer or territory (exclusive 
agency provisions) and/or a provision preventing the agent from acting as an agent or 
distributor  of  undertakings  which  compete  with  the  principal  (single  branding 
provisions).  Since  the  agent  is  a  separate  undertaking  from  the  principal,  the 
provisions  which  concern  the  relationship  between  the  agent  and  the  principal  may 
infringe Article 101(1). Exclusive agency provisions will in general not lead to anti-
competitive effects. However, single branding provisions and post-term non-compete 
provisions,  which  concern  inter-brand  competition,  may  infringe  Article 101(1)  if 
they lead to or contribute to a (cumulative) foreclosure effect on the relevant market 
where  the  contract  goods  or  services  are  sold  or  purchased  (see  in  particular 
Section VI.2.1). Such provisions may benefit from the Block Exemption Regulation, 
in  particular  when  the  conditions  provided  in  Article  5  of  that  Regulation  are 
fulfilled. They can also be individually justified by efficiencies under Article 101(3) 
as for instance described in paragraphs (144) to (148). 

(20) 

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

(21)  Where  the  agent  bears  one  or  more  of  the  relevant  risks  as  described  in 
paragraph (16),  the  agreement  between  agent  and  principal  does  not  constitute  an 
agency  agreement  for  the  purpose  of  applying  Article  101(1).  In  that  situation,  the 

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agent will be treated as an independent undertaking and the agreement between agent 
and principal will be subject to Article 101(1) as any other vertical agreement. 

3. 

Subcontracting agreements 

(22) 

Subcontracting  concerns  a  contractor  providing  technology  or  equipment  to  a 
subcontractor  that  undertakes  to  produce  certain  products  on  the  basis  thereof 
(exclusively) for the contractor. Subcontracting is covered by Commission notice of 
18 December 1978 concerning the assessment of certain subcontracting agreements 
in relation to Article 85(1) of the EEC Treaty11 (hereinafter "subcontracting notice"). 
According  to  that  notice,  which  remains  applicable,  subcontracting  agreements 
whereby the subcontractor undertakes to produce certain products exclusively for the 
contractor  generally  fall  outside  the  scope  of  Article  101(1)  provided  that  the 
technology  or  equipment  is  necessary  to  enable  the  subcontractor  to  produce  the 
products.  However,  other  restrictions  imposed  on  the  subcontractor  such  as  the 
obligation  not  to  conduct  or  exploit  its  own  research  and  development  or  not  to 
produce for third parties in general may fall within the scope of Article 10112. 

III. 

APPLICATION OF THE BLOCK EXEMPTION REGULATION 

1. 

Safe harbour created by the Block Exemption Regulation 

(23) 

For  most  vertical  restraints,  competition  concerns  can  only  arise  if  there  is 
insufficient competition at one or more levels of trade, that is, if there is some degree 
of market power at the level of the supplier or the buyer or at both levels. Provided 
that they do not contain hardcore restrictions of competition, which are restrictions of 
competition  by  object,  the  Block  Exemption  Regulation  creates  a  presumption  of 
legality for vertical agreements depending on the market share of the supplier and the 
buyer. Pursuant  to Article 3  of  the Block Exemption Regulation, it is the supplier's 
market  share  on  the  market  where  it  sells  the  contract  goods  or  services  and  the 
buyer's market share on the market where it purchases the contract goods or services 
which  determine  the  applicability  of  the  block  exemption.  In  order  for  the  block 
exemption to apply, the supplier’s and the buyer’s market share must each be 30 % 
or  less.  Section V  of  these  Guidelines  provides  guidance  on  how  to  define  the 
relevant market and calculate the market shares. Above the market share threshold of 
30 %,  there  is  no  presumption  that  vertical  agreements  fall  within  the  scope  of 
Article 101(1) or fail to satisfy the conditions of Article 101(3) but there is also no 
presumption that vertical agreements falling within the scope of Article 101(1) will 
usually satisfy the conditions of Article 101(3). 

2. 

Scope of the Block Exemption Regulation 

2.1 

Definition of vertical agreements 

(24) 

Article 1(1)(a) of the Block Exemption Regulation defines a "vertical agreement" as 
"an agreement or concerted practice entered into between two or more undertakings 
each of which operates, for the purposes of the agreement or the concerted practice, 

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12 

OJ C 1, 3.1.1979, p. 2. 
See paragraph 3 of the subcontracting notice. 

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at  a  different  level  of  the  production  or  distribution  chain,  and  relating  to  the 
conditions  under  which  the  parties  may  purchase,  sell  or  resell  certain  goods 
or services". 

(25) 

The  definition  of  "vertical  agreement"  referred  to  in  paragraph  (24)  has  four  main 
elements: 

(a)  The  Block  Exemption  Regulation  applies  to  agreements  and  concerted 
practices.  The  Block  Exemption  Regulation  does  not  apply  to  unilateral 
conduct of the undertakings concerned. Such unilateral conduct can fall within 
the  scope  of  Article  102  which  prohibits  abuses  of  a  dominant  position.  For 
there to be an agreement within the meaning of Article 101 it is sufficient that 
the  parties  have  expressed  their  joint  intention  to  conduct  themselves  on  the 
market  in  a  specific  way.  The  form  in  which  that  intention  is  expressed  is 
irrelevant as long as it constitutes a faithful expression of the parties' intention. 
In case there is no explicit agreement expressing the concurrence of wills, the 
Commission will have to prove that the unilateral policy of one party receives 
the acquiescence of the other party. For vertical agreements, there are two ways 
in  which  acquiescence  with  a  particular  unilateral  policy  can  be  established. 
First,  the  acquiescence  can  be  deduced  from  the  powers  conferred  upon  the 
parties  in  a  general  agreement  drawn  up  in  advance.  If  the  clauses  of  the 
agreement  drawn  up  in  advance  provide  for  or  authorise  a  party  to  adopt 
subsequently  a  specific  unilateral  policy  which  will  be  binding  on  the  other 
party, the acquiescence of that policy by the other party can be established on 
the basis thereof13. Secondly, in the absence of such an explicit acquiescence, 
the  Commission  can  show  the  existence  of  tacit  acquiescence.  For  that  it  is 
necessary  to  show  first  that  one  party  requires  explicitly  or  implicitly  the 
cooperation  of  the  other  party  for  the  implementation  of  its  unilateral  policy 
and  second  that  the  other  party  complied  with  that  requirement  by 
implementing  that  unilateral  policy  in  practice14.  For  instance,  if  after  a 
supplier's  announcement  of  a  unilateral  reduction  of  supplies  in  order  to 
prevent  parallel  trade,  distributors  reduce  immediately  their  orders  and  stop 
engaging  in  parallel  trade,  then  those  distributors  tacitly  acquiesce  to  the 
supplier's  unilateral  policy.  This  can  however  not  be  concluded  if  the 
distributors  continue  to  engage  in  parallel  trade  or  try  to  find  new  ways  to 
engage in parallel trade. Similarly, for vertical agreements, tacit acquiescence 
may  be  deduced  from  the  level  of  coercion  exerted  by  a  party  to  impose  its 
unilateral policy on the other party or parties to the agreement in combination 
with the number of distributors that are  actually  implementing  in  practice  the 
unilateral  policy  of  the  supplier.  For  instance,  a  system  of  monitoring  and 
penalties, set up by a supplier to penalise those distributors that do not comply 
with  its  unilateral  policy,  points  to  tacit  acquiescence  with  the  supplier's 
unilateral policy if this system allows the supplier to implement in practice its 
policy. The two ways of establishing acquiescence described in this paragraph 
can be used jointly; 

13 
14 

Judgment of the Court of Justice in Case C-74/04 P Commission v Volkswagen AG [2006] ECR I-6585. 
Judgment of the Court of First Instance in Case T-41/96 Bayer AG v Commission [2000] ECR II-3383. 

EN 

12 

   EN 

                                                 
(b)  The  agreement  or  concerted  practice  is  between  two  or  more  undertakings. 
Vertical agreements with final consumers not operating as an undertaking are 
not  covered by the  Block  Exemption Regulation. More generally,  agreements 
with  final  consumers  do  not  fall  under  Article 101(1),  as  that  article  applies 
only  to  agreements  between  undertakings,  decisions  by  associations  of 
undertakings and concerted practices of undertakings. This is without prejudice 
to the possible application of Article 102; 

(c)  The  agreement  or  concerted  practice  is  between  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  which  the  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  an  undertaking  from  being  active  at  more  than  one  level  of  the 
production or distribution chain; 

(d)  The agreements or concerted practices relate to the conditions under which the 
parties  to  the  agreement,  the  supplier  and  the  buyer,  "may  purchase,  sell  or 
resell  certain  goods  or  services".  This  reflects  the  purpose  of  the  Block 
Exemption  Regulation  to  cover  purchase  and  distribution  agreements.  These 
are agreements which concern the conditions for the purchase, sale or resale of 
the  goods  or  services  supplied  by  the  supplier  and/or  which  concern  the 
conditions for the sale by the buyer of the goods or services which incorporate 
these goods or services. Both the goods or services supplied by the supplier and 
the resulting goods or services are considered to be contract goods or services 
under the Block Exemption Regulation. Vertical agreements relating to all final 
and  intermediate  goods  and  services  are  covered.  The  only  exception  is  the 
automobile  sector,  as  long  as  this  sector  remains  covered  by  a  specific  block 
exemption such as that granted by Commission Regulation (EC) No 1400/2002 
of 31 July 2002 on the application of Article 81(3) of the Treaty to categories 
of vertical agreements and concerted practices in the motor vehicle sector15 or 
its successor. The goods or services provided by the supplier may be resold by 
the buyer or may be used as an input by the buyer to produce its own goods or 
services. 

(26) 

The  Block  Exemption  Regulation  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 sold by the supplier to the buyer. More generally, the Block 
Exemption Regulation does not cover restrictions or obligations that do not relate to 
the conditions of purchase, sale and resale, such as an obligation preventing parties 
from carrying out independent research and development which the parties may have 
included  in  an  otherwise  vertical  agreement.  In  addition,  Article 2(2)  to  (5)  of  the 
Block  Exemption  Regulation  directly  or  indirectly  excludes  certain  vertical 
agreements from the application of that Regulation. 

15 

OJ L 203, 1.8.2002, p. 30. 

EN 

13 

   EN 

                                                 
2.2 

Vertical agreements between competitors 

(27) 

(28) 

Article  2(4)  of  the  Block  Exemption  Regulation  explicitly  excludes  "vertical 
agreements  entered  into  between  competing  undertakings"  from  its  application. 
Vertical agreements between competitors are dealt with, as regards possible collusion 
effects,  in  the  Commission  Guidelines  on  the  applicability  of  Article  81  of  the 
EC Treaty  to  horizontal  cooperation  agreements16.  However,  the  vertical  aspects  of 
such agreements  need  to  be  assessed  under  these  Guidelines.  Article 1(1)(c)  of  the 
Block  Exemption  Regulation  defines  a  competing  undertaking  as  "an  actual  or 
potential  competitor".  Two  companies  are  treated  as  actual  competitors  if  they  are 
active on the same relevant market. A company is treated as a potential competitor of 
another company if, absent the agreement, in case of a small but permanent increase 
in  relative  prices  it  is  likely  that  this  first  company,  within  a  short  period  of  time 
normally  not  longer  than  one  year,  would  undertake  the  necessary  additional 
investments or other necessary switching costs to enter the relevant market on which 
the other company is active. That assessment must be based on realistic grounds; the 
mere theoretical possibility of entering a market is not sufficient.17 A distributor that 
provides  specifications  to  a  manufacturer  to  produce  particular  goods  under  the 
distributor's  brand  name  is  not  to  be  considered  a  manufacturer  of  such  own-brand 
goods. 

Article  2(4)  of  the  Block  Exemption  Regulation  contains  two  exceptions  to  the 
general  exclusion  of  vertical  agreements  between  competitors.  These  exceptions 
concern non-reciprocal agreements. Non-reciprocal agreements between competitors 
are  covered  by  the  Block  Exemption  Regulation  where (a)  the  supplier  is  a 
manufacturer and distributor of goods, while the buyer is only a distributor and not 
also  a  competing  undertaking  at  the  manufacturing  level,  or (b)  the  supplier  is  a 
provider of services operating at several levels of trade, while the buyer operates at 
the  retail  level  and  is  not  a  competing  undertaking  at  the  level  of  trade  where  it 
purchases  the  contract  services.  The  first  exception  covers  situations  of  dual 
distribution, that is, the manufacturer of particular goods also acts as a distributor of 
the goods in competition with independent distributors of its goods. In case of dual 
distribution  it  is  considered  that  in  general  any  potential  impact  on  the  competitive 
relationship  between  the  manufacturer  and  retailer  at  the  retail  level  is  of  lesser 
importance than the potential impact of the vertical supply agreement on competition 
in general at the manufacturing or retail level. The second exception covers similar 
situations of dual distribution, but in this case for services, when the supplier is also a 
provider of products at the retail level where the buyer operates. 

2.3 

Associations of retailers 

(29) 

Article  2(2)  of  the  Block  Exemption  Regulation  includes  in  its  application  vertical 
agreements  entered  into  by  an  association  of  undertakings  which  fulfils  certain 
conditions  and  thereby  excludes  from  the  Block  Exemption  Regulation  vertical 
agreements  entered  into  by  all  other  associations.  Vertical  agreements  entered  into 

16 
17 

OJ C 3, 6.1.2001, p. 2. A revision of those Guidelines is forthcoming.  
See  Commission  Notice  on  the  definition  of  the  relevant  market  for  the  purposes  of  Community 
competition law, OJ C 372, 9.12.1997, p. 5, paragraphs 20 to 24, the Commission's Thirteenth Report 
on  Competition  Policy,  point 55,  and  Commission  Decision  90/410/EEC  in  Case  No IV/32.009  — 
Elopak/Metal Box-Odin, OJ L 209, 8.8.1990, p. 15. 

EN 

14 

   EN 

                                                 
(30) 

between an association and its members, or between an association and its suppliers, 
are covered by the Block Exemption Regulation only if all the members are retailers 
of  goods  (not  services)  and  if  each  individual  member  of  the  association  has  a 
turnover not exceeding EUR 50 million. Retailers are distributors reselling goods to 
final  consumers.  Where  only  a  limited  number  of  the  members  of  the  association 
have a turnover exceeding the EUR 50 million threshold and where these members 
together  represent  less  than  15 %  of  the  collective  turnover  of  all  the  members 
combined, the assessment under Article 101 will normally not be affected. 

An association of undertakings may involve both horizontal and vertical agreements. 
The horizontal agreements must be assessed according to the principles set out in the 
Guidelines  on  the  applicability  of  Article  81  of  the  EC  Treaty  to  horizontal 
cooperation  agreements18.  If  that  assessment  leads  to  the  conclusion that  a 
cooperation between undertakings in the area of purchasing or selling is acceptable, a 
further  assessment  will  be  necessary  to  examine  the vertical  agreements  concluded 
by the association with its suppliers or its individual members. The latter assessment 
will  follow  the  rules  of  the  Block Exemption  Regulation  and  these  Guidelines.  For 
instance,  horizontal  agreements  concluded  between  the  members  of  the  association 
or decisions adopted by the association, such as the decision to require the members 
to purchase from the association or the decision to allocate exclusive territories to the 
members  must  first  be  assessed  as  a  horizontal  agreement.  Once  that  assessment 
leads  to  the  conclusion that  the  horizontal  agreement  is  not  anticompetitive,  an 
assessment  of  the  vertical  agreements  between  the  association  and  individual 
members or between the association and suppliers is necessary.  

2.4 

Vertical agreements containing provisions on intellectual property rights (IPRs) 

(31) 

Article  2(3)  of  the  Block  Exemption  Regulation  includes  vertical  agreements 
containing certain provisions relating to the assignment of IPRs to or use of IPRs by 
the  buyer  in  its  application  and  thereby  excludes  all  other  vertical  agreements 
containing  IPR  provisions  from  the  Block  Exemption  Regulation.  The  Block 
Exemption  Regulation  applies  to  vertical  agreements  containing  IPR  provisions 
where five conditions are fulfilled: 

(a)  The IPR provisions must be part of a vertical agreement, that is, an agreement 
with  conditions  under  which  the  parties  may  purchase,  sell  or  resell  certain 
goods or services; 

(b)  The IPRs must be assigned to, or licensed for use by, the buyer; 

(c)  The IPR provisions must not constitute the primary object of the agreement; 

(d)  The IPR provisions must be directly related to the use, sale or resale of goods 
or  services  by  the  buyer  or  its  customers.  In  the  case  of  franchising  where 
marketing  forms  the  object  of  the  exploitation  of  the  IPRs,  the  goods  or 
services are distributed by the master franchisee or the franchisees; 

18 

See paragraph (27). 

EN 

15 

   EN 

                                                 
(32) 

(33) 

(34) 

(e)  The  IPR  provisions,  in  relation  to  the  contract  goods  or  services,  must  not 
contain restrictions of competition having the same object as vertical restraints 
which are not exempted under the Block Exemption Regulation. 

Such  conditions  ensure  that  the  Block  Exemption  Regulation  applies  to  vertical 
agreements where the use, sale or resale of goods or services can be performed more 
effectively  because  IPRs  are  assigned  to  or  licensed  for  use  by  the  buyer.  In  other 
words,  restrictions  concerning  the  assignment  or  use  of  IPRs  can  be  covered  when 
the main object of the agreement is the purchase or distribution of goods or services. 

The first condition makes clear that the context in which the IPRs are provided is an 
agreement  to  purchase  or  distribute  goods  or  an  agreement  to  purchase  or  provide 
services and not an agreement concerning the assignment or licensing of IPRs for the 
manufacture  of  goods,  nor  a  pure  licensing  agreement.  The  Block  Exemption 
Regulation does not cover for instance: 

(a) 

(b) 

agreements where a party provides another party with a recipe and licenses the 
other party to produce a drink with this recipe; 

agreements  under  which  one  party  provides  another  party  with  a  mould  or 
master copy and licenses the other party to produce and distribute copies; 

(c) 

the pure licence of a trade mark or sign for the purposes of merchandising; 

(d) 

(e) 

sponsorship  contracts  concerning  the  right  to  advertise  oneself  as  being  an 
official sponsor of an event; 

copyright  licensing  such  as  broadcasting  contracts  concerning  the  right  to 
record and/or broadcast an event. 

The  second  condition  makes  clear  that  the  Block  Exemption  Regulation  does  not 
apply when the IPRs are provided by the buyer to the supplier, no matter whether the 
IPRs concern the manner of manufacture or of distribution. An agreement relating to 
the transfer of IPRs to the supplier and containing possible restrictions on the sales 
made by the supplier is not covered by the Block Exemption Regulation. That means, 
in  particular,  that  subcontracting  involving  the  transfer  of  know-how  to  a 
subcontractor19 does not fall within the scope of application of the Block Exemption 
Regulation (see also paragraph (22)). However, vertical agreements under which the 
buyer  provides  only  specifications  to  the  supplier  which  describe  the  goods  or 
services to be supplied fall within the scope of application of the Block Exemption 
Regulation. 

(35) 

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

19 

See the subcontracting notice (referred to in paragraph (22)).  

EN 

16 

   EN 

                                                 
(36) 

(37) 

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

The  fifth  condition  highlights  the  fact  that  the  IPR  provisions  should  not  have  the 
same  object  as  any  of  the  hardcore  restrictions  listed  in  Article 4  of  the  Block 
Exemption  Regulation  or  any  of  the  restrictions  excluded from  the  coverage  of  the 
Block Exemption Regulation by Article 5 of that Regulation (see paragraphs (47) to 
(69) of these Guidelines). 

(38) 

Intellectual  property  rights  relevant  to  the  implementation  of  vertical  agreements 
within  the  meaning  of  Article 2(3)  of  the  Block  Exemption  Regulation  generally 
concern three main areas: trade marks, copyright and know-how. 

Trade mark 

(39) 

A  trade  mark  licence  to  a  distributor  may  be  related  to  the  distribution  of  the 
licensor's products in a particular territory. If it is an exclusive licence, the agreement 
amounts to exclusive distribution. 

Copyright 

(40) 

(41) 

(42) 

Resellers  of  goods  covered  by  copyright  (books,  software,  etc.)  may  be  obliged  by 
the  copyright  holder  only  to  resell  under  the  condition  that  the  buyer,  whether 
another reseller or the end user, shall not infringe the copyright. Such obligations on 
the reseller, to the extent that they fall under Article 101(1) at all, are covered by the 
Block Exemption Regulation. 

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

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

Know-how 

(43) 

Franchise agreements, with the exception of industrial franchise agreements, are the 
most obvious example of where know-how for marketing purposes is communicated 

EN 

17 

   EN 

(44) 

to the  buyer20. Franchise agreements contain licences of intellectual property rights 
relating to trade marks or signs and know-how for the use and distribution of goods 
or the provision of services. In addition to the licence of IPR, the franchisor usually 
provides the franchisee during the life of the agreement with commercial or technical 
assistance,  such  as  procurement  services,  training,  advice  on  real  estate,  financial 
planning etc. The licence and the assistance are integral components of the business 
method being franchised. 

Licensing  contained  in  franchise  agreements  is  covered  by  the  Block  Exemption 
Regulation  where  all  five  conditions  listed  in  paragraph (31)  are  fulfilled.  Those 
conditions are usually fulfilled as under most franchise agreements, including master 
franchise  agreements,  the  franchisor  provides  goods  and/or  services,  in  particular 
commercial  or  technical  assistance  services,  to  the  franchisee.  The  IPRs  help  the 
franchisee  to  resell  the  products  supplied  by  the  franchisor  or  by  a  supplier 
designated by the franchisor or to use those products and sell the resulting goods or 
services.  Where  the  franchise  agreement  only  or  primarily  concerns  licensing 
of IPRs, it is not covered by the Block Exemption Regulation, but the Commission 
will,  as  a  general  rule,  apply  the  principles  set  out  in  the  Block  Exemption 
Regulation and these Guidelines to such an agreement. 

(45) 

The following IPR-related obligations are generally considered necessary to protect 
the franchisor's intellectual property rights and are, where these obligations fall under 
Article 101(1), also covered by the Block Exemption Regulation: 

(a) 

(b) 

(c) 

(d) 

an  obligation  on  the  franchisee  not  to  engage,  directly  or  indirectly,  in  any 
similar business; 

an obligation on the franchisee not to acquire financial interests in the capital 
of  a  competing  undertaking  such  as  would  give  the  franchisee  the  power  to 
influence the economic conduct of such undertaking; 

an  obligation  on  the  franchisee  not  to  disclose  to  third  parties  the  know-how 
provided  by  the  franchisor  as  long  as  this  know-how  is  not  in  the  public 
domain; 

an  obligation  on  the  franchisee  to  communicate  to  the  franchisor  any 
experience  gained  in  exploiting  the  franchise  and  to  grant  the  franchisor,  and 
other franchisees, a non-exclusive licence for the know-how resulting from that 
experience; 

(e) 

an  obligation  on  the  franchisee  to  inform  the  franchisor  of  infringements  of 
licensed intellectual property rights, to take legal action against infringers or to 
assist the franchisor in any legal actions against infringers; 

(f) 

an obligation on the franchisee not to use know-how licensed by the franchisor 
for purposes other than the exploitation of the franchise; 

20 

Paragraphs 43-45 apply by analogy to other types of distribution agreements which involve the transfer 
of substantial know-how from supplier to buyer. 

EN 

18 

   EN 

                                                 
(g) 

an  obligation  on  the  franchisee  not  to  assign  the  rights  and  obligations  under 
the franchise agreement without the franchisor's consent. 

2.5 

Relationship to other block exemption regulations 

(46) 

Article 2(5) states that the Block Exemption Regulation  does  "not apply to vertical 
agreements  the  subject  matter  of  which  falls  within  the  scope  of  any  other  block 
exemption regulation, unless otherwise provided for in such a regulation". The Block 
Exemption  Regulation  does  not  therefore  apply  to  vertical  agreements  covered  by 
Commission  Regulation  (EC)  No  772/2004  of  27  April  2004  on  the  application  of 
Article  81(3)  of  the  Treaty  to  categories  of  technology  transfer  agreements21, 
Regulation 1400/2002 on the application of Article 81(3) of the Treaty to categories 
of  vertical  agreements  and  concerted  practices  in  the  motor  vehicle  sector22  or 
Commission  Regulation  (EC)  No  2658/2000  of  29  November  2000  on  the 
application of Article 81(3) of the Treaty to categories of specialisation agreements23 
and  Commission  Regulation  (EC)  No  2659/2000  of  29  November  2000  on  the 
application of Article 81(3) of the Treaty to categories of research and development 
agreements24 exempting vertical agreements concluded in connection with horizontal 
agreements, or any future regulations of that kind, unless otherwise provided for in 
such a regulation. 

