Source: EURLEX
Language: en
Format: md

23.5.2002 EN Official Journal of the European Communities C 122/1

## I

_(Information)_

EUROPEAN ECONOMIC AREA

# EFTA SURVEILLANCE AUTHORITY

**Guidelines on Vertical Restraints**

(2002/C 122/01)

**CONTENTS**

_Paragraphs_ _Page_

I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1–7 3

1. Purpose of the Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1–4 3

2. Applicability of Article 53 to vertical agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5–7 4

II. VERTICAL AGREEMENTS WHICH GENERALLY FALL OUTSIDE ARTICLE 53(1) . . . . . 8–20 4

1. Agreements of minor importance and SMEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8–11 4

2. Agency agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12–20 5

III. APPLICATION OF THE BLOCK EXEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21–70 7

1. Safe harbour created by the Block Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21–22 7

2. Scope of the Block Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23–45 7

3. Hardcore restrictions under the Block Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46–56 12

4. Conditions under the Block Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57–61 15

5. No presumption of illegality outside the Block Exemption . . . . . . . . . . . . . . . . . . . . . 62 16

6. No need for precautionary notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63–65 16

7. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66–67 17

8. Portfolio of products distributed through the same distribution system . . . . . . . . . . 68–69 17

9. Transitional period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 17

IV. WITHDRAWAL OF THE BLOCK EXEMPTION AND DISAPPLICATION OF THE BLOCK

EXEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71–87 17

1. Withdrawal procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71–79 17

2. Disapplication of the Block Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80–87 19

C 122/2 EN Official Journal of the European Communities 23.5.2002

V. MARKET DEFINITION AND MARKET SHARE CALCULATION ISSUE . . . . . . . . . . . . . . 88–99 20

1. EFTA Surveillance Authority Notice on definition of the relevant market . . . . . . . . . 88 20
2. The relevant market for calculating the 30 % market share threshold under the
Block Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89–95 20
3. The relevant market for individual assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 21

4. Calculation of the market share under the Block Exemption . . . . . . . . . . . . . . . . . . . . 97–99 22

VI. ENFORCEMENT POLICY IN INDIVIDUAL CASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100–229 22

1. The framework of analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103–136 23
1.1. Negative effects of vertical restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103–114 23
1.2. Positive effects of vertical restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115–118 25

1.3. General rules for the evaluation of vertical restraints . . . . . . . . . . . . . . . . . . . . . . . 119 27

1.4. Methodology of analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120–136 28
1.4.1. Relevant factors for the assessment under Article 53(1) . . . . . . . . . . . . . . . . . . . . . 121–133 28
1.4.2. Relevant factors for the assessment under Article 53(3) . . . . . . . . . . . . . . . . . . . . . 134–136 30

2. Analysis of specific vertical restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137–229 31
2.1. Single branding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138–160 31
2.2. Exclusive distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161–177 35

2.3. Exclusive customer allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178–183 38

2.4. Selective distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184–198 39

2.5. Franchising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199–201 42
2.6. Exclusive supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202–214 44
2.7. Tying . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215–224 46
2.8. Recommended and maximum resale price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225–228 47
2.9. Other vertical restraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229 48

23.5.2002 EN Official Journal of the European Communities C 122/3

A. The present notice is issued pursuant to the rules of the Agreement on the European Economic
Area (EEA Agreement) and the Agreement between the EFTA States on the establishment of a
Surveillance Authority and a Court of Justice (Surveillance and Court Agreement).

B. The European Commission has issued a notice entitled ‘Guidelines on vertical restraints’ ( [1] ). That
non-binding act sets out the principles which the European Commission follows for the assessment
of vertical agreements under Article 81 EC.

C. The EFTA Surveillance Authority considers the above-mentioned act to be EEA relevant. In order
to maintain equal conditions of competition and to ensure a uniform application of the EEA
competition rules throughout the European Economic Area, the EFTA Surveillance Authority
adopts the present notice under the power conferred upon it by Article 5(2)(b) of the Surveillance
and Court Agreement. It intends to follow the principles and rules laid down in this notice when
applying the relevant EEA rules to a particular case.

D. The present Notice replaces the Authority’s Notice concerning the acts referred to in points 2 and
3 of Annex XIV to the EEA Agreement (Commission Reg. (EEC) No 1983/83 and (EEC) 1984/83)
on the application of Article 53(3) of the EEA Agreement to categories of exclusive distribution
and purchasing agreements ( [2] ).

I. **INTRODUCTION** — Section IV (paragraphs 71 to 87) describes the
principles concerning the withdrawal of the Block
Exemption and the disapplication of the Block
Exemption;

1. _**Purpose of the Guidelines**_

—
Section V (paragraphs 88 to 99) addresses market
definition and market share calculation issues;
(1) These Guidelines set out the principles for the assessment of vertical agreements under Article 53 of the EEA
Agreement. What are considered vertical agreements is
defined in Article 2(1) of the act referred to in point 2
of Annex XIV to the EEA Agreement [Regulation (EEC) —
Section VI (paragraphs 100 to 229) describes the
No 2790/1999 ( [3] )] on the application of Article 53(3)
general framework of analysis and the enforcement
of the EEA Agreement to categories of vertical agreepolicy of the EFTA Surveillance Authority in
ments and concerted practices (the ‘Block Exemption’)
individual cases concerning vertical agreements.
(see paragraphs 23 to 45). These Guidelines are without
prejudice to the possible parallel application of
Article 54 of the EEA Agreement to vertical agreements.
The Guidelines are structured in the following way:

— (2) Throughout these Guidelines the analysis applies to
Section II (paragraphs 8 to 20) describes vertical
agreements which generally fall outside both goods and services falling within the scope of the
EEA Agreement ( [4] ), although certain vertical restraints
Article 53(1);
are mainly used in the distribution of goods. Similarly,
vertical agreements can be concluded for intermediate
— and final goods and services. Unless otherwise stated,
Section III (paragraphs 21 to 70) comments on the
the analysis and arguments in the text apply to all types
application of the Block Exemption;
of goods and services and to all levels of trade. The term
‘products’ includes both goods and services. The terms
‘supplier’ and ‘buyer’ are used for all levels of trade.

( [1] ) OJ C 291, 13.10.2000, p. 1.
( [2] ) OJ L 153, 18.6.1994, p. 13 and EEA Supplement to the OJ
No. 15, 18.6.1994, p 12 as modified OJ L 186, 21.7.1994, p. 69
and EEA Supplement to the OJ No 22, 21.7.1994, p. 17. See in
this context also para. 70 below. ( [4] ) It should be noted that the EEA Agreement is limited in scope
( [3] ) OJ L 336, 29.12.1999, p. 21, as incorporated into the EEA compared to the EC Treaty, for instance the absence of a customs
Agreement by EEA Joint Committee Decision No 18/2000 of union and limited application to certain products by virtue of
18th December 2000, OJ L 103, 12.4.2001, p. 36. Article 8 of the EEA Agreement.

C 122/4 EN Official Journal of the European Communities 23.5.2002

(3) By issuing these Guidelines the EFTA Surveillance (7) The protection of competition is the primary objective
Authority aims to help companies to make their of EEA competition policy, as this enhances consumer
own assessment of vertical agreements under the EEA welfare and creates an efficient allocation of resources.
competition rules. The standards set forth in these In applying the EEA competition rules, the EFTA
Guidelines must be applied in circumstances specific to Surveillance Authority will adopt an economic
each case. This rules out a mechanical application. Each approach which is based on the effects on the market;
case must be evaluated in the light of its own facts. The vertical agreements have to be analysed in their legal
EFTA Surveillance Authority will apply the Guide- and economic context. However, in the case of restriclines ( [5] ) reasonably and flexibly. tions by object as listed in Article 4 of the Block
Exemption, the EFTA Surveillance Authority is not
required to assess the actual effects on the market.
Within the scope of the EEA Agreement, market
(4) These Guidelines are without prejudice to the interpreintegration is an additional goal of EEA competition
tation that may be given by the EFTA Court, the Court
policy ( [8] ). Companies should not be allowed to recreate
of Justice of the European Communities and the Court
private barriers within the territory covered by the EEA
of First Instance in relation to the application of
Agreement where State barriers have been successfully
Articles 81 EC ( [6] ) and 53 of the EEA Agreement to abolished.
vertical agreements.

2. _**Applicability of Article 53 to vertical agreements**_ II. **VERTICAL AGREEMENTS WHICH GENERALLY FALL**
**OUTSIDE ARTICLE 53(1)**

(5) Article 53 of the EEA Agreement applies to vertical
agreements that may affect trade between States within
the territory covered by the EEA Agreement and that
prevent, restrict or distort competition (hereinafter 1. _**Agreements of minor importance and SMEs**_
referred to as ‘vertical restraints’) ( [7] ). For vertical
restraints, Article 53 provides an appropriate legal
framework for assessment, recognising the distinction
between anti-competitive and pro-competitive effects: (8) Agreements which are not capable of appreciably
Article 53(1) prohibits those agreements which appreci- affecting trade within the territory covered by the
ably restrict or distort competition, while Article 53(3) EEA Agreement or capable of appreciably restricting
allows for exemption of those agreements which confer competition by object or effect are not caught by
sufficient benefits to outweigh the anti-competitive Article 53(1). The Block Exemption applies only to
effects. agreements falling within the scope of application of
Article 53(1). These Guidelines are without prejudice to
the application of the present or any future ‘de minimis’
notice ( [9] ).
(6) For most vertical restraints, competition concerns can
only arise if there is insufficient inter-brand competition,
i.e. if there is some degree of market power at the level
of the supplier or the buyer or at both levels. If there is (9) Subject to the conditions set out in points 11, 18 and
insufficient inter-brand competition, the protection of 20 of the ‘de minimis’ notice concerning hardcore
inter- and intra-brand competition becomes important. restrictions and cumulative effect issues, vertical agreements entered into by undertakings whose market share
on the relevant market does not exceed 10 % are
generally considered to fall outside the scope of
Article 53(1). There is no presumption that vertical
( [5] ) The competence to handle individual cases falling under agreements concluded by undertakings having more
Articles 53 and 54 of the EEA Agreement is divided between the than 10 % market share automatically infringe
EFTA Surveillance Authority and the European Commission Article 53(1). Agreements between undertakings whose
according to the rules laid down in Article 56 of the EEA
Agreement. Only one authority is competent to handle any given

case.
( [6] ) Such rulings are relevant to the practice of the Authority by virtue

of the provisions of Article 6 of the EEA Agreement and Article 3
of the Surveillance and Court Agreement. ( [8] ) The fact that the EEA Agreement is limited in scope compared to
( [7] ) See inter alia judgment of the Court of Justice of the European the EC Treaty may affect the assessment of market integration
Communities in Joined Cases 56/64 and 58/64 Grundig-Consten between the EFTA States and between the EFTA States and the
v Commission [1966] ECR 299; Case 56/65 Technique Minière v Community.
Machinenbau Ulm [1966] ECR 235; and of the Court of First ( [9] ) Notice on agreements of minor importance which do not fall
Instance in Case T-77/92 Parker Pen v Commission [1994] ECR under Article 53(1) of the EEA Agreement, OJ L 200, 16.7.1998,
II-549. p. 55 and EEA Supplement to the OJ No 28, 16.7.1998, p. 13.

23.5.2002 EN Official Journal of the European Communities C 122/5

market share exceeds the 10 % threshold may still not 2. _**Agency agreements**_
have an appreciable effect on trade between States
within the territory covered by the EEA Agreement
or may not constitute an appreciable restriction of
competition ( [10] ). Such agreements need to be assessed (12) Paragraphs 12 to 20 replace the Notice on exclusive
in their legal and economic context. The criteria for the dealing contracts with commercial agents of 1994 ( [13] ).
assessment of individual agreements are set out in They must be read in conjunction with the act referred
paragraphs 100 to 229. to in point 30 of Annex VII to the EEA Agreement

[Council Directive 86/653/EEC on the co-ordination of
the laws of the Member States relating to self-employed
commercial agents ( [14] )]. Agency agreements cover the
situation in which a legal or physical person (the agent)
is vested with the power to negotiate and/or conclude
contracts on behalf of another person (the principal),
either in the agent’s own name or in the name of the
(10) As regards hardcore restrictions defined in the ‘de principal, for the:
minimis’ notice, Article 53(1) may apply below the
10 % threshold, provided that there is an appreciable

—
effect on trade between States within the territory purchase of goods or services by the principal, or
covered by the EEA Agreement and on competition.
The applicable case-law of the EFTA Court, the Court of

—
Justice of the European Communities and the Court of sale of goods or services supplied by the principal.
First Instance is relevant in this respect ( [11] ). Reference is
also made to the particular situation of launching a new
product or entering a new market which is dealt with in
these Guidelines (paragraph 119, point 10). (13) In the case of genuine agency agreements, the obligations imposed on the agent as to the contracts
negotiated and/or concluded on behalf of the principal
do not fall within the scope of application of
Article 53(1). The determining factor in assessing
whether Article 53(1) is applicable is the financial or
commercial risk borne by the agent in relation to the
activities for which he has been appointed as an agent
(11) In addition, the EFTA Surveillance Authority considers by the principal. In this respect it is not material for the
that, subject to cumulative effect and hardcore restric- assessment whether the agent acts for one or several
tions, agreements between small and medium-sized principals. Non-genuine agency agreements may be
undertakings as defined in the EFTA Surveillance Auth- caught by Article 53(1), in which case the Block
ority Decision No 112/96/COL of 11 September Exemption and the other sections of these Guidelines
1996 ( [12] ) are rarely capable of appreciably affecting will apply.
trade between the Contracting Parties to the EEA
Agreement or of appreciably restricting competition
within the meaning of Article 53(1), and therefore
generally fall outside the scope of Article 53(1). In cases (14) There are two types of financial or commercial risk that
where such agreements nonetheless meet the conditions are material to the assessment of the genuine nature of
for the application of Article 53(1), the EFTA Surveil- an agency agreement under Article 53(1). First there are
lance Authority will normally refrain from opening the risks which are directly related to the contracts
proceedings for lack of sufficient interest under the EEA concluded and/or negotiated by the agent on behalf of
Agreement unless those undertakings collectively or the principal, such as financing of stocks. Secondly,
individually hold a dominant position in a substantial there are the risks related to market-specific investments.
part of the territory covered by the EEA Agreement. These are investments specifically required for the type
of activity for which the agent has been appointed by
the principal, i.e. which are required to enable the agent
to conclude and/or negotiate this type of contract. Such
investments are usually sunk, if upon leaving that
particular field of activity the investment cannot be used
for other activities or sold other than at a significant
loss.
( [10] ) See judgment of the Court of First Instance in Case T-7/93
Langnese-Iglo v Commission [1995] ECR II-1533, paragraph 98.
( [11] ) See judgment of the Court of Justice of the European Communities 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. ( [13] ) OJ L 153, 18.6.1994, p. 23 and EEA Supplement to the OJ
( [12] ) OJ L 42, 13.2.1997, p. 33. Corresponds to European Commission No 15, 18.6.1994, p. 22.
Recommendation 96/280/EC OJ L 107, 30.4.1996, p. 4. ( [14] ) OJ L 382, 31.12.1986.