3. 

Hardcore restrictions under the Block Exemption Regulation 

(47) 

Article 4 of the Block Exemption Regulation contains a list of hardcore restrictions 
which  lead  to  the  exclusion  of  the  whole  vertical  agreement  from  the  scope  of 
application of the Block Exemption Regulation25. Where such a hardcore restriction 
is included in an agreement, that agreement is presumed to fall within Article 101(1). 
It  is  also  presumed  that  the  agreement  is  unlikely  to  fulfil  the  conditions  of 
Article 101(3),  for  which  reason  the  block  exemption  does  not  apply.  However, 
undertakings  may  demonstrate  pro-competitive  effects  under  Article  101(3)  in  an 
individual  case26.  Where  the  undertakings  substantiate  that  likely  efficiencies  result 
from  including  the  hardcore  restriction  in  the  agreement  and  demonstrate  that  in 
general  all  the  conditions  of  Article  101(3)  are  fulfilled,  the  Commission  will  be 
required  to  effectively  assess  the  likely  negative  impact  on  competition  before 

21 
22 
23 
24 
25 

26 

OJ L 123, 27.4.2004, p. 11. 
See paragraph (25). 
OJ L 304, 5.12.2000, p. 3. 
OJ L 304, 5.12.2000, p. 7. 
This list of hardcore restrictions applies to vertical agreements concerning trade within the Union. In so 
far  as  vertical  agreements  concern  exports  outside  the  Union  or  imports/re-imports  from  outside  the 
Union  see  judgment  of  the  Court  of  Justice  in  Case  C-306/96  Javico  v  Yves  Saint  Laurent  [1998] 
ECR I-1983.  In  that  judgment  the  ECJ  held  in  paragraph  20  that  "an  agreement  in  which  the  reseller 
gives to the producer an undertaking that it will sell the contractual products on a market outside the 
Community cannot be regarded as having the object of appreciably restricting competition within the 
common market or as being capable of affecting, as such, trade between Member States". 
See  in  particular  paragraphs  106  to  109  describing  in  general  possible  efficiencies  related  to  vertical 
restraints  and  Section  VI.2.10  on  resale  price  restrictions.  See  for  general  guidance  on  this  the 
Communication from the Commission - Notice – Guidelines on the application of Article 81(3) of the 
Treaty, OJ C 101, 27.4.2004, p. 97.  

EN 

19 

   EN 

                                                 
(48) 

(49) 

(50) 

making  an  ultimate  assessment  of  whether  the  conditions  of  Article  101(3)  are 
fulfilled27. 

The  hardcore  restriction  set  out  in  Article 4(a)  of  the  Block  Exemption  Regulation 
concerns resale price maintenance (RPM), that is, agreements or concerted practices 
having  as  their  direct  or  indirect  object  the  establishment  of  a  fixed  or  minimum 
resale  price  or  a  fixed  or  minimum  price  level  to  be  observed  by  the  buyer.  In  the 
case of contractual provisions or concerted practices that directly establish the resale 
price,  the  restriction  is  clear  cut.  However,  RPM  can  also  be  achieved  through 
indirect  means.  Examples  of  the  latter  are  an  agreement  fixing  the  distribution 
margin,  fixing  the  maximum  level  of  discount  the  distributor  can  grant  from  a 
prescribed price level, making the grant of rebates or reimbursement of promotional 
costs  by  the  supplier  subject  to  the  observance  of  a  given  price  level,  linking  the 
prescribed  resale  price  to  the  resale  prices  of  competitors,  threats,  intimidation, 
warnings,  penalties,  delay  or  suspension  of  deliveries  or  contract  terminations  in 
relation to  observance  of  a  given price level. Direct or  indirect means  of achieving 
price  fixing  can  be  made  more  effective  when  combined  with  measures  to  identify 
price-cutting distributors, such as the implementation of a price monitoring system, 
or the obligation on retailers to report other members of the distribution network that 
deviate from the standard price level. Similarly, direct or indirect price fixing can be 
made  more  effective  when  combined  with  measures  which  may  reduce  the  buyer's 
incentive  to  lower  the  resale  price,  such  as  the  supplier  printing  a  recommended 
resale  price  on  the  product  or  the  supplier  obliging  the  buyer  to  apply  a  most-
favoured-customer  clause.  The  same  indirect  means  and  the  same  "supportive" 
measures  can  be  used  to  make  maximum  or  recommended  prices  work  as  RPM. 
However,  the  use  of  a  particular  supportive  measure  or  the  provision  of  a  list  of 
recommended  prices  or  maximum  prices  by  the  supplier  to  the  buyer  is  not 
considered in itself as leading to RPM. 

In the case of agency agreements, the principal normally establishes the sales price, 
as  the  agent  does  not  become  the  owner  of  the  goods.  However,  where  such  an 
agreement cannot be qualified as an agency agreement for the purposes of applying 
Article  101(1)  (see  paragraphs (12)  to  (21))  an  obligation  preventing  or  restricting 
the agent from sharing its commission, fixed or variable, with the customer would be 
a hardcore restriction under Article 4(a) of the Block Exemption Regulation. In order 
to avoid including such a hardcore restriction in the agreement, the agent should thus 
be  left  free  to  lower  the  effective  price  paid  by  the  customer  without  reducing  the 
income for the principal28. 

The  hardcore  restriction  set  out  in  Article 4(b)  of  the  Block  Exemption  Regulation 
concerns agreements or concerted practices that have as their direct or indirect object 
the restriction of sales by a buyer party to the agreement or its customers, in as far as 
those  restrictions  relate  to  the  territory  into  which  or  the  customers  to  whom  the 
buyer  or  its  customers  may  sell  the  contract  goods  or  services.  This  hardcore 
restriction relates to market partitioning by territory or by customer group. That may 
be  the  result  of  direct  obligations,  such  as  the  obligation  not  to  sell  to  certain 

27 

28 

Although, in legal terms, these are two distinct steps, they may in practice be an iterative process where 
the parties and Commission in several steps enhance and improve their respective arguments. 
See,  for  instance,  Commission  Decision  91/562/EEC  in  Case  No IV/32.737  —  Eirpage,  OJ  L 306, 
7.11.1991, p. 22, in particular recital (6). 

EN 

20 

   EN 

                                                 
customers or to customers in certain territories or the obligation to 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,  termination  of  supply,  reduction  of  supplied  volumes  or 
limitation  of  supplied  volumes  to  the  demand  within  the  allocated  territory  or 
customer group, threat of contract termination, requiring a higher price for products 
to  be  exported,  limiting  the  proportion  of  sales  that  can  be  exported  or  profit  pass-
over obligations. It may further result from the supplier not providing a Union-wide 
guarantee  service  under  which  normally  all  distributors  are  obliged  to  provide  the 
guarantee service and are reimbursed for this service by the supplier, even in relation 
to  products  sold  by  other  distributors  into  their  territory29.  Such  practices  are  even 
more  likely  to  be  viewed  as  a  restriction  of  the  buyer's  sales  when  used  in 
conjunction with the implementation by the supplier of a monitoring system aimed at 
verifying  the  effective  destination  of  the  supplied  goods,  such  as  the  use  of 
differentiated labels or serial numbers. However, obligations on the reseller relating 
to  the  display  of  the  supplier's  brand  name  are  not  classified  as  hardcore.  As 
Article 4(b)  only  concerns  restrictions  of  sales  by  the  buyer  or  its  customers,  this 
implies  that  restrictions  of  the  supplier’s  sales  are  also  not  a  hardcore  restriction, 
subject  to  what  is  stated  in  paragraph  (59)  regarding  sales  of  spare  parts  in  the 
context  of  Article  4(e)  of  the  Block  Exemption  Regulation.  Article  4(b)  applies 
without  prejudice  to  a  restriction  on  the  buyer's  place  of  establishment.  Thus,  the 
benefit  of  the  Block  Exemption  Regulation  is  not  lost  if  it  is  agreed  that  the  buyer 
will restrict its distribution outlet(s) and warehouse(s) to a particular address, place or 
territory. 

There  are  four  exceptions  to  the  hardcore  restriction  in  Article 4(b)  of  the  Block 
Exemption  Regulation.  The  first  exception  in  Article  4(b)(i)  allows  a  supplier  to 
restrict  active  sales  by  a  buyer  party  to  the  agreement  to  a  territory  or  a  customer 
group  which  has  been  allocated  exclusively  to  another  buyer  or  which  the  supplier 
has reserved to itself. A territory or customer group is exclusively allocated when the 
supplier  agrees  to  sell  its  product  only  to  one  distributor  for  distribution  in  a 
particular territory or to a particular customer group and the exclusive distributor is 
protected  against  active  selling  into  its  territory  or  to  its  customer  group  by  all  the 
other  buyers  of  the  supplier  within  the  Union,  irrespective  of  sales  by  the  supplier. 
The  supplier  is  allowed  to  combine  the  allocation  of  an  exclusive  territory  and  an 
exclusive  customer  group  by  for  instance  appointing  an  exclusive  distributor  for  a 
particular  customer  group  in  a  certain  territory.  Such  protection  of  exclusively 
allocated territories or customer groups must, however, permit passive sales to such 
territories  or  customer  groups.  For  the  application  of  Article 4(b)  of  the  Block 
Exemption  Regulation,  the  Commission  interprets  “active”  and  “passive”  sales  as 
follows: 

(51) 

29 

If  the  supplier  decides  not  to  reimburse  its  distributors  for  services  rendered  under  the  Union-wide 
guarantee,  it  may  be  agreed  with  these  distributors  that  a  distributor  which  makes  a  sale  outside  its 
allocated territory, will have to pay the distributor appointed in the territory of destination a fee based 
on the cost of the services (to be) carried out including a reasonable profit margin. This type of scheme 
may  not  be  seen  as  a  restriction  of  the  distributors'  sales  outside  their  territory  (see  judgment  of  the 
Court of First Instance in Case T-67/01 JCB Service v Commission [2004] ECR II-49, paragraphs 136 
to 145). 

EN 

21 

   EN 

                                                 
(52) 

– 

– 

“Active” sales mean actively approaching individual customers by for instance 
direct mail, including the sending of  unsolicited e-mails, or visits; or actively 
approaching  a  specific  customer  group  or  customers  in  a  specific  territory 
through  advertisement  in  media,  on  the  internet  or  other  promotions 
specifically  targeted  at  that  customer  group  or  targeted  at  customers  in  that 
territory. Advertisement or promotion that is only attractive for the buyer if it 
(also) reaches a specific group of customers or customers in a specific territory, 
is  considered  active  selling  to  that  customer  group  or  customers  in  that 
territory. 

“Passive”  sales  mean  responding  to  unsolicited  requests  from  individual 
customers including delivery of goods or services to such customers. General 
advertising  or  promotion  that  reaches  customers  in  other  distributors' 
(exclusive)  territories  or  customer  groups  but  which  is  a  reasonable  way  to 
reach  customers  outside  those  territories  or  customer  groups,  for  instance  to 
reach customers in one's own territory, are considered passive selling. General 
advertising  or  promotion  is  considered  a  reasonable  way  to  reach  such 
customers if it would be attractive for the buyer to undertake these investments 
also  if  they  would  not  reach  customers  in  other  distributors'  (exclusive) 
territories or customer groups. 

The  internet  is  a  powerful  tool  to  reach  a  greater  number  and  variety  of  customers 
than  by  more  traditional  sales  methods,  which  explains  why  certain  restrictions  on 
the  use  of  the  internet  are  dealt  with  as  (re)sales  restrictions.  In  principle,  every 
distributor must be allowed to use the internet to sell products. In general,  where a 
distributor uses a website to sell products that is considered a form of passive selling, 
since it is a reasonable way to allow customers to reach the distributor. The use of a 
website  may  have  effects  that  extend  beyond  the  distributor's  own  territory  and 
customer  group;  however,  such  effects  result  from  the  technology  allowing  easy 
access from everywhere. If a customer visits the web site of a distributor and contacts 
the  distributor  and  if  such  contact  leads  to  a  sale,  including  delivery,  then  that  is 
considered  passive  selling.  The  same  is  true  if  a  customer  opts  to  be  kept 
(automatically) informed by the distributor and it leads to a sale. Offering different 
language options on the website does not, of itself, change the passive character of 
such  selling.  The  Commission  thus  regards  the  following  as  examples  of  hardcore 
restrictions  of  passive  selling  given  the  capability  of  these  restrictions  to  limit  the 
distributor's access to a greater number and variety of customers: 

(a) 

an agreement that the (exclusive) distributor shall prevent customers located in 
another (exclusive) territory from viewing its website or shall automatically re-
rout  its  customers  to  the  manufacturer's  or  other  (exclusive)  distributors' 
websites.  This  does  not  exclude  an  agreement  that  the  distributor’s  website 
shall  also  offer  a  number  of  links  to  websites  of  other  distributors  and/or  the 
supplier; 

(b) 

an  agreement  that  the  (exclusive)  distributor  shall  terminate  consumers' 
transactions over the internet once their credit card data reveal an address that 
is not within the distributor's (exclusive) territory; 

(c) 

an agreement that the distributor shall limit its proportion of overall sales made 
over the internet. This does not exclude the supplier requiring, without limiting 

EN 

22 

   EN 

the online sales of the distributor, that the buyer sells at least a certain absolute 
amount  (in  value  or  volume)  of  the  products  offline  to  ensure  an  efficient 
operation  of  its  brick  and  mortar  shop  (physical  point  of  sales),  nor  does  it 
preclude  the  supplier  from  making  sure  that  the  online  activity  of  the 
distributor  remains  consistent  with  the  supplier's  distribution  model  (see 
paragraphs  (54)  and  (56)).  This  absolute  amount  of  required  offline  sales  can 
be  the  same  for  all  buyers,  or  determined  individually  for  each  buyer  on  the 
basis  of  objective  criteria,  such  as  the  buyer's  size  in  the  network  or  its 
geographic location; 

(d) 

an agreement that the distributor shall pay a higher price for products intended 
to  be  resold  by  the  distributor  online  than  for  products  intended  to  be  resold 
offline. This does not exclude the supplier agreeing with the buyer a fixed fee 
(that  is,  not  a  variable  fee  where  the  sum  increases  with  the  realised  offline 
turnover as this would amount indirectly to dual pricing) to support the latter’s 
offline or online sales efforts. 

A restriction on the use of the internet by distributors that are party to the agreement 
is compatible with the Block Exemption Regulation to the extent that promotion on 
the internet or use of the internet would lead to active selling into, for instance, other 
distributors'  exclusive  territories  or  customer  groups.  The  Commission  considers 
online advertisement specifically addressed to certain customers as a form of active 
selling  to  those  customers.  For  instance,  territory-based  banners  on  third  party 
websites are a form of active sales into the territory where these banners are shown. 
In  general,  efforts  to  be  found  specifically  in  a  certain  territory  or  by  a  certain 
customer  group  is  active  selling  into  that  territory  or  to  that  customer  group.  For 
instance,  paying  a  search  engine  or  online  advertisement  provider  to  have 
advertisements displayed specifically to users in a particular territory is active selling 
into that territory. 

However, under the Block Exemption the supplier may require quality standards for 
the use of the internet site to resell its goods, just as the supplier may require quality 
standards for a shop or for selling by catalogue or for advertising and promotion in 
general. This may be relevant in particular for selective distribution. Under the Block 
Exemption,  the  supplier  may,  for  example,  require  that  its  distributors  have  one  or 
more brick and mortar shops or showrooms as a condition for becoming a member of 
its  distribution  system.  Subsequent  changes  to  such  a  condition  are  also  possible 
under  the  Block  Exemption,  except  where  those  changes  have  as  their  object  to 
directly  or  indirectly  limit  the  online  sales  by  the  distributors.  Similarly,  a  supplier 
may  require  that  its  distributors  use  third  party  platforms  to  distribute  the  contract 
products  only  in  accordance  with  the  standards  and  conditions  agreed  between  the 
internet.  For 
supplier  and 
instance, where  the  distributor's  website  is  hosted  by  a  third  party  platform,  the 
supplier  may  require  that  customers  do  not  visit  the distributor's  website  through  a 
site carrying the name or logo of the third party platform. 

the  distributors'  use  of 

its  distributors  for 

the 

(53) 

(54) 

(55) 

There are three further exceptions to the hardcore restriction set out in Article 4(b) of 
the  Block  Exemption  Regulation.  All  three  exceptions  allow  for  the  restriction  of 
both active and passive sales. Under the first exception, it is permissible to restrict a 
wholesaler from selling to end users, which allows a supplier to keep the wholesale 
and  retail  level  of  trade  separate.  However,  that  exception  does  not  exclude  the 

EN 

23 

   EN 

(56) 

possibility that the wholesaler can sell to certain end users, such as bigger end users, 
while  not  allowing  sales  to  (all)  other  end  users.  The  second  exception  allows  a 
supplier  to  restrict  an  appointed  distributor  in  a  selective  distribution  system  from 
selling,  at  any  level  of  trade,  to  unauthorised  distributors  located  in  any  territory 
where  the  system  is  currently  operated  or  where  the  supplier  does  not  yet  sell  the 
contract products (referred to as "the territory reserved by the supplier to operate that 
system" in Article 4(b)(iii)). The third exception allows a supplier to restrict a buyer 
of  components,  to  whom  the  components  are  supplied  for  incorporation,  from 
reselling  them  to  competitors  of  the  supplier.  The  term  "component"  includes  any 
intermediate  goods  and  the  term  "incorporation"  refers  to  the  use  of  any  input  to 
produce goods. 

The  hardcore  restriction  set  out  in  Article 4(c)  of  the  Block  Exemption  Regulation 
excludes the restriction of active or passive sales to end users, whether professional 
end  users  or  final  consumers,  by  members  of  a  selective  distribution  network, 
without  prejudice  to  the  possibility  of  prohibiting  a  member  of  the  network  from 
operating  out  of  an  unauthorised  place  of  establishment.  Accordingly,  dealers  in  a 
selective  distribution  system,  as  defined  in  Article 1(1)(e)  of  the  Block  Exemption 
Regulation,  cannot  be  restricted  in  the  choice  of  users  to  whom  they  may  sell,  or 
purchasing  agents  acting  on  behalf  of  those  users  except  to  protect  an  exclusive 
distribution  system  operated  elsewhere  (see  paragraph  (51)).  Within  a  selective 
distribution system the dealers should be free to sell, both actively and passively, to 
all end users, also with the help of the internet. Therefore, the Commission considers 
any obligations which dissuade appointed dealers from using the internet to reach a 
greater number and variety of customers by imposing criteria for online sales which 
are  not  overall  equivalent  to  the  criteria  imposed  for  the  sales  from  the  brick  and 
mortar  shop  as  a  hardcore  restriction.  This  does  not  mean  that  the  criteria  imposed 
for online sales must be identical to those imposed for offline sales , but rather that 
they should pursue the same objectives and achieve comparable results and that the 
difference between the criteria must be justified by the different nature of these two 
distribution modes. For example, in order to prevent sales to unauthorised dealers, a 
supplier  can  restrict  its  selected  dealers  from  selling  more  than  a  given  quantity  of 
contract  products  to  an  individual  end  user.  Such  a  requirement  may  have  to  be 
stricter  for  online  sales  if  it  is  easier  for  an  unauthorised  dealer  to  obtain  those 
products by using the internet. Similarly, it may have to be stricter for offline sales if 
it  is  easier  to  obtain  them  from  a  brick  and  mortar  shop.  In  order  to  ensure  timely 
delivery of contract products, a supplier may impose that the products be delivered 
instantly  in  the  case  of  offline  sales.  Whereas  an  identical  requirement  cannot  be 
imposed for online sales, the supplier may specify certain practicable delivery times 
for such sales. Specific requirements may have to be formulated for an online after-
sales help desk, so as to cover the costs of customers returning the product and for 
applying secure payment systems. 

(57)  Within  the  territory  where  the  supplier  operates  selective  distribution,  this  system 
may  not  be  combined  with  exclusive  distribution  as  that  would  lead  to  a  hardcore 
restriction of active or passive selling by the dealers under Article 4(c) of the Block 
Exemption  Regulation,  with  the  exception  that  restrictions  can  be  imposed  on  the 
dealer's  ability  to  determine  the  location  of  its  business  premises.  Selected  dealers 
may  be  prevented  from  operating  their  business  from  different  premises  or  from 
opening a new outlet in a different location. In that context, the use by a distributor 
of its own website cannot be considered to be the same thing as the opening of a new 

EN 

24 

   EN 

(58) 

(59) 

4. 

(60) 

outlet in a different location. If the dealer's outlet is mobile , an area may be defined 
outside  which  the  mobile  outlet  cannot  be  operated.  In  addition,  the  supplier  may 
commit  itself  to  supplying  only  one  dealer  or  a  limited  number  of  dealers  in  a 
particular part of the territory where the selective distribution system is applied. 

The  hardcore  restriction  set  out  in  Article  4(d)  of  the  Block  Exemption  Regulation 
concerns  the  restriction  of  cross-supplies  between  appointed  distributors  within  a 
selective  distribution  system.  Accordingly, an agreement  or concerted practice  may 
not  have  as  its  direct  or  indirect  object  to  prevent  or  restrict  the  active  or  passive 
selling  of  the  contract  products  between  the  selected  distributors.  Selected 
distributors must remain free to purchase the contract products from other appointed 
distributors within the network, operating either at the same or at a different level of 
trade.  Consequently,  selective  distribution  cannot  be  combined  with  vertical 
restraints aimed at forcing distributors to purchase the contract products exclusively 
from  a  given  source.  It  also  means  that  within  a  selective  distribution  network,  no 
restrictions  can  be  imposed  on  appointed  wholesalers  as  regards  their  sales  of  the 
product to appointed retailers. 

into 

those  parts 

its  own  products 

The  hardcore  restriction  set  out  in  Article  4(e)  of  the  Block  Exemption  Regulation 
concerns  agreements  that  prevent  or  restrict  end-users,  independent  repairers  and 
service providers from obtaining spare parts directly from the manufacturer of those 
spare  parts.  An  agreement  between  a  manufacturer  of  spare  parts  and  a  buyer  that 
incorporates 
equipment 
manufacturer (OEM)), may not, either directly or indirectly, prevent or restrict sales 
by  the  manufacturer  of  those  spare  parts  to  end  users,  independent  repairers  or 
service providers. Indirect restrictions may arise particularly when the supplier of the 
spare  parts  is  restricted  in  supplying  technical  information  and  special  equipment 
which  are  necessary  for  the  use  of  spare  parts  by  users,  independent  repairers  or 
service  providers.  However,  the  agreement  may  place  restrictions  on  the  supply  of 
the  spare  parts  to  the  repairers  or  service  providers  entrusted  by  the  original 
equipment  manufacturer  with  the  repair  or  servicing  of  its  own  goods.  In  other 
words,  the  original  equipment  manufacturer may require its own repair and service 
network to buy spare parts from it. 

(original 

Individual cases of hardcore sales restrictions that may fall outside the scope of 
Article 101(1) or may fulfil the conditions of Article 101(3) 

Hardcore  restrictions  may  be  objectively  necessary  in  exceptional  cases  for  an 
agreement  of  a  particular  type  or  nature30  and  therefore  fall  outside  Article  101(1). 
For  example,  a  hardcore  restriction  may  be  objectively  necessary  to  ensure  that  a 
public ban on selling dangerous substances to certain customers for reasons of safety 
or  health  is  respected.  In  addition,  undertakings  may  plead  an  efficiency  defence 
under Article 101(3) in an individual case. This section provides some examples for 
(re)sales restrictions, whereas for RPM this is dealt with in section VI.2.10. 

(61) 

A distributor which will be the first to sell a new brand or the first to sell an existing 
brand on a new market, thereby ensuring a genuine entry on the relevant market, may 
have  to  commit  substantial  investments  where  there  was  previously  no  demand  for 

30 

See paragraph 18 of Communication from the Commission - Notice – Guidelines on the application of 
Article 81(3) of the Treaty, OJ C 101, 27.4.2004, p. 97. 

EN 

25 

   EN 

                                                 
that type of product in general or for that type of product from that producer. Such 
expenses may often be sunk and in such circumstances the distributor may not enter 
into the distribution agreement without protection for a certain period of time against 
(active  and)  passive  sales  into  its  territory  or  to  its  customer  group  by  other 
distributors.  For  example  such  a  situation  may  occur  where  a  manufacturer 
established  in  a  particular  national  market  enters  another  national  market  and 
introduces  its  products  with  the  help  of  an  exclusive  distributor  and  where  this 
distributor  needs  to  invest  in  launching  and  establishing  the  brand  on  this  new 
market.  Where  substantial  investments  by  the  distributor  to  start  up  and/or  develop 
the new market are necessary, restrictions of passive sales by other distributors into 
such a territory or to such a customer group which are necessary for the distributor to 
recoup those investments generally fall outside the scope of Article 101(1) during the 
first  two  years  that  the  distributor  is  selling  the  contract  goods  or  services  in  that 
territory  or  to  that  customer  group,  even  though  such  hardcore  restrictions  are  in 
general presumed to fall within the scope of Article 101(1). 

In the case of genuine testing of a new product in a limited territory or with a limited 
customer  group  and  in  the  case  of  a  staggered  introduction  of  a  new  product,  the 
distributors appointed to sell the new product on the test market or to participate in 
the  first  round(s)  of  the  staggered  introduction  may  be  restricted  in  their  active 
selling outside the test market or the market(s) where the product is first introduced 
without  falling  within  the  scope  of  Article  101(1)  for  the  period  necessary  for  the 
testing or introduction of the product. 

In  the  case  of  a  selective  distribution  system,  cross  supplies  between  appointed 
distributors must normally remain free (see paragraph (58)). However, if appointed 
wholesalers  located  in  different  territories  are  obliged  to  invest  in  promotional 
activities in ‘their’ territories to support the sales by appointed retailers and it is not 
practical  to  specify  in  a  contract  the  required  promotional  activities,  restrictions  on 
active sales by the wholesalers to appointed retailers in other wholesalers’ territories 
to overcome possible free riding may, in an individual case, fulfil the conditions of 
Article 101(3). 

In  general,  an  agreement  that  a  distributor  shall  pay  a  higher  price  for  products 
intended to be resold by the distributor online than for products intended to be resold 
offline  ("dual  pricing")  is  a  hardcore  restriction  (see  paragraph  (52)).  However,  in 
some  specific  circumstances,  such  an  agreement  may  fulfil  the  conditions  of 
Article 101(3).  Such  circumstances  may  be  present  where  a  manufacturer  agrees 
such  dual  pricing  with  its  distributors,  because  selling  online  leads  to  substantially 
higher costs for the manufacturer than offline sales. For example, where offline sales 
include  home  installation  by  the  distributor  but  online  sales  do  not,  the  latter  may 
lead to more customer complaints and warranty claims for the manufacturer. In that 
context, the Commission will also consider to what extent the restriction is likely to 
limit internet sales and hinder the distributor to reach more and different customers.  

(62) 

(63) 

(64) 

5. 

Excluded restrictions under the Block Exemption Regulation 

(65) 

Article  5  of  the  Block  Exemption  Regulation  excludes  certain  obligations  from  the 
coverage of the Block Exemption Regulation even though the market share threshold 
is not exceeded. However, the Block Exemption Regulation continues to apply to the 

EN 

26 

   EN 

(66) 

(67) 

(68) 

remaining  part  of  the  vertical  agreement  if  that  part  is  severable  from  the  non-
exempted obligations. 

The  first  exclusion  is  provided  for  in  Article  5(1)(a)  of  the  Block  Exemption 
Regulation  and  concerns  non-compete  obligations.  Non-compete  obligations  are 
arrangements  that  result  in  the  buyer  purchasing  from  the  supplier  or  from  another 
undertaking designated by the supplier more than 80 % of the buyer's total purchases 
of the contract goods and services and their substitutes during the preceding calendar 
year  (as  defined  by  Article 1(1)(d)  of  the  Block  Exemption  Regulation),  thereby 
preventing the buyer from purchasing competing goods or services or limiting such 
purchases to less than 20 % of total purchases. Where, in the first year after entering 
in  the  agreement,  for  the  year  preceding  the  conclusion  of  the  contract  no  relevant 
purchasing  data  for  the  buyer  are  available,  the  buyer's  best  estimate  of  its  annual 
total  requirements  may  be  used.  Such  non-compete  obligations  are  not  covered  by 
the  Block  Exemption  Regulation  where  the  duration  is  indefinite  or  exceeds  five 
years.  Non-compete  obligations  that  are  tacitly  renewable  beyond  a  period  of  five 
years  are  also  not  covered  by  the  Block  Exemption  Regulation  (see  the  second 
subparagraph  of  Article  5(1)).  In  general,  non-compete  obligations  are  exempted 
under  that  Regulation  where  their  duration  is  limited  to  five  years  or  less  and  no 
obstacles  exist  that  hinder  the  buyer  from  effectively  terminating  the  non-compete 
obligation at the end of the five year period. If, for instance, the agreement provides 
for a five-year non-compete obligation and the supplier provides a loan to the buyer, 
the repayment of that loan should not hinder the buyer from effectively terminating 
the  non-compete  obligation  at  the  end  of  the  five-year  period.  Similarly,  when  the 
supplier  provides  the  buyer  with  equipment  which  is  not  relationship-specific,  the 
buyer should have the possibility to take over the equipment at its market asset value 
once the non-compete obligation expires. 

The five-year duration limit does not apply when the goods or services are resold by 
the buyer "from premises and land owned by the supplier or leased by the supplier 
from  third  parties  not  connected  with  the  buyer".  In  such  cases  the  non-compete 
obligation  may  be  of  the  same  duration  as  the  period  of  occupancy  of  the  point  of 
sale by the buyer (Article 5(2) of the Block Exemption Regulation). 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 
its permission. By analogy, the same principles apply where the buyer operates from 
a mobile outlet owned by the supplier or leased by the supplier from third parties not 
connected  with  the  buyer.  Artificial  ownership  constructions,  such  as  a  transfer  by 
the distributor of its proprietary rights over the land and premises to the supplier for 
only a limited period, intended to avoid the five-year limit cannot benefit from this 
exception. 

The second exclusion from the block exemption is provided for in Article 5(1)(b) of 
the Block Exemption Regulation and concerns post term non-compete obligations on 
the  buyer.  Such  obligations  are  normally  not  covered  by  the  Block  Exemption 
Regulation, unless the obligation is indispensable to protect know-how transferred by 
the  supplier  to  the  buyer,  is  limited  to  the  point  of  sale  from  which  the  buyer  has 
operated during the contract period, and is limited to a maximum period of one year 
(see Article 5(3) of the Block Exemption Regulation). According to the definition in 
Article 1(1)(g)  of  the  Block  Exemption  Regulation  the  know-how  needs  to  be 

EN 

27 

   EN 

(69) 

"substantial", meaning that the know-how includes information which is significant 
and useful to the buyer for the use, sale or resale of the contract goods or services. 

The third exclusion from the block exemption is provided for in Article 5(1)(c) of the 
Block Exemption Regulation and concerns the sale of competing goods in a selective 
distribution  system.  The  Block  Exemption  Regulation  covers  the  combination  of 
selective distribution with a non-compete obligation, obliging the dealers not to resell 
competing brands in general. However, if the supplier prevents its appointed dealers, 
either directly or indirectly, from buying products for resale from specific competing 
suppliers,  such  an  obligation  cannot  enjoy  the  benefit  of  the  Block  Exemption 
Regulation.  The  objective  of  the  exclusion  of  such  an  obligation  is  to  avoid  a 
situation whereby a number of suppliers using the same selective distribution outlets 
prevent  one  specific  competitor  or  certain  specific  competitors  from  using  these 
outlets to distribute their products (foreclosure of a competing supplier which would 
be a form of collective boycott)31. 

6. 

Severability 

(70) 

(71) 

The Block Exemption Regulation exempts vertical agreements on condition that no 
hardcore  restriction,  as  set  out  in  Article  4  of  that  Regulation,  is  contained  in  or 
practised with the vertical agreement. If there are one or more hardcore restrictions, 
the  benefit  of  the  Block  Exemption  Regulation  is  lost  for  the  entire  vertical 
agreement. There is no severability for hardcore restrictions. 

The rule of severability does apply, however, to the excluded restrictions set out in 
Article 5  of  the  Block  Exemption  Regulation.  Therefore,  the  benefit  of  the  block 
exemption  is  only  lost  in  relation  to  that  part  of  the  vertical  agreement  which  does 
not comply with the conditions set out in Article 5. 

7. 

Portfolio of products distributed through the same distribution system 

(72)  Where  a  supplier  uses  the  same  distribution  agreement  to  distribute  several 
goods/services some of these may, in view of the market share threshold, be covered 
by  the  Block  Exemption  Regulation  while  others  may  not.  In  that  case,  the  Block 
Exemption Regulation applies to those goods and services for which the conditions 
of application are fulfilled. 

(73) 

In  respect  of  the  goods  or  services  which  are  not  covered  by  the  Block Exemption 
Regulation, the ordinary rules of competition apply, which means: 

(a) 

there is no block exemption but also no presumption of illegality; 

(b) 

if  there  is  an  infringement  of  Article  101(1)  which  is  not  exemptible, 
consideration may be given to whether there are appropriate remedies to solve 
the competition problem within the existing distribution system; 

(c) 

if there are no such appropriate remedies, the supplier concerned will have to 
make other distribution arrangements. 

31 

An  example  of  indirect  measures  having  such  exclusionary  effects  can  be  found  in  Commission 
Decision 92/428/EEC in Case No IV/33.542 — Parfum Givenchy, OJ L 236, 19.8.1992, p. 11. 

EN 

28 

   EN 

                                                 
Such a situation can also arise where Article 102 applies in respect of some products 
but not in respect of others. 

IV.  WITHDRAWAL  OF  THE  BLOCK  EXEMPTION  AND  DISAPPLICATION 

OF THE BLOCK EXEMPTION REGULATION 

1. 

Withdrawal procedure 

(74) 

(75) 

The  presumption  of  legality  conferred  by  the  Block  Exemption  Regulation  may  be 
withdrawn  where  a  vertical  agreement,  considered  either  in  isolation  or  in 
conjunction  with  similar  agreements  enforced  by  competing  suppliers  or  buyers, 
comes  within  the  scope  of  Article  101(1)  and  does  not  fulfil  all  the  conditions  of 
Article 101(3).  

The conditions of Article 101(3) may in particular not be fulfilled when access to the 
relevant  market  or  competition  therein  is  significantly  restricted  by  the  cumulative 
effect  of  parallel  networks  of  similar  vertical  agreements  practised  by  competing 
suppliers  or  buyers.  Parallel  networks  of  vertical  agreements  are  to  be  regarded  as 
similar  if  they  contain  restraints  producing  similar  effects  on  the  market.  Such  a 
situation may arise for example when, on a given market, certain suppliers practise 
purely  qualitative  selective  distribution  while  other  suppliers  practise  quantitative 
selective distribution. Such a situation may also arise when, on a given market, the 
cumulative  use  of  qualitative  criteria  forecloses  more  efficient  distributors.  In  such 
circumstances,  the  assessment  must  take  account  of  the  anti-competitive  effects 
attributable 
individual  network  of  agreements.  Where  appropriate, 
withdrawal  may  concern  only  a  particular  qualitative  criterion  or  only  the 
quantitative limitations imposed on the number of authorised distributors.  

to  each 

(76) 

Responsibility  for  an  anti-competitive  cumulative  effect  can  only  be  attributed  to 
those undertakings which make an appreciable contribution to it. Agreements entered 
into by undertakings whose contribution to the cumulative effect is insignificant do 
not  fall  under the  prohibition provided for in Article 101(1)32 and are therefore not 
subject to the withdrawal mechanism. The assessment of such a contribution will be 
made in accordance with the criteria set out in paragraphs (128) to (229). 

(77)  Where  the  withdrawal  procedure  is  applied,  the  Commission  bears  the  burden  of 
proof  that  the  agreement  falls  within  the  scope  of  Article  101(1)  and  that  the 
agreement  does  not  fulfil  one  or  several  of  the  conditions  of  Article  101(3).  A 
withdrawal  decision  can  only  have  ex  nunc  effect,  which  means  that  the  exempted 
status  of  the  agreements  concerned  will  not  be  affected  until  the  date  at  which  the 
withdrawal becomes effective. 

(78) 

As  referred  to  in  recital  14  of  the  Block  Exemption  Regulation,  the  competition 
authority  of  a  Member  State  may  withdraw  the  benefit  of  the  Block  Exemption 
Regulation in respect of vertical agreements whose anti-competitive effects are felt in 
the  territory  of  the  Member  State  concerned  or  a  part  thereof,  which  has  all  the 
characteristics  of  a  distinct  geographic  market.  The  Commission  has  the  exclusive 

32 

Judgment of the Court of Justice of 28 February 1991 in Case C-234/89, Stergios Delimitis v Henninger 
Bräu AG [1991] ECR I-935. 

EN 

29 

   EN 

                                                 
power  to  withdraw  the  benefit  of  the  Block  Exemption  Regulation  in  respect  of 
vertical agreements restricting competition on a relevant geographic market which is 
wider  than  the  territory  of  a  single  Member  State.  When  the  territory  of  a  single 
Member  State,  or  a  part  thereof,  constitutes  the  relevant  geographic  market,  the 
Commission  and  the  Member  State  concerned  have  concurrent  competence  for 
withdrawal.  

2. 

Disapplication of the Block Exemption Regulation 

(79) 

Article  6  of  the  Block  Exemption  Regulation  enables  the  Commission  to  exclude 
from the scope of the Block Exemption Regulation, by means of regulation, parallel 
networks  of  similar  vertical  restraints  where  these  cover  more  than  50 %  of  a 
relevant  market.  Such  a  measure  is  not  addressed  to  individual  undertakings  but 
concerns  all  undertakings  whose  agreements  are  defined  in  the  regulation 
disapplying the Block Exemption Regulation. 

(80)  Whereas  the  withdrawal  of  the  benefit  of  the  Block  Exemption  Regulation  implies 
the  adoption  of  a  decision  establishing  an  infringement  of  Article  101  by  an 
individual company, the effect of a regulation under Article 6 is merely to remove, in 
respect of the restraints and the markets concerned, the benefit of the application of 
the Block Exemption Regulation and to restore the full application of Article 101(1) 
and  (3).  Following  the  adoption  of  a  regulation  declaring  the  Block  Exemption 
Regulation inapplicable in respect of certain vertical restraints on a particular market, 
the  criteria  developed  by  the  relevant  case-law  of  the  Court  of  Justice  and  the 
General  Court  and  by  notices  and  previous  decisions  adopted  by  the  Commission 
will  guide  the  application  of  Article  101  to  individual  agreements.  Where 
appropriate,  the  Commission  will  take  a  decision  in  an  individual  case,  which  can 
provide guidance to all the undertakings operating on the market concerned. 

(81) 

(82) 

(83) 

For the purpose of calculating the 50 % market coverage ratio, account must be taken 
of  each  individual  network  of  vertical  agreements  containing  restraints,  or 
combinations of restraints, producing similar effects on the market. Article 6 of the 
Block  Exemption  Regulation  does  not  entail  an  obligation  on  the  part  of  the 
Commission  to  act  where  the  50 %  market-coverage  ratio  is  exceeded.  In  general, 
disapplication  is  appropriate  when  it  is  likely  that  access  to  the  relevant  market  or 
competition  therein  is  appreciably  restricted.  This  may  occur  in  particular  when 
parallel networks of selective distribution covering more than 50 % of a market are 
liable to foreclose the market by using selection criteria which are not required by the 
nature  of  the  relevant  goods  or  which  discriminate  against  certain  forms  of 
distribution capable of selling such goods. 

In  assessing  the  need  to  apply  Article  6  of  the  Block  Exemption  Regulation,  the 
Commission  will  consider  whether  individual  withdrawal  would  be  a  more 
appropriate  remedy.  This  may  depend,  in  particular,  on  the  number  of  competing 
undertakings  contributing  to  a  cumulative  effect  on  a  market  or  the  number  of 
affected geographic markets within the Union. 

Any  regulation  referred  to  in  Article  6  of  the  Block  Exemption  Regulation  must 
clearly  set  out  its  scope.  Therefore,  the  Commission  must  first  define  the  relevant 
product  and  geographic  market(s)  and,  secondly,  must  identify  the  type  of  vertical 
restraint in respect of which the Block Exemption Regulation will no longer apply. 

EN 

30 

   EN 

As  regards  the  latter  aspect,  the  Commission  may  modulate  the  scope  of  its 
regulation  according  to  the  competition  concern  which  it  intends  to  address.  For 
instance,  while  all  parallel  networks  of  single-branding  type  arrangements  shall  be 
taken  into  account  in  view  of  establishing  the  50 %  market  coverage  ratio,  the 
Commission may nevertheless restrict the scope of the disapplication regulation only 
to  non-compete  obligations  exceeding  a  certain  duration.  Thus,  agreements  of  a 
shorter  duration  or  of  a  less  restrictive  nature  might  be  left  unaffected,  in 
consideration  of  the  lesser  degree  of  foreclosure  attributable  to  such  restraints. 
Similarly,  when  on  a  particular  market  selective  distribution  is  practised  in 
combination  with  additional  restraints  such  as  non-compete  or  quantity-forcing  on 
the buyer, the disapplication regulation may concern only such additional restraints. 
Where  appropriate,  the  Commission  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 by an individual undertaking to 
the cumulative effect. 

Pursuant  to  Regulation  No  19/65/EEC  of  2  March  1965  of  the  Council  on  the 
application  of  Article  85(3)  of  the  Treaty  to  certain  categories  of  agreements  and 
concerted  practices33,  the  Commission  will  have  to  set  a  transitional  period  of  not 
less than six months before a regulation disapplying the Block Exemption Regulation 
becomes  applicable.  This  should  allow  the  undertakings  concerned  to  adapt their 
agreements  to  take  account  of  the  regulation  disapplying  the  Block  Exemption 
Regulation. 

A  regulation  disapplying  the  Block  Exemption  Regulation  will  not  affect  the 
exempted  status  of  the  agreements  concerned  for  the  period  preceding  its  date  of 
application. 

MARKET DEFINITION AND MARKET SHARE CALCULATION 

Commission Notice on definition of the relevant market 

The  Commission  Notice  on  definition  of  the  relevant  market  for  the  purposes  of 
Community competition law34 provides guidance on the rules, criteria and evidence 
which the Commission uses when considering market definition issues. That Notice 
will  not  be  further  explained  in  these  Guidelines  and  should  serve  as  the  basis  for 
market  definition  issues.  These  Guidelines  will  only  deal  with  specific  issues  that 
arise in the context of vertical restraints and that are not dealt with in that notice. 

The relevant market for calculating the 30 % market share threshold under the 
Block Exemption Regulation 

Under  Article  3  of  the  Block  Exemption  Regulation,  the  market  share  of  both  the 
supplier  and  the  buyer  are  decisive  to  determine  if  the  block  exemption  applies.  In 
order  for  the  block  exemption  to  apply,  the  market  share  of  the  supplier  on  the 
market where it sells the contract products to the buyer, and the market share of the 
buyer on the market where it purchases the contract products, must each be 30 % or 

(84) 

(85) 

V. 

1. 

(86) 

2. 

(87) 

33 
34 

OJ 36, 6.3.1965, p. 533/65, English special edition: OJ Series I Chapter 1965-1966, p. 35.  
OJ C 372, 9.12.1997, p. 5. 

EN 

31 

   EN 

                                                 
(88) 

(89) 

less. For  agreements between  small  and  medium-sized undertakings it is in general 
not necessary to calculate market shares (see paragraph (11)). 

In order to calculate an undertaking’s market share, it is necessary to determine the 
relevant market where that undertaking sells and purchases, respectively, the contract 
products.  Accordingly,  the  relevant  product  market  and  the  relevant  geographic 
market  must  be  defined.  The  relevant  product  market  comprises  any  goods  or 
services  which  are  regarded  by  the  buyers  as  interchangeable,  by  reason  of  their 
characteristics,  prices  and  intended  use.  The  relevant  geographic  market  comprises 
the area in which the undertakings concerned are involved in the supply and demand 
of relevant goods or services, in which the conditions of competition are sufficiently 
homogeneous,  and which can be distinguished from neighbouring geographic areas 
because,  in  particular,  conditions  of  competition  are  appreciably  different  in  those 
areas. 

The product market definition primarily depends on substitutability from the buyers' 
perspective. When the supplied product is used as an input to produce other products 
and is generally not recognisable in the final product, the product market is normally 
defined by the direct buyers' preferences. The customers of the buyers will normally 
not have a strong preference concerning the inputs used by the buyers. Usually, the 
vertical restraints agreed between the supplier and buyer of the input only relate to 
the sale and purchase of the intermediate product and not to the sale of the resulting 
product.  In  the  case  of  distribution  of  final  goods,  substitutes  for  the  direct  buyers 
will normally be influenced or determined by the preferences of the final consumers. 
A  distributor,  as  reseller,  cannot  ignore  the  preferences  of  final  consumers  when  it 
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 different distribution formats usually compete, markets are in general 
not defined by the form of distribution that is applied. Where suppliers generally sell 
a portfolio of products, the entire portfolio may determine the product market when 
the  portfolios  and  not  the  individual  products  are  regarded  as  substitutes  by  the 
buyers.  As  distributors  are  professional  buyers,  the  geographic  wholesale  market  is 
usually wider than the retail market, where the product is resold to final consumers. 
Often,  this  will  lead  to  the  definition  of  national  or  wider  wholesale  markets.  But 
retail  markets  may  also  be  wider  than  the  final  consumers’  search  area  where 
homogeneous  market  conditions  and  overlapping  local  or  regional  catchment  areas 
exist. 

(90)  Where a vertical agreement involves three parties, each operating at a different level 
of  trade,  each  party's  market  share  must  be  30 %  or  less  in  order  for  the  block 
exemption to apply. As specified in Article 3(2) of the Block Exemption Regulation, 
where in a multi party agreement an undertaking buys the contract goods or services 
from one undertaking party to the agreement and sells the contract goods or services 
to another undertaking party to the agreement, the block exemption applies only if its 
market share does not exceed the 30 % threshold both as a buyer and a supplier. If, 
for instance, in an agreement between a manufacturer, a wholesaler (or association of 
retailers) and a retailer, a non-compete obligation is agreed, then the market shares of 
the  manufacturer  and  the  wholesaler  (or association  of  retailers)  on  their  respective 
downstream markets must not exceed 30 % and the market share of  the  wholesaler 
(or association of retailers) and the retailer must not exceed 30 % on their respective 
purchase markets in order to benefit from the block exemption. 

EN 

32 

   EN 

(91)  Where  a  supplier  produces  both  original  equipment  and  the  repair  or  replacement 
parts for that equipment, the supplier will often be the only or the major supplier on 
the after-market for the repair and replacement parts. This may also arise where the 
supplier (OEM supplier) subcontracts the manufacturing of the repair or replacement 
parts. The relevant market for application of the Block Exemption Regulation may be 
the  original  equipment  market  including  the  spare  parts  or  a  separate  original 
equipment market and after-market depending on the circumstances of the case, such 
as  the  effects  of  the  restrictions  involved,  the  lifetime  of  the  equipment  and 
importance  of  the  repair  or  replacement  costs35.  In  practice,  the  issue  is  whether  a 
significant  proportion  of  buyers  make  their  choice  taking  into  account  the  lifetime 
costs of the product. If so, it indicates there is one market for the original equipment 
and spare parts combined. 

(92)  Where  the  vertical  agreement,  in  addition  to  the  supply  of  the  contract  goods,  also 
contains IPR provisions — such as a provision concerning the use of the supplier's 
trademark  —  which  help  the  buyer  to  market  the  contract  goods,  the  supplier's 
market  share  on  the  market  where  it  sells  the  contract  goods  is  relevant  for  the 
application of the Block Exemption Regulation. Where a franchisor does not supply 
goods to be resold but provides a bundle of services and goods combined with IPR 
provisions which together form the business method being franchised, the franchisor 
needs to take account of its market share as a provider of a business method. For that 
purpose, the franchisor needs to calculate its market share on the market where the 
business method is exploited, which is the market where the franchisees exploit the 
business method to provide goods or services to end users. The franchisor must base 
its market share on the value of the goods or services supplied by its franchisees on 
this market. On such a market, the competitors may be providers of other franchised 
business  methods  but also suppliers of  substitutable goods or services not  applying 
franchising. For instance, without prejudice to the definition of such market, if there 
was a market for fast-food services, a franchisor operating on such a market would 
need  to  calculate  its  market  share  on  the  basis  of  the  relevant  sales  figures  of  its 
franchisees on this market.  