C 122/6 EN Official Journal of the European Communities 23.5.2002

(15) The agency agreement is considered a genuine agency example, by failing to comply with reasonable
agreement and consequently falls outside Article 53(1) security measures to avoid loss of stocks);
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 and in relation to —
does not create and/or operate an after-sales sermarket-specific investments for that field of activity. In
vice, repair service or a warranty service unless it
such a situation, the selling or purchasing function
is fully reimbursed by the principal;
forms part of the principal’s activities, despite the fact
that the agent is a separate undertaking. The principal
thus bears the related financial and commercial risks and

—
the agent does not exercise an independent economic does not make market-specific investments in
activity in relation to the activities for which he has equipment, premises or training of personnel, such
been appointed as an agent by the principal. In the as for example the petrol storage tank in the case
opposite situation the agency agreement is considered a of petrol retailing or specific software to sell
non-genuine agency agreement and may fall under insurance policies in case of insurance agents;
Article 53(1). In that case the agent does bear such risks
and will be treated as an independent dealer who must

—
remain free in determining his marketing strategy in does not undertake responsibility towards third
order to be able to recover his contract- or market- parties for damage caused by the product sold
specific investments. Risks that are related to the activity (product liability), unless, as agent, he is liable for
of providing agency services in general, such as the risk fault in this respect;
of the agent’s income being dependent upon his success
as an agent or general investments in for instance
premises or personnel, are not material to this assess- —
does not take responsibility for customers’ nonment.
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
(16) The question of risk must be assessed on a case-by-case measures to report theft to the principal or police
basis, and with regard to the economic reality of the or to communicate to the principal all necessary
situation rather than the legal form. Nonetheless, the information available to him on the customer’s
EFTA Surveillance Authority considers that Article 53(1) financial reliability).
will generally not be applicable to the obligations
imposed on the agent as to the contracts negotiated
and/or concluded on behalf of the principal where
property in the contract goods bought or sold does not (17) This list is not exhaustive. However, where the agent
vest in the agent, or the agent does not himself supply incurs one or more of the above risks or costs, then
the contract services and where the agent: Article 53(1) may apply as with any other vertical
agreement.

—
does not contribute to the costs relating to the
(18) If an agency agreement does not fall within the scope of
supply/purchase of the contract goods or services,
application of Article 53(1), then all obligations
including the costs of transporting the goods. This
imposed on the agent in relation to the contracts
does not preclude the agent from carrying out the
concluded and/or negotiated on behalf of the principal
transport service, provided that the costs are
fall outside Article 53(1). The following obligations on
covered by the principal;
the agent’s part will generally be considered to form an
inherent part of an agency agreement, as each of them
relates to the ability of the principal to fix the scope of
activity of the agent in relation to the contract goods or

—
is not, directly or indirectly, obliged to invest in services, which is essential if the principal is to take the
sales promotion, such as contributions to the risks and therefore to be in a position to determine the
advertising budgets of the principal; commercial strategy:

—
limitations on the territory in which the agent may
— does not maintain at his own cost or risk stocks of sell these goods or services;
the contract goods, including the costs of financing
the stocks and the costs of loss of stocks and can

—
return unsold goods to the principal without limitations on the customers to whom the agent
charge, unless the agent is liable for fault (for may sell these goods or services;

23.5.2002 EN Official Journal of the European Communities C 122/7

—
the prices and conditions at which the agent must market where it purchases the contract goods or services
sell or purchase these goods or services. which may not exceed the threshold of 30 % in order
for the Block Exemption to apply. For market share
issues see Section V (paragraphs 88 to 99).

(19) In addition to governing the conditions of sale or
purchase of the contract goods or services by the agent
on behalf of the principal, agency agreements often
(22) From an economic point of view, a vertical agreement
contain provisions which concern the relationship
may have effects not only on the market between
between the agent and the principal. In particular, they
supplier and buyer but also on markets downstream
may contain a provision preventing the principal from
of the buyer. The simplified approach of the Block
appointing other agents in respect of a given type of
Exemption, which only takes into account the market
transaction, customer or territory (exclusive agency
share of the supplier or the buyer (as the case may be)
provisions) and/or a provision preventing the agent
on the market between these two parties, is justified by
from acting as an agent or distributor of undertakings
the fact that below the threshold of 30 % the effects on
which compete with the principal (non-compete prodownstream markets will in general be limited. In
visions). Exclusive agency provisions concern only intraaddition, only having to consider the market between
brand competition and will in general not lead to antisupplier and buyer makes the application of the Block
competitive effects. Non-compete provisions, including
Exemption easier and enhances the level of legal cerpost-term non-compete provisions, concern inter-brand
tainty, while the instrument of withdrawal (see paracompetition and may infringe Article 53(1) if they lead
to foreclosure on the relevant market where the contract graphs 71 to 87) remains available to remedy possible
problems on other related markets.
goods or services are sold or purchased (see Section VI.2.1).

(20) An agency agreement may also fall within the scope of
Article 53(1), even if the principal bears all the relevant
2. _**Scope of the Block Exemption**_
financial and commercial risks, where it facilitates
collusion. This 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. (i) **Definition of vertical agreements**

(23) Vertical agreements are defined in Article 2(1) of the
Block Exemption as ‘agreements or concerted practices
entered into between two or more undertakings each of
III. **APPLICATION OF THE BLOCK EXEMPTION** which operates, for the purposes of the agreement, at a
different level of the production or distribution chain,
and relating to the conditions under which the parties
may purchase, sell or resell certain goods or services’.

1. _**Safe harbour created by the Block Exemption**_

(24) There are three main elements in this definition:

(21) The Block Exemption creates a presumption of legality

—
for vertical agreements depending on the market share the agreement or concerted practice is between
of the supplier or the buyer. Pursuant to Article 3 of the two or more undertakings. Vertical agreements
Block Exemption, it is in general the market share of with final consumers not operating as an undertakthe supplier on the market where it sells the contract ing are not covered. More generally, agreements
goods or services which determines the applicability of with final consumers do not fall under
the Block Exemption. This market share may not exceed Article 53(1), as that article applies only to agreethe threshold of 30 % in order for the Block Exemption ments between undertakings, decisions by associto apply. Only where the agreement contains an exclus- ations of undertakings and concerted practices.
ive supply obligation, as defined in Article 1(c) of the This is without prejudice to the possible appliBlock Exemption, is it the buyer’s market share on the cation of Article 54 of the EEA Agreement;

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—
the agreement or concerted practice is between indirectly exclude certain vertical agreements from the
undertakings each operating, for the purposes of application of the Block Exemption.
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;

(ii) **Vertical agreements between competitors**

—
the agreements or concerted practices relate to
the conditions under which the parties to the
agreement, the supplier and the buyer, ‘may pur(26) Article 2(4) of the Block Exemption explicitly excludes
chase, sell or resell certain goods or services’. This
from its application ‘vertical agreements entered into
reflects the purpose of the Block Exemption to
cover purchase and distribution agreements. These between competing undertakings’. Vertical agreements
between competitors will be dealt with, as regards
are agreements which concern the conditions for
possible collusion effects, in forthcoming Guidelines on
the purchase, sale or resale of the goods or services
supplied by the supplier and/or which concern the the applicability of Article 53 to horizontal cooperation ( [16] ). However, the vertical aspects of such agreeconditions for the sale by the buyer of the goods
ments need to be assessed under these Guidelines.
or services which incorporate these goods or
services. For the application of the Block Exemp- Article 1(a) of the Block Exemption defines competing
undertakings as ‘actual or potential suppliers in the
tion both the goods or services supplied by the
same product market’, irrespective of whether or not
supplier and the resulting goods or services are
considered to be contract goods or services. Verti- they are competitors on the same geographic market.
Competing undertakings are undertakings that are actucal agreements relating to all final and intermediate
al or potential suppliers of the contract goods or services
goods and services are covered. The only exception
or goods or services that are substitutes for the contract
is the automobile sector, as long as this sector
goods or services. A potential supplier is an undertaking
remains covered by a specific block exemption
that does not actually produce a competing product but
such as that granted by the act referred to in
could and would be likely to do so in the absence of the
point 4a of Annex XIV of the EEA Agreement
agreement in response to a small and permanent
(Regulation (EC) No 1475/95 ( [15] )). The goods or
increase in relative prices. This means that the undertakservices provided by the supplier may be resold by
ing would be able and likely to undertake the necessary
the buyer or may be used as an input by the buyer
additional investments and supply the market within
to produce his own goods or services.
1 year. This assessment has to be based on realistic
grounds; the mere theoretical possibility of entering a
market is not sufficient ( [17] ).

(25) The Block Exemption also applies to goods sold and
purchased for renting to third parties. However, rent
and lease agreements as such are not covered, as no
good or service is being sold by the supplier to the ( [16] ) Article 5(1)(b) of the Surveillance and Court Agreement provides
buyer. More generally, the Block Exemption does not that the Authority shall, in accordance with EEA legislation and
cover restrictions or obligations that do not relate to in order to ensure the proper functioning of the EEA Agreement,
the conditions of purchase, sale and resale, such as ensure the application of the EEA competition rules. As concerns
an obligation preventing parties from carrying out non-binding acts adopted by the European Commission after the
signing of the EEA Agreement, the Authority is to adopt
independent research and development which the parcorresponding acts when EEA relevant. Pending the adoption of
ties may have included in an otherwise vertical agreeits own notices, the Authority intends to apply the principles
ment. In addition, Articles 2(2) to (5) directly or
set out in the relevant Commission notices, including the
Commission’s Guidelines on the applicability of Article 81 to
horizontal co-operation agreements, OJ C 3, 6.1.2001, p. 2.
( [17] ) EFTA Surveillance Authority Notice on the definition of the
relevant market for the purposes of competition law within the
EEA, OJ L 200, 16.7.1998, p. 48 and EEA Supplement to the OJ
No 28, 16.7.1998, p. 3, at paras. 20-24, and European Commission Decision 90/410/EEC in Case No IV/32.009 — Elopak/
( [15] ) OJ L 145, 29.6.1995, p. 25. Metal Box-Odin, OJ L 209, 8.8.1990, p. 15.

23.5.2002 EN Official Journal of the European Communities C 122/9

(27) There are three exceptions to the general exclusion of leads to the conclusion that a cooperation between
vertical agreements between competitors, all three being undertakings in the area of purchasing or selling is
set out in Article 2(4) and relating to non-reciprocal acceptable, a further assessment will be necessary to
agreements. Non-reciprocal means, for instance, that examine the vertical agreements concluded by the
while one manufacturer becomes the distributor of the association with its suppliers or its individual members.
products of another manufacturer, the latter does not The latter assessment will follow the rules of the
become the distributor of the products of the first Block Exemption and these Guidelines. For instance,
manufacturer. Non-reciprocal agreements between horizontal agreements concluded between the members
competitors are covered by the Block Exemption where of the association or decisions adopted by the associ(1) the buyer has a turnover not exceeding EUR ation, such as the decision to require the members to
100 million, or (2) the supplier is a manufacturer and purchase from the association or the decision to allocate
distributor of goods, while the buyer is only a distributor exclusive territories to the members have to be assessed
and not also a manufacturer of competing goods, or first as a horizontal agreement. Only if this assessment
(3) the supplier is a provider of services operating at is positive does it become relevant to assess the vertical
several levels of trade, while the buyer does not provide agreements between the association and individual
competing services at the level of trade where it members or between the association and suppliers.
purchases the contract services. The second exception
covers situations of dual distribution, i.e. the manufacturer of particular goods also acts as a distributor of the
goods in competition with independent distributors of
his goods. A distributor who 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. The third (iv) **Vertical agreements containing provisions on intel-**
exception covers similar situations of dual distribution, **lectual property rights (IPRs)**
but in this case for services, when the supplier is also a
provider of services at the level of the buyer.

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

(28) Article 2(2) of the Block Exemption includes in its

—
application vertical agreements entered into by an The IPR provisions must be part of a vertical
association of undertakings which fulfils certain con- agreement, i.e. an agreement with conditions under
ditions and thereby excludes from the Block Exemption which the parties may purchase, sell or resell
vertical agreements entered into by all other associ- certain goods or services;
ations. Vertical agreements entered into between an
association and its members, or between an association
and its suppliers, are covered by the Block Exemption
only if all the members are retailers of goods (not —
The IPRs must be assigned to, or for use by, the
services) and if each individual member of the associbuyer;
ation 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 not significantly

—
exceeding the EUR 50 million threshold, this will The IPR provisions must not constitute the primary
normally not change the assessment under Article 53. object of the agreement;

—
The IPR provisions must be directly related to the
(29) An association of undertakings may involve both hori- use, sale or resale of goods or services by the buyer
zontal and vertical agreements. The horizontal agree- or his customers. In the case of franchising where
ments have to be assessed according to the principles set marketing forms the object of the exploitation of
out in the forthcoming Guidelines on the applicability of the IPRs, the goods or services are distributed by
Article 53 to horizontal cooperation. If this assessment the master franchisee or the franchisees;

C 122/10 EN Official Journal of the European Communities 23.5.2002

—
The IPR provisions, in relation to the contract Exemption. This means in particular that subcontracting
goods or services, must not contain restrictions of involving the transfer of know-how to a subcontraccompetition having the same object or effect as tor ( [18] ) does not fall within the scope of application of
vertical restraints which are not exempted under the Block Exemption. However, vertical agreements
the Block Exemption. under which the buyer provides only specifications to
the supplier which describe the goods or services to be
supplied are covered by the Block Exemption.

(31) These conditions ensure that the Block Exemption
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 transferred (34) The third condition makes clear that in order to be
for use by the buyer. In other words, restrictions covered by the Block Exemption the primary object of
concerning the assignment or use of IPRs can be covered the agreement must not be the assignment or licensing
when the main object of the agreement is the purchase of IPRs. The primary object must be the purchase or
or distribution of goods or services. distribution of goods or services and the IPR provisions
must serve the implementation of the vertical agreement.

(32) The first condition makes clear that the context in
which the IPRs are provided is an agreement to purchase
or distribute goods or an agreement to purchase or
provide services and not an agreement concerning the (35) The fourth condition requires that the IPR provisions
assignment or licensing of IPRs for the manufacture of facilitate the use, sale or resale of goods or services by
goods, nor a pure licensing agreement. The Block the buyer or his customers. The goods or services for
Exemption does not cover for instance: use or resale are usually supplied by the licensor but
may also be purchased by the licensee from a third
supplier. The IPR provisions will normally concern the
marketing of goods or services. This is for instance the

—
agreements where a party provides another party case in a franchise agreement where the franchisor sells
with a recipe and licenses the other party to to the franchisee goods for resale and in addition
produce a drink with this recipe; licenses the franchisee to use his trademark and knowhow to market the goods. Also covered is the case
where the supplier of a concentrated extract licenses the
— buyer to dilute and bottle the extract before selling it as
agreements under which one party provides anoth- a drink.
er party with a mould or master copy and licenses
the other party to produce and distribute copies;

— (36) The fifth condition signifies in particular that the IPR
the pure licence of a trade mark or sign for the
provisions should not have the same object or effect as
purposes of merchandising;
any of the hardcore restrictions listed in Article 4 of the
Block Exemption or any of the restrictions excluded
from the coverage of the Block Exemption by Article 5
— (see paragraphs 46 to 61).
sponsorship contracts concerning the right to
advertise oneself as being an official sponsor of an
event;

(37) Intellectual property rights which may be considered to
— serve the implementation of vertical agreements within
copyright licensing such as broadcasting contracts
the meaning of Article 2(3) of the Block Exemption
concerning the right to record and/or the right to
generally concern three main areas: trade marks, copybroadcast an event.
right and know-how.

(33) The second condition makes clear that the Block
Exemption does not apply when the IPRs are provided
by the buyer to the supplier, no matter whether the IPRs
concern the manner of manufacture or of distribution.
An agreement relating to the transfer of IPRs to the ( [18] ) See the Authority’s Notice on subcontracting, OJ L 153,
supplier and containing possible restrictions on the 18.6.1994, p. 30 and EEA supplement to the OJ No 15,
sales made by the supplier is not covered by the Block 18.6.1994, p. 29.

23.5.2002 EN Official Journal of the European Communities C 122/11

_Trade mark_ (43) Licensing contained in franchise agreements is covered
by the Block Exemption if all five conditions listed in
point 30 are fulfilled. This is usually the case, as under
(38) A trade mark licence to a distributor may be related to most franchise agreements, including master franchise
the distribution of the licensor’s products in a particular agreements, the franchisor provides goods and/or serterritory. If it is an exclusive licence, the agreement vices, in particular commercial or technical assistance
amounts to exclusive distribution. 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
_Copyright_
licensing of IPRs, such an agreement is not covered by
the Block Exemption, but it will be treated in a way
similar to those franchise agreements which are covered
(39) Resellers of goods covered by copyright (books, softwa- by the Block Exemption.
re, etc.) may be obliged by the copyright holder only to
resell under the condition that the buyer, whether
another reseller or the end user, shall not infringe the
copyright. Such obligations on the reseller, to the extent (44) The following IPR-related obligations are generally
that they fall under Article 53(1) at all, are covered by considered to be necessary to protect the franchisor’s
the Block Exemption. intellectual property rights and are, if these obligations
fall under Article 53(1), also covered by the Block
Exemption:
(40) 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 (a) an obligation on the franchisee not to engage,
regarded as agreements for the supply of goods for directly or indirectly, in any similar business;
resale for the purpose of the Block Exemption. Under
this form of distribution the licence of the software only
takes place between the copyright owner and the user
of the software. This may take the form of a ‘shrink (b) an obligation on the franchisee not to acquire
wrap’ licence, i.e. a set of conditions included in the financial interests in the capital of a competing
package of the hard copy which the end user is deemed undertaking such as would give the franchisee the
to accept by opening the package. power to influence the economic conduct of such
undertaking;

(41) Buyers of hardware incorporating software protected
by copyright may be obliged by the copyright holder
not to infringe the copyright, for example not to make (c) an obligation on the franchisee not to disclose
copies and resell the software or not to make copies to third parties the know-how provided by the
and use the software in combination with other hard- franchisor as long as this know-how is not in the
ware. Such use-restrictions, to the extent that they fall public domain;
within Article 53(1) at all, are covered by the Block
Exemption.

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

(42) Franchise agreements, with the exception of industrial
franchise agreements, are the most obvious example
where know-how for marketing purposes is communi- (e) an obligation on the franchisee to inform the
cated to the buyer. Franchise agreements contain franchisor of infringements of licensed intellectual
licences of intellectual property rights relating to trade property rights, to take legal action against
marks or signs and know-how for the use and distri- infringers or to assist the franchisor in any legal
bution of goods or the provision of services. In addition actions against infringers;
to the licence of IPR, the franchisor usually provides
the franchisee during the life of the agreement with
commercial or technical assistance, such as procurement services, training, advice on real estate, financial (f) an obligation on the franchisee not to use knowplanning etc. The licence and the assistance are integral how licensed by the franchisor for purposes other
components of the business method being franchised. than the exploitation of the franchise;

C 122/12 EN Official Journal of the European Communities 23.5.2002

(g) an obligation on the franchisee not to assign indirect means. Examples of the latter are an agreement
the rights and obligations under the franchise fixing the distribution margin, fixing the maximum
agreement without the franchisor’s consent. level of discount the distributor can grant from a
prescribed price level, making the grant of rebates or
reimbursement of promotional costs by the supplier
subject to the observance of a given price level,
(v) **Relationship to other block exemptions** 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
(45) Article 2(5) states that the Block Exemption does not
level. Direct or indirect means of achieving price
apply to vertical agreements the subject matter of which
fixing can be made more effective when combined
falls within the scope of any other block exemptions.
with measures to identify price-cutting distributors,
This means that the Block Exemption does not apply to
such as the implementation of a price monitoring
vertical agreements covered by the act referred to in
system, or the obligation on retailers to report other
point 5 of Annex XIV to the EEA Agreement on
members of the distribution network who deviate
technology transfer [European Commission Regulation
from the standard price level. Similarly, direct or
(EC) No 240/96 ( [19] )], the act referred to in point 4a of
indirect price fixing can be made more effective when
Annex XIV to the EEA Agreement for car distribution
combined with measures which may reduce the

[European Commission Regulation (EC) No 1475/
buyer’s incentive to lower the resale price, such as the
95 ( [20] )] or the acts referred to in point 6 and 7 of
Annex XIV to the EEA Agreement respectively supplier printing a recommended resale price on the
product or the supplier obliging the buyer to apply a
exempting vertical agreements concluded in connection
most-favoured-customer clause. The same indirect
with horizontal agreements [Regulations (EEC) No 417/
85 (15) ( [21] ) and (EEC) No 418/85 ( [22] )], or any future means and the same ‘supportive’ measures can be
regulations of that kind incorporated into the EEA used to make maximum or recommended prices work
Agreement. as RPM. However, 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.

3. _**Hardcore restrictions under the Block Exemption**_

(46) The Block Exemption contains in Article 4 a list of
hardcore restrictions which lead to the exclusion of the
whole vertical agreement from the scope of application
of the Block Exemption. This list of hardcore restrictions
applies to vertical agreements concerning trade within
the territory covered by the EEA Agreement. In so far as
vertical agreements concern exports outside the EEA or
imports/re-imports from outside EEA see the judgment
in Javico v Yves Saint Laurent ( [23] ). Individual exemption
of vertical agreements containing such hardcore restrictions is also unlikely.
(48) 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
(47) The hardcore restriction set out in Article 4(a) of the
an agency agreement falls within Article 53(1) (see
Block Exemption concerns resale price maintenance
paragraphs 12 to 20), an obligation preventing or
(RPM), that is agreements or concerted practices having
restricting the agent from sharing his commission,
as their direct or indirect object the establishment of a fixed or variable, with the customer would be a
fixed or minimum resale price or a fixed or minimum
hardcore restriction under Article 4(a) of the Block
price level to be observed by the buyer. In the case
Exemption. The agent should thus be left free to
of contractual provisions or concerted practices that
lower the effective price paid by the customer without
directly establish the resale price, the restriction is clear
reducing the income for the principal ( [24] ).
cut. However, RPM can also be achieved through

( [19] ) OJ L 31, 9.2.1996, p. 2.
( [20] ) OJ L 145, 29.6.1995, p. 25.
( [21] ) OJ L 53, 22.2.1985, p. 1. ( [24] ) See, for instance, European Commission Decision 91/562/EEC
( [22] ) OJ L 53, 22.2.1985, p. 5. in Case No IV/32.737 — Eirpage, OJ L 306, 7.11.1991, p. 22, in
( [23] ) See footnote 11, p. 5. particular point (6).

23.5.2002 EN Official Journal of the European Communities C 122/13

(49) The hardcore restriction set out in Article 4(b) of the customer group by the supplier and all the other buyers
Block Exemption concerns agreements or concerted of the supplier inside the territory covered by the EEA
practices that have as their direct or indirect object Agreement. The supplier is allowed to combine the
the restriction of sales by the buyer, in as far as those allocation of an exclusive territory and an exclusive
restrictions relate to the territory into which or the customer group by for instance appointing an exclusive
customers to whom the buyer may sell the contract distributor for a particular customer group in a certain
goods or services. That hardcore restriction relates to territory. This protection of exclusively allocated terrimarket partitioning by territory or by customer. That tories or customer groups must, however, permit passmay be the result of direct obligations, such as the ive sales to such territories or customer groups. For the
obligation not to sell to certain customers or to application of Article 4(b) of the Block Exemption, the
customers in certain territories or the obligation to EFTA Surveillance Authority interprets ‘active’ and
refer orders from these customers to other distributors. ‘passive’ sales as follows:
It may also result from indirect measures aimed at
inducing the distributor not to sell to such customers,
such as refusal or reduction of bonuses or discounts,
refusal to supply, reduction of supplied volumes or
limitation of supplied volumes to the demand within
the allocated territory or customer group, threat of
contract termination or profit pass-over obligations. It —
‘Active’ sales mean actively approaching individual
may further result from the supplier not providing an customers inside another distributor’s exclusive
EEA-wide guarantee service, whereby all distributors
territory or exclusive customer group by for
are obliged to provide the guarantee service and are
instance direct mail or visits; or actively approachreimbursed for this service by the supplier, even in
ing a specific customer group or customers in a
relation to products sold by other distributors into
specific territory allocated exclusively to another
their territory. These practices are even more likely to
distributor through advertisement in media or
be viewed as a restriction of the buyer’s sales when
other promotions specifically targeted at that cusused in conjunction with the implementation by the
tomer group or targeted at customers in that
supplier of a monitoring system aimed at verifying
territory; or establishing a warehouse or distrithe effective destination of the supplied goods, e.g. bution outlet in another distributor’s exclusive
the use of differentiated labels or serial numbers.
territory.
However, a prohibition imposed on all distributors to
sell to certain end users is not classified as a hardcore
restriction if there is an objective justification related
to the product, such as a general ban on selling
dangerous substances to certain customers for reasons
of safety or health. It implies that also the supplier
himself does not sell to these customers. Nor are

—
obligations on the reseller relating to the display of ‘Passive’ sales mean responding to unsolicited
the supplier’s brand name classified as hardcore. requests from individual customers including delivery of goods or services to such customers. General
advertising or promotion in media or on the
Internet 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 non-exclusive territories or in one’s own territory, are passive sales.

(50) There are four exceptions to the hardcore restriction in
Article 4(b) of the Block Exemption. The first exception
allows a supplier to restrict active sales by his direct (51) Every distributor must be free to use the Internet to
buyers to a territory or a customer group which has advertise or to sell products. A restriction on the use of
been allocated exclusively to another buyer or which the Internet by distributors could only be compatible
the supplier has reserved to itself. A territory or with the Block Exemption to the extent that promotion
customer group is exclusively allocated when the sup- on the Internet or sales over the Internet would lead to
plier agrees to sell his product only to one distributor active selling into other distributors’ exclusive territories
for distribution in a particular territory or to a particular or customer groups. In general, the use of the Internet
customer group and the exclusive distributor is protect- is not considered a form of active sales into such
ed against active selling into his territory or to his territories or customer groups, since it is a reasonable

C 122/14 EN Official Journal of the European Communities 23.5.2002

way to reach every customer. The fact that it may have distribution network. This means that dealers in a
effects outside one’s own territory or customer group selective distribution system, as defined in Article 1(d)
results from the technology, i.e. the easy access from of the Block Exemption, cannot be restricted in the
everywhere. If a customer visits the website of a users or purchasing agents acting on behalf of these
distributor and contacts the distributor and if such users to whom they may sell. For instance, also in a
contact leads to a sale, including delivery, then that is selective distribution system the dealer should be free to
considered passive selling. The language used on the advertise and sell with the help of the Internet. Selective
website or in the communication normally plays no distribution may be combined with exclusive distrirole in that respect. Insofar as a website is not specifically bution provided that active and passive selling is not
targeted at customers primarily inside the territory restricted anywhere. The supplier may therefore commit
or customer group exclusively allocated to another itself to supplying only one dealer or a limited number
distributor, for instance with the use of banners or links of dealers in a given territory.
in pages of providers specifically available to these
exclusively allocated customers, the website is not
considered a form of active selling. However, unsolicited
e-mails sent to individual customers or specific customer
groups are considered active selling. The same considerations apply to selling by catalogue. Notwithstanding
(54) In addition, in the case of selective distribution, restricwhat has been said before, the supplier may require
tions can be imposed on the dealer’s ability to determine
quality standards for the use of the Internet site to resell
the location of his business premises. Selected dealers
his goods, just as the supplier may require quality
may be prevented from running their business from
standards for a shop or for advertising and promotion
different premises or from opening a new outlet in a
in general. The latter may be relevant in particular for
different location. If the dealer’s outlet is mobile (‘shop
selective distribution. An outright ban on Internet or
on wheels’), an area may be defined outside which the
catalogue selling is only possible if there is an objective
mobile outlet cannot be operated.
justification. In any case, the supplier cannot reserve to
itself sales and/or advertising over the Internet.

(55) The hardcore restriction set out in Article 4(d) of the
Block Exemption concerns the restriction of crosssupplies between appointed distributors within a selective distribution system. This means that an agreement
or concerted practice may not have as its direct or
indirect object to prevent or restrict the active or passive
(52) There are three other exceptions to the second hardcore selling of the contract products between the selected
restriction set out in Article 4(b) of the Block Exemption. distributors. Selected distributors must remain free to
All three exceptions allow for the restriction of both purchase the contract products from other appointed
active and passive sales. Thus, it is permissible to restrict distributors within the network, operating either at the
a wholesaler from selling to end users, to restrict an same or at a different level of trade. This means that
appointed distributor in a selective distribution system selective distribution cannot be combined with vertical
from selling, at any level of trade, to unauthorised restraints aimed at forcing distributors to purchase the
distributors in markets where such a system is operated, contract products exclusively from a given source, for
and to restrict a buyer of components supplied for instance exclusive purchasing. It also means that within
incorporation from reselling them to competitors of the a selective distribution network no restrictions can be
supplier. The term ‘component’ includes any intermedi- imposed on appointed wholesalers as regards their sales
ate goods and the term ‘incorporation’ refers to the use of the product to appointed retailers.
of any input to produce goods.

(56) The hardcore restriction set out in Article 4(e) of the
Block Exemption concerns agreements that prevent or
restrict end-users, independent repairers and service
providers from obtaining spare parts directly from
the manufacturer of these spare parts. An agreement
between a manufacturer of spare parts and a buyer who
(53) The hardcore restriction set out in Article 4(c) of the incorporates these parts into his own products [original
Block Exemption concerns the restriction of active or equipment manufacturer (OEM)], may not, either
passive sales to end users, whether professional end directly or indirectly, prevent or restrict sales by the
users or final consumers, by members of a selective manufacturer of these spare parts to end users, indepen

23.5.2002 EN Official Journal of the European Communities C 122/15

dent repairers or service providers. Indirect restrictions compete obligation and the supplier provides a loan to
may arise in particular when the supplier of the spare the buyer, the repayment of that loan should not hinder
parts is restricted in supplying technical information the buyer from effectively terminating the non-compete
and special equipment which are necessary for the use obligation at the end of the five-year period; the
of spare parts by users, independent repairers or service repayment needs to be structured in equal or decreasing
providers. instalments and should not increase over time. This is
without prejudice to the possibility, in the case for
instance of a new distribution outlet, to delay repayment
for the first one or two years until sales have reached a
certain level. The buyer must have the possibility
However, the agreement may place restrictions on the to repay the remaining debt where there is still an
supply of the spare parts to the repairers or service outstanding debt at the end of the non-compete obliproviders entrusted by the original equipment manufac- gation. Similarly, when the supplier provides the buyer
turer with the repair or servicing of his own goods. In with equipment which is not relationship-specific, the
other words, the original equipment manufacturer may buyer should have the possibility to take over the
require his own repair and service network to buy the equipment at its market asset value at the end of the
spare parts from it. non-compete obligation.