3. 

Calculation of market shares under the Block Exemption Regulation 

(93) 

(94) 

35 

The  calculation  of  market  shares  needs  to  be  based  in  principle  on  value  figures. 
Where  value  figures  are  not  available  substantiated  estimates  can  be  made.  Such 
estimates may be based on other reliable market information such as volume figures 
(see Article 7(a) of the Block Exemption Regulation). 

In-house production, that is, production of an intermediate product for own use, may 
be very important in a competition analysis as one of the competitive constraints or 
to accentuate the market position of a company. However, for the purpose of market 
definition and the calculation of market share for intermediate goods and services, in-
house production will not be taken into account. 

See  for  example  Commission  Decision  in  Pelikan/Kyocera  (1995),  COM(96)  126  (not  published), 
point 87,  and  Commission  Decision 91/595/EEC  in  Case  No  IV/M.12  —  Varta/Bosch,  OJ  L  320, 
22.11.1991,  p.  26,  Commission  Decision  in  Case 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 point 56 of the Notice on the definition of the relevant market for the purposes 
of Community competition law (see paragraph 86). 

EN 

33 

   EN 

                                                 
(95) 

However, in the case of dual distribution of final goods, that is, where a producer of 
final goods also acts as a distributor on the market, the market definition and market 
share  calculation  need  to  include  sales  of  their  own  goods  made  by  the  producers 
through  their  vertically  integrated  distributors  and  agents  (see  Article 7(c)  of  the 
Block  Exemption  Regulation).  "Integrated  distributors"  are  connected  undertakings 
within the meaning of Article 1(2) of the Block Exemption Regulation36. 

VI. 

ENFORCEMENT POLICY IN INDIVIDUAL CASES 

1. 

The framework of analysis 

(96) 

(97) 

Outside  the  scope  of  the  block  exemption,  it  is  relevant  to  examine  whether  in  the 
individual  case  the  agreement  falls  within  the  scope  of  Article  101(1)  and  if  so 
whether  the  conditions  of  Article  101(3)  are  satisfied.  Provided  that  they  do  not 
contain restrictions of competition by object and in particular hardcore restrictions of 
competition,  there  is  no  presumption  that  vertical  agreements  falling  outside  the 
block exemption because the market share threshold is exceeded fall within the scope 
of  Article  101(1)  or  fail  to  satisfy  the  conditions  of  Article  101(3).  Individual 
assessment  of  the  likely  effects  of  the  agreement  is  required.  Companies  are 
encouraged  to  do  their  own  assessment.  Agreements  that  either  do  not  restrict 
competition  within  the  meaning  of  Article  101(1)  or  which  fulfil  the  conditions  of 
Article  101(3)  are  valid  and  enforceable.  Pursuant  to  Article  1(2)  of  Council 
Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules 
on competition laid down in Articles 81 and 82 of the Treaty37 no notification needs 
to be made to benefit from an individual exemption under Article 101(3). In the case 
of an individual  examination by the  Commission, the latter will bear the burden of 
proof  that  the  agreement  in  question  infringes  Article 101(1).  The  undertakings 
claiming the benefit of Article 101(3) bear the burden of proving that the conditions 
of 
likely  anti-competitive  effects  are 
demonstrated,  undertakings  may  substantiate  efficiency  claims  and  explain  why  a 
certain  distribution  system  is  indispensable  to  bring  likely  benefits  to  consumers 
without  eliminating  competition,  before  the  Commission  decides  whether  the 
agreement satisfies the conditions of Article 101(3). 

that  paragraph  are  fulfilled.  When 

The  assessment  of  whether  a  vertical  agreement  has  the  effect  of  restricting 
competition  will  be  made  by  comparing  the  actual  or  likely  future  situation  on  the 
relevant  market  with  the  vertical  restraints  in  place  with  the  situation  that  would 
prevail in the absence of the vertical restraints in the agreement. In the assessment of 
individual  cases,  the  Commission  will  take,  as  appropriate,  both  actual  and  likely 
effects into account. For vertical agreements to be restrictive of competition by effect 
they must affect actual or potential competition to such an extent that on the relevant 
market  negative  effects  on  prices,  output,  innovation,  or  the  variety  or  quality  of 
goods  and  services  can  be  expected  with  a  reasonable  degree  of  probability.  The 
likely  negative  effects  on  competition  must  be  appreciable38.  Appreciable 
anticompetitive  effects  are  likely  to  occur  when  at  least  one  of  the  parties  has  or 

36 

37 
38 

For  these  market  definition  and  market  share  calculation  purposes,  it  is  not  relevant  whether  the 
integrated distributor sells in addition products of competitors. 
OJ L 1, 4.1.2003, p. 1. 
See Section II.1. 

EN 

34 

   EN 

                                                 
(98) 

(99) 

obtains some degree of market power and the agreement contributes to the creation, 
maintenance  or  strengthening  of  that  market  power  or  allows  the  parties  to  exploit 
such market power. Market power is the ability to maintain prices above competitive 
levels  or  to  maintain  output  in  terms  of  product  quantities,  product  quality  and 
variety or innovation below competitive levels for a not insignificant period of time. 
The degree of market power normally required for a finding of an infringement under 
Article  101(1)  is  less  than  the  degree  of  market  power  required  for  a  finding  of 
dominance under Article 102. 

Vertical  restraints  are  generally  less  harmful  than  horizontal  restraints.  The  main 
reason  for  the  greater  focus  on  horizontal  restraints  is  that  such  restraints  may 
concern  an  agreement  between  competitors  producing  identical  or  substitutable 
goods or services. In such horizontal relationships, the exercise of market power by 
one  company  (higher  price  of  its  product)  may  benefit  its  competitors.  This  may 
provide  an  incentive  to  competitors  to  induce  each  other  to  behave  anti-
competitively.  In  vertical  relationships,  the  product  of  the  one  is  the  input  for  the 
other-,  in  other  words,  the  activities  of  the  parties  to  the  agreement  are 
complementary to each other. The exercise of market power by either the upstream 
or downstream company would therefore normally hurt the demand for the product 
of  the  other.  The  companies  involved  in  the  agreement  therefore  usually  have  an 
incentive to prevent the exercise of market power by the other. 

Such  self-restraining  character  should  not,  however,  be  over-estimated.  When  a 
company has no market power, it can only try to increase its profits by optimising its 
manufacturing  and  distribution  processes,  with  or  without  the  help  of  vertical 
restraints.  More  generally,  because  of  the  complementary  role  of  the  parties  to  a 
vertical agreement in getting a product on the market, vertical restraints may provide 
substantial scope for efficiencies. However, when an undertaking does have market 
power it can also try to increase its profits at the expense of its direct competitors by 
raising  their  costs  and  at  the  expense  of  its  buyers  and  ultimately  consumers  by 
trying to appropriate some of their surplus. This can happen when the upstream and 
downstream  company  share  the  extra  profits  or  when  one  of  the  two  uses  vertical 
restraints to appropriate all the extra profits. 

1.1 

Negative effects of vertical restraints 

(100)  The negative effects on the market that may result from vertical restraints which EU 

competition law aims at preventing are the following: 

(a) 

(b) 

anticompetitive  foreclosure  of  other  suppliers  or  other  buyers  by  raising 
barriers to entry or expansion; 

softening  of  competition  between  the  supplier  and  its  competitors  and/or 
facilitation of collusion amongst these suppliers, often referred to as reduction 
of inter-brand competition39;  

(c) 

softening  of  competition  between  the  buyer  and  its  competitors  and/or 
facilitation  of  collusion  amongst  these  competitors,  often  referred  to  as 

39 

By collusion is meant both explicit collusion and tacit collusion (conscious parallel behaviour). 

EN 

35 

   EN 

                                                 
reduction of intra-brand competition if it concerns distributors' competition on 
the basis of the brand or product of the same supplier; 

(d) 

the creation of obstacles to market integration, including, above all, limitations 
on the possibilities for consumers to purchase goods or services in any Member 
State they may choose. 

(101) 

Foreclosure, softening of competition and collusion at the manufacturers' level may 
harm  consumers  in  particular  by  increasing  the  wholesale  prices  of  the  products, 
limiting  the  choice  of  products,  lowering  their  quality  or  reducing  the  level  of 
product  innovation.  Foreclosure,  softening  of  competition  and  collusion  at  the 
distributors' level may harm consumers in particular by increasing the retail prices of 
the  products,  limiting  the  choice  of  price-service  combinations  and  distribution 
formats, lowering the availability and quality of retail services and reducing the level 
of innovation of distribution.  

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

(103)  Exclusive  arrangements  are  generally  more  anti-competitive  than  non-exclusive 
arrangements.  Exclusive  arrangements,  whether  by  means  of  express  contractual 
language or their practical effects, result in one party sourcing all or practically all of 
its  demand  from  another  party.  For  instance,  under  a  non-compete  obligation  the 
buyer  purchases  only  one  brand.  Quantity  forcing,  on  the  other  hand,  leaves  the 
buyer  some  scope  to  purchase  competing  goods.  The  degree  of  foreclosure  may 
therefore be less with quantity forcing. 

(104)  Vertical  restraints  agreed  for  non-branded  goods  and  services  are  in  general  less 
harmful  than  restraints  affecting  the  distribution  of  branded  goods  and  services. 
Branding tends to increase product differentiation and  reduce substitutability of the 
product,  leading  to  a  reduced  elasticity  of  demand  and  an  increased  possibility  to 
raise price. The distinction between branded and non-branded goods or services will 
often coincide with the distinction between intermediate goods and services and final 
goods and services. 

(105) 

In  general,  a  combination  of  vertical  restraints  aggravates  their  individual  negative 
effects. However, certain combinations of vertical restraints are less anti-competitive 
than  their  use  in  isolation.  For  instance,  in  an  exclusive  distribution  system,  the 
distributor  may  be  tempted  to  increase  the  price  of  the  products  as  intra-brand 
competition  has  been  reduced.  The  use  of  quantity  forcing  or  the  setting  of  a 
maximum  resale  price  may  limit  such  price  increases.  Possible  negative  effects  of 
vertical  restraints  are  reinforced  when  several  suppliers  and  their  buyers  organise 
their trade in a similar way, leading to so-called cumulative effects.  

1.2. 

Positive effects of vertical restraints 

(106) 

It  is  important  to  recognise  that  vertical  restraints  may  have  positive  effects  by,  in 
particular, promoting non-price competition and improved quality of services. When 

EN 

36 

   EN 

a company has no market power, it can only try to increase its profits by optimising 
its  manufacturing  or  distribution  processes.  In  a  number  of  situations  vertical 
restraints may be helpful in this respect since the usual arm's length dealings between 
supplier and buyer, determining only price and quantity of a certain transaction, can 
lead to a sub-optimal level of investments and sales. 

(107)  While  trying  to  give  a  fair  overview  of  the  various  justifications  for  vertical 
restraints, these Guidelines do not claim to be complete or exhaustive. The following 
reasons may justify the application of certain vertical restraints: 

(a)  To  solve  a  "free-rider"  problem.  One  distributor  may  free-ride  on  the 
promotion efforts of another distributor. That type of problem is most common 
at  the  wholesale  and  retail  level.  Exclusive  distribution  or  similar  restrictions 
may  be  helpful  in  avoiding  such  free-riding.  Free-riding  can  also  occur 
between suppliers, for  instance  where  one invests in promotion at the buyer's 
premises,  in  general  at  the  retail  level,  that  may  also  attract  customers  for  its 
competitors. Non-compete type restraints can help to overcome free-riding40. 

For there to be a problem, there needs to be a real free-rider issue. Free-riding 
between  buyers  can  only  occur  on  pre-sales  services  and  other  promotional 
activities, but not on after-sales services for which the distributor can charge its 
customers individually. The product  will usually need to be  relatively new or 
technically  complex  or  the  reputation  of  the  product  must  be  a  major 
determinant  of  its  demand,  as  the  customer  may  otherwise  very  well  know 
what  it  wants,  based  on  past  purchases.  And  the  product  must  be  of  a 
reasonably high value as it is otherwise not attractive for a customer to go to 
one shop for information and to another to buy. Lastly, it must not be practical 
for  the  supplier  to  impose  on  all  buyers,  by  contract,  effective  promotion  or 
service requirements. 

Free-riding between suppliers is also restricted to specific situations, namely to 
cases where the promotion takes place at the buyer's premises and is generic, 
not brand specific. 

(b)  To  "open  up  or  enter  new  markets".  Where  a  manufacturer  wants  to  enter  a 
new  geographic  market,  for  instance  by  exporting  to  another  country  for  the 
first time, this may involve special "first time investments" by the distributor to 
establish  the  brand  on  the  market.  In  order  to  persuade  a  local  distributor  to 
make these investments, it may be necessary to provide territorial protection to 
the distributor so that it can recoup these investments by temporarily charging a 
higher price. Distributors based in other markets should then be restrained for a 
limited  period  from  selling  on  the  new  market  (see  also  paragraph  (61)  in 
Section III.4). This is a special case of the free-rider problem described under 
point (a). 

40 

Whether  consumers  actually  benefit  overall  from  extra  promotional  efforts  depends  on  whether  the 
extra  promotion  informs  and  convinces  and  thus  benefits  many  new  customers  or  mainly  reaches 
customers who already know what they want to buy and for whom the extra promotion only or mainly 
implies a price increase. 

EN 

37 

   EN 

 
 
                                                 
(c)  The  "certification  free-rider  issue".  In  some  sectors,  certain  retailers  have  a 
reputation for stocking only "quality" products. In such a case, selling through 
those  retailers  may  be  vital  for  the  introduction  of  a  new  product.  If  the 
manufacturer  cannot  initially  limit  its  sales  to  the  premium  stores,  it  runs  the 
risk  of  being  de-listed  and  the  product  introduction  may  fail.  There  may, 
therefore, be a reason for allowing for a limited duration a restriction such as 
exclusive distribution or selective distribution. It must be enough to guarantee 
introduction  of  the  new  product  but  not  so  long  as  to  hinder  large-scale 
dissemination.  Such  benefits  are  more  likely  with  "experience"  goods  or 
complex goods that represent a relatively large purchase for the final consumer. 

(d)  The  so-called  "hold-up  problem".  Sometimes 

there  are  client-specific 
investments to be made by either the supplier or the buyer, such as in special 
equipment  or  training.  For  instance,  a  component  manufacturer  that  has  to 
build new machines and tools in order to satisfy a particular requirement of one 
of  its  customers.  The  investor  may  not  commit  the  necessary  investments 
before particular supply arrangements are fixed. 

However, as in the other free-riding examples, there are a number of conditions 
that  have  to  be  met  before  the  risk  of  under-investment  is  real  or  significant. 
Firstly,  the  investment  must  be  relationship-specific.  An  investment  made  by 
the supplier is considered to be relationship-specific when, after termination of 
the  contract,  it  cannot  be  used  by  the  supplier  to  supply  other  customers  and 
can  only  be  sold  at  a  significant  loss.  An  investment  made  by  the  buyer  is 
considered to be relationship-specific when, after termination of the contract, it 
cannot be used by the buyer to purchase and/or use products supplied by other 
suppliers  and  can  only  be  sold  at  a  significant  loss.  An  investment  is  thus 
relationship-specific  because  it  can  only,  for  instance,  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-term 
investment  that  is  not  recouped  in  the  short  run.  And  thirdly,  the  investment 
must  be  asymmetric,  that  is,  one  party  to  the  contract  invests  more  than  the 
other party. Where these conditions are met, there is usually a good reason to 
have  a  vertical restraint for  the duration it takes to  depreciate the investment. 
The appropriate vertical restraint will be of the non-compete type or quantity-
forcing type when the investment is made by the supplier and of the exclusive 
distribution,  exclusive  customer  allocation  or  exclusive  supply  type  when  the 
investment is made by the buyer. 

(e)  The  "specific  hold-up  problem  that  may  arise  in  the  case  of  transfer  of 
substantial  know-how".  The  know-how,  once  provided,  cannot  be  taken  back 
and  the  provider  of  the  know-how  may  not  want  it  to  be  used  for  or  by  its 
competitors. In as far as the know-how was not readily available to the buyer, 
is  substantial  and  indispensable  for  the  operation  of  the  agreement,  such  a 
transfer may justify  a non-compete  type of restriction, which would  normally 
fall outside Article 101(1). 

(f)  The “vertical externality issue”. A retailer may not gain all the benefits of its 
action  taken  to  improve  sales;  some  may  go  to  the  manufacturer.  For  every 
extra unit a retailer sells by lowering its resale price or by increasing its sales 
effort,  the  manufacturer  benefits  if  its  wholesale  price  exceeds  its  marginal 

EN 

38 

   EN 

 
production  costs.  Thus,  there  may  be  a  positive  externality  bestowed  on  the 
the  manufacturer’s 
manufacturer  by  such  retailer’s  actions  and  from 
perspective the retailer may be pricing too high and/or making too little sales 
efforts. The negative externality of too high pricing by the retailer is sometimes 
called the “double marginalisation problem” and it can be avoided by imposing 
a maximum resale price on the retailer. To increase the retailer’s sales efforts 
selective  distribution,  exclusive  distribution  or  similar  restrictions  may  be 
helpful41. 

"Economies  of  scale  in  distribution".  In  order  to  have  scale  economies 
exploited and thereby see a lower retail price for itsproduct, the manufacturer 
may  want  to  concentrate  the  resale  of  its  products  on  a  limited  number  of 
distributors.  To  do  so,  it  could  use  exclusive  distribution,  quantity  forcing  in 
the  form  of  a  minimum  purchasing  requirement,  selective  distribution 
containing such a requirement or exclusive sourcing. 

"Capital  market  imperfections".  The  usual  providers  of  capital  (banks, equity 
markets)  may  provide  capital  sub-optimally  when  they  have  imperfect 
information  on  the  quality  of  the  borrower  or  there  is  an  inadequate  basis  to 
secure the loan. The buyer or supplier may have better information and be able, 
through  an  exclusive  relationship,  to  obtain  extra  security  for  its  investment. 
Where  the  supplier  provides  the  loan  to  the  buyer,  this  may  lead  to  non-
compete or quantity forcing on the buyer. Where the buyer provides the loan to 
the  supplier,  this  may  be  the  reason  for  having  exclusive  supply  or  quantity 
forcing on the supplier. 

(g) 

(h) 

(i) 

"Uniformity  and  quality  standardisation".  A  vertical  restraint  may  help  to 
create a brand image by imposing a certain measure of uniformity and quality 
standardisation on the distributors, thereby increasing the attractiveness of the 
product to the final consumer and increasing its sales. This can for instance be 
found in selective distribution and franchising. 

(108)  The nine situations listed in paragraph (107) make clear that under certain conditions, 
vertical agreements are likely to help realise efficiencies and the development of new 
markets  and  that  this  may  offset  possible  negative  effects.  The  case  is  in  general 
strongest  for  vertical  restraints  of  a  limited  duration  which  help  the  introduction  of 
new  complex  products  or  protect  relationship-specific  investments.  A  vertical 
restraint  is  sometimes  necessary  for  as  long  as  the  supplier  sells  its  product  to  the 
buyer (see in particular the situations described in paragraph (107)(a), (e), (f), (g) and 
(i)). 

(109)  A large measure of substitutability exists between the different vertical restraints. As 
a result, the same inefficiency problem can be solved by different vertical restraints. 
For instance, economies of scale in distribution may possibly be achieved by using 
exclusive distribution, selective distribution, quantity forcing  or  exclusive sourcing. 
However, the negative effects on competition may differ between the various vertical 
restraints, which plays a role when indispensability is discussed under Article 101(3). 

41 

See however the previous footnote. 

EN 

39 

   EN 

                                                 
1.3. 

Methodology of analysis 

(110)  The assessment of a vertical restraint generally involves the following four steps42: 

(a)  First,  the  undertakings  involved  need  to  establish  the  market  shares  of  the 
supplier and the buyer on the market where they respectively sell and purchase 
the contract products. 

(b) 

If the relevant market share of the supplier and the buyer each do not exceed 
the 30 % threshold, the vertical agreement is covered by the Block Exemption 
Regulation, subject to the hardcore restrictions and excluded restrictions set out 
in that Regulation. 

(c) 

If  the  relevant  market  share  is  above  the  30 %  threshold  for  supplier  and/or 
buyer,  it  is  necessary  to  assess  whether  the  vertical  agreement  falls  within 
Article 101(1). 

(d) 

If the vertical agreement falls within Article 101(1), it is necessary to examine 
whether it fulfils the conditions for exemption under Article 101(3). 

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

(111) 

In  assessing  cases  above  the  market  share  threshold  of  30 %,  the  Commission  will 
undertake a full competition analysis. The following factors are particularly relevant 
to  establish  whether  a  vertical  agreement  brings  about  an  appreciable  restriction  of 
competition under Article 101(1): 

(a) 

nature of the agreement; 

(b)  market position of the parties; 

(c)  market position of competitors; 

(d)  market position of buyers of the contract products; 

(e) 

entry barriers; 

(f)  maturity of the market; 

(g) 

level of trade; 

(h)  nature of the product; 

(i) 

other factors. 

(112)  The importance of individual factors may vary from case to case and depends on all 
other  factors.  For  instance,  a  high  market  share  of  the  parties  is  usually  a  good 
indicator  of  market  power,  but  in  the  case  of  low  entry  barriers  it  may  not  be 

42 

These  steps  are  not  intended  to  present  a  legal  reasoning  that  the  Commission  should  follow  in  this 
order to take a decision.  

EN 

40 

   EN 

                                                 
indicative of market power. It is therefore not possible to provide firm rules on the 
importance of the individual factors.  

(113)  Vertical  agreements  can  take  many  shapes  and  forms.  It  is  therefore  important  to 
analyse  the  nature  of  the  agreement  in  terms  of  the  restraints  that  it  contains,  the 
duration of those restraints and the percentage of total sales on the market affected by 
those  restraints.  It  may  be  necessary  to  go  beyond  the  express  terms  of  the 
agreement.  The  existence  of  implicit  restraints  may  be  derived  from  the  way  in 
which the agreement is implemented by the parties and the incentives that they face. 

(114)  The  market  position  of  the  parties  provides  an  indication  of  the  degree  of  market 
power, if any, possessed by the supplier, the buyer or both. The higher their market 
share, the greater their market power is likely to be. This is particularly so where the 
market  share  reflects  cost  advantages  or  other  competitive  advantages  vis-à-vis 
competitors. Such competitive advantages may, for instance, result from being a first 
mover  on  the  market  (having  the  best  site,  etc.),  from  holding  essential  patents  or 
having  superior  technology,  from  being  the  brand  leader  or  having  a  superior 
portfolio. 

(115) 

Such indicators, namely market share and possible competitive advantages, are used 
to assess the market position of competitors. The stronger the competitors are and the 
greater their number, the less risk there is that the parties will be able to individually 
exercise  market  power  and  foreclose  the  market  or  soften  competition.  It  is  also 
relevant  to  consider  whether  there  are  effective  and  timely  counterstrategies  that 
competitors  would  be  likely  to  deploy.  However,  if  the  number  of  competitors 
becomes  rather  small  and  their  market  position  (size,  costs,  R&D  potential,  etc.)  is 
rather similar, such a market structure may increase the risk of collusion. Fluctuating 
or rapidly changing market shares are in general an indication of intense competition. 

(116)  The  market  position  of  the  parties’  customers  provides  an  indication  of  whether  or 
not one or more of those customers possess buyer power. The first indicator of buyer 
power is the market share of the customer on the purchase market. That share reflects 
the  importance  of  its  demand  for  possible  suppliers.  Other  indicators  focus  on  the 
position of the customer on its resale market, including characteristics such as a wide 
geographic  spread  of  its  outlets,  own  brands  including  private  labels  and  its  brand 
image  amongst  final  consumers.  In  some  circumstances,  buyer  power  may  prevent 
the  parties  from  exercising  market  power  and  thereby  solve  a  competition  problem 
that  would  otherwise  have  existed.  This  is  particularly  so  when  strong  customers 
have the capacity and incentive to bring new sources of supply on to the market in 
the case of a small but permanent increase in relative prices. Where strong customers 
merely extract favourable terms for themselves or simply pass on any price increase 
to their customers, their position does not prevent the parties from exercising market 
power. 