4. _**Conditions under the Block Exemption**_

(59) The five-year duration limit does not apply when the
goods or services are resold by the buyer ‘from premises
(57) Article 5 of the Block Exemption excludes certain
and land owned by the supplier or leased by the supplier
obligations from the coverage of the Block Exemption
from third parties not connected with the buyer’. In
even though the market share threshold is not exceeded.
such cases the non-compete obligation may be of the
However, the Block Exemption continues to apply to
same duration as the period of occupancy of the
the remaining part of the vertical agreement if that part
point of sale by the buyer (Article 5(a) of the Block
is severable from the non-exempted obligations.
Exemption). The reason for this exception is that it is
normally unreasonable to expect a supplier to allow
competing products to be sold from premises and land
owned by the supplier without his permission. Artificial
(58) The first exclusion is provided in Article 5(a) of the ownership constructions intended to avoid the five-year
limit cannot benefit from this exception.
Block Exemption and concerns non-compete obligations. Non-compete obligations are obligations that
require the buyer to purchase from the supplier or from
another undertaking designated by the supplier more
than 80 % of the buyer’s total purchases during the
previous year of the contract goods and services and
their substitutes (see the definition in Article 1(b) of the
Block Exemption), thereby preventing the buyer from
purchasing competing goods or services or limiting
such purchases to less than 20 % of total purchases.
Where for the year preceding the conclusion of the
contract no relevant purchasing data for the buyer are (60) The second exclusion from the Block Exemption is
available, the buyer’s best estimate of his annual total provided for in Article 5(b) of the Block Exemption and
requirements may be used. Such non-compete obli- concerns post term non-compete obligations. Such
gations are not covered by the Block Exemption when obligations are normally not covered by the Block
their duration is indefinite or exceeds five years. Non- Exemption, unless the obligation is indispensable to
compete obligations that are tacitly renewable beyond a protect know-how transferred by the supplier to the
period of five years are also not covered by the Block buyer, is limited to the point of sale from which the
Exemption. However, non-compete obligations are buyer has operated during the contract period, and is
covered when their duration is limited to five years or limited to a maximum period of one year. According to
less, or when renewal beyond five years requires explicit the definition in Article 1(f) of the Block Exemption the
consent of both parties and no obstacles exist that know-how needs to be ‘substantial’, meaning ‘that the
hinder the buyer from effectively terminating the non- know-how includes information which is indispensable
compete obligation at the end of the five-year period. If to the buyer for the use, sale or resale of the contract
for instance the agreement provides for a five-year non- goods or services’.

C 122/16 EN Official Journal of the European Communities 23.5.2002

(61) The third exclusion from the Block Exemption is cation needs to be made. If a dispute arises, an
provided for in Article 5(c) of the Block Exemption and undertaking can still notify the competent authority
concerns the sale of competing goods in a selective under the EEA Agreement ( [27] ), in which case the EFTA
distribution system. The Block Exemption covers the Surveillance Authority, if notified, can exempt the
combination of selective distribution with a non-com- vertical agreement with retroactive effect from the date
pete obligation, obliging the dealers not to resell of entry into force of the agreement if all four conditions
competing brands in general. However, if the supplier of Article 53(3) are fulfilled. A notifying party does not
prevents his appointed dealers, either directly or have to explain why the agreement was not notified
indirectly, from buying products for resale from specific earlier and will not be denied retroactive exemption
competing suppliers, such an obligation cannot enjoy simply because it did not notify earlier. Any notification
the benefit of the Block Exemption. The objective of the will be reviewed on its merits. This amendment to
exclusion of this obligation is to avoid a situation Article 4(2) of Chapter II of Protocol 4 to the Surveilwhereby a number of suppliers using the same selective lance and Court Agreement should eliminate artificial
distribution outlets prevent one specific competitor or litigation before national courts and thus strengthen the
certain specific competitors from using these outlets to civil enforceability of contracts. It also takes account of
distribute their products (foreclosure of a competing the situation where undertakings have not notified
supplier which would be a form of collective boy- because they assumed the agreement was covered by
cott) ( [25] ). the Block Exemption.

5. _**No presumption of illegality outside the Block Exemption**_
(64) Since the date of notification no longer limits the
possibility of exemption by the EFTA Surveillance
Authority, national courts have to assess the likelihood
(62) Vertical agreements falling outside the Block Exemption that Article 53(3) will apply in respect of vertical
will not be presumed to be illegal but may need agreements falling within Article 53(1). If such likeliindividual examination. Companies are encouraged to hood exists, they should suspend proceedings pending
do their own assessment without notification. In the adoption of a position by the EFTA Surveillance Authcase of an individual examination by the EFTA Surveil- ority. However, national courts may adopt interim
lance Authority, the latter will bear the burden of proof measures pending the assessment by the EFTA Surveilthat the agreement in question infringes Article 53(1). lance Authority of the applicability of Article 53(3), in
When appreciable anti-competitive effects are demon- the same way as they do when they refer a preliminary
strated, undertakings may substantiate efficiency claims question to the EFTA Court under Article 34 of the
and explain why a certain distribution system is likely Surveillance and Court Agreement. No suspension is
to bring about benefits which are relevant to the necessary in respect of injunction proceedings, where
conditions for exemption under Article 53(3). national courts themselves are empowered to assess the
likelihood of application of Article 53(3) ( [28] ).

6. _**No need for precautionary notification**_

(65) Unless there is litigation in national courts or complaints, notifications of vertical agreements will not be
(63) Pursuant to Article 4(2) of Chapter II of Protocol 4 to
given priority in the EFTA Surveillance Authority’s
the Surveillance and Court Agreement, as last amended
enforcement policy. Notifications as such do not proby Agreement between the EFTA States of 11 [th] May
vide provisional validity for the execution of agree2000 ( [26] ), vertical agreements can benefit from an
ments. Where undertakings have not notified an agreeexemption under Article 53(3) from their date of entry
ment because they assumed in good faith that the
into force, even if notification occurs after that date.
market share threshold under the Block Exemption was
This means in practice that no precautionary notifinot exceeded, the EFTA Surveillance Authority will not
impose fines.

( [25] ) An example of indirect measures having such exclusionary effects
can be found in European Commission Decision 92/428/EEC in
Case No IV/33.542 — Parfum Givenchy (OJ L 236, 19.8.1992,
p. 11).
( [26] ) ‘Agreement between the EFTA States Amending Protocol 4 to ( [27] ) Sea footnote 5, p. 4.
the Agreement between the EFTA States on the Establishment of ( [28] ) See judgment of the Court of Justice of the European Communia Surveillance Authority and a Court of Justice’, 11th May 2000 ties in Case C-234/89 Delimitis v Henninger Bräu [1991] ECR
(not published). I-935, at paragraph 52.

23.5.2002 EN Official Journal of the European Communities C 122/17

7. _**Severability**_ transitional period for vertical agreements already in
force before 1 June 2000 which do not satisfy the
conditions for exemption provided in the Block Exemp(66) The Block Exemption exempts vertical agreements on tion, but which do satisfy the conditions for exemption
condition that no hardcore restriction, as set out in under the block exemptions which expired on 31 May
Article 4, is contained in or practised with the vertical 2000 (the acts referred to at points 2 and 3 of
agreement. If there are one or more hardcore restric- Annex XIV to the EEA Agreement before the changes
tions, the benefit of the Block Exemption is lost for the brought about by EEA Joint Committee Decision
entire vertical agreement. There is no severability for No. 18/2000 came into force on 1 June 2000 [European
hardcore restrictions. Commission Regulations (EEC) No 1983/83, (EEC)
No 1984/83 and (EEC) No 4087/88)]. The EFTA
Surveillance Authority’s Notice concerning these outgoing acts also ceases to apply on 31 May 2000. The latter
(67) The rule of severability does apply, however, to the
agreements may continue to benefit from the outgoing
conditions set out in Article 5 of the Block Exemption.
acts until 31 December 2001. Agreements of suppliers
Therefore, the benefit of the Block Exemption is only
with a market share not exceeding 30 % who signed
lost in relation to that part of the vertical agreement
with their buyers non-compete agreements with a
which does not comply with the conditions set out in
Article 5. duration exceeding five years are covered by the Block
Exemption if on 1 January 2002 the non-compete
agreements have no more than five years to run.

8. _**Portfolio of products distributed through the same**_
_**distribution system**_

(68) Where a supplier uses the same distribution agreement
to distribute several goods/services some of these may, IV. **WITHDRAWAL OF THE BLOCK EXEMPTION AND DIS-**
in view of the market share threshold, be covered by **APPLICATION OF THE BLOCK EXEMPTION**
the Block Exemption while others may not. In that case,
the Block Exemption applies to those goods and services
for which the conditions of application are fulfilled.

(69) In respect of the goods or services which are not
covered by the Block Exemption, the ordinary rules of 1. _**Withdrawal procedure**_
competition apply, which means:

—
there is no block exemption but also no presumption of illegality;
(71) The presumption of legality conferred by the Block
Exemption may be withdrawn if a vertical agreement,
— if there is an infringement of Article 53(1)which is considered either in isolation or in conjunction with
not exemptable, consideration may be given to similar agreements enforced by competing suppliers or
whether there are appropriate remedies to solve buyers, comes within the scope of Article 53(1) and
the competition problem within the existing distri- does not fulfil all the conditions of Article 53(3). This
bution system; may occur when a supplier, or a buyer in the case of
exclusive supply agreements, holding a market share
not exceeding 30 %, enters into a vertical agreement

—
if there are no such appropriate remedies, the which does not give rise to objective advantages such as
supplier concerned will have to make other distri- to compensate for the damage which it causes to
bution arrangements. competition. This may particularly be the case with
respect to the distribution of goods to final consumers,
This situation can also arise where Article 54 applies in who are often in a much weaker position than prorespect of some products but not in respect of others. fessional buyers of intermediate goods. In the case of
sales to final consumers, the disadvantages caused by a
vertical agreement may have a stronger impact than in
a case concerning the sale and purchase of intermediate
goods. When the conditions of Article 53(3) are not
9. _**Transitional period**_ fulfilled, the EFTA Surveillance Authority may, in cases
where it is competent to act by virtue of the provisions
of Article 56 of the EEA Agreement, withdraw the
(70) The Block Exemption applies from 1 June 2000. benefit of the Block Exemption under Article 6 and
Article 12 of the Block Exemption provides for a establish an infringement of Article 53(1).

C 122/18 EN Official Journal of the European Communities 23.5.2002

(72) Where the withdrawal procedure is applied by the EFTA EEA competition law or at least to withdraw the benefit
Surveillance Authority, the latter bears the burden of of the Block Exemption, the EFTA State may ask the
proof that the agreement falls within the scope of EFTA Surveillance Authority to initiate proceedings to
Article 53(1) and that the agreement does not fulfil all this effect.
four conditions of Article 53(3).

(73) The conditions for an exemption under Article 53(3)
may in particular not be fulfilled when access to the (77) The European Commission and the EFTA Surveillance
relevant market or competition therein is significantly Authority share, in accordance with the provisions of
restricted by the cumulative effect of parallel networks Article 56 of the EEA Agreement regarding the alloof similar vertical agreements practised by competing cation of cases between the two authorities, the exclussuppliers or buyers. Parallel networks of vertical agree- ive power to withdraw the benefit of the Block Exempments are to be regarded as similar if they contain tion in respect of vertical agreements restricting comperestraints producing similar effects on the market. tition on a relevant geographic market which is wider
Similar effects will normally occur when vertical than the territory of a single EEA State. When the
restraints practised by competing suppliers or buyers territory of a single EEA State, or a part thereof,
come within one of the four groups listed in para- constitutes the relevant geographic market, the comgraphs 104 to 114. Such a situation may arise for petent surveillance authority and the EEA State conexample when, on a given market, certain suppliers cerned have concurrent competence for withdrawal.
practise purely qualitative selective distribution while Often, such cases lend themselves to decentralised
other suppliers practise quantitative selective distri- enforcement by national competition authorities. Howbution. In such circumstances, the assessment must take ever, the EFTA Surveillance Authority reserves the
account of the anti-competitive effects attributable right, within the EFTA pillar, to take on certain cases
to each individual network of agreements. Where displaying a particular interest under the EEA Agreeappropriate, withdrawal may concern only the quanti- ment, such as cases raising a new point of law.
tative limitations imposed on the number of authorised
distributors. Other cases in which a withdrawal decision
may be taken include situations where the buyer, for
example in the context of exclusive supply or exclusive
distribution, has significant market power in the relevant (78) National decisions of withdrawal must be taken in
accordance with the procedures laid down under
downstream market where he resells the goods or
national law and will only have effect within the
provides the services.
territory of the EEA State concerned. Such national
decisions must not prejudice the uniform application of
(74) Responsibility for an anti-competitive cumulative effect the EEA competition rules and the full effect of the
can only be attributed to those undertakings which measures adopted in implementation of those rules ( [30] ).
Compliance with this principle implies that national
make an appreciable contribution to it. Agreements
competition authorities must carry out their assessment
entered into by undertakings whose contribution to the
cumulative effect is insignificant do not fall under the under Article 53 in the light of the relevant criteria
prohibition provided for in Article 53(1) ( [29] ) and are developed by the EFTA Court, the Court of Justice of
the European Communities and the Court of First
therefore not subject to the withdrawal mechanism. The
assessment of such a contribution will be made in Instance and in the light of notices and previous
decisions adopted by the European Commission and
accordance with the criteria set out in paragraphs 137
to 229. the EFTA Surveillance Authority.

(75) 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 (79) The EFTA Surveillance Authority considers that the
the withdrawal becomes effective. consultation mechanisms provided for in its Notice on
cooperation between national competition authorities
and the EFTA Surveillance Authority ( [31] ) should be used
to avert the risk of conflicting decisions and duplication
(76) Under Article 7 of the Block Exemption, the competent
of procedures.
authority of an EEA State may withdraw the benefit of
the Block Exemption in respect of vertical agreements
whose anti-competitive effects are felt in the territory of
the EEA State concerned or a part thereof, which has all
the characteristics of a distinct geographic market.
Where an EFTA State has not enacted legislation
enabling the national competition authority to apply ( [30] ) Judgment of the Court of Justice of the European Communities
in Case 14/68 Walt Wilhelm and Others v Bundeskartellamt

[1969] ECR 1, paragraph 4, and judgment in the Delimitis case.
( [31] ) OJ C 307, 12.12.2000, p. 6 and EEA Supplement to the OJ No 1,
( [29] ) Judgment in the Delimitis case. 12.12.2000, p. 5, points 49 to 53.

23.5.2002 EN Official Journal of the European Communities C 122/19

2. _**Disapplication of the Block Exemption**_ (84) In assessing the need to apply Article 8, the competent
surveillance authority 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
(80) Article 8 of the Block Exemption enables the competent
within the EEA.
surveillance authority to exclude from the scope of the
Block Exemption parallel networks of similar vertical
restraints where these cover more than 50 % of a
relevant market. Such a measure is not addressed to
individual undertakings but concerns all undertakings
whose agreements are defined in the act disapplying the
Block Exemption.

(85) Any act adopted under Article 8 must clearly set out its
scope. This means, first, that the competent surveillance
authority must define the relevant product and geographic market(s) and, secondly, that it must identify
(81) Whereas the withdrawal of the benefit of the Block
the type of vertical restraint in respect of which the
Exemption under Article 6 implies the adoption of a
Block Exemption will no longer apply. As regards the
decision establishing an infringement of Article 53 by
latter aspect, the competent surveillance authority may
an individual company, the effect of an act under
modulate the scope of its disapplication act according
Article 8 is merely to remove, in respect of the
to the competition concern which it intends to address.
restraints and the markets concerned, the benefit of the
For instance, while all parallel networks of singleapplication of the Block Exemption and to restore the
branding type arrangements shall be taken into account
full application of Article 53(1) and (3). Following the
in view of establishing the 50 % market coverage ratio,
adoption of an act declaring the Block Exemption
the competent surveillance authority may nevertheless
inapplicable in respect of certain vertical restraints on a
restrict the scope of the disapplication act only to nonparticular market, the criteria developed by the relevant
compete obligations exceeding a certain duration. Thus,
case-law of the EFTA Court, the Court of Justice of the
agreements of a shorter duration or of a less restrictive
European Communities and the Court of First Instance
nature might be left unaffected, in consideration of
and by notices and previous decisions adopted by
the lesser degree of foreclosure attributable to such
the EFTA Surveillance Authority and the European
restraints. Similarly, when on a particular market selecCommission will guide the application of Article 53 to
tive distribution is practised in combination with
individual agreements. Where appropriate, the EFTA
additional restraints such as non-compete or quantitySurveillance Authority will take a decision in an individforcing on the buyer, the disapplication act may concern
ual case which can provide guidance to all the undertakonly such additional restraints. Where appropriate, the
ings operating on the market concerned.
competent surveillance authority may also provide
guidance by specifying the market share level which,
in the specific market context, may be regarded as
insufficient to bring about a significant contribution by
an individual undertaking to the cumulative effect.
(82) 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. Similar effects normally result when the
restraints come within one of the four groups listed in
paragraphs 104 to 114.
(86) The transitional period of not less than six months that
the competent surveillance authority will have to set
under Article 8(2) should allow the undertakings concerned to adapt their agreements to take account of the
(83) Article 8 does not entail an obligation on the part of the act disapplying the Block Exemption.
competent surveillance authority 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 make use of selection
criteria which are not required by the nature of the (87) An act disapplying the Block Exemption will not affect
relevant goods or discriminate against certain forms of the exempted status of the agreements concerned for
distribution capable of selling such goods. the period preceding its entry into force.

C 122/20 EN Official Journal of the European Communities 23.5.2002

V. **MARKET DEFINITION AND MARKET SHARE CALCU-** (91) For the application of the Block Exemption, the
**LATION ISSUES** market share of the supplier is his share on the
relevant product and geographic market on which he
sells to his buyers ( [33] ). In the example given in
paragraph 92, this is market A. The product market
depends in the first place on substitutability from the
1. _**EFTA Surveillance Authority Notice on definition of the**_ buyers’ perspective. When the supplied product is
_**relevant market**_ 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
(88) The EFTA Surveillance Authority Notice on definition normally not have a strong preference concerning the
of the relevant market for the purpose of competition inputs used by the buyers. Usually the vertical
law within the EEA ( [32] ) provides guidance on the rules, restraints agreed between the supplier and buyer of
criteria and evidence which the EFTA Surveillance the input only relate to the sale and purchase of the
Authority uses when considering market definition intermediate product and not to the sale of the
issues. That Notice will not be further explained in these resulting product. In the case of distribution of final
Guidelines and should serve as the basis for market goods, what are substitutes for the direct buyers
definition issues. These Guidelines will only deal with will normally be influenced or determined by the
specific issues that arise in the context of vertical preferences of the final consumers. A distributor, as
restraints and that are not dealt with in the general reseller, cannot ignore the preferences of final
notice on market definition. consumers when he purchases final goods. In addition,
at the distribution level the vertical restraints usually
concern not only the sale of products between
supplier and buyer, but also their resale. As different
distribution formats usually compete, markets are in
2. _**The relevant market for calculating the 30 % market**_ general not defined by the form of distribution that is
applied. Where suppliers generally sell a portfolio of
_**share threshold under the Block Exemption**_
products, the entire portfolio may determine the
product market when the portfolios and not the
individual products are regarded as substitutes by the
(89) Under Article 3 of the Block Exemption, it is in general buyers. As the buyers on market A are professional
the market share of the supplier that is decisive for the buyers, the geographic market is usually wider than
application of the Block Exemption. In the case of the market where the product is resold to final
vertical agreements concluded between an association consumers. Often, this will lead to the definition of
of retailers and individual members, the association is national markets or wider geographic markets.
the supplier and needs to take into account its market
share as a supplier. Only in the case of exclusive supply
as defined in Article 1(c) of the Block Exemption is it
the market share of the buyer, and only that market
share, which is decisive for the application of the Block
Exemption.

(92) In the case of exclusive supply, the buyer’s market
share is his share of all purchases on the relevant
(90) In order to calculate the market share, it is necessary to purchase market ( [34] ). In the example below, this is
determine the relevant market. For this, the relevant also market A.
product market and the relevant geographic market
must be defined. The relevant product market comprises
any goods or services which are regarded by the buyer
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 dis- ( [33] ) For example, the Dutch market for new replacement truck and
bus tyres in the Michelin case (judgment of the Court of Justice
tinguished from neighbouring geographic areas because,
of the European Communities in Case 322/81 Nederlandsche
in particular, conditions of competition are appreciably
Banden-Industrie Michelin v Commission [1983] ECR 3461),
different in those areas.
the various meat markets in the Danish slaughterhouse case:
European Commission Decision 2000/42/EC in Case No IV/
M.1313 — Danish Crown/Vestjyske Slagterier, OJ L 20,
25.1.2000, p. 1.
( [34] ) For an example of purchase markets, see European Commission
( [32] ) OJ L 200, 16.7.1998, p. 48 and EEA Supplement to the OJ Decision 1999/674/EC in Case No IV/M.1221 — Rewe/Meinl,
No 28, 16.7.1998, p. 3. OJ L 274, 23.10.1999, p. 1.

23.5.2002 EN Official Journal of the European Communities C 122/21

(93) Where a vertical agreement involves three parties, each (95) Where the vertical agreement, in addition to the supply
operating at a different level of trade, their market of the contract goods, also contains IPR provisions —
shares will have to be below the market share threshold such as a provision concerning the use of the supplier’s
of 30 % at both levels in order to benefit from the Block trademark — which help the buyer to market the
Exemption. If for instance, in an agreement between a contract goods, the supplier’s market share on the
manufacturer, a wholesaler (or association of retailers) market where he sells the contract goods is decisive for
and a retailer, a non-compete obligation is agreed, then the application of the Block Exemption. Where a
the market share of both the manufacturer and the franchisor does not supply goods to be resold but
wholesaler (or association of retailers) must not exceed provides a bundle of services combined with IPR
30 % in order to benefit from the Block Exemption. provisions which together form the business method
being franchised, the franchisor needs to take account
of his market share as a provider of a business method.
For that purpose, the franchisor needs to calculate his
market share on the market where the business method
is exploited, which is the market where the franchisees
exploit the business method to provide goods or services
(94) Where a supplier produces both original equipment and
to end users. The franchisor must base his market share
the repair or replacement parts for this equipment, the
on the value of the goods or services supplied by his
supplier will often be the only or the major supplier on
franchisees on this market. On such a market the
the after-market for the repair and replacement parts.
competitors may be providers of other franchised
This may also arise where the supplier (OEM supplier)
business methods but also suppliers of substitutable
subcontracts the manufacturing of the repair or replacegoods or services not applying franchising. For instance,
ment parts. The relevant market for application of the
without prejudice to the definition of such market, if
Block Exemption may be the original equipment market
there was a market for fast-food services, a franchisor
including the spare parts or a separate original equipoperating on such a market would need to calculate his
ment market and after-market depending on the circumstances of the case, such as the effects of the restrictions market share on the basis of the relevant sales figures of
his franchisees on this market. If the franchisor, in
involved, the lifetime of the equipment and importance
addition to the business method, also supplies certain
of the repair or replacement costs ( [35] ).
inputs, such as meat and spices, then the franchisor also
needs to calculate his market share on the market where
these goods are sold.

( [35] ) See for example Pelikan/Kyocera in European Commission
XXV Report on Competition Policy, point 87, and European
Commission Decision 91/595/EEC in Case No IV/M.12 — Varta/ 3. _**The relevant market for individual assessment**_
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
Eastman Kodak Co v Image Technical Services, Inc et al, Supreme (96) For individual assessment of vertical agreements not
Court of the United States, No. 90 1029. See also point 56 of covered by the Block Exemption, additional markets
the EFTA Surveillance Authority’s Notice on the definition of may need to be investigated besides the relevant market
relevant market for the purpose of EEA competition law. defined for the application of the Block Exemption. A

C 122/22 EN Official Journal of the European Communities 23.5.2002

vertical agreement may not only have effects on the mally reduce possible anti-competitive effects on
market between supplier and buyer but may also have the after-market.
effects on downstream markets. For an individual
assessment of a vertical agreement the relevant markets
at each level of trade affected by restraints contained in
the agreement will be examined:
4. _**Calculation of the market share under the Block Exemp-**_
_**tion**_

(97) The calculation of the market share needs to be based
(i) For ‘intermediate goods or services’ that are incor- in principle on value figures. Where value figures are
not available substantiated estimates can be made.
porated by the buyer into his own goods or
Such estimates may be based on other reliable market
services, vertical restraints generally have effects
information such as volume figures (see Article 9(1) of
only on the market between supplier and buyer. A
the Block Exemption).
non-compete obligation imposed on the buyer for
instance may foreclose other suppliers but will not
lead to reduced in-store competition downstream.
However, in cases of exclusive supply the position (98) In-house production, that is production of an intermediof the buyer on his downstream market is also
ate product for own use, may be very important in a
relevant because the buyer’s foreclosing behaviour
competition analysis as one of the competitive conmay only have appreciable negative effects if he
straints or to accentuate the market position of a
has market power on the downstream market.
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.

(ii) For ‘final products’ an analysis limited to the (99) However, in the case of dual distribution of final goods,
market between supplier and buyer is less likely to i.e. where a producer of final goods also acts as a
be sufficient since vertical restraints may have distributor on the market, the market definition and
negative effects of reduced inter-brand and/or market share calculation need to include the goods sold
intra-brand competition on the resale market, that by the producer and competing producers through their
is on the market downstream of the buyer. For integrated distributors and agents (see Article 9(2)(b)
instance, exclusive distribution may not only lead of the Block Exemption). ‘Integrated distributors’ are
to foreclosure effects on the market between the connected undertakings within the meaning of
supplier and the buyer, but may above all lead to Article 11 of the Block Exemption.
less intra-brand competition in the resale territories
of the distributors. The resale market is in particular
important if the buyer is a retailer selling to
final consumers. A non-compete obligation agreed
between a manufacturer and a wholesaler may
VI. **ENFORCEMENT POLICY IN INDIVIDUAL CASES**
foreclose this wholesaler to other manufacturers
but a loss of in-store competition is not very
likely at the wholesale level. The same agreement
concluded with a retailer may however cause this (100) Vertical restraints are generally less harmful than horiadded loss of in-store inter-brand competition on zontal restraints. The main reason for treating a vertical
the resale market. restraint more leniently than a horizontal restraint lies
in the fact that the latter may concern an 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
(iii) In cases of individual assessment of an ‘after- each other to behave anti-competitively. In vertical
market’, the relevant market may be the original relationships the product of the one is the input for the
equipment market or the after-market depending other. This means that the exercise of market power by
on the circumstances of the case. In any event, either the upstream or downstream company would
the situation on a separate after-market will be normally hurt the demand for the product of the other.
evaluated taking account of the situation on the The companies involved in the agreement therefore
original equipment market. A less significant pos- usually have an incentive to prevent the exercise of
ition on the original equipment market will nor- market power by the other.

23.5.2002 EN Official Journal of the European Communities C 122/23

(101) However, this self-restraining character should not be (104) Such negative effects may result from various vertical
over-estimated. When a company has no market power restraints. Agreements which are different in form may
it can only try to increase its profits by optimising have the same substantive impact on competition. To
its manufacturing and distribution processes, with or analyse these possible negative effects, it is appropriate
without the help of vertical restraints. However, when to divide vertical restraints into four groups: a single
it does have market power it can also try to increase its branding group, a limited distribution group, a resale
profits at the expense of its direct competitors by raising price maintenance group and a market partitioning
their costs and at the expense of its buyers and group. The vertical restraints within each group have
ultimately consumers by trying to appropriate some of largely similar negative effects on competition.
their surplus. This can happen when the upstream and
downstream company share the extra profits or when
one of the two uses vertical restraints to appropriate all
the extra profits.
(105) The classification into four groups is based upon what
can be described as the basic components of vertical
restraints. In paragraphs 103 to 136, the four different
(102) In the assessment of individual cases in respect of which groups are analysed. In paragraphs 137 to 229, vertical
it has jurisdiction, the EFTA Surveillance Authority will agreements are analysed as they are used in practice
adopt an economic approach in the application of because many vertical agreements make use of more
Article 53 to vertical restraints. This will limit the scope than one of these components.
of application of Article 53 to undertakings holding a
certain degree of market power where inter-brand
competition may be insufficient. In those cases, the
protection of inter-brand and intra-brand competition
is important to ensure efficiencies and benefits for

consumers.
_Single branding group_

1. _**The framework of analysis**_ (106) Under the heading of ‘single branding’ come those
agreements which have as their main element that the
buyer is induced to concentrate his orders for a
particular type of product with one supplier. This
component can be found amongst others in noncompete and quantity-forcing on the buyer, where an
1.1. **Negative effects of vertical restraints** obligation or incentive scheme agreed between the
supplier and the buyer makes the latter purchase his
requirements for a particular product and its substitutes
(103) The negative effects on the market that may result from only, or mainly, from one supplier. The same comvertical restraints which EEA competition law aims at ponent can be found in tying, where the obligation or
preventing are the following: incentive scheme relates to a product that the buyer is
required to purchase as a condition of purchasing
another distinct product. The first product is referred to
(i) foreclosure of other suppliers or other buyers by as the ‘tied’product and the second is referred to as the
raising barriers to entry; ‘tying’ product.

(ii) reduction of inter-brand competition between the
companies operating on a market, including facili(107) There are four main negative effects on competition: (1)
tation of collusion amongst suppliers or buyers; by
other suppliers in that market cannot sell to the
collusion is meant both explicit collusion and tacit
particular buyers and this may lead to foreclosure of the
collusion (conscious parallel behaviour);
market or, in the case of tying, to foreclosure of the
market for the tied product; (2) it makes market shares
more rigid and this may help collusion when applied by
(iii) reduction of intra-brand competition between dis- several suppliers; (3) as far as the distribution of final
tributors of the same brand; goods is concerned, the particular retailers will only sell
one brand and there will therefore be no inter-brand
competition in their shops (no in-store competition);
(iv) the creation of obstacles to market integration, and (4) in the case of tying, the buyer may pay a higher
including, above all, limitations on the freedom of price for the tied product than he would otherwise do.
consumers to purchase goods or services in any All these effects may lead to a reduction in inter-brand
EEA State they may choose. competition.

C 122/24 EN Official Journal of the European Communities 23.5.2002

(108) The reduction in inter-brand competition may be _Resale price maintenance group_
mitigated by strong initial competition between suppliers to obtain the single branding contracts, but the
longer the duration of the non-compete obligation, the
more likely it will be that this effect will not be strong
enough to compensate for the reduction in inter-brand
competition.
(111) Under the heading of ‘resale price maintenance’ (RPM)
come those agreements whose main element is that the
buyer is obliged or induced to resell not below a certain
price, at a certain price or not above a certain price.
This group comprises minimum, fixed, maximum and
_Limited distribution group_ recommended resale prices. Maximum and recommended resale prices, which are not hardcore restrictions,
may still lead to a restriction of competition by effect.