(117)  Entry  barriers  are  measured  by  the  extent  to  which  incumbent  companies  can 
increase their price above the competitive level without attracting new entry. In the 
absence  of  entry  barriers,  easy  and  quick  entry  would  render  price  increases 
unprofitable.  When  effective  entry,  preventing  or  eroding  the  exercise  of  market 
power, is likely to occur within one or two years, entry barriers can, as a general rule, 
be  said  to  be  low.  Entry  barriers  may  result  from  a  wide  variety  of  factors  such  as 
economies  of  scale  and  scope,  government  regulations,  especially  where  they 

EN 

41 

   EN 

establish  exclusive  rights,  state  aid,  import  tariffs,  intellectual  property  rights, 
ownership  of  resources  where  the  supply  is  limited  due  to  for  instance  natural 
limitations43,  essential  facilities,  a  first  mover  advantage  and  brand  loyalty  of 
consumers created by strong advertising over a period of time. Vertical restraints and 
vertical  integration  may  also  work  as  an  entry  barrier  by  making  access  more 
difficult  and  foreclosing  (potential)  competitors.  Entry  barriers  may  be  present  at 
only  the  supplier  or  buyer  level  or  at  both  levels.  The  question  whether  certain  of 
those  factors  should  be  described  as  entry  barriers  depends  particularly  on  whether 
they entail sunk costs. Sunk costs are those costs that have to be incurred to enter or 
be active on a market but that are lost when the market is exited. Advertising 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 costs are 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 competition, as sunk 
costs make it costly for incumbents to leave the market. If, for instance, distributors 
are tied to a manufacturer via a non-compete obligation, the foreclosing effect will be 
more  significant  if  setting  up  its  own  distributors  will  impose  sunk  costs  on  the 
potential  entrant.  In  general,  entry  requires  sunk  costs,  sometimes  minor  and 
sometimes major. Therefore, actual competition is in general more effective and will 
weigh more heavily in the assessment of a case than potential competition. 

(118)  A  mature  market  is  a  market  that  has  existed  for  some  time,  where  the  technology 
used is well known and widespread and not changing very much, where there are no 
major  brand  innovations  and  in  which  demand  is  relatively  stable  or  declining.  In 
such a market, negative effects are more likely than in more dynamic markets. 

(119)  The level of trade is linked to the distinction between intermediate and  final goods 
and services. Intermediate goods and services are sold to undertakings for use as an 
input  to  produce  other  goods  or  services  and  are  generally  not  recognisable  in  the 
final  goods  or  services.  The  buyers  of  intermediate  products  are  usually  well-
informed  customers,  able  to  assess  quality  and  therefore  less  reliant  on  brand  and 
image. Final goods are, directly or indirectly, sold to final consumers that often rely 
more  on  brand  and  image.  As  distributors  have  to  respond  to  the  demand  of  final 
consumers,  competition  may  suffer  more  when  distributors  are  foreclosed  from 
selling  one  or  a  number  of  brands  than  when  buyers  of  intermediate  products  are 
prevented from buying competing products from certain sources of supply.  

(120)  The  nature  of  the  product  plays  a  role  in  particular  for  final  products  in  assessing 
both  the  likely  negative  and  the  likely  positive  effects.  When  assessing  the  likely 
negative  effects,  it  is  important  whether  the  products  on  the  market  are  more 
homogeneous or heterogeneous, whether the product is expensive, taking up a large 
part of the consumer's budget, or is inexpensive and whether the product is a one-off 
purchase  or  repeatedly  purchased.  In  general,  when 
is  more 
heterogeneous,  less  expensive  and  resembles  more  a  one-off  purchase,  vertical 
restraints are more likely to have negative effects. 

the  product 

(121) 

In  the  assessment  of  particular  restraints  other  factors  may  have  to  be  taken  into 
account. Among these factors can be the cumulative  effect, that is, the coverage of 

43 

See  Commission  Decision  97/26/EC  (Case  No  IV/M.619  —  Gencor/Lonrho),  OJ L 11,  14.1.1997, 
p. 30. 

EN 

42 

   EN 

                                                 
the  market  by  similar  agreements  of  others,  whether  the  agreement  is  "imposed" 
(mainly  one  party  is  subject  to  the  restrictions  or  obligations)  or  "agreed"  (both 
parties accept restrictions or obligations), the regulatory environment and behaviour 
that  may  indicate  or  facilitate  collusion  like  price  leadership,  pre-announced  price 
changes  and  discussions  on  the  "right"  price,  price  rigidity  in  response  to  excess 
capacity, price discrimination and past collusive behaviour. 

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

(122)  Restrictive vertical agreements may also produce pro-competitive effects in the form 
of  efficiencies,  which  may  outweigh  their  anti-competitive  effects.  Such  an 
assessment  takes  place  within  the  framework  of  Article  101(3),  which  contains  an 
exception  from  the  prohibition  rule  of  Article  101(1).  For  that  exception  to  be 
applicable,  the  vertical  agreement  must  produce  objective  economic  benefits,  the 
restrictions  on  competition  must  be  indispensable  to  attain  the  efficiencies, 
consumers must receive a fair share of the efficiency gains, and the agreement must 
not  afford  the  parties  the  possibility  of  eliminating  competition  in  respect  of  a 
substantial part of the products concerned44. 

(123)  The  assessment  of  restrictive  agreements  under  Article  101(3)  is  made  within  the 
actual  context  in  which  they  occur45  and  on  the  basis  of  the  facts  existing  at  any 
given point in time. The assessment is sensitive to material changes in the facts. The 
exception  rule  of  Article  101(3)  applies  as  long  as  the  four  conditions  are  fulfilled 
and ceases to apply when that is no longer the case46. When applying Article 101(3) 
in  accordance  with  these  principles  it  is  necessary  to  take  into  account  the 
investments  made  by  any  of  the  parties  and  the  time  needed  and  the  restraints 
required to commit and recoup an efficiency enhancing investment.  

(124)  The first condition of Article 101(3) requires an assessment of what are the objective 
benefits in terms of efficiencies produced by the agreement. In this respect, vertical 
agreements  often  have  the  potential  to  help  realise  efficiencies,  as  explained  in 
section 1.2, by improving the way in which the parties conduct their complementary 
activities. 

(125) 

In  the  application  of  the  indispensability  test  contained  in  Article  101(3),  the 
Commission  will  in  particular  examine  whether  individual  restrictions  make  it 
possible to perform the production, purchase and/or (re)sale of the contract products 
more  efficiently  than  would  have  been  the  case  in  the  absence  of  the  restriction 
concerned.  In  making  such  an  assessment,  the  market  conditions  and  the  realities 
facing the parties must be taken into account. Undertakings invoking the benefit of 
Article 101(3) are not required to consider hypothetical and theoretical alternatives. 
They  must,  however,  explain  and  demonstrate  why  seemingly  realistic  and 
significantly  less  restrictive  alternatives  would  be  significantly  less  efficient.  If  the 
application  of  what  appears  to  be  a  commercially  realistic  and  less  restrictive 

44 

45 
46 

See Communication from the Commission - Notice – Guidelines on the application of Article 81(3) of 
the Treaty, OJ C 101, 27.4.2004, p. 97.  
See Judgment of the Court of Justice in Joined Cases 25/84 and 26/84 Ford [1985] ECR 2725. 
See  in  this  respect  for  example  Commission  Decision  1999/242/EC  (Case  No  IV/36.237  –  TPS), 
OJ L 90,  2.4.1999,  p.  6.  Similarly,  the  prohibition  of  Article  101(1)  also  only  applies  as  long  as  the 
agreement has a restrictive object or restrictive effects. 

EN 

43 

   EN 

                                                 
alternative would lead to a significant loss of efficiencies, the restriction in question 
is treated as indispensable. 

(126)  The  condition  that  consumers  must  receive  a  fair  share  of  the  benefits  implies  that 
consumers  of  the  products  purchased  and/or  (re)sold  under  the  vertical  agreement 
must  at  least  be  compensated  for  the  negative  effects  of  the  agreement.47  In  other 
words,  the  efficiency  gains  must  fully  off-set  the  likely  negative  impact  on  prices, 
output and other relevant factors caused by the agreement. 

(127)  The  last  condition  of  Article  101(3),  according  to  which  the  agreement  must  not 
afford the parties the possibility of eliminating competition in respect of a substantial 
part  of  the  products  concerned,  presupposes  an  analysis  of  remaining  competitive 
pressures  on  the  market  and  the  impact  of  the  agreement  on  such  sources  of 
competition. In the application of the last condition of Article 101(3), the relationship 
between  Article  101(3)  and  Article  102  must  be  taken  into  account.  According  to 
settled case law, the application of Article 101(3) cannot prevent the application of 
Article  10248.  Moreover,  since  Articles  101  and  102  both  pursue  the  aim  of 
maintaining  effective  competition  on 
that 
Article 101(3)  be  interpreted  as  precluding  any  application  of  the  exception  rule  to 
restrictive agreements that constitute an abuse of a dominant position49. The vertical 
agreement may not eliminate effective competition, by removing all or most existing 
sources  of  actual  or  potential  competition.  Rivalry  between  undertakings  is  an 
essential driver of economic efficiency, including dynamic efficiencies in the form of 
innovation. In its absence, the dominant undertaking will lack adequate incentives to 
continue  to  create  and  pass  on  efficiency  gains.  Where  there  is  no  residual 
competition  and  no  foreseeable  threat  of  entry,  the  protection  of  rivalry  and  the 
competitive  process  outweighs  possible  efficiency  gains.  A  restrictive  agreement 
which  maintains,  creates  or  strengthens  a  market  position  approaching  that  of  a 
monopoly can normally not be justified on the grounds that it also creates efficiency 
gains. 

the  market,  consistency  requires 

2. 

Analysis of specific vertical restraints 

(128)  The  most  common  vertical  restraints  and  combinations  of  vertical  restraints  are 
analysed  in  the  remainder  of  these  Guidelines  following  the  framework  of  analysis 
developed  in  paragraphs  (96)  to (127).  Other  restraints  and  combinations  exist  for 
which  no  direct  guidance  is  provided  in  these  Guidelines.  They  will,  however,  be 
treated according to the same principles and with the same emphasis on the effect on 
the market. 

47 

48 

49 

See paragraph 85 of Communication from the Commission - Notice – Guidelines on the application of 
Article 81(3) of the Treaty, OJ C 101, 27.4.2004, p. 97. 
See Judgment of the Court of Justice in Joined Cases C-395/96 P and C-396/96 P Compagnie Maritime 
Belge [2000] ECR I-1365, paragraph 130. Similarly, the application of Article 101(3) does not prevent 
the application of the Treaty rules on the free movement of goods, services, persons and capital. These 
provisions  are  in  certain  circumstances  applicable  to  agreements,  decisions  and  concerted  practices 
within  the  meaning  of  Article  101(1),  see  to  that  effect  Judgment  of  the  Court  of  Justice  in 
Case C-309/99 Wouters [2002] ECR I-1577, paragraph 120. 
See  in  this  respect  Judgment  of  the  Court  of  First  Instance  in  Case  T-51/89  Tetra  Pak  (I)  [1990] 
ECR II-309. See also paragraph 106 of Communication from the Commission - Notice – Guidelines on 
the application of Article 81(3) of the Treaty, OJ C 101, 27.4.2004, p. 97. 

EN 

44 

   EN 

                                                 
2.1. 

Single branding 

(129)  Under  the  heading  of  "single  branding"  fall  those  agreements  which  have  as  their 
main  element the fact that  the  buyer  is obliged or induced to concentrate its orders 
for  a  particular  type  of  product  with  one  supplier.  That  component  can  be  found 
amongst  others  in  non-compete  and  quantity-forcing  on  the  buyer.  A  non-compete 
arrangement  is  based  on  an  obligation  or  incentive  scheme  which  makes  the  buyer 
purchase  more  than  80%  of  its  requirements  on  a  particular  market  from  only  one 
supplier. It does not mean that the buyer can only buy directly from the supplier, but 
that  the  buyer  will  not  buy  and  resell  or  incorporate  competing  goods  or  services. 
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 its 
purchases to a large extent with one supplier. Quantity-forcing may for example take 
the  form  of  minimum  purchase  requirements,  stocking  requirements  or  non-linear 
pricing, such as conditional rebate schemes or a two-part tariff (fixed fee plus a price 
per unit). A so-called "English clause", requiring the buyer to report any better offer 
and allowing him only to accept such an offer when the supplier does not match it, 
can  be  expected  to  have  the  same  effect  as  a  single  branding  obligation, especially 
when the buyer has to reveal who makes the better offer.  

(130)  The  possible  competition  risks  of  single  branding  are  foreclosure  of  the  market  to 
competing suppliers and potential suppliers, softening of competition and facilitation 
of  collusion  between  suppliers  in  case  of  cumulative  use  and,  where the  buyer  is  a 
retailer  selling  to  final  consumers,  a  loss  of  in-store  inter-brand  competition.  Such 
restrictive effects have a direct impact on inter-brand competition. 

(131) 

Single branding is exempted by the Block Exemption Regulation where the supplier's 
and buyer’s market share each do not exceed 30 % and are subject to a limitation in 
time  of  five  years  for  the  non-compete  obligation.  The  remainder  of  this  section 
provides  guidance  for  the  assessment  of  individual  cases  above  the  market  share 
threshold or beyond the time limit of five years. 

(132)  The  capacity  for  single  branding  obligations  of  one  specific  supplier  to  result  in 
anticompetitive  foreclosure  arises  in  particular  where,  without  the  obligations,  an 
important  competitive  constraint  is  exercised  by  competitors  that  either  are  not  yet 
present on the market at the time the obligations are concluded, or that are not in a 
position to compete for the full supply of the customers. Competitors may not be able 
to  compete  for  an  individual  customer’s  entire  demand  because  the  supplier  in 
question  is  an  unavoidable  trading  partner  at  least  for  part  of  the  demand  on  the 
market, for instance because its brand is a ‘must stock item’ preferred by many final 
consumers or because the capacity constraints on the other suppliers are such that a 
part  of  demand  can  only  be  provided  for  by  the  supplier  in  question.50  The  market 
position of the supplier is thus of main importance to assess possible anti-competitive 
effects of single branding obligations.  

(133) 

If  competitors  can  compete  on  equal  terms  for  each  individual  customer’s  entire 
demand, single branding obligations of one specific supplier are generally unlikely to 
hamper  effective  competition  unless  the  switching  of  supplier  by  customers  is 

50 

Judgment of the Court of First Instance in Case T-65/98 Van den Bergh Foods v Commission [2003] 
ECR II-4653, paragraphs 104 and 156. 

EN 

45 

   EN 

                                                 
rendered  difficult  due  to  the  duration  and  market  coverage  of  the  single  branding 
obligations. The higher its tied market share, that is, the part of its market share sold 
under  a  single  branding  obligation,  the  more  significant  foreclosure  is  likely  to  be. 
Similarly,  the  longer  the  duration  of  the  single  branding  obligations,  the  more 
significant  foreclosure  is  likely  to  be.  Single  branding  obligations  shorter  than  one 
year  entered  into  by  non-dominant  companies  are  generally  not  considered  to  give 
rise  to  appreciable  anti-competitive  effects  or  net  negative  effects.  Single  branding 
obligations  between  one  and  five  years  entered  into  by  non-dominant  companies 
usually require a proper balancing of pro- and anti-competitive effects, while single 
branding  obligations  exceeding  five  years  are  for  most  types  of  investments  not 
considered  necessary  to  achieve  the  claimed  efficiencies  or  the  efficiencies  are  not 
sufficient to outweigh their foreclosure effect. Single branding obligations are more 
likely  to  result  in  anti-competitive  foreclosure  when  entered  into  by  dominant 
companies. 

(134)  When assessing the supplier's market power, the market position of its competitors is 
important.  As  long  as  the  competitors  are  sufficiently  numerous  and  strong,  no 
appreciable  anti-competitive  effects  can  be  expected.  Foreclosure  of  competitors  is 
not  very  likely  where  they  have  similar  market  positions  and  can  offer  similarly 
attractive  products.  In  such  a  case,  foreclosure  may,  however,  occur  for  potential 
entrants when a number of major suppliers enter into single branding contracts with a 
significant  number  of  buyers  on  the  relevant  market  (cumulative  effect  situation). 
This  is  also  a  situation  where  single  branding  agreements  may  facilitate  collusion 
between  competing  suppliers.  If,  individually,  those  suppliers  are  covered  by  the 
Block Exemption Regulation, a withdrawal of the 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. 

(135) 

In cases where the market share of the largest supplier is below 30 % and the market 
share of the five largest suppliers is below 50 %, there is unlikely to be a single or a 
cumulative  anti-competitive  effect  situation.  Where  a  potential  entrant  cannot 
penetrate  the  market  profitably,  it  is  likely  to  be  due  to  factors  other  than  single 
branding obligations, such as consumer preferences.  

(136)  Entry barriers are important to establish whether there is anticompetitive foreclosure. 
Wherever  it  is  relatively  easy  for  competing  suppliers  to  create  new  buyers  or  find 
alternative  buyers  for  their  product,  foreclosure  is  unlikely  to  be  a  real  problem. 
However,  there  are  often  entry  barriers,  both  at  the  manufacturing  and  at  the 
distribution level. 

(137)  Countervailing  power  is  relevant,  as  powerful  buyers  will  not  easily  allow 
themselves  to  be  cut  off  from  the  supply  of  competing  goods  or  services.  More 
generally, in order to convince customers to accept single branding, the supplier may 
have  to  compensate  them,  in  whole  or  in  part,  for  the  loss  in  competition  resulting 
from the exclusivity. Where such compensation is given, it may be in the individual 
interest of a customer to enter into a single branding obligation with the supplier. But 
it  would  be  wrong  to  conclude  automatically  from  this  that  all  single  branding 
obligations,  taken  together,  are  overall  beneficial  for  customers  on  that  market  and 
for  the  final  consumers.  It  is  in  particular  unlikely  that  consumers  as  a  whole  will 
benefit  if  there  are  many  customers  and  the  single  branding  obligations,  taken 

EN 

46 

   EN 

together,  have  the  effect  of  preventing  the  entry  or  expansion  of  competing 
undertakings.  

(138)  Lastly,  "the  level  of  trade"  is  relevant.  Anticompetitive  foreclosure  is  less  likely  in 
case of an intermediate product. When the supplier of an intermediate product is not 
dominant, the competing suppliers still have a substantial part of demand that is free. 
Below  the  level  of  dominance  an  anticompetitive  foreclosure  effect  may  however 
arise in a cumulative effect situation. A cumulative anticompetitive effect is unlikely 
to arise as long as less than 50 % of the market is tied.  

(139)  Where the agreement concerns the supply of a final product at the wholesale level, 
the question whether a competition problem is likely to arise depends in large part on 
the type of wholesaling and the entry barriers at the wholesale level. There is no real 
risk  of  anticompetitive  foreclosure  if  competing  manufacturers  can  easily  establish 
their own wholesaling operation. Whether entry barriers are low depends in part on 
the  type  of  wholesaling,  that  is,  whether  or  not  wholesalers  can  operate  efficiently 
with  only  the  product  concerned  by  the  agreement  (for  example  ice  cream)  or 
whether it is more efficient to trade in a whole range of products (for example frozen 
foodstuffs). In the latter case, it is not efficient for a manufacturer selling only one 
product to set up its own wholesaling operation. In that case, anti-competitive effects 
may arise. In addition, cumulative effect problems may arise if several suppliers tie 
most of the available wholesalers. 

(140) 

For  final  products,  foreclosure  is  in  general  more  likely  to  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  retail  level  that  single  branding 
agreements  may  lead  to  reduced  in-store  inter-brand  competition.  It  is  for  these 
reasons that for final products at the retail level, significant anti-competitive effects 
may  start  to  arise,  taking  into  account  all  other  relevant  factors,  if  a  non-dominant 
supplier ties 30 % or more of the relevant market. For a dominant company, even a 
modest tied market share may already lead to significant anti-competitive effects. 

(141)  At the retail level, a cumulative foreclosure effect may also arise. Where all suppliers 
have  market  shares  below  30 %,  a  cumulative  anticompetitive  foreclosure  effect  is 
unlikely if the total tied market share is less than 40 % and withdrawal of the block 
exemption  is  therefore  unlikely.  That  figure  may  be  higher  when  other  factors  like 
the number of competitors, entry barriers etc. are taken into account. Where not all 
companies  have  market  shares  below  the  threshold  of  the  Block Exemption 
Regulation but none is dominant, a cumulative anticompetitive foreclosure effect is 
unlikely if the total tied market share is below 30 %. 

(142)  Where the buyer operates from premises and land owned by the supplier or leased by 
the  supplier  from  a  third  party  not  connected  with  the  buyer,  the  possibility  of 
imposing effective remedies for a possible foreclosure effect will be limited. In that 
case, intervention by the Commission below the level of dominance is unlikely. 

(143) 

In  certain  sectors,  the  selling  of  more  than  one  brand  from  a  single  site  may  be 
difficult, in which case a foreclosure problem can better be remedied by limiting the 
effective duration of contracts. 

EN 

47 

   EN 

(144)  Where appreciable anti-competitive effects are established, the question of a possible 
exemption under Article 101(3) arises. For non-compete obligations, the efficiencies 
described  in  points  (a)  (free  riding  between  suppliers),  (d),  (e)  (hold-up  problems) 
and  (h)  (capital  market  imperfections)  of  paragraph (107),  may  be  particularly 
relevant. 

(145) 

(146) 

In the case of an efficiency as described in paragraph (107)(a), (107)(d) and (107)(h), 
quantity forcing on the buyer could possibly be a less restrictive alternative. A non-
compete obligation may be the only viable way to achieve an efficiency as described 
in paragraph (107)(e), (hold-up problem related to the transfer of know-how). 

In  the  case  of  a  relationship-specific  investment  made  by  the  supplier  (see 
paragraph (107)(d) ), a non-compete or quantity forcing agreement for the period of 
depreciation of the investment will in general fulfil the conditions of Article 101(3). 
In  the  case  of  high  relationship-specific  investments,  a  non-compete  obligation 
exceeding five years may be justified. A 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  investments.  However,  where  a  supplier  creates  new  capacity 
specifically  linked  to  the  operations  of  a  particular  buyer,  for  instance  a  company 
producing metal cans which creates new capacity to produce cans on the premises of 
or  next  to  the  canning  facility  of  a  food  producer,  this  new  capacity  may  only  be 
economically viable when producing for this particular customer, in which case the 
investment would be considered to be relationship-specific. 

(147)  Where  the  supplier  provides  the  buyer  with  a  loan  or  provides  the  buyer  with 
equipment which is not relationship-specific, this in itself is normally not sufficient 
to  justify  the  exemption  of  an  anticompetitive  foreclosure  effect  on  the  market.  In 
case  of  capital  market  imperfection,  it  may  be  more  efficient  for  the  supplier  of  a 
product than for a bank to provide a loan (see paragraph (107)(h)). However, in such 
a case the loan should be provided in the least restrictive way and the buyer should 
thus  in  general  not  be  prevented  from  terminating  the  obligation  and  repaying  the 
outstanding part of the loan at any point in time and without payment of any penalty.  

(148)  The  transfer  of  substantial  know-how  (paragraph (107)(e))  usually  justifies  a  non-
compete obligation for the whole duration of the supply agreement, as for example in 
the context of franchising. 

(149)  Example of non-compete obligation  

The  market  leader  in  a  national  market  for  an  impulse  consumer  product,  with  a 
market  share  of  40 %,  sells  most  of  its  products  (90 %)  through  tied  retailers  (tied 
market  share  36 %).  The  agreements  oblige  the  retailers  to  purchase  only  from  the 
market  leader  for  at  least  four  years.  The  market  leader  is  especially  strongly 
represented  in  the  more  densely  populated  areas  like  the  capital.  Its  competitors, 
10 in  number,  of  which  some  are  only  locally  available,  all  have  much  smaller 
market  shares,  the  biggest  having  12 %.  Those  10  competitors  together  supply 
another  10 %  of  the  market  via  tied  outlets.  There  is  strong  brand  and  product 
differentiation  in  the  market.  The  market  leader  has  the  strongest  brands.  It  is  the 

EN 

48 

   EN 

 
only  one  with  regular  national  advertising  campaigns.  It  provides  its  tied  retailers 
with special stocking cabinets for its product. 