(109) Under the heading of ‘limited distribution’ come those
agreements which have as their main element that the
manufacturer sells to only one or a limited number of
buyers. This may be to restrict the number of buyers for
a particular territory or group of customers, or to select
(112) There are two main negative effects of RPM on compea particular kind of buyers. This component can be
tition: (1) a reduction in intra-brand price competition,
found amongst others in:
and (2) increased transparency on prices. In the case of
fixed or minimum RPM, distributors can no longer
compete on price for that brand, leading to a total
— exclusive distribution and exclusive customer allo- elimination of intra-brand price competition. A
maximum or recommended price may work as a focal
cation, where the supplier limits his sales to only
point for resellers, leading to a more or less uniform
one buyer for a certain territory or class of
application of that price level. Increased transparency
customers; on price and responsibility for price changes makes
horizontal collusion between manufacturers or distributors easier, at least in concentrated markets. The
— reduction in intra-brand competition may, as it leads to
exclusive supply and quantity-forcing on the supless downward pressure on the price for the particular
plier, where an obligation or incentive scheme
goods, have as an indirect effect a reduction of interagreed between the supplier and the buyer makes
brand competition.
the former sell only or mainly to one buyer;

— selective distribution, where the conditions
imposed on or agreed with the selected dealers
usually limit their number;

— after-market sales restrictions which limit the com- _Market partitioning group_
ponent supplier’s sales possibilities.

(110) There are three main negative effects on competition:
(1) certain buyers within that market can no longer buy (113) Under the heading of ‘market partitioning’ come agreefrom that particular supplier, and this may lead in ments whose main element is that the buyer is restricted
particular in the case of exclusive supply, to foreclosure in where he either sources or resells a particular product.
of the purchase market, (2) when most or all of the This component can be found in exclusive purchasing,
competing suppliers limit the number of retailers, this where an obligation or incentive scheme agreed between
may facilitate collusion, either at the distributor’s level the supplier and the buyer makes the latter purchase his
or at the supplier’s level, and (3) since fewer distributors requirements for a particular product, for instance beer
will offer the product it will also lead to a reduction of of brand X, exclusively from the designated supplier,
intra-brand competition. In the case of wide exclusive but leaving the buyer free to buy and sell competing
territories or exclusive customer allocation the result products, for instance competing brands of beer. It also
may be total elimination of intra-brand competition. includes territorial resale restrictions, the allocation of
This reduction of intra-brand competition can in turn an area of primary responsibility, restrictions on the
lead to a weakening of inter-brand competition. location of a distributor and customer resale restrictions.

23.5.2002 EN Official Journal of the European Communities C 122/25

(114) The main negative effect on competition is a reduction supplier to impose on all buyers, by contract,
of intra-brand competition that may help the supplier to effective service requirements concerning pre-sales
partition the market and thus hinder market integration. services.
This may facilitate price discrimination. When most or
all of the competing suppliers limit the sourcing or
resale possibilities of their buyers this may facilitate
collusion, either at the distributors’ level or at the
suppliers’ level.

Free-riding between suppliers is also restricted to
specific situations, namely in cases where the
promotion takes place at the buyer’s premises and
is generic, not brand specific.
1.2. **Positive effects of vertical restraints**

(115) It is important to recognise that vertical restraints often
have positive effects by, in particular, promoting nonprice competition and improved quality of services.
When a company has no market power, it can only try
to increase its profits by optimising its manufacturing
2) To ‘open up or enter new markets’. Where a
or distribution processes. In a number of situations
manufacturer wants to enter a new geographic
vertical restraints may be helpful in this respect since
market, for instance by exporting to another
the usual arm’s length dealings between supplier and
country for the first time, this may involve special
buyer, determining only price and quantity of a certain
‘first time investments’ by the distributor to estabtransaction, can lead to a sub-optimal level of investments and sales. lish the brand in 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 he can recoup these
investments by temporarily charging a higher
(116) While trying to give a fair overview of the various price. Distributors based in other markets should
then be restrained for a limited period from selling
justifications for vertical restraints, these Guidelines do
in the new market. This is a special case of the
not claim to be complete or exhaustive. The following
reasons may justify the application of certain vertical free-rider problem described under point 1.
restraints:

1) To ‘solve a “free-rider” problem’. One distributor
may free-ride on the promotion efforts of another
distributor. This type of problem is most common
at the wholesale and retail level. Exclusive distribution or similar restrictions may be helpful in
avoiding such free-riding. Free-riding can also
3) The ‘certification free-rider issue’. In some sectors,
occur between suppliers, for instance where one
certain retailers have a reputation for stocking only
invests in promotion at the buyer’s premises, in
‘quality’ products. In such a case, selling through
general at the retail level, that may also attract
these retailers may be vital for the introduction of
customers for its competitors. Non-compete type
a new product. If the manufacturer cannot initially
restraints can help to overcome this situation of
free-riding. For there to be a problem, there needs limit his sales to the premium stores, he runs the
to be a real free-rider issue. Free-riding between risk of being de-listed and the product introduction
buyers can only occur on pre-sales services and may fail. This means that there may be a reason
not on after-sales services. The product will usually for allowing for a limited duration a restriction
need to be relatively new or technically complex such as exclusive distribution or selective distrias the customer may otherwise very well know bution. It must be enough to guarantee the introwhat he or she wants, based on past purchases. duction of the new product but not so long as to
And the product must be of a reasonably high hinder large-scale dissemination. Such benefits are
value as it is otherwise not attractive for a customer more likely with ‘experience’ goods or complex
to go to one shop for information and to another goods that represent a relatively large purchase for
to buy. Lastly, it must not be practical for the the final consumer.

C 122/26 EN Official Journal of the European Communities 23.5.2002

4) The so-called ‘hold-up problem’. Sometimes there 6) ‘Economies of scale in distribution’. In order to
are client-specific investments to be made by either have scale economies exploited and thereby see a
the supplier or the buyer, such as in special lower retail price for his product, the manufacturer
equipment or training. For instance, a component may want to concentrate the resale of his products
manufacturer that has to build new machines and on a limited number of distributors. For this he
tools in order to satisfy a particular requirement of could use exclusive distribution, quantity forcing
one of his customers. The investor may not in the form of a minimum purchasing requirement,
commit the necessary investments before particu- selective distribution containing such a requirelar supply arrangements are fixed. ment or exclusive purchasing.

However, as in the other free-riding examples,
there are a number of conditions that have to be
7) ‘Capital market imperfections’. The usual providers
met before the risk of under-investment is real of capital (banks, equity markets) may provide
or significant. Firstly, the investment must be capital sub-optimally when they have imperfect
relationship-specific. An investment made by the information on the quality of the borrower or
supplier is considered to be relationship-specific there is an inadequate basis to secure the loan. The
when, after termination of the contract, it cannot buyer or supplier may have better information and
be used by the supplier to supply other customers be able, through an exclusive relationship, to
and can only be sold at a significant loss. An obtain extra security for his investment. Where the
investment made by the buyer is considered to be supplier provides the loan to the buyer this may
relationship-specific when, after termination of the lead to non-compete or quantity forcing on the
contract, it cannot be used by the buyer to purchase buyer. Where the buyer provides the loan to the
and/or use products supplied by other suppliers supplier this may be the reason for having exclusive
and can only be sold at a significant loss. An supply or quantity forcing on the supplier.
investment is thus relationship-specific because for
instance it can only be used to produce a brandspecific 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;
i.e. one party to the contract invests more than the 8) ‘Uniformity and quality standardisation’. A vertical
other party. When these conditions are met, there
restraint may help to increase sales by creating a
is usually a good reason to have a vertical restraint
brand image and thereby increasing the attractivefor the duration it takes to depreciate the investness of a product to the final consumer by
ment. The appropriate vertical restraint will be of
imposing a certain measure of uniformity and
the non-compete type or quantity-forcing type
quality standardisation on the distributors. This
when the investment is made by the supplier and can for instance be found in selective distribution
of the exclusive distribution, exclusive customer
and franchising.
allocation or exclusive supply type when the
investment is made by the buyer.

(117) The eight situations mentioned in paragraph 116 make
5) The ‘specific hold-up problem that may arise in the clear that under certain conditions vertical agreements
case of transfer of substantial know-how’. The are likely to help realise efficiencies and the development
know-how, once provided, cannot be taken back of new markets and that this may offset possible
and the provider of the know-how may not want negative effects. The case is in general strongest for
it to be used for or by his competitors. In as far as vertical restraints of a limited duration which help the
the know-how was not readily available to the introduction of new complex products or protect
buyer, is substantial and indispensable for the relationship-specific investments. A vertical restraint is
operation of the agreement, such a transfer may sometimes necessary for as long as the supplier sells his
justify a non-compete type of restriction. This product to the buyer (see in particular the situations
would normally fall outside Article 53(1). described in paragraph 116, points 1, 5, 6 and 8).

23.5.2002 EN Official Journal of the European Communities C 122/27

(118) There is a large measure of substitutability between the ful when more efficient distributors or distributors
different vertical restraints. This means that the same with a different distribution format are foreclosed.
inefficiency problem can be solved by different vertical This can reduce innovation in distribution and
restraints. For instance, economies of scale in distri- denies consumers the particular service or pricebution may possibly be achieved by using exclusive service combination of these distributors.
distribution, selective distribution, quantity forcing or
exclusive purchasing. This is important as the negative
effects on competition may differ between the various
vertical restraints. This plays a role when indispensability is discussed under Article 53(3).

4) Exclusive dealing arrangements are generally worse
for competition than non-exclusive arrangements.
1.3. **General rules for the evaluation of vertical restraints**
Exclusive dealing makes, by the express language
of the contract or its practical effects, one party
fulfil all or practically all its requirements from
another party. For instance, under a non-compete
obligation the buyer purchases only one brand.
(119) In evaluating vertical restraints from a competition
Quantity forcing, on the other hand, leaves the
policy perspective, some general rules can be formubuyer some scope to purchase competing goods.
lated:
The degree of foreclosure may therefore be less
with quantity forcing.

1) For most vertical restraints competition concerns
can only arise if there is insufficient inter-brand
competition, i.e. if there exists a certain degree of
market power at the level of the supplier or the
buyer or both. Conceptually, market power is the
power to raise price above the competitive level
and, at least in the short term, to obtain supranormal profits. Companies may have market pow- 5) Vertical restraints agreed for non-branded goods
er below the level of market dominance, which is and services are in general less harmful than
the threshold for the application of Article 54. restraints affecting the distribution of branded
Where there are many firms competing in an goods and services. Branding tends to increase
unconcentrated market, it can be assumed that product differentiation and reduce substitutability
non-hardcore vertical restraints will not have of the product, leading to a reduced elasticity of
appreciable negative effects. A market is deemed demand and an increased possibility to raise price.
unconcentrated when the HHI index, i.e. the sum The distinction between branded and non-branded
of the squares of the individual market shares of goods or services will often coincide with the
all companies in the relevant market, is below distinction between intermediate goods and ser1 000. vices 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
2) Vertical restraints which reduce inter-brand com- services. The buyers of intermediate products are
petition are generally more harmful than vertical usually well-informed customers, able to assess
restraints that reduce intra-brand competition. For quality and therefore less reliant on brand and
instance, non-compete obligations are likely to image. Final goods are, directly or indirectly, sold
have more net negative effects than exclusive to final consumers who often rely more on brand
distribution. The former, by possibly foreclosing and image. As distributors (retailers, wholesalers)
the market to other brands, may prevent those have to respond to the demand of final consumers,
brands from reaching the market. The latter, while competition may suffer more when distributors
limiting intra-brand competition, does not prevent are foreclosed from selling one or a number of
goods from reaching the final consumer. brands than when buyers of intermediate products
are prevented from buying competing products
from certain sources of supply. The undertakings
buying intermediate goods or services normally
3) Vertical restraints from the limited distribution have specialist departments or advisers who monigroup, in the absence of sufficient inter-brand tor developments in the supply market. Because
competition, may significantly restrict the choices they effect sizeable transactions, search costs are in
available to consumers. They are particularly harm- general not prohibitive. A loss of intra-brand

C 122/28 EN Official Journal of the European Communities 23.5.2002

competition is therefore less important at the with a limited customer group, the distributors
intermediate level. appointed to sell the new product on the test
market can be restricted in their active selling
outside the test market for a maximum period of
1 year without being caught by Article 53(1).

6) In general, a combination of vertical restraints
aggravates their negative effects. However, certain
combinations of vertical restraints are better for
competition than their use in isolation from each 1.4. **Methodology of analysis**
other. For instance, in an exclusive distribution
system, the distributor may be tempted to increase
(120) The assessment of a vertical restraint involves in general
the price of the products as intra-brand compethe following four steps:
tition has been reduced. The use of quantity forcing
or the setting of a maximum resale price may limit
such price increases.
1) First, the undertakings involved need to define the
relevant market in order to establish the market
share of the supplier or the buyer, depending on
the vertical restraint involved (see paragraphs 88
7) Possible negative effects of vertical restraints are to 99, in particular 89 to 95).
reinforced when several suppliers and their buyers
organise their trade in a similar way. These socalled cumulative effects may be a problem in a 2) If the relevant market share does not exceed the
number of sectors. 30 % threshold, the vertical agreement is covered
by the Block Exemption, subject to the hardcore
restrictions and conditions set out in that act.

8) The more the vertical restraint is linked to the 3) If the relevant market share is above the 30 %
transfer of know-how, the more reason there may threshold, it is necessary to assess whether the
be to expect efficiencies to arise and the more a vertical agreement falls within Article 53(1).
vertical restraint may be necessary to protect the
know-how transferred or the investment costs
incurred. 4) If the vertical agreement falls within Article 53(1),
it is necessary to examine whether it fulfils the
conditions for exemption under Article 53(3).

9) The more the vertical restraint is linked to investments which are relationship-specific, the more 1.4.1. R e l e v a n t f a c t o r s f o r t h e a s s e s s m e n t
justification there is for certain vertical restraints. u n d e r A r t i c l e 5 3 ( 1 )
The justified duration will depend on the time
necessary to depreciate the investment.
(121) In assessing cases above the market share threshold of
30 %, the EFTA Surveillance Authority will make a full
competition analysis. The following factors are the most
important to establish whether a vertical agreement
10) In the case of a new product, or where an existing
brings about an appreciable restriction of competition
product is sold for the first time on a different
under Article 53(1):
geographic market, it may be difficult for the
company to define the market or its market share
may be very high. However, this should not be a) market position of the supplier;
considered a major problem, as vertical restraints
linked to opening up new product or geographic
markets in general do not restrict competition. b) market position of competitors;

c) market position of the buyer;
This rule holds, irrespective of the market share of
the company, for two years after the first putting
on the market of the product. It applies to all nond) entry barriers;
hardcore vertical restraints and, in the case of a
new geographic market, to restrictions on active
and passive sales imposed on the direct buyers of e) maturity of the market;
the supplier located in other markets to intermediaries in the new market. In the case of genuine
testing of a new product in a limited territory or f) level of trade;

23.5.2002 EN Official Journal of the European Communities C 122/29

g) nature of the product; restraints from the limited distribution and market
partitioning groups such as exclusive supply, exclusive
distribution and quantitative selective distribution.
h) other factors.