The  result  on  the  market  is  that  in  total  46 %  (36 %  + 10 %)  of  the  market  is 
foreclosed to potential entrants and to incumbents not having tied outlets. Potential 
entrants  find  entry  even  more  difficult  in  the  densely  populated  areas  where 
foreclosure  is  even  higher,  although  it  is  there  that  they  would  prefer  to  enter  the 
market.  In  addition,  owing  to  the  strong  brand  and  product  differentiation  and  the 
high  search  costs  relative  to  the  price  of  the  product,  the  absence  of  in-store  inter-
brand  competition  leads  to  an  extra  welfare  loss  for  consumers.  The  possible 
efficiencies  of  the  outlet  exclusivity,  which  the  market  leader  claims  result  from 
reduced  transport  costs  and  a  possible  hold-up  problem  concerning  the  stocking 
cabinets,  are  limited  and  do  not  outweigh  the  negative  effects  on  competition.  The 
efficiencies  are  limited,  as  the  transport  costs  are  linked  to  quantity  and  not 
exclusivity  and  the  stocking  cabinets  do  not  contain  special  know-how  and  are  not 
brand  specific.  Accordingly,  it  is  unlikely  that  the  conditions  of  Article  101(3)  are 
fulfilled. 

(150)  Example of quantity forcing 

A producer X with a 40 % market share sells 80 % of its products through contracts 
which  specify  that  the  reseller  is  required  to  purchase  at  least  75 %  of  its 
requirements for that type of product from X. In return X is offering financing and 
equipment at favourable 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  have  the  possibility  to  terminate  the  contract  with  a  six-month  notice 
period if they repay the outstanding loan and take over the equipment at its market 
asset value. At the end of the five-year period the equipment becomes the property of 
the  buyer.  Most  of  the  competing  producers  are  small,  twelve  in  total  with  the 
biggest having a market share of 20 %, and engage in similar contracts with different 
durations.  The  producers  with  market  shares  below  10 %  often  have  contracts  with 
longer  durations  and  with  less  generous  termination  clauses.  The  contracts  of 
producer X leave 25 % of requirements free to be supplied by competitors. In the last 
three  years,  two  new  producers  have  entered  the  market  and  gained  a  combined 
market share of around 8 %, partly by taking over the loans of a number of resellers 
in return for contracts with these resellers. 

Producer  X's  tied  market  share  is  24 %  (0,75 × 0,80 × 40 %).  The  other  producers' 
tied  market  share  is  around  25 %.  Therefore,  in  total  around  49 %  of  the  market  is 
foreclosed to potential entrants and to incumbents not having tied outlets for at least 
the first two years of the supply contracts. The market shows that the resellers often 
have difficulty in obtaining loans from banks and are too small in general to obtain 
capital through other means like the issuing of shares. In addition, producer X is able 
to  demonstrate  that  concentrating  its  sales  on  a  limited  number  of  resellers  allows 
him to plan its sales better and to save transport costs. In the light of the efficiencies 
on the one hand and the 25 % non-tied part in the contracts of producer X, the real 
possibility  for  early  termination  of  the  contract,  the  recent  entry  of  new  producers 
and the fact that around half the resellers are not tied on the other hand, the quantity 
forcing  of  75 %  applied  by  producer  X  is  likely  to  fulfil  the  conditions  of 
Article 101(3). 

EN 

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   EN 

 
 
 
2.2 

Exclusive distribution 

(151) 

In an exclusive distribution agreement, the supplier agrees to sell its products to only 
one distributor for resale in a particular territory. At the same time, the distributor is 
usually limited in its active selling into other (exclusively allocated) territories. The 
possible  competition  risks  are  mainly  reduced  intra-brand  competition  and  market 
partitioning, which may facilitate price discrimination in particular. When most or all 
of the suppliers apply exclusive distribution, it may soften competition and facilitate 
collusion, both at the suppliers' and distributors' level. Lastly, exclusive distribution 
may lead to foreclosure of other distributors and therewith reduce competition at that 
level. 

(152)  Exclusive  distribution is  exempted  by  the  Block  Exemption  Regulation  where  both 
the supplier's and buyer's market share each do not exceed 30 %, even if combined 
with other non-hardcore vertical restraints, such as a non-compete obligation limited 
to five  years,  quantity  forcing or exclusive purchasing. A combination of exclusive 
distribution  and  selective  distribution  is  only  exempted  by  the  Block  Exemption 
Regulation if active selling in other territories is not restricted. The remainder of this 
section provides guidance for the assessment of exclusive distribution in individual 
cases above the 30 % market share threshold. 

(153)  The market position of the supplier and its competitors is of major importance, as the 
loss of intra-brand competition can only be problematic if inter-brand competition is 
limited. The stronger the position of the supplier, the more serious is the loss of intra-
brand competition. Above the 30 % market share threshold, there may be a risk of a 
significant  reduction  of  intra-brand  competition.  In  order  to  fulfil  the  conditions  of 
Article 101(3), the loss of intra-brand competition may need to be balanced with real 
efficiencies. 

(154)  The position of the competitors can have a dual significance. Strong competitors will 
generally  mean  that  the  reduction  in  intra-brand  competition  is  outweighed  by 
sufficient inter-brand competition. However, if  the  number of  competitors becomes 
rather  small  and  their  market  position  is  rather  similar  in  terms  of  market  share, 
capacity  and  distribution  network,  there  is  a  risk  of  collusion  and/or  softening  of 
competition.  The  loss  of  intra-brand  competition  can  increase  that  risk,  especially 
when  several  suppliers  operate  similar  distribution  systems.  Multiple  exclusive 
dealerships, that is, when different suppliers appoint the same exclusive distributor in 
a  given  territory,  may  further  increase  the  risk  of  collusion  and/or  softening  of 
competition.  If  a  dealer  is  granted  the  exclusive  right  to  distribute  two  or  more 
important competing products in the same territory, inter-brand competition may be 
substantially restricted for those brands. The higher the cumulative market share of 
the brands distributed by the exclusive multiple brand dealers, the higher the risk of 
collusion and/or softening of competition and the more inter-brand competition will 
be reduced. If a retailer is the exclusive distributor for a number of brands this may 
have  as  result  that  if  one  producer  cuts  the  wholesale  price  for  its  brand,  the 
exclusive retailer will not be eager to transmit this price cut to the final consumer as 
it would reduce its sales and profits made with the other brands. Hence, compared to 
the  situation  without  multiple  exclusive  dealerships,  producers  have  a  reduced 
interest in entering into price competition with one another. Such cumulative effect 
situations  may  be  a  reason  to  withdraw  the  benefit  of  the  Block  Exemption 

EN 

50 

   EN 

Regulation  where  the  market  shares  of  the  suppliers  and  buyers  are  below  the 
threshold of the Block Exemption Regulation. 

(155)  Entry  barriers  that  may  hinder  suppliers  from  creating  new  distributors  or  finding 
alternative  distributors  are  less  important  in  assessing  the  possible  anti-competitive 
effects of exclusive distribution. Foreclosure of other suppliers does not arise as long 
as exclusive distribution is not combined with single branding. 

(156) 

Foreclosure of other distributors is not an issue where the supplier which operates the 
exclusive distribution system appoints a high number of exclusive distributors on the 
same  market  and  those  exclusive  distributors  are  not  restricted  in  selling  to  other 
non-appointed distributors. Foreclosure of other distributors may however become an 
issue where there is buying power and market power downstream, in particular in the 
case  of  very  large  territories  where  the  exclusive  distributor  becomes  the  exclusive 
buyer for a whole market. An example would be a supermarket chain which becomes 
the  only  distributor  of  a  leading  brand  on  a  national  food  retail  market.  The 
foreclosure of other distributors may be aggravated in the case of multiple exclusive 
dealership.  

(157)  Buying  power may also increase the risk of collusion on the buyers' side  when the 
exclusive  distribution  arrangements  are  imposed  by  important  buyers,  possibly 
located in different territories, on one or several suppliers. 

(158)  Maturity  of  the  market  is  important,  as  loss  of  intra-brand  competition  and  price 
discrimination may be a serious problem in a mature market but may be less relevant 
on  a  market  with  growing  demand,  changing  technologies  and  changing  market 
positions. 

(159)  The  level  of  trade  is  important  as  the  possible  negative  effects  may  differ  between 
the  wholesale  and  retail  level.  Exclusive  distribution  is  mainly  applied  in  the 
distribution  of  final  goods  and  services.  A  loss  of  intra-brand  competition  is 
especially  likely  at  the  retail  level  if  coupled  with  large  territories,  since  final 
consumers  may  be  confronted  with  little  possibility  of  choosing  between  a  high 
price/high service and a low price/low service distributor for an important brand. 

(160)  A  manufacturer  that  chooses  a  wholesaler  to  be  its  exclusive  distributor  will 
normally do so for a larger territory, such as a whole Member State. As long as the 
wholesaler can sell the products without limitation to downstream retailers there are 
not  likely  to  be  appreciable  anti-competitive  effects.  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 
country.  The  possible  risks  for  inter-brand  competition  of  multiple  exclusive 
dealerships  are  however  higher  at  the  wholesale  than  at  the  retail  level.  Where  one 
wholesaler  becomes  the  exclusive  distributor  for  a  significant  number  of  suppliers, 
not only is there a risk that competition between these brands is reduced, but also that 
there is foreclosure at the wholesale level of trade. 

(161)  As stated in paragraph (155), foreclosure of other suppliers does not arise as long as 
exclusive  distribution  is  not  combined  with  single  branding.  But  even  when 
exclusive  distribution  is  combined  with  single branding  anticompetitive  foreclosure 
of other suppliers is unlikely, except possibly when the single branding is applied to 

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51 

   EN 

a  dense  network  of  exclusive  distributors  with  small  territories  or  in  case  of  a 
cumulative effect. In such a case it may be necessary to apply the principles on single 
branding  set  out  in  section  2.1.  However,  when  the  combination  does  not  lead  to 
significant foreclosure, the combination of exclusive distribution and single branding 
may  be  pro-competitive  by  increasing  the  incentive  for  the  exclusive  distributor  to 
focus  its  efforts  on  the  particular  brand.  Therefore,  in  the  absence  of  such  a 
foreclosure effect, the combination of exclusive distribution with non-compete may 
very  well  fulfil  the  conditions  of  Article  101(3)  for  the  whole  duration  of  the 
agreement, particularly at the wholesale level. 

(162)  The  combination  of  exclusive  distribution  with  exclusive  sourcing  increases  the 
possible  competition  risks  of  reduced 
intra-brand  competition  and  market 
partitioning  which  may  facilitate  price  discrimination  in  particular.  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 sourcing, requiring the exclusive distributors to buy their supplies 
for  the  particular  brand  directly  from  the  manufacturer,  eliminates  in  addition 
possible  arbitrage  by  the  exclusive  distributors,  which  are  prevented  from  buying 
from other distributors in the system. As a result, the supplier's possibilities to limit 
intra-brand competition by applying dissimilar conditions of sale to the detriment of 
consumers  are  enhanced,  unless  the  combination  allows  the  creation  of  efficiencies 
leading to lower prices to all final consumers.  

(163)  The  nature  of  the  product  is  not  particularly  relevant  to  the  assessment  of  possible 
anti-competitive  effects  of  exclusive  distribution.  It  is,  however,  relevant  to  an 
assessment  of  possible  efficiencies,  that  is,  after  an  appreciable  anti-competitive 
effect is established. 

(164)  Exclusive distribution may lead to efficiencies, especially where investments by the 
distributors are required to protect or build up the brand image. In general, the case 
for efficiencies is strongest for new products, complex products, and products whose 
qualities are difficult to judge before consumption (so-called experience products) or 
whose  qualities  are  difficult  to  judge  even  after  consumption  (so-called  credence 
products). In addition, exclusive distribution may lead to savings in logistic costs due 
to economies of scale in transport and distribution. 

(165)  Example of exclusive distribution at the wholesale level 

On  the  market  for  a  consumer  durable,  A  is  the  market  leader.  A  sells  its  product 
through  exclusive  wholesalers.  Territories  for  the  wholesalers  correspond  to  the 
entire  Member  State  for  small  Member  States,  and  to  a  region  for  larger  Member 
States.  Those  exclusive  distributors  deal  with  sales  to  all  the  retailers  in  their 
territories.  They  do  not  sell  to  final  consumers.  The  wholesalers  are  in  charge  of 
promotion in their markets, including sponsoring of local events, but also explaining 
and promoting the new products to the retailers in their territories. Technology and 
product innovation are evolving fairly quickly on this market, and pre-sale service to 
retailers  and  to  final  consumers  plays  an  important  role.  The  wholesalers  are  not 
required  to  purchase  all  their  requirements  of  the  brand  of  supplier  A  from  the 
producer himself, and arbitrage by wholesalers or retailers is practicable because the 
transport  costs  are  relatively  low  compared  to  the  value  of  the  product.  The 
wholesalers are not under a non-compete obligation. Retailers also sell a number of 

EN 

52 

   EN 

brands  of  competing  suppliers,  and  there  are  no  exclusive  or  selective  distribution 
agreements at the retail level. On the EU market of sales to wholesalers A has around 
50 %  market  share.  Its  market  share  on  the  various  national  retail  markets  varies 
between  40 %  and  60 %.  A  has  between  6  and  10  competitors  on  every  national 
market. B, C and D are its biggest competitors and are also present on each national 
market, with market shares varying between 20 % and 5 %. The remaining producers 
are  national producers,  with  smaller  market  shares.  B,  C  and  D  have  similar 
distribution networks, whereas the local producers tend to sell their products directly 
to retailers. 

On the  wholesale  market  described in  this example, the risk of reduced intra-brand 
competition  and  price  discrimination  is  low.  Arbitrage  is  not  hindered,  and  the 
absence of intra-brand competition is not very relevant at the wholesale level. At the 
retail level, neither intra- nor inter-brand competition are hindered. Moreover, inter-
brand  competition  is  largely  unaffected  by  the  exclusive  arrangements  at  the 
wholesale level. Therefore it is likely, even if anti-competitive effects exist, that also 
the conditions of Article 101(3) are fulfilled. 

(166)  Example of multiple exclusive dealerships in an oligopolistic market 

On a national market for a final product, there are four market leaders, which each 
have  a  market  share  of  around  20 %.  Those  four  market  leaders  sell  their  product 
through  exclusive  distributors  at  the  retail  level.  Retailers  are  given  an  exclusive 
territory which corresponds to the town in which they are located or a district of the 
town for large towns. In most territories, the four market leaders happen to appoint 
the same exclusive retailer ("multiple dealership"), often centrally located and rather 
specialised in the product. The remaining 20 % of the national market is composed of 
small local producers, the largest of these producers having a market share of 5 % on 
the  national  market.  Those  local  producers  sell  their  products  in  general  through 
other  retailers,  in  particular  because  the  exclusive  distributors  of  the  four  largest 
suppliers  show  in  general  little  interest  in  selling  less  well-known  and  cheaper 
brands.  There  is  strong  brand  and  product  differentiation  on  the  market.  The  four 
market leaders have large national advertising campaigns and strong brand images, 
whereas the fringe producers do not advertise their products at the national level. The 
market is rather mature, with stable demand and no major product and technological 
innovation. The product is relatively simple. 

In such an oligopolistic market, there is a risk of collusion between the four market 
leaders. That risk is increased through multiple dealerships. Intra-brand competition 
is limited by the territorial exclusivity. Competition between the four leading brands 
is  reduced  at  the  retail  level,  since  one  retailer  fixes  the  price  of  all  four  brands  in 
each territory. The multiple dealership implies that, if one producer cuts the price for 
its brand, the retailer will not be eager to transmit this price cut to 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  competition  with  one  another.  Inter-
brand price competition exists mainly with the low brand image goods of the fringe 
producers.  The  possible  efficiency  arguments  for  (joint)  exclusive  distributors  are 
limited,  as  the  product  is  relatively  simple,  the  resale  does  not  require  any  specific 
investments  or  training  and  advertising  is  mainly  carried  out  at  the  level  of  the 
producers. 

EN 

53 

   EN 

Even though each of the market leaders has a market share below the threshold, the 
conditions  of  Article 101(3)  may  not  be  fulfilled  and  withdrawal  of  the  block 
exemption  may  be  necessary  for  the  agreements  concluded  with  distributors  whose 
market share is below 30 % of the procurement market. 

(167)  Example of exclusive distribution combined with exclusive sourcing 

Manufacturer A is the European market leader for a bulky consumer durable, with a 
market share of between 40 % and 60 % in most national retail markets. In Member 
States  where  it  has  a  high  market  share,  it  has  less  competitors  with  much  smaller 
market shares. The competitors are present on only one or two national markets. A’s 
long  time  policy  is  to  sell  its  product  through  its  national  subsidiaries  to  exclusive 
distributors at the retail level, which are not allowed to sell actively into each other's 
territories.  Those  distributors  are  thereby  incentivised  to  promote  the  product  and 
provide pre-sales services. Recently the retailers are in addition obliged to purchase 
manufacturer A's products exclusively from the national subsidiary of manufacturer 
A  in  their  own  country.  The  retailers  selling  the  brand  of  manufacturer  A  are  the 
main  resellers  of  that  type  of  product  in  their  territory.  They  handle  competing 
brands, but with varying degrees of success and  enthusiasm.  Since the introduction 
of exclusive sourcing, A applies price differences of 10 % to 15 % between markets 
with  higher  prices  in  the  markets  where  it  has  less  competition.  The  markets  are 
relatively  stable  on  the  demand  and  the  supply  side,  and  there  are  no  significant 
technological changes. 

In the high price markets, the loss of intra-brand competition results not only  from 
the  territorial  exclusivity  at  the  retail  level  but  is  aggravated  by  the  exclusive 
sourcing obligation imposed on the retailers. The exclusive sourcing obligation helps 
to  keep  markets  and  territories  separate  by  making  arbitrage  between  the  exclusive 
retailers,  the  main  resellers  of  that  type  of  product,  impossible.  The  exclusive 
retailers  also  cannot  sell  actively  into  each  other's  territory  and  in  practice  tend  to 
avoid  delivering  outside  their  own  territory.  As  a  result,  price  discrimination  is 
possible,  without  it  leading  to  a  significant  increase  in  total  sales.  Arbitrage  by 
consumers or independent traders is limited due to the bulkiness of the product. 

While the possible efficiency arguments for appointing exclusive distributors may be 
convincing,  in  particular  because  of  the  incentivising  of  retailers,  the  possible 
efficiency  arguments  for  the  combination  of  exclusive  distribution  and  exclusive 
sourcing, and in particular the possible efficiency arguments for exclusive sourcing, 
linked  mainly  to  economies  of  scale  in  transport,  are  unlikely  to  outweigh  the 
negative  effect  of  price  discrimination  and  reduced  intra-brand  competition. 
Consequently, it is unlikely that the conditions of Article 101(3) are fulfilled. 

2.3. 

Exclusive customer allocation 

(168) 

In an exclusive customer allocation agreement, the supplier agrees to sell its products 
to only one distributor for resale to a particular group of customers. At the same time, 
the distributor is usually limited in its active selling to other (exclusively allocated) 
groups  of  customers.  The  Block  Exemption  Regulation  does  not  limit  the  way  an 
exclusive customer group can be defined; it could for instance be a particular type of 
customers  defined by  their  occupation but also a list of specific customers selected 
on  the  basis  of  one  or  more  objective  criteria.  The  possible  competition  risks  are 

EN 

54 

   EN 

mainly  reduced  intra-brand  competition  and  market  partitioning,  which  may  in 
particular  facilitate  price  discrimination.  Where  most  or  all  of  the  suppliers  apply 
exclusive  customer  allocation,  competition  may  be  softened  and  collusion,  both  at 
the  suppliers'  and  the  distributors'  level,  may  be  facilitated.  Lastly,  exclusive 
customer  allocation  may  lead  to  foreclosure  of  other  distributors  and  therewith 
reduce competition at that level. 

(169)  Exclusive customer allocation is exempted by the Block Exemption Regulation when 
both the supplier's and buyer's market share does not exceed the 30 % market share 
threshold, even if combined with other non-hardcore vertical restraints such as non-
compete,  quantity-forcing  or  exclusive  sourcing.  A  combination  of  exclusive 
customer  allocation  and  selective  distribution  is  normally  a  hardcore  restriction, 
as active  selling  to  end-users  by  the  appointed  distributors  is  usually  not  left  free. 
Above the 30 % market share threshold, the guidance provided in paragraphs (151) 
to  (167)  applies  also  to  the  assessment  of  exclusive  customer  allocation,  subject  to 
the specific remarks in the remainder of this section. 

(170)  The  allocation  of  customers  normally  makes  arbitrage  by  the  customers  more 
difficult.  In  addition,  as  each  appointed  distributor  has  its  own  class  of  customers, 
non-appointed  distributors  not  falling  within  such  a  class  may  find  it  difficult  to 
obtain  the  product.  Consequently,  possible  arbitrage  by  non-appointed  distributors 
will be reduced.  

(171)  Exclusive customer allocation is mainly applied to intermediate products and at the 
wholesale  level  when  it  concerns  final  products,  where  customer  groups  with 
different specific requirements concerning the product can be distinguished. 

(172)  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  group  of  customers.  The 
depreciation  period  of  these  investments  indicates  the  justified  duration  of  an 
exclusive  customer  allocation  system.  In  general  the  case  is  strongest  for  new  or 
complex products and for products requiring adaptation to the needs of the individual 
customer. Identifiable differentiated needs are more likely for intermediate products, 
that  is,  products  sold  to  different  types  of  professional  buyers.  Allocation  of  final 
consumers is unlikely to lead to efficiencies. 

(173)  Example of exclusive customer allocation 

A  company  has  developed  a  sophisticated  sprinkler  installation.  The  company  has 
currently  a  market  share  of  40 %  on  the  market  for  sprinkler  installations.  When  it 
started selling the sophisticated sprinkler it had a market share of 20 % with an older 
product. The installation of the new type of sprinkler depends on the type of building 
that it is installed in and on the use of the building (office, chemical plant, hospital 
etc.).  The  company  has  appointed  a  number  of  distributors  to  sell  and  install  the 
sprinkler installation. Each distributor needed to train its employees for the general 
and specific requirements of installing the sprinkler installation for a particular class 
of customers. To ensure that distributors would specialise, the company assigned to 
each  distributor an  exclusive class of customers and prohibited active sales to each 
others' exclusive customer classes. After five years, all the exclusive distributors will 
be allowed to sell actively to all classes of customers, thereby ending the system of 

EN 

55 

   EN 

exclusive  customer  allocation.  The  supplier  may  then  also  start  selling  to  new 
distributors.  The  market  is  quite  dynamic,  with  two  recent  entries  and  a  number  of 
technological  developments.  Competitors,  with  market  shares  between  25 %  and 
5 %, are also upgrading their products. 

As the exclusivity is of limited duration and helps to ensure that the distributors may 
recoup their investments 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 of Article 101(3) are likely to be 
fulfilled. 

2.4. 

Selective distribution 

(174) 

Selective distribution agreements, like exclusive distribution agreements, restrict the 
number of authorised distributors on the one hand and the possibilities of resale on 
the  other.  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 
criteria linked in the first place to the nature of the product. Another difference with 
exclusive  distribution  is  that  the  restriction  on  resale  is  not  a  restriction  on  active 
selling  to  a  territory  but  a  restriction  on  any  sales  to  non-authorised  distributors, 
leaving  only  appointed  dealers  and  final  customers  as  possible  buyers.  Selective 
distribution is almost always used to distribute branded final products. 

(175)  The  possible  competition  risks  are  a  reduction  in  intra-brand  competition  and, 
especially in case of cumulative effect, foreclosure of certain type(s) of distributors 
and  softening  of  competition  and  facilitation  of  collusion  between  suppliers  or 
buyers. To assess the possible anti-competitive effects of selective distribution under 
Article 101(1),  a  distinction  needs  to  be  made  between  purely  qualitative  selective 
distribution  and  quantitative  selective  distribution.  Purely  qualitative  selective 
distribution  selects  dealers  only  on  the  basis  of  objective  criteria  required  by  the 
nature of the product such as training of sales personnel, the service provided at the 
point of sale, a certain range of the products being sold etc.51 The application of such 
criteria  does  not  put  a  direct  limit  on  the  number  of  dealers.  Purely  qualitative 
selective distribution is in general considered to fall outside Article 101(1) for lack of 
anti-competitive effects, provided that three conditions are satisfied. First, the nature 
of  the  product  in  question  must  necessitate  a  selective  distribution  system,  in  the 
sense that such a system must constitute a legitimate requirement, having regard to 
the nature of the product concerned, to preserve its quality and ensure its proper use. 
Secondly, resellers must be chosen on the basis of objective criteria of a qualitative 
nature  which  are  laid  down  uniformly  for  all  and  made  available  to  all  potential 
resellers  and  are  not  applied  in  a  discriminatory  manner.  Thirdly,  the  criteria  laid 
down  must  not  go  beyond  what  is  necessary52.  Quantitative  selective  distribution 
adds  further  criteria  for  selection  that  more  directly  limit  the  potential  number  of 

51 

52 

See for example judgment of the Court of First Instance in Case T-88/92 Groupement d'achat Édouard 
Leclerc v Commission [1996] ECR II-1961. 
See judgments of the Court of Justice in Case 31/80 L'Oréal v PVBA [1980] ECR 3775, paragraphs 15 
and  16;  Case 26/76  Metro I  [1977]  ECR  1875,  paragraphs  20  and  21;  Case 107/82  AEG  [1983] 
ECR 3151,  paragraph  35;  and  judgment  of  the  Court  of  First  Instance  in  Case T-19/91  Vichy  v 
Commission [1992] ECR II-415, paragraph 65. 