(122) The importance of individual factors may vary from
case to case and depends on all other factors. For
instance, a high market share of the supplier is usually
a good indicator of market power, but in the case of _Entry barriers_
low entry barriers it may not indicate market power. It
is therefore not possible to provide strict rules on the
importance of the individual factors. However the
following can be said:
(126) Entry barriers are measured by the extent to which
incumbent companies can increase their price above the
competitive level, usually above minimum average total
_Market position of the supplier_ cost, and make supra-normal profits without attracting
entry. Without any entry barriers, easy and quick entry
would eliminate such profits. In as far as effective entry,
(123) The market position of the supplier is established first
which would prevent or erode the supra-normal profits,
and foremost by his market share on the relevant
is likely to occur within one or two years, entry barriers
product and geographic market. The higher his market can be said to be low.
share, the greater his market power is likely to be. The
market position of the supplier is further strengthened
if he has certain cost advantages over his competitors.
These competitive advantages may result from a first
mover advantage (having the best site, etc.), holding (127) Entry barriers may result from a wide variety of factors
essential patents, having superior technology, being the such as economies of scale and scope, government
brand leader or having a superior portfolio. regulations, especially where they establish exclusive
rights, state aid, import tariffs, intellectual property
rights, ownership of resources where the supply is
limited due to for instance natural limitations, ( [36] )
_Market position of competitors_ essential facilities, a first mover advantage and brand
loyalty of consumers created by strong advertising.
Vertical restraints and vertical integration may also
(124) The same indicators, that is market share and possible
work as an entry barrier by making access more difficult
competitive advantages, are used to describe the market
and foreclosing (potential) competitors. Entry barriers
position of competitors. The stronger the established
may be present at only the supplier or buyer level or at
competitors are and the greater their number, the less both levels.
risk there is that the supplier or buyer in question will
be able to foreclose the market individually and the less
there is a risk of a reduction of inter-brand competition.
However, if the number of competitors becomes rather
small and their market position (size, costs, R&D (128) The question whether certain of these factors should be
potential, etc.) is rather similar, this market structure described as entry barriers depends on whether they are
may increase the risk of collusion. Fluctuating or rapidly related to sunk costs. Sunk costs are those costs that
changing market shares are in general an indication of have to be incurred to enter or be active on a market
intense competition. 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
_Market position of the buyer_ 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
(125) Buying power derives from the market position of the
competition, as sunk costs make it costly for incumbents
buyer. The first indicator of buying power is the market
to leave the market. If, for instance, distributors are tied
share of the buyer on the purchase market. This share
to a manufacturer via a non-compete obligation, the
reflects the importance of his demand for his possible
foreclosing effect will be more significant if setting up
suppliers. Other indicators focus on the market position
of the buyer on his resale market including characteristics such as a wide geographic spread of his outlets,
own brands of the buyer/distributor and his image
amongst final consumers. The effect of buying power
on the likelihood of anti-competitive effects is not the
same for the different vertical restraints. Buying power ( [36] ) See Commission Decision 97/26/EC (Case No. IV/M.619 —
may in particular increase the negative effects in case of Gencor/Lonrho), (OJ L 11, 14.1.1997, p. 30).

C 122/30 EN Official Journal of the European Communities 23.5.2002

its own distributors will impose sunk costs on the indicate or facilitate collusion like price leadership, prepotential entrant. announced price changes and discussions on the ‘right’
price, price rigidity in response to excess capacity, price
discrimination and past collusive behaviour.
(129) In general, entry requires sunk costs, sometimes minor
and sometimes major. Therefore, actual competition is
in general more effective and will weigh more in the
assessment of a case than potential competition.
1.4.2. R e l e v a n t f a c t o r s f o r t h e a s s e s s m e n t
u n d e r A r t i c l e 5 3 ( 3 )

_Maturity of the market_
(134) There are four cumulative conditions for the application
of Article 53(3):

(130) A mature market is a market that has existed for some
time, where the technology used is well known and —
the vertical agreement must contribute to improvwidespread and not changing very much, where there
ing production or distribution or to promoting
are no major brand innovations and in which demand
technical or economic progress;
is relatively stable or declining. In such a market negative
effects are more likely than in more dynamic markets.

—
the vertical agreement must allow consumers a fair
share of these benefits;

_Level of trade_

—
the vertical agreement must not impose on the
undertakings concerned vertical restraints which
(131) The level of trade is linked to the distinction between
are not indispensable to the attainment of these
intermediate and final goods and services. As indicated
benefits;
earlier, negative effects are in general less likely at the
level of intermediate goods and services.

—
the vertical agreement must not afford such undertakings the possibility of eliminating competition
in respect of a substantial part of the products in
_Nature of the product_ question.

(132) The nature of the product plays a role in particular for
(135) The last criterion of elimination of competition for a
final products in assessing both the likely negative and
substantial part of the products in question is related to
the likely positive effects. When assessing the likely
the question of dominance. Where an undertaking is
negative effects, it is important whether the products on
dominant or becoming dominant as a consequence of
the market are more homogeneous or heterogeneous,
the vertical agreement, a vertical restraint that has
whether the product is expensive, taking up a large part
appreciable anti-competitive effects can in principle not
of the consumer’s budget, or is inexpensive and whether
be exempted. The vertical agreement may however fall
the product is a one-off purchase or repeatedly puroutside Article 53(1) if there is an objective justification,
chased. In general, when the product is more heterofor instance if it is necessary for the protection of
geneous, less expensive and resembles more a one-off
relationship-specific investments or for the transfer of
purchase, vertical restraints are more likely to have
substantial know-how without which the supply or
negative effects.
purchase of certain goods or services would not take
place.

_Other factors_ (136) Where the supplier and the buyer are not dominant,
the other three criteria become important. The first,
concerning the improvement of production or distri(133) In the assessment of particular restraints other factors bution and the promotion of technical or economic
may have to be taken into account. Among these factors progress, refers to the type of efficiencies described in
can be the cumulative effect, i.e. the coverage of the paragraphs 115 to 118. These efficiencies have to be
market by similar agreements, the duration of the substantiated and must produce a net positive effect.
agreements, whether the agreement is ‘imposed’ (mainly Speculative claims on avoidance of free-riding or general
one party is subject to the restrictions or obligations) or statements on cost savings will not be accepted. Cost
‘agreed’ (both parties accept restrictions or obligations), savings that arise from the mere exercise of market
the regulatory environment and behaviour that may power or from anti-competitive conduct cannot be

23.5.2002 EN Official Journal of the European Communities C 122/31

accepted. Secondly, economic benefits have to favour (139) Single branding is exempted by the Block Exemption
not only the parties to the agreement, but also the when the supplier’s market share does not exceed 30 %
consumer. Generally the transmission of the benefits to and subject to a limitation in time of five years for
consumers will depend on the intensity of competition the non-compete obligation. Above the market share
on the relevant market. Competitive pressures will threshold or beyond the time limit of five years, the
normally ensure that cost-savings are passed on by way following guidance is provided for the assessment of
of lower prices or that companies have an incentive to individual cases.
bring new products to the market as quickly as possible.
Therefore, if sufficient competition which effectively
constrains the parties to the agreement is maintained
on the market, the competitive process will normally
ensure that consumers receive a fair share of the
economic benefits. The third criterion will play a role in (140) The ‘market position of the supplier’ is of main importensuring that the least anti-competitive restraint is ance to assess possible anti-competitive effects of nonchosen to obtain certain positive effects. compete obligations. In general, this type of obligation
is imposed by the supplier and the supplier has similar
agreements with other buyers.

(141) It is not only the market position of the supplier that is
of importance but also the extent to and the duration
for which he applies a non-compete obligation. The
2. _**Analysis of specific vertical restraints**_ higher his tied market share, i.e. the part of his market
share sold under a single branding obligation, the more
significant foreclosure is likely to be. Similarly, the
longer the duration of the non-compete obligations, the
more significant foreclosure is likely to be. Non-compete
obligations shorter than one year entered into by non(137) Vertical agreements may contain a combination of dominant companies are in general not considered to
two or more of the components of vertical restraints give rise to appreciable anti-competitive effects or net
described in paragraphs 103 to 114. The most common negative effects. Non-compete obligations between one
vertical restraints and combinations of vertical restraints and five years entered into by non-dominant companies
are analysed below following the methodology of usually require a proper balancing of pro- and antianalysis developed in paragraphs 120 to 136. competitive effects, while non-compete 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. Dominant companies
may not impose non-compete obligations on their
buyers unless they can objectively justify such commercial practice within the context of Article 54.

2.1. **Single branding**

(142) In assessing the supplier’s market power, the ‘market
position of his competitors’ is important. As long as the
competitors are sufficiently numerous and strong, no
(138) A non-compete arrangement is based on an obligation appreciable anti-competitive effects can be expected. It
or incentive scheme which makes the buyer purchase is only likely that competing suppliers will be foreclosed
practically all his requirements on a particular market if they are significantly smaller than the supplier applyfrom only one supplier. It does not mean that the buyer ing the non-compete obligation. Foreclosure of comcan only buy directly from the supplier, but that the petitors is not very likely where they have similar
buyer will not buy and resell or incorporate competing market positions and can offer similarly attractive
goods or services. The possible competition risks are products. In such a case foreclosure may however occur
foreclosure of the market to competing suppliers and for potential entrants when a number of major suppliers
potential suppliers, facilitation of collusion between enter into non-compete contracts with a significant
suppliers in case of cumulative use and, where the buyer number of buyers on the relevant market (cumulative
is a retailer selling to final consumers, a loss of in-store effect situation). This is also a situation where noninter-brand competition. All three restrictive effects compete agreements may facilitate collusion between
have a direct impact on inter-brand competition. competing suppliers. If individually these suppliers are

C 122/32 EN Official Journal of the European Communities 23.5.2002

covered by the Block Exemption, a withdrawal of the on the market. The stronger his dominance, the higher
Block Exemption may be necessary to deal with such a the risk of foreclosure of other competitors.
negative cumulative effect. A tied market share of less
than 5 % is not considered in general to contribute
significantly to a cumulative foreclosure effect.

(147) Where the agreement concerns supply of a final product
at the wholesale level, the question whether a compe(143) In cases where the market share of the largest supplier
tition problem is likely to arise below the level of
is below 30 % and the market share of the five largest
dominance depends in large part on the type of
suppliers (concentration rate CR5) is below 50 %,
wholesaling and the entry barriers at the wholesale level.
there is unlikely to be a single or a cumulative antiThere is no real risk of foreclosure if competing
competitive effect situation. If a potential entrant cannot
manufacturers can easily establish their own wholesalpenetrate the market profitably, this is likely to be due
ing operation. Whether entry barriers are low depends
to factors other than non-compete obligations, such
in part on the type of wholesaling, i.e. whether or not
as consumer preferences. A competition problem is
wholesalers can operate efficiently with only the product
unlikely to arise when, for instance, 50 companies, of
concerned by the agreement (for example ice cream) or
which none has an important market share, compete
whether it is more efficient to trade in a whole range of
fiercely on a particular market.
products (for example frozen foodstuffs). In the latter
case, it is not efficient for a manufacturer selling only
one product to set up his own wholesaling operation.
In that case anti-competitive effects may arise below the
level of dominance. In addition, cumulative effect
problems may arise if several suppliers tie most of the
(144) ‘Entry barriers’ are important to establish whether there available wholesalers.
is real foreclosure. Wherever it is relatively easy for
competing suppliers to create new buyers or find
alternative buyers for the product, foreclosure is unlikely
to be a real problem. However, there are often entry
barriers, both at the manufacturing and at the distribution level.

(148) 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 non-compete agreements may lead to reduced
(145) ‘Countervailing power’ is relevant, as powerful buyers
in-store inter-brand competition. It is for these reasons
will not easily allow themselves to be cut off from the
that for final products at the retail level, significant antisupply of competing goods or services. Foreclosure
competitive effects may start to arise, taking into
which is not based on efficiency and which has harmful
account all other relevant factors, if a non-dominant
effects on ultimate consumers is therefore mainly a risk
supplier ties 30 % or more of the relevant market. For a
in the case of dispersed buyers. However, where nondominant company, even a modest tied market share
compete agreements are concluded with major buyers
may already lead to significant anti-competitive effects.
this may have a strong foreclosure effect.
The stronger its dominance, the higher the risk of
foreclosure of other competitors.

(146) Lastly, ‘the level of trade’ is relevant for foreclosure.
Foreclosure is less likely in case of an intermediate
product. When the supplier of an intermediate product
is not dominant, the competing suppliers still have a (149) At the retail level a cumulative foreclosure effect may
substantial part of demand that is ‘free’. Below the level also arise. When all companies have market shares
of dominance a serious foreclosure effect may however below 30 % a cumulative foreclosure effect is unlikely if
arise for actual or potential competitors where there is the total tied market share is less than 40 % and
a cumulative effect. A serious cumulative effect is withdrawal of the Block Exemption is therefore unlikely.
unlikely to arise as long as less than 50 % of the market This figure may be higher when other factors like the
is tied. When the supplier is dominant, any obligation number of competitors, entry barriers etc. are taken
to buy the products only or mainly from the dominant into account. When not all companies have market
supplier may easily lead to significant foreclosure effects shares below the threshold of the Block Exemption but

23.5.2002 EN Official Journal of the European Communities C 122/33

none is dominant, a cumulative foreclosure effect is (capital market imperfections) may be particularly relunlikely if the total tied market share is below 30 %. evant.

(154) In the case of an efficiency as described in paragraph 116, points 1, 4 and 7, quantity forcing on the
(150) Where the buyer operates from premises and land buyer could possibly be a less restrictive alternative. A
owned by the supplier or leased by the supplier from a non-compete obligation may be the only viable way to
third party not connected with the buyer, the possibility achieve an efficiency as described in paragraph 116,
of imposing effective remedies for a possible foreclosure point 5 (hold-up problem related to the transfer of
effect will be limited. In that case intervention by know-how).
the EFTA Surveillance Authority below the level of
dominance is unlikely.