EN 

56 

   EN 

                                                 
dealers by, for instance, requiring minimum or maximum sales, by fixing the number 
of dealers, etc. 

(176)  Qualitative  and  quantitative 

is  exempted  by 

selective  distribution 

the 
Block Exemption Regulation as long as the market share of both supplier and buyer 
each  do  not  exceed  30 %,  even  if  combined  with  other  non-hardcore  vertical 
restraints, such as non-compete or exclusive distribution, provided active selling by 
the authorised distributors to each other and to end users is not restricted. The Block 
Exemption Regulation exempts selective distribution regardless of the nature of the 
product  concerned  and  regardless  of  the  nature  of  the  selection  criteria.  However, 
where the characteristics of the product53 do not require selective distribution or do 
not require the applied criteria, such as for instance the requirement for distributors 
to  have  one  or  more  brick  and  mortar  shops  or  to  provide  specific  services,  such  a 
distribution  system  does  not  generally  bring  about  sufficient  efficiency enhancing 
effects  to  counterbalance  a  significant  reduction  in  intra-brand  competition.  Where 
appreciable  anti-competitive  effects  occur,  the  benefit  of  the  Block  Exemption 
Regulation  is  likely  to  be  withdrawn.  In  addition,  the  remainder  of  this  section 
provides  guidance  for  the  assessment  of  selective  distribution  in individual  cases 
which  are  not  covered  by  the  Block  Exemption  Regulation  or in  the  case  of 
cumulative effects resulting from parallel networks of selective distribution. 

(177)  The  market  position  of  the  supplier  and  its  competitors  is  of  central  importance  in 
assessing possible anti-competitive effects, as the loss of intra-brand competition can 
only be problematic if inter-brand competition is limited. The stronger the position of 
the  supplier,  the  more  problematic  is  the  loss  of  intra-brand  competition.  Another 
important factor is the number of selective distribution networks present in the same 
market. Where selective distribution is applied by only one supplier on the market, 
quantitative  selective  distribution  does  not  normally  create  net  negative  effects 
provided that the contract goods, having regard to their nature, require the use of a 
selective  distribution  system  and  on  condition  that  the  selection  criteria  applied  are 
necessary  to  ensure  efficient  distribution  of  the  goods  in  question.  The  reality, 
however, seems to be that selective distribution is often applied by a number of the 
suppliers on a given market. 

(178)  The  position  of  competitors  can  have  a  dual  significance  and  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  outweighed  by  sufficient  inter-brand 
competition.  However,  when  a  majority  of  the  main  suppliers  apply  selective 
distribution,  there  will  be  a  significant loss  of  intra-brand  competition  and  possible 
foreclosure  of  certain  types  of  distributors  as  well  as  an  increased  risk  of  collusion 
between those major suppliers. The risk of foreclosure of more efficient distributors 
has always been greater with selective distribution than with exclusive distribution, 
given the restriction on sales to non-authorised dealers in selective distribution. That 
restriction  is  designed  to  give  selective  distribution  systems  a  closed  character, 
making  it  impossible  for  non-authorised  dealers  to  obtain  supplies.  Accordingly, 
selective distribution is particularly well suited to avoid pressure by price discounters 

53 

See  for  example  judgments  of  the  Court  of  First  Instance  in  Case  T-19/92,  Groupement  d'achat 
Edouard Leclerc v Commission [1996] ECR II-1851, paragraphs 112 to 123; Case T-88/92 Groupement 
d'achat Edouard Leclerc v Commission [1996] ECR II-1961, paragraphs 106 to 117, and the case law 
referred to in the preceding footnote. 

EN 

57 

   EN 

                                                 
(whether offline or online-only distributors) on the margins of the manufacturer, as 
well  as  on  the  margins  of  the  authorised  dealers.  Foreclosure  of  such  distribution 
formats,  whether  resulting  from  the  cumulative  application  of  selective  distribution 
or  from  the  application  by  a  single  supplier  with  a  market  share  exceeding  30 %, 
reduces  the  possibilities  for  consumers  to  take  advantage  of  the  specific  benefits 
offered by these formats such as lower prices, more transparency and wider access.  

(179)  Where  the  Block  Exemption  Regulation  applies  to  individual  networks  of  selective 
distribution,  withdrawal  of  the  block  exemption  or  disapplication  of  the  Block 
Exemption Regulation may be considered in case of cumulative effects. However, a 
cumulative effect problem is unlikely to arise when the share of the market covered 
by selective distribution is below 50 %. Also, no problem is likely to arise where the 
market  coverage  ratio  exceeds  50 %,  but  the  aggregate  market  share  of  the  five 
largest  suppliers  (CR5)  is  below  50 %.  Where  both  the  CR5  and  the  share  of  the 
market  covered  by  selective  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  which  do  not  apply  selective 
distribution,  the  less  likely  other  distributors  will  be  foreclosed.  If  all  five  largest 
suppliers apply selective distribution, competition concerns may arise with respect to 
those  agreements  in  particular  that  apply  quantitative  selection  criteria  by  directly 
limiting the number of authorised dealers or that apply qualitative criteria, such as a 
requirement  to  have  one  or  more  brick  and  mortar  shops  or  to  provide  specific 
services,  which  forecloses  certain  distribution  formats.  The  conditions  of 
Article 101(3)  are  in  general  unlikely  to  be  fulfilled  if  the  selective  distribution 
systems  at  issue  prevent  access  to  the  market  by  new  distributors  capable  of 
adequately  selling  the  products  in  question,  especially  price  discounters  or  online-
only distributors offering lower prices to consumers, thereby limiting distribution to 
the  advantage  of  certain  existing  channels and  to  the  detriment  of  final  consumers. 
More indirect forms of quantitative selective distribution, resulting for instance from 
the combination of purely qualitative selection criteria with the requirement imposed 
on the dealers to achieve a minimum amount of annual purchases, are less likely to 
produce  net  negative  effects,  if  such  an  amount  does  not  represent  a  significant 
proportion  of  the  dealer's  total  turnover  achieved  with  the  type  of  products  in 
question  and  it  does  not  go  beyond  what  is  necessary  for  the  supplier  to  recoup  its 
relationship-specific investment and/or realise economies 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. 

(180)  Entry barriers are mainly of interest in the case of foreclosure of the market to non-
authorised  dealers.  In  general,  entry  barriers  will  be  considerable  as  selective 
distribution  is  usually  applied  by  manufacturers  of  branded  products.  It  will  in 
general take time and considerable investment for excluded retailers to launch their 
own brands or obtain competitive supplies elsewhere. 

(181)  Buying  power  may  increase  the  risk  of  collusion  between  dealers  and  thus 
appreciably  change  the  analysis  of  possible  anti-competitive  effects  of  selective 
distribution.  Foreclosure  of  the  market  to  more  efficient  retailers  may  especially 
result  where  a  strong  dealer  organisation  imposes  selection  criteria  on  the  supplier 
aimed at limiting distribution to the advantage of its members. 

EN 

58 

   EN 

(182)  Article 5(1)(c) of the Block Exemption Regulation provides that the supplier may not 
impose an obligation causing the authorised dealers, either directly or indirectly, not 
to  sell  the  brands  of  particular  competing  suppliers.  Such  a  condition  aims 
specifically at avoiding horizontal collusion to exclude particular brands through the 
creation of a selective club of brands by the leading suppliers. That kind of obligation 
is unlikely to be exemptible when the CR5 is equal to or above 50 %, unless none of 
the suppliers imposing such an obligation belongs to the five largest suppliers on the 
market. 

(183) 

Foreclosure  of  other  suppliers  is  normally  not  a  problem  as  long  as  other  suppliers 
can use the same distributors, that is, as long as the selective distribution system is 
not  combined  with  single  branding.  In  the  case  of  a  dense  network  of  authorised 
distributors  or  in  the  case  of  a  cumulative  effect,  the  combination  of  selective 
distribution  and  a  non-compete  obligation  may  pose  a  risk  of  foreclosure  to  other 
suppliers. In that case, the principles set out in section 2.1. 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  where  the 
leading  suppliers apply not  only purely qualitative  selection criteria, but  impose  on 
their  dealers  certain  additional  obligations  such  as  the  obligation  to  reserve  a 
minimum shelf-space for their products or to ensure that the sales of their products 
by  the  dealer  achieve  a  minimum  percentage  of  the  dealer's  total  turnover.  Such  a 
problem  is  unlikely  to  arise  if  the  share  of  the  market  covered  by  selective 
distribution  is  below  50 %  or,  where  this  coverage  ratio  is  exceeded,  if  the  market 
share of the five largest suppliers is below 50 %. 

(184)  Maturity of the market is important, as loss of intra-brand competition and possible 
foreclosure of suppliers or dealers may be a serious problem on a mature market but 
is  less  relevant  on  a  market  with  growing  demand,  changing  technologies  and 
changing market positions. 

(185) 

Selective distribution may be efficient when it leads to savings in logistical costs due 
to economies of scale in transport and that may occur irrespective of the nature of the 
product (paragraph (107)(g)). However, such an efficiency is usually only marginal 
in  selective  distribution  systems.  To  help  solve  a  free-rider  problem  between  the 
distributors (paragraph (107)(a) ) or to help create a brand image (paragraph (107)(i) 
), the nature of the product is very relevant. In general, the case is strongest for new 
products,  complex  products,  products  whose  qualities  are  difficult  to  judge  before 
consumption (so-called experience products) or whose qualities are difficult to judge 
even after consumption (so-called credence products). The combination of selective 
distribution  with  a  location  clause,  protecting  an  appointed  dealer  against  other 
appointed  dealers  opening  up  a  shop  in  its  vicinity,  may  in  particular  fulfil  the 
conditions of Article 101(3) if the combination is indispensable to protect substantial 
and 
dealer 
(paragraph (107)(d)). 

investments  made 

relationship-specific 

authorised 

the 

by 

(186)  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 
service requirements alone. 

EN 

59 

   EN 

(187)  Example of quantitative selective distribution 

On a market for consumer durables, the market leader (brand A) with a market share 
of 35 %, sells its product to final consumers through a selective distribution network. 
There are several criteria for admission to the network: the shop must employ trained 
staff  and  provide  pre-sales  services,  there  must  be  a  specialised  area  in  the  shop 
devoted  to  the  sales  of  the  product  and  similar  hi-tech  products,  and  the  shop  is 
required  to  sell  a  wide  range  of  models  of  the  supplier  and  to  display  them  in  an 
attractive  manner.  Moreover,  the  number  of  admissible  retailers  in  the  network  is 
directly  limited  through  the  establishment  of  a  maximum  number  of  retailers  per 
number  of  inhabitants  in  each  province  or  urban  area.  Manufacturer  A  has 
6 competitors in that market. Its largest competitors, B, C and D, have market shares 
of  respectively  25,  15  and  10 %,  whilst  the  other  producers  have  smaller  market 
shares.  A  is  the  only  manufacturer  to  use  selective  distribution.  The  selective 
distributors of brand A always handle a few competing brands. However, competing 
brands  are  also  widely  sold  in  shops  which  are  not  member  of  A's  selective 
distribution network. Channels of distribution are various: for instance, brands B and 
C  are  sold  in  most  of  A's  selected  shops,  but  also  in  other  shops  providing  a  high 
quality  service  and  in  hypermarkets.  Brand D  is  mainly  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 through advertising. 

On  that  market,  the  coverage  ratio  of  selective  distribution  is  35 %.  Inter-brand 
competition is not directly affected by the selective distribution system of A. Intra-
brand  competition  for  brand  A  may  be  reduced,  but  consumers  have  access  to  low 
service/low  price  retailers  for  brands  B  and  C,  which  have  a  comparable  quality 
image to brand A. Moreover, access to high service retailers for other brands is not 
foreclosed, since there is no limitation on the capacity of selected distributors to sell 
competing brands, and the quantitative limitation on the number of retailers for brand 
A leaves other high service retailers free to distribute competing brands. In this case, 
in  view  of  the  service  requirements  and  the  efficiencies  these  are  likely  to  provide 
and the limited effect on intra-brand competition the conditions of Article 101(3) are 
likely to be fulfilled. 

(188)  Example of selective distribution with cumulative effects  

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 %. The five 
largest  manufacturers  distribute  their  products  through  quantitative  selective 
distribution, whilst the two 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  distribution  networks  are  remarkably  uniform  amongst  manufacturers: 
the distributors are required to have one or more brick and mortar shops, those 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 the article and a minimum size 
for  this  area  is  specified.  The  shop  is  required  to  sell  a  wide  range  of  the  brand  in 
question and to display the article in an attractive manner, the shop must be located 
in  a  commercial  street,  and  that  type  of  article  must  represent  at  least  30 %  of  the 
total  turnover  of  the  shop.  In  general,  the  same  dealer  is  appointed  selective 
distributor for all five brands. The two brands which do not use selective distribution 
usually sell through less specialised retailers with lower service levels. The market is 

EN 

60 

   EN 

stable, both on the supply and on the demand side, and there is strong brand image 
and  product  differentiation.  The  five  market  leaders  have  strong  brand images, 
acquired through advertising and sponsoring, whereas the two smaller manufacturers 
have a strategy of cheaper products, with no strong brand image. 

On  that  market,  access  by  general  price  discounters  and  online-only  distributors  to 
the  five  leading  brands  is  denied.  Indeed,  the  requirement  that  this  type  of  article 
represents at least 30 % of the activity of the dealers and the criteria on presentation 
and pre-sales services rule out most price discounters from the network of authorised 
dealers.  The  requirement  to  have  one  or  more  brick  and  mortar  shops  excludes 
online-only  distributors  from  the  network.  As  a  consequence,  consumers  have  no 
choice but to buy the five leading brands in high service/high price shops. This leads 
to reduced inter-brand competition between the five leading brands. The fact that the 
two  smallest  brands  can  be  bought  in  low  service/low  price  shops  does  not 
compensate  for  this,  because  the  brand  image  of  the  five  market  leaders  is  much 
better.  Inter-brand  competition  is  also  limited  through  multiple  dealership.  Even 
though  there  exists  some  degree  of  intra-brand  competition  and  the  number  of 
retailers is not directly limited, the criteria for admission are strict enough to lead to a 
small number of retailers for the five leading brands in each territory. 

The efficiencies associated with these quantitative selective distribution systems are 
low: the product is not very complex and does not justify a particularly high service. 
Unless  the  manufacturers  can  prove  that  there  are  clear  efficiencies  linked  to  their 
network of selective distribution, it is probable that the block exemption will have to 
be  withdrawn  because  of  its  cumulative  effects  resulting  in  less  choice  and  higher 
prices for consumers. 

2.5. 

Franchising 

(189) 

Franchise  agreements  contain  licences  of  intellectual  property  rights  relating  in 
particular to trade marks or signs and know-how for the use and distribution of goods 
or  services.  In  addition  to  the  licence  of  IPRs,  the  franchisor  usually  provides  the 
franchisee during the life of the agreement with commercial or technical assistance. 
The licence and the assistance are integral components of the business method being 
franchised. The franchisor is in general paid a franchise fee by the franchisee for the 
use  of  the  particular  business  method.  Franchising  may  enable  the  franchisor  to 
establish,  with  limited  investments,  a  uniform  network  for  the  distribution  of  its 
products. In addition to the provision of the business method, franchise agreements 
usually contain a combination of different vertical restraints concerning the products 
being  distributed,  in  particular  selective  distribution  and/or  non-compete  and/or 
exclusive distribution or weaker forms thereof. 

(190)  The coverage by the Block Exemption Regulation of the licensing of IPRs contained 
in franchise agreements is dealt with in paragraphs (24) to (46). As for the vertical 
restraints on the purchase, sale and resale of goods and services within a franchising 
arrangement,  such  as  selective  distribution,  non-compete  obligations  or  exclusive 
distribution,  the  Block  Exemption  Regulation  applies  up  to  the  30 %  market  share 

EN 

61 

   EN 

threshold54. The guidance provided in respect of those types of restraints applies also 
to franchising, subject to the following two specific remarks: 

(a)  The  more  important  the  transfer  of  know-how,  the  more  likely  it  is  that  the 
restraints create efficiencies and/or are indispensable to protect the know-how 
and that the vertical restraints fulfil the conditions of Article 101(3); 

(b)  A non-compete obligation on the goods or services purchased by the franchisee 
falls  outside  the  scope  of  Article 101(1)  where  the  obligation  is  necessary  to 
maintain  the  common  identity  and  reputation  of  the  franchised  network.  In 
such cases, the duration of the non-compete obligation is also irrelevant under 
Article  101(1),  as  long  as  it  does  not  exceed  the  duration  of  the  franchise 
agreement itself. 

(191)  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  machines  to  colour  the  sweets. 
The manufacturer also produces the colouring liquids. The quality and freshness of 
the liquid is of vital importance to producing good sweets. The manufacturer made a 
success of its sweets through a number of own retail outlets all operating under the 
same  trade  name  and  with  the  uniform  fun  image  (style  of  lay-out  of  the  shops, 
common  advertising  etc.).  In  order  to  expand  sales  the  manufacturer  started  a 
franchising  system.  The  franchisees  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 a franchise fee, contribute to common advertising and ensure the 
confidentiality  of  the  operating  manual  prepared  by  the  franchisor.  In  addition,  the 
franchisees are only allowed to sell from the agreed premises, to sell to end users or 
other franchisees and are not allowed to sell other sweets. The franchisor is obliged 
not  to  appoint  another  franchisee  nor  operate  a  retail  outlet  himself  in  a  given 
contract  territory.  The  franchisor  is  also  under  the  obligation  to  update  and  further 
develop its products, the business outlook and the operating manual and make these 
improvements  available  to  all  retail  franchisees.  The  franchise  agreements  are 
concluded for a duration of 10 years. 

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 foreign 
producers in addition to selling products from national producers. On that market the 
franchisor's  products  compete  with  other  brands  of  sweets.  The  franchisor  has  a 
market share of 30 % on the market for sweets sold to retailers. Competition comes 
from  a  number  of  national  and  international  brands,  sometimes  produced  by  large 
diversified food companies. There are many potential points of sale of sweets in the 
form  of  tobacconists,  general  food  retailers,  cafeterias  and  specialised  sweet  shops. 
The  franchisor's  market  share  of  the  market  for  machines  for  colouring  food  is 
below 10 %. 

Most  of  the  obligations  contained  in  the  franchise  agreements  can  be  deemed 
necessary to protect the intellectual property rights or maintain the common identity 

54 

See also paragraphs (86) to (95), in particular paragraph (92). 

EN 

62 

   EN 

                                                 
and  reputation  of  the  franchised  network  and  fall  outside  Article 101(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 to, at least help maintain the common identity, thereby 
offsetting  the  loss  of  intra-brand  competition.  The  non-compete  clause  excluding 
other  brands  of  sweets  from  the  shops  for  the  full  duration  of  the  agreements  does 
allow  the  franchisor  to  keep  the  outlets  uniform  and  prevent  competitors  from 
benefiting from its trade name. It does not lead to any serious foreclosure in view of 
the  great  number  of  potential  outlets  available  to  other  sweet  producers.  The 
franchise  agreements  of  this  franchisor  are  likely  to  fulfil  the  conditions  for 
exemption  under  Article 101(3)  in  as  far  as  the  obligations  contained  therein  fall 
under Article 101(1). 

2.6 

Exclusive supply 

(192)  Under the heading of exclusive supply fall those restrictions that have as their main 
element that the supplier is obliged or induced to sell the contract products only or 
mainly to one buyer, in general or for a particular use. Such restrictions may take the 
form  of  an  exclusive  supply  obligation,  restricting  the  supplier  to  sell  to  only  one 
buyer for the purposes of resale or a particular use, but may for instance also take the 
form  of  quantity  forcing  on  the  supplier,  where  incentives  are  agreed  between  the 
supplier  and  buyer  which  make  the  former  concentrate  its  sales  mainly  with  one 
buyer.  For  intermediate  goods  or  services,  exclusive  supply  is  often  referred  to  as 
industrial supply. 

(193)  Exclusive  supply  is  exempted  by  the  Block Exemption  Regulation  where  both  the 
supplier's  and  buyer's  market  share  does  not  exceed  30 %,  even  if  combined  with 
other  non-hardcore  vertical  restraints  such  as  non-compete.  The  remainder  of  this 
section provides guidance for the assessment of exclusive supply in individual cases 
above the market share threshold. 

(194)  The main competition risk of exclusive supply is anticompetitive foreclosure of other 
buyers.  There  is  a  similarity  with  the  possible  effects  of  exclusive  distribution,  in 
particular  when  the  exclusive  distributor  becomes  the  exclusive  buyer  for  a  whole 
market (see section 2.2, in particular paragraph (156)). The market share of the buyer 
on the upstream purchase market is obviously important for assessing the ability of 
the buyer to impose exclusive supply which forecloses other buyers from access to 
supplies.  The  importance  of  the  buyer  on  the  downstream  market  is  however  the 
factor which determines whether a competition problem may arise. If the buyer has 
no  market  power  downstream,  then  no  appreciable  negative  effects  for  consumers 
can be expected. Negative effects may arise when the market share of the buyer on 
the  downstream  supply  market  as  well  as  the  upstream  purchase  market  exceeds 
30 %. Where the market share of the buyer on the upstream market does not exceed 
30 %,  significant  foreclosure  effects  may  still  result,  especially  when  the  market 
share of the buyer on its downstream market exceeds 30 % and the exclusive supply 
relates to a particular use of the contract products. Where a company is dominant on 
the downstream market, any obligation to supply the products only or mainly to the 
dominant buyer may easily have significant anti-competitive effects. 

(195) 

It  is  not  only  the  market  position  of  the  buyer  on  the  upstream  and  downstream 
market that is important but also the extent to and the duration for which it applies an 

EN 

63 

   EN 

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  usually  require  a  balancing  of  pro-  and  anti-competitive  effects,  while 
agreements  lasting  longer  than  five  years  are  for  most  types  of  investments  not 
considered  necessary  to  achieve  the  claimed  efficiencies  or  the  efficiencies  are  not 
sufficient  to  outweigh  the  foreclosure  effect  of  such  long-term  exclusive  supply 
agreements. 

(196)  The market position of the competing buyers on the upstream market is important as 
it is likely that competing buyers will be foreclosed for anti-competitive reasons, that 
is, to increase their costs, if they are significantly smaller than the foreclosing buyer. 
Foreclosure  of  competing  buyers  is  not  very  likely  where  those  competitors  have 
similar buying power and can offer the suppliers similar sales possibilities. In such a 
case,  foreclosure  could  only  occur  for  potential  entrants,  which  may  not  be  able  to 
secure  supplies  when  a  number  of  major  buyers  all  enter  into  exclusive  supply 
contracts with the majority of suppliers on the market. Such a cumulative effect may 
lead to withdrawal of the benefit of the Block Exemption Regulation. 

(197)  Entry barriers at the supplier level are relevant to establishing whether there is real 
foreclosure. In as far as it is efficient for competing buyers to provide the goods or 
services themselves via upstream vertical integration, foreclosure is unlikely to be a 
real problem. However, there are often significant entry barriers. 

(198)  Countervailing power of suppliers is relevant, as important suppliers will not easily 
allow  themselves  to  be  cut  off  from  alternative  buyers.  Foreclosure  is  therefore 
mainly a risk in the case of weak suppliers and strong buyers. In the case of strong 
suppliers,  the  exclusive  supply  may  be  found  in  combination  with  non-compete 
obligations.  The  combination  with  non-compete  obligations  brings  in  the  rules 
developed  for  single  branding.  Where  there  are  relationship-specific  investments 
involved  on  both  sides  (hold-up  problem)  the  combination  of  exclusive  supply  and 
non-compete  obligations 
industrial  supply 
agreements may often be justified, in particular below the level of dominance. 

is,  reciprocal  exclusivity 

that 

in 

(199)  Lastly, the level of trade and the nature of the product  are relevant for foreclosure. 
Anticompetitive  foreclosure  is  less  likely  in  the  case  of  an  intermediate  product  or 
where  the  product  is  homogeneous.  Firstly,  a  foreclosed  manufacturer  that  uses  a 
certain input usually has more flexibility to respond to the demand of its customers 
than the wholesaler or retailer has in responding to the demand of the final consumer 
for whom brands may play an important role. Secondly, the loss of a possible source 
of supply matters less for the foreclosed buyers in the case of homogeneous products 
than in the case of a heterogeneous product with different grades and qualities. For 
final branded products or differentiated intermediate products where there are entry 
barriers,  exclusive  supply  may  have  appreciable  anti-competitive  effects  where  the 
competing buyers are relatively small compared to the foreclosing buyer, even if the 
latter is not dominant on the downstream market. 

(200)  Efficiencies  can  be  expected  in  the  case  of  a  hold-up  problem  (paragraph (107)(d) 
and (107)(e)), and such efficiencies are more likely for intermediate products than for 
final  products.  Other  efficiencies  are  less  likely.  Possible  economies  of  scale  in 
distribution (paragraph (107)(g)) do not seem likely to justify exclusive supply. 

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(201) 

In the case of a hold-up problem and even more so in the case of economies of scale 
in  distribution,  quantity  forcing  on  the  supplier,  such  as  minimum  supply 
requirements, could well be a less restrictive alternative. 

(202)  Example of exclusive supply 

On a market for a certain type of components (intermediate product market) supplier 
A  agrees  with  buyer  B  to  develop,  with  its  own  know-how  and  considerable 
investment in new machines and with the help of specifications supplied by buyer B, 
a different version of the component. B will have to make considerable investments 
to  incorporate  the  new  component.  It  is  agreed  that  A  will  supply  the  new  product 
only to buyer B for a period of five years from the date of first entry on the market. B 
is  obliged  to  buy  the  new  product  only  from  A  for  the  same  period  of  five  years. 
Both  A  and  B  can  continue  to  sell  and  buy  respectively  other  versions  of  the 
component  elsewhere.  The  market  share  of  buyer  B  on  the  upstream  component 
market and on the downstream final goods market is 40 %. The market 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 of 
Article  101(3)  in  view  of  the  efficiencies  and  the  limited  foreclosure  effect.  Other 
buyers are foreclosed from a particular version of a product of a supplier with 35 % 
market share and there are other component suppliers that could develop similar new 
products. The foreclosure of part of buyer B's demand to other suppliers is limited to 
maximum 40 % of the market. 

2.7. 

Upfront access payments 

(203)  Upfront  access  payments  are  fixed  fees  that  suppliers  pay  to  distributors  in  the 
framework of a vertical relationship at the beginning of a relevant period, in order to 
get  access  to  their  distribution  network  and  remunerate  services  provided  to  the 
suppliers  by  the  retailers.  This  category  includes  various  practices  such  as  slotting 
allowances55,  the  so  called  pay-to-stay  fees56,  payments  to  have  access  to  a 
distributor's promotion campaigns etc. Upfront access payments are exempted under 
the Block Exemption Regulation when both the supplier's and buyer's market share 
does  not  exceed  30 %.  The  remainder  of  this  section  provides  guidance  for  the 
assessment  of  upfront  access  payments  in  individual  cases  above  the  market  share 
threshold. 

(204)  Upfront  access  payments  may  sometimes  result  in  anticompetitive  foreclosure  of 
other  distributors  if  such  payments  induce  the  supplier  to  channel  its  products 
through  only  one  or  a  limited  number  of  distributors.  A  high  fee  may  make  that  a 
supplier wants to channel a substantial volume of its sales through this distributor in 
order to cover the costs of the fee. In such a case, upfront access payments may have 
the  same  downstream  foreclosure  effect  as  an  exclusive  supply  type  of  obligation. 
The  assessment  of  that  negative  effect  is  made  by  analogy  to  the  assessment  of 
exclusive supply obligations (in particular paragraphs (194) to (199)).  

55 
56 

Fixed fees that manufacturers pay to retailers in order to get access to their shelf space. 
Lump  sum  payments  made  to  ensure  the  continued  presence  of  an  existing  product  on  the  shelf  for 
some further period. 

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(205)  Exceptionally,  upfront  access  payments  may  also  result 

in  anticompetitive 
foreclosure of other suppliers, where the widespread use of upfront access payments 
increases  barriers  to  entry  for  small  entrants.  The  assessment  of  that  possible 
negative effect is made by analogy to the assessment of single branding obligations 
(in particular paragraphs (132) to (141)).  

(206) 

In  addition  to  possible  foreclosure  effects,  upfront  access  payments  may  soften 
competition  and  facilitate  collusion  between  distributors.  Upfront  access  payments 
are likely to increase the price charged by the supplier for the contract products since 
the  supplier  must  cover  the  expense  of  those  payments.  Higher  supply  prices  may 
reduce the incentive of the retailers to compete on price on the downstream market, 
while the profits of distributors are increased as a result of the access payments. Such 
reduction of competition between distributors through the cumulative use of upfront 
access payments normally requires the distribution market to be highly concentrated.  

(207)  However,  the  use  of  upfront  access  payments  may  in  many  cases  contribute  to  an 
efficient  allocation  of  shelf  space  for  new  products.  Distributors  often  have  less 
information  than  suppliers  on  the  potential  for  success  of  new  products  to  be 
introduced on the market and, as a result, the amount of products to be stocked may 
be sub-optimal. Upfront access payments may be used to reduce this asymmetry in 
information  between  suppliers  and  distributors  by  explicitly  allowing  suppliers  to 
compete for shelf space. The distributor may thus receive a signal of which products 
are  most  likely  to  be  successful  since  a  supplier  would  normally  agree  to  pay  an 
upfront  access  fee  if  it  estimates  a  low  probability  of  failure  of  the  product 
introduction. 

(208) 

Furthermore,  due  to  the  asymmetry  in  information  mentioned  in  paragraph  (207), 
suppliers  may  have  incentives  to  free-ride  on  distributors'  promotional  efforts  in 
order  to  introduce  sub-optimal  products.  If  a  product  is  not  successful,  the 
distributors will pay part of the costs of the product failure. The use of upfront access 
fees may prevent such free riding by shifting the risk of product failure back to the 
suppliers, thereby contributing to an optimal rate of product introductions. 

2.8. 

Category Management Agreements 

(209)  Category  management  agreements  are  agreements  by  which,  within  a  distribution 
agreement,  the  distributor  entrusts  the  supplier  (the  "category  captain")  with  the 
marketing  of  a  category  of  products  including  in  general  not  only  the  supplier's 
products,  but  also  the  products  of  its  competitors.  The  category  captain  may  thus 
have  an  influence  on  for  instance  the  product  placement  and  product  promotion  in 
the  shop  and  product  selection  for  the  shop.  Category  management  agreements  are 
exempted  under  the  Block  Exemption  Regulation  when  both  the  supplier's  and 
buyer's market share does not exceed 30 %. The remainder of this section provides 
guidance for the assessment of category management agreements in individual cases 
above the market share threshold. 

(210)  While in most cases category management agreements will not be problematic, they 
may  sometimes  distort  competition  between  suppliers,  and  finally  result  in 
anticompetitive foreclosure of other suppliers, where the category captain is able, due 
to  its  influence  over  the  marketing  decisions  of  the  distributor,  to  limit  or 
disadvantage  the  distribution  of  products  of  competing  suppliers.  While  in  most 

EN 

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cases the distributor may not have an interest in limiting its choice of products, when 
the distributor also sells competing products under its own brand (private labels), the 
distributor  may  also  have  incentives  to  exclude  certain  suppliers,  in  particular 
intermediate  range  products.  The  assessment  of  such  upstream  foreclosure  effect  is 
made  by  analogy  to  the  assessment  of  single  branding  obligations  (in  particular 
paragraphs  (132)  to  (141))  by  addressing  issues  like  the  market  coverage  of  these 
agreements, the market position of competing suppliers and the possible cumulative 
use of such agreements.  

(211) 

In  addition,  category  management  agreements  may  facilitate  collusion  between 
distributors when the same supplier serves as a category captain for all or most of the 
competing  distributors  on  a  market  and  provides  these  distributors  with  a  common 
point of reference for their marketing decisions.  

(212)  Category  management  may  also  facilitate  collusion  between  suppliers  through 
increased opportunities  to  exchange via retailers sensitive market information, such 
as for instance information related to future pricing, promotional plans or advertising 
campaigns57.  

(213)  However, the use of category management agreements may also lead to efficiencies. 
Category  management  agreements  may  allow  distributors  to  have  access  to  the 
supplier's  marketing  expertise  for  a  certain  group  of  products  and  to  achieve 
economies of scale as they ensure that the optimal quantity of products is presented 
timely and directly on the shelves. As category management is based on customers' 
habits, category management agreements may lead to higher customer satisfaction as 
they help to better meet demand expectations. In general, the higher the inter-brand 
competition  and  the  lower  consumers'  switching  costs,  the  greater  the  economic 
benefits achieved through category management. 

2.9 

Tying 

(214)  Tying  refers  to  situations  where  customers  that  purchase  one  product  (the  tying 
product)  are  required  also  to  purchase  another  distinct  product  (the  tied  product) 
from the same supplier or someone designated by the latter. Tying may constitute an 
abuse  within  the  meaning  of  Article  10258.  Tying  may  also  constitute  a  vertical 
restraint  falling  under  Article 101  where  it  results  in  a  single  branding  type  of 
obligation  (see paragraphs  (129)  to  (150))  for  the  tied  product.  Only  the  latter 
situation is dealt with in these Guidelines. 

(215)  Whether products will be considered as distinct depends on customer demand. Two 
products  are  distinct  where,  in  the  absence  of  the  tying,  a  substantial  number  of 
customers  would  purchase  or  would  have  purchased  the  tying  product  without  also 
buying  the  tied  product  from  the  same  supplier,  thereby  allowing  stand-alone 

57 

58 

Direct information exchange between competitors is not covered by the Block Exemption Regulation, 
see Article 2(4) of that Regulation and paragraphs 27-28 of these Guidelines. 
Judgment  of  the  Court  of  Justice  in  Case  C-333/94  P  Tetrapak  v  Commission  [1996] ECR I-5951, 
paragraph  37.  See  also  Communication  from  the  Commission  –  Guidance  on  the  Commission's 
enforcement  priorities  in  applying  Article  82  of  the  EC  Treaty  to  abusive  conduct  by  dominant 
undertakings, OJ C 45, 24.2.2009, p. 7. 

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production for both the tying and the tied product59. Evidence that two products are 
distinct could include direct evidence that, when given a choice, customers purchase 
the tying and the tied products separately from different sources of supply, or indirect 
evidence,  such  as  the  presence  on  the  market  of  undertakings  specialised  in  the 
manufacture  or  sale  of  the  tied  product  without  the  tying  product60,  or  evidence 
indicating  that  undertakings  with  little  market  power,  particularly  on  competitive 
markets, tend not to tie or not to bundle such products. For instance, since customers 
want  to  buy  shoes  with  laces  and  it  is  not  practicable  for  distributors  to  lace  new 
shoes  with  the  laces  of  their  choice,  it  has  become  commercial  usage  for  shoe 
manufacturers to supply shoes with laces. Therefore, the sale of shoes with laces is 
not a tying practice. 

(216)  Tying  may  lead  to  anticompetitive  foreclosure  effects  on  the  tied  market,  the  tying 
market,  or  both  at  the  same  time.  The  foreclosure  effect  depends  on  the  tied 
percentage of total sales on the market of the tied product. On the question of what 
can  be  considered  appreciable  foreclosure  under  Article  101(1),  the  analysis  for 
single branding can be applied. Tying means that there is at least a form of quantity-
forcing on the buyer in respect of the tied product. Where in addition a non-compete 
obligation  is  agreed  in  respect  of  the  tied  product,  this  increases  the  possible 
foreclosure  effect  on  the  market  of  the  tied  product.  The  tying  may  lead  to  less 
competition  for  customers  interested  in  buying  the  tied  product,  but  not  the  tying 
product. If there is not a sufficient number of customers that will buy the tied product 
alone to sustain competitors of the supplier on the tied market, the tying can lead to 
those  customers  facing  higher  prices.  If  the  tied  product  is  an  important 
complementary product for customers of the tying product, a reduction of alternative 
suppliers  of  the  tied  product  and  hence  a  reduced  availability  of  that  product  can 
make entry onto the tying market alone more difficult. 

(217)  Tying may also directly lead to prices that are above the competitive level, especially 
in three  situations. Firstly,  if the tying and the  tied product can be used in variable 
proportions as inputs to a production process, customers may react to an increase in 
price  for  the  tying  product  by  increasing  their  demand  for  the  tied  product  while 
decreasing their demand for the tying product. By tying the two products the supplier 
may  seek  to  avoid  this  substitution  and  as  a  result  be  able  to  raise  its  prices. 
Secondly,  when  the  tying  allows  price  discrimination  according  to  the  use  the 
customer makes of the tying product, for example the tying of ink cartridges to the 
sale  of  photocopying  machines  (metering).  Thirdly,  when  in  the  case  of  long-term 
contracts  or  in  the  case  of  after-markets  with  original  equipment  with  a  long 
the 
replacement 
consequences of the tying.  

it  becomes  difficult  for 

the  customers 

to  calculate 

time, 

(218)  Tying is exempted under the Block Exemption Regulation when the market share of 
the  supplier,  on  both  the  market  of  the  tied  product  and  the  market  of  the  tying 
product, and the market share of the buyer, on the relevant upstream markets, do not 
exceed  30 %.  It  may  be  combined  with  other  vertical  restraints,  which  are  not 
hardcore  restrictions  under  that  Regulation,  such  as  non-compete  obligations  or 

59 

60 

Judgment of the Court of First Instance in Case T-201/04 Microsoft v Commission [2007] ECR II-3601, 
paragraphs 917, 921 and 922. 
Judgment  of  the  Court  of  First  Instance  in  Case  T-30/89  Hilti  v  Commission  [1991]  ECR  II-1439, 
paragraph 67. 

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quantity forcing in respect of the tying product, or exclusive sourcing. The remainder 
of  this  section  provides  guidance  for  the  assessment  of  tying  in  individual  cases 
above the market share threshold. 

(219)  The market position of the supplier on the market of the tying product is obviously of 
central importance to assess possible anti-competitive effects. In general, this type of 
agreement is imposed by the supplier. The importance of the supplier on the market 
of the tying product is the main reason why a buyer may find it difficult to refuse a 
tying obligation. 

(220)  The market position of the supplier's competitors on the market of the tying product 
is important in assessing the supplier’s market power. As long as its competitors are 
sufficiently  numerous  and  strong,  no  anti-competitive  effects  can  be  expected,  as 
buyers  have  sufficient  alternatives  to  purchase  the  tying  product  without  the  tied 
product, unless other suppliers are applying similar tying. In addition, entry barriers 
on the market of the tying product are relevant to establish the market position of the 
supplier.  When  tying  is  combined  with  a  non-compete  obligation  in  respect  of  the 
tying product, this considerably strengthens the position of the supplier. 

(221)  Buying  power  is  relevant,  as  important  buyers  will  not  easily  be  forced  to  accept 
tying without obtaining at least part of the possible efficiencies. Tying not based on 
efficiency  is  therefore  mainly  a  risk  where  buyers  do  not  have  significant  buying 
power. 

(222)  Where appreciable anti-competitive effects are established, the question whether the 
conditions  of  Article 101(3)  are  fulfilled  arises.  Tying  obligations  may  help  to 
produce  efficiencies  arising  from  joint  production  or  joint  distribution.  Where  the 
tied  product  is  not  produced  by  the  supplier,  an  efficiency  may  also  arise  from  the 
supplier buying large quantities of the tied product. For tying to fulfil the conditions 
of  Article  101(3),  it  must,  however,  be  shown  that  at  least  part  of  these  cost 
reductions are passed on to the consumer, which is normally not the case when the 
retailer  is  able  to  obtain,  on  a  regular  basis,  supplies  of  the  same  or  equivalent 
products  on  the  same  or  better  conditions  than  those  offered  by  the  supplier  which 
applies the tying practice. Another efficiency may exist where tying helps to ensure a 
certain  uniformity  and  quality  standardisation  (see  paragraph (107)(i)).  However,  it 
needs  to  be  demonstrated  that  the  positive  effects  cannot  be  realised  equally 
efficiently  by  requiring  the  buyer  to  use  or  resell  products  satisfying  minimum 
quality standards, without requiring the buyer to purchase these from the supplier or 
someone  designated  by  the  latter.  The  requirements  concerning  minimum  quality 
standards  would  not  normally  fall  within  the  scope  of  Article 101(1).  Where  the 
supplier  of  the  tying  product  imposes  on  the  buyer  the  suppliers  from  which  the 
buyer  must  purchase  the  tied  product,  for  instance  because  the  formulation  of 
minimum  quality  standards  is  not  possible,  this  may  also  fall  outside  the  scope  of 
Article 101(1),  especially where the  supplier of the tying product does not derive a 
direct (financial) benefit from designating the suppliers of the tied product. 

2.10 

Resale price restrictions 

(223)  As explained in section III.3, resale price maintenance (RPM), that is, agreements or 
concerted  practices  having  as  their  direct  or  indirect  object  the  establishment  of  a 
fixed or minimum resale price or a fixed or minimum price level to be observed by 

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the buyer, are treated as a hardcore restriction. Where an agreement includes RPM, 
that  agreement  is  presumed  to  restrict  competition  and  thus  to  fall  within 
Article 101(1). It also gives rise to the presumption that the agreement is unlikely to 
fulfil the conditions of Article 101(3), for which reason the block exemption does not 
apply.  However,  undertakings  have  the  possibility  to  plead  an  efficiency  defence 
under  Article  101(3)  in  an  individual  case.  It  is  incumbent  on  the  parties  to 
substantiate that likely efficiencies result from including RPM in their agreement and 
demonstrate that all the conditions of Article 101(3) are fulfilled. It then falls to the 
Commission  to  effectively  assess  the  likely  negative  effects  on  competition  and 
consumers before deciding whether the conditions of Article 101(3) are fulfilled. 

(224)  RPM  may  restrict  competition  in  a  number  of  ways.  Firstly,  RPM  may  facilitate 
collusion between suppliers by enhancing price transparency on the market, thereby 
making it easier to detect whether a supplier deviates from the collusive equilibrium 
by  cutting  its  price.  RPM  also  undermines  the  incentive  for  the  supplier  to  cut  its 
price to its distributors, as the fixed resale price will prevent it from benefiting from 
expanded sales. Such a negative effect is particularly plausible where the market is 
prone to collusive outcomes, for instance if the manufacturers form a tight oligopoly, 
and  a  significant  part  of  the  market  is  covered  by  RPM  agreements.  Second,  by 
eliminating intra-brand price competition, RPM may also facilitate collusion between 
the buyers, that is, at the distribution level. Strong or well organised distributors may 
be able to force or convince one or more suppliers to fix their resale price above the 
competitive level and thereby help them to reach or stabilise a collusive equilibrium. 
The resulting loss of price competition seems especially problematic when the RPM 
is  inspired  by  the  buyers,  whose  collective  horizontal  interests  can  be  expected  to 
work  out  negatively  for  consumers.  Third,  RPM  may  more  generally  soften 
competition  between  manufacturers  and/or  between  retailers,  in  particular  when 
manufacturers  use  the  same  distributors  to  distribute  their  products  and  RPM  is 
applied by all or many of them. Fourth, the immediate effect of RPM will be that all 
or certain distributors are prevented from lowering their sales price for that particular 
brand. In other words, the direct effect of RPM is a price increase. Fifth, RPM may 
lower  the  pressure  on  the  margin  of  the  manufacturer,  in  particular  where  the 
manufacturer has a commitment problem, that is, where it has an interest in lowering 
the  price  charged  to  subsequent  distributors.  In  such  a  situation,  the  manufacturer 
may  prefer  to  agree  to  RPM,  so  as  to  help  it  to  commit  not  to  lower  the  price  for 
subsequent  distributors  and  to  reduce  the  pressure  on  its  own  margin.  Sixth,  RPM 
may  be  implemented  by  a  manufacturer  with  market  power  to  foreclose  smaller 
rivals. The increased margin that RPM may offer distributors, may entice the latter to 
favour the particular  brand over  rival brands when advising customers, even where 
such advice is not in the interest of these customers, or not to sell these rival brands 
at  all.  Lastly,  RPM  may  reduce  dynamism  and  innovation  at  the  distribution  level. 
By  preventing  price  competition  between  different  distributors,  RPM  may  prevent 
more  efficient  retailers  from  entering  the  market  or  acquiring  sufficient  scale  with 
low  prices.  It  also  may  prevent  or  hinder  the  entry  and  expansion  of  distribution 
formats based on low prices, such as price discounters. 

(225)  However, RPM may not only restrict competition but may also, in particular where it 
is supplier driven, lead to efficiencies, which will be assessed under Article 101(3). 
Most notably, where a manufacturer introduces a new product, RPM may be helpful 
during the introductory period of expanding demand to induce distributors to better 
take  into  account  the  manufacturer’s  interest  to  promote  the  product.  RPM  may 

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provide the distributors with the means to increase sales efforts and if the distributors 
on  this  market  are  under  competitive  pressure  this  may  induce  them  to  expand 
overall demand for the product and make the launch of the product a success, also for 
the  benefit  of  consumers61.  Similarly,  fixed  resale  prices,  and  not  just  maximum 
resale  prices,  may  be  necessary  to  organise  in  a  franchise  system  or  similar 
distribution system applying a uniform distribution format a coordinated short term 
low  price  campaign  (2  to  6  weeks  in  most  cases)  which  will  also  benefit  the 
consumers.  In  some  situations,  the  extra  margin  provided  by  RPM  may  allow 
retailers to provide (additional) pre-sales services, in particular in case of experience 
or  complex  products.  If  enough  customers  take  advantage  from  such  services  to 
make their choice but then purchase at a lower price with retailers that do not provide 
such services (and hence do not incur these costs), high-service retailers may reduce 
or eliminate these services that enhance the demand for the supplier's product. RPM 
may help to prevent such free-riding at the distribution level. The parties will have to 
convincingly  demonstrate  that  the  RPM  agreement  can  be  expected  to  not  only 
provide  the  means  but  also  the  incentive  to  overcome  possible  free  riding  between 
retailers on these services and that the pre-sales services overall benefit consumers as 
part of the demonstration that all the conditions of Article 101(3) are fulfilled. 

(226)  The practice of recommending a resale price to a reseller or requiring the reseller to 
respect a maximum resale price is covered by the Block Exemption Regulation when 
the  market  share  of  each  of  the  parties  to  the  agreement  does  not  exceed  the  30 % 
threshold, provided it does not amount to a minimum or fixed sale price as a result of 
pressure  from,  or  incentives  offered  by,  any  of  the  parties.  The  remainder  of  this 
section  provides  guidance  for  the  assessment  of  maximum  or  recommended  prices 
above  the  market  share  threshold  and  for  cases  of  withdrawal  of  the  block 
exemption. 

(227)  The possible competition risk of maximum and recommended prices is that they will 
work as a focal point for the resellers and might be followed by most or all of them 
and/or  that  maximum  or  recommended  prices  may  soften  competition  or  facilitate 
collusion between suppliers. 

(228)  An  important  factor  for  assessing  possible  anti-competitive  effects  of  maximum  or 
recommended  resale  prices  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 
recommended  resale  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 deviate from what they perceive to be the preferred resale price proposed 
by such an important supplier on the market.  

(229)  Where  appreciable  anti-competitive  effects  are  established  for  maximum  or 
recommended  resale  prices, 
the  question  of  a  possible  exemption  under 
Article 101(3)  arises.  For  maximum  resale  prices,  the  efficiency  described  in 
paragraph (107)(f) (avoiding double marginalisation), may be particularly relevant. A 
maximum resale price may also help to ensure that the brand in question competes 
more  forcefully  with  other  brands,  including  own  label  products,  distributed  by  the 
same distributor. 

61 

This  assumes  that  it  is  not  practical  for  the  supplier  to  impose  on  all  buyers  by  contract  effective 
promotion requirements, see also paragraph 107 point (a). 

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