(155) In the case of a relationship-specific investment made
by the supplier (see efficiency 4 in paragraph 116), a
non-compete or quantity forcing agreement for the
period of depreciation of the investment will in general
(151) In certain sectors the selling of more than one brand
fulfil the conditions of Article 53(3). In the case of
from a single site may be difficult, in which case a
high relationship-specific investments, a non-compete
foreclosure problem can better be remedied by limiting
obligation exceeding five years may be justified. A
the effective duration of contracts.
relationship-specific investment could, for instance, be
the installation or adaptation of equipment by the
supplier when this equipment can be used afterwards
only to produce components for a particular buyer.
General or market-specific investments in (extra)
capacity are normally not relationship-specific invest(152) A so-called ‘English clause’, requiring the buyer to report ments. However, where a supplier creates new capacity
any better offer and allowing him only to accept such specifically linked to the operations of a particular
an offer when the supplier does not match it, can be buyer, for instance a company producing metal cans
expected to have the same effect as a non-compete which creates new capacity to produce cans on the
obligation, especially when the buyer has to reveal who premises of or next to the canning facility of a food
makes the better offer. In addition, by increasing the producer, this new capacity may only be economically
transparency of the market it may facilitate collusion viable when producing for this particular customer, in
between the suppliers. An English clause may also work which case the investment would be considered to be
as quantity-forcing. Quantity-forcing on the buyer is a relationship-specific.
weaker form of non-compete, where incentives or
obligations agreed between the supplier and the buyer
make the latter concentrate his purchases to a large
extent with one supplier. Quantity-forcing may for
(156) Where the supplier provides the buyer with a loan
example take the form of minimum purchase requireor provides the buyer with equipment which is not
ments or non-linear pricing, such as quantity rebate
relationship-specific, this in itself is normally not sufschemes, loyalty rebate schemes or a two-part tariff
ficient to justify the exemption of a foreclosure effect
(fixed fee plus a price per unit). Quantity-forcing on the
on the market. The instances of capital market imperfecbuyer will have similar but weaker foreclosure effects
tion, whereby it is more efficient for the supplier of a
than a non-compete obligation. The assessment of all
product than for a bank to provide a loan, will be
these different forms will depend on their effect on the
limited (see efficiency 7 in paragraph 116). Even if the
market. In addition, Article 54 specifically prevents
supplier of the product were to be the more efficient
dominant companies from applying English clauses or
provider of capital, a loan could only justify a nonfidelity rebate schemes.
compete obligation if the buyer is not prevented from
terminating the non-compete obligation and repaying
the outstanding part of the loan at any point in time
and without payment of any penalty. This means that
the repayment of the loan should be structured in equal
or decreasing instalments and should not increase over
(153) Where appreciable anti-competitive effects are estab- time and that the buyer should have the possibility to
lished, the question of a possible exemption under take over the equipment provided by the supplier at its
Article 53(3) arises as long as the supplier is not market asset value. This is without prejudice to the
dominant. For non-compete obligations, the efficiencies possibility, in case for example of a new point of
described in paragraph 116, points 1 (free riding distribution, to delay repayment for the first one or two
between suppliers), 4, 5 (hold-up problems) and 7 years until sales have reached a certain level.

C 122/34 EN Official Journal of the European Communities 23.5.2002

(157) The transfer of substantial know-how (efficiency 5 specific. Accordingly, it is unlikely that the conditions
in paragraph 116) usually justifies a non-compete for exemption are fulfilled.
obligation for the whole duration of the supply agreement, as for example in the context of franchising.

(158) Below the level of dominance the combination of noncompete with exclusive distribution may also justify the
(160) Example of quantity forcing:
non-compete obligation lasting the full length of the
agreement. In the latter case, the non-compete obligation is likely to improve the distribution efforts of the
exclusive distributor in his territory (see paragraphs 161
to 177).

A producer X with a 40 % market share sells 80 % of its
products through contracts which specify that the
reseller is required to purchase at least 75 % of its
(159) Example of non-compete: requirements for that type of product from X. In
return X is offering financing and equipment at 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
The market leader in a national market for an impulse have the possibility to terminate the contract with a sixconsumer product, with a market share of 40 %, sells month notice period if they repay the outstanding loan
most of its products (90 %) through tied retailers (tied and take over the equipment at its market asset value.
market share 36 %). The agreements oblige the retailers At the end of the five-year period the equipment
to purchase only from the market leader for at least becomes the property of the buyer. Most of the
four years. The market leader is especially strongly competing producers are small, twelve in total with the
represented in the more densely populated areas like biggest having a market share of 20 %, and engage in
the capital. Its competitors, 10 in number, of which similar contracts with different durations. The producers
some are only locally available, all have much smaller with market shares below 10 % often have contracts
market shares, the biggest having 12 %. These 10 com- with longer durations and with less generous terminpetitors together supply another 10 % of the market ation clauses. The contracts of producer X leave 25 %
via tied outlets. There is strong brand and product of requirements free to be supplied by competitors. In
differentiation in the market. The market leader has the the last three years, two new producers have entered the
strongest brands. It is the only one with regular national market and gained a combined market share of around
advertising campaigns. It provides its tied retailers with 8 %, partly by taking over the loans of a number of
special stocking cabinets for its product. resellers in return for contracts with these resellers.

The result on the market is that in total 46 % (36 % + Producer X’s tied market share is 24 % (0,75 × 0,80 ×
10 %) of the market is foreclosed to potential entrants 40 %). The other producers’ tied market share is around
and to incumbents not having tied outlets. Potential 25 %. Therefore, in total around 49 % of the market is
entrants find entry even more difficult in the densely foreclosed to potential entrants and to incumbents not
populated areas where foreclosure is even higher, having tied outlets for at least the first two years of the
although it is there that they would prefer to enter the supply contracts. The market shows that the resellers
market. In addition, owing to the strong brand and often have difficulty in obtaining loans from banks and
product differentiation and the high search costs relative are too small in general to obtain capital through other
to the price of the product, the absence of in-store inter- means like the issuing of shares. In addition, producer X
brand competition leads to an extra welfare loss for is able to demonstrate that concentrating his sales on a
consumers. The efficiencies of the outlet exclusivity, limited number of resellers allows him to plan his sales
which the market leader claims result from reduced better and to save transport costs. In the light of the
transport costs and a possible hold-up problem concern- 25 % non-tied part in the contracts of producer X, the
ing the stocking cabinets, are limited and do not real possibility for early termination of the contract, the
outweigh the negative effects on competition. The recent entry of new producers and the fact that around
efficiencies are limited, as the transport costs are linked half the resellers are not tied, the quantity forcing of
to quantity and not exclusivity and the stocking cabinets 75 % applied by producer X is likely to fulfil the
do not contain special know-how and are not brand conditions for exemption.

23.5.2002 EN Official Journal of the European Communities C 122/35

2.2. **Exclusive distribution** dealerships, i.e. when different suppliers appoint the
same exclusive distributor in a given territory, may
further increase the risk of collusion. If a dealer is
granted the exclusive right to distribute two or more
important competing products in the same territory,
inter-brand competition is likely to be substantially
restricted for those brands. The higher the cumulative
(161) In an exclusive distribution agreement the supplier
market share of the brands distributed by the multiple
agrees to sell his products only to one distributor for
dealer, the higher the risk of collusion and the more
resale in a particular territory. At the same time the
inter-brand competition will be reduced. Such cumulatdistributor is usually limited in his active selling into
ive effect situations may be a reason to withdraw the
other exclusively allocated territories. The possible
benefit of the Block Exemption when the market shares
competition risks are mainly reduced intra-brand comof the suppliers are below the threshold of the Block
petition and market partitioning, which may in particuExemption.
lar facilitate price discrimination. When most or all of
the suppliers apply exclusive distribution this may
facilitate collusion, both at the suppliers’ and distributors’ level.

(165) ‘Entry barriers’ that may hinder suppliers from creating
(162) Exclusive distribution is exempted by the Block Exemp- new distributors or finding alternative distributors are
tion when the supplier’s market share does not exceed less important in assessing the possible anti-competitive
30 %, even if combined with other non-hardcore vertical effects of exclusive distribution. Foreclosure of other
restraints, such as a non-compete obligation limited to suppliers does not arise as long as exclusive distribution
five years, quantity-forcing or exclusive purchasing. A is not combined with single branding.
combination of exclusive distribution and selective
distribution is only exempted by the Block Exemption
if active selling in other territories is not restricted.
Above the 30 % market share threshold, the following
guidance is provided for the assessment of exclusive
distribution in individual cases.

(166) Foreclosure of other distributors is not a problem if
the supplier which operates the exclusive distribution
system appoints a high number of exclusive distributors
in the same market and these exclusive distributors
(163) The market position of the supplier and his competitors are not restricted in selling to other non-appointed
is of major importance, as the loss of intra-brand distributors. Foreclosure of other distributors may howcompetition can only be problematic if inter-brand ever become a problem where there is ‘buying power’
competition is limited. The stronger the ‘position of the and market power downstream, in particular in the case
supplier’, the more serious is the loss of intra-brand of very large territories where the exclusive distributor
competition. Above the 30 % market share threshold becomes the exclusive buyer for a whole market. An
there may be a risk of a significant reduction of intra- example would be a supermarket chain which becomes
brand competition. In order to be exemptable, the loss the only distributor of a leading brand on a national
of intra-brand competition needs to be balanced with food retail market. The foreclosure of other distributors
real efficiencies. may be aggravated in the case of multiple exclusive
dealership. Such a case, covered by the Block Exemption
when the market share of each supplier is below 30 %,
may give reason for withdrawal of the Block Exemption.

(164) The ‘position of the competitors’ can have a dual
significance. Strong competitors will generally mean
that the reduction in intra-brand competition is 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 (167) ‘Buying power’ may also increase the risk of collusion
market share, capacity and distribution network, there on the buyers’ side when the exclusive distribution
is a risk of collusion. The loss of intra-brand competition arrangements are imposed by important buyers, posscan increase this risk, especially when several suppliers ibly located in different territories, on one or several
operate similar distribution systems. Multiple exclusive suppliers.

C 122/36 EN Official Journal of the European Communities 23.5.2002

(168) ‘Maturity of the market’ is important, as loss of intra- (172) The combination of exclusive distribution with exclusive
brand competition and price discrimination may be a purchasing increases the possible competition risks of
serious problem in a mature market but may be less reduced intra-brand competition and market partitionrelevant in a market with growing demand, changing ing which may in particular facilitate price discrimitechnologies and changing market positions. nation. Exclusive distribution already limits arbitrage by
customers, as it limits the number of distributors and
usually also restricts the distributors in their freedom
of active selling. Exclusive purchasing, requiring the
exclusive distributors to buy their supplies for the
particular brand directly from the manufacturer, eliminates in addition possible arbitrage by the exclusive
(169) ‘The level of trade’ is important as the possible negative distributors, who are prevented from buying from other
effects may differ between the wholesale and retail distributors in the system. This enhances the possibilities
level. Exclusive distribution is mainly applied in the for the supplier to limit intra-brand competition while
distribution of final goods and services. A loss of intra- applying dissimilar conditions of sale. The combination
brand competition is especially likely at the retail level of exclusive distribution and exclusive purchasing is
if coupled with large territories, since final consumers therefore unlikely to be exempted for suppliers with a
may be confronted with little possibility of choosing market share above 30 % unless there are very clear and
between a high price/high service and a low price/low substantial efficiencies leading to lower prices to all final
service distributor for an important brand. consumers. Lack of such efficiencies may also lead to
withdrawal of the Block Exemption where the market
share of the supplier is below 30 %.

(170) A manufacturer which chooses a wholesaler to be his (173) The ‘nature of the product’ is not very relevant to
exclusive distributor will normally do so for a larger assessing the possible anti-competitive effects of exclusterritory, such as a whole EEA State. As long as the ive distribution. It is, however, relevant when the issue
wholesaler can sell the products without limitation to of possible efficiencies is discussed, that is after an
downstream retailers there are not likely to be appreci- appreciable anti-competitive effect is established.
able anti-competitive effects if the manufacturer is not
dominant. A possible loss of intra-brand competition
at the wholesale level may be easily outweighed by
efficiencies obtained in logistics, promotion etc,
especially when the manufacturer is based in a different
(174) Exclusive distribution may lead to efficiencies where
country. Foreclosure of other wholesalers within that
investments by the distributors are required to protect
territory is not likely as a supplier with a market share
or build up the brand image. In general, the case for
above 30 % usually has enough bargaining power not
efficiencies is strongest for new products, for complex
to choose a less efficient wholesaler. The possible
products, for products whose qualities are difficult
risks for inter-brand competition of multiple exclusive
to judge before consumption (so-called experience
dealerships are however higher at the wholesale than at
products) or of which the qualities are difficult to judge
the retail level.
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.

(171) The combination of exclusive distribution with single
branding may add the problem of foreclosure of the
(175) Example of exclusive distribution at the wholesale level:
market to other suppliers, especially in case of a dense
network of exclusive distributors with small territories
or in case of a cumulative effect. This may necessitate
application of the principles set out above on single
branding. However, when the combination does not In the market for a consumer durable, A is the market
lead to significant foreclosure, the combination of leader. A sells its product through exclusive wholesalers.
exclusive distribution and single branding may be pro- Territories for the wholesalers correspond to the entire
competitive by increasing the incentive for the exclusive EEA State for small EEA States, and to a region for
distributor to focus his efforts on the particular brand. larger EEA States. These exclusive distributors take care
Therefore, in the absence of such a foreclosure effect, of sales to all the retailers in their territories. They do
the combination of exclusive distribution with non- not sell to final consumers. The wholesalers are in
compete is exemptable for the whole duration of the charge of promotion in their markets. This includes
agreement, particularly at the wholesale level. sponsoring of local events, but also explaining and

23.5.2002 EN Official Journal of the European Communities C 122/37

promoting the new products to the retailers in their producers sell their products in general through other
territories. Technology and product innovation are retailers, in particular because the exclusive distributors
evolving fairly quickly on this market, and pre-sale of the four largest suppliers show in general little
service to retailers and to final consumers plays an interest in selling less well-known and cheaper brands.
important role. The wholesalers are not required to There is strong brand and product differentiation on the
purchase all their requirements of the brand of sup- market. The four market leaders have large national
plier A from the producer himself, and arbitrage by advertising campaigns and strong brand images, wherewholesalers or retailers is practicable because the trans- as the fringe producers do not advertise their products
port costs are relatively low compared to the value of at the national level. The market is rather mature, with
the product. The wholesalers are not under a non- stable demand and no major product and technological
compete obligation. Retailers also sell a number of innovation. The product is relatively simple.
brands of competing suppliers, and there are no exclusive or selective distribution agreements at the retail
level. On the EEA market of sales to wholesalers A has
around 50 % market share. Its market share on the In such an oligopolistic market, there is a risk of
various national retail markets varies between 40 % and collusion between the four market leaders. This risk
60 %. A has between 6 and 10 competitors on every is increased through multiple dealerships. Intra-brand
national market: B, C and D are its biggest competitors competition is limited by the territorial exclusivity.
and are also present on each national market, with Competition between the four leading brands is reduced
market shares varying between 20 % and 5 %. The at the retail level, since one retailer fixes the price of all
remaining producers are national producers, with small- four brands in each territory. The multiple dealership
er market shares. B, C and D have similar distribution implies that, if one producer cuts the price for its brand,
networks, whereas the local producers tend to sell their the retailer will not be eager to transmit this price cut to
products directly to retailers. the final consumer as it would reduce its sales and
profits made with the other brands. Hence, producers
have a reduced interest in entering into price competition with one another. Inter-brand price competition
On the wholesale market described above, the risk of exists mainly with the low brand image goods of the
reduced intra-brand competition and price discrimi- fringe producers. The possible efficiency arguments for
nation is low. Arbitrage is not hindered, and the absence (joint) exclusive distributors are limited, as the product
of intra-brand competition is not very relevant at the is relatively simple, the resale does not require any
wholesale level. At the retail level neither intra- nor specific investments or training and advertising is
inter-brand competition are hindered. Moreover, inter- mainly carried out at the level of the producers.
brand competition is largely unaffected by the exclusive
arrangements at the wholesale level. This makes it likely,
if anti-competitive effects exist, that the conditions for
exemption are fulfilled. Even though each of the market leaders has a market
share below the threshold, exemption under
Article 53(3) may not be justified and withdrawal of the
Block Exemption may be necessary.

(176) Example of multiple exclusive dealerships in an oligopolistic market:

(177) Example of exclusive distribution combined with exclusive purchasing:

In a national market for a final product, there are four
market leaders, who each have a market share of around
20 %. These four market leaders sell their product Manufacturer A is the EEA market leader for a bulky
through exclusive distributors at the retail level. Retailers consumer durable, with a market share of between 40 %
are given an exclusive territory which corresponds to and 60 % in most national retail markets. In every EEA
the town in which they are located or a district of the State, it has about seven competitors with much smaller
town for large towns. In most territories, the four market shares, the largest of these competitors having a
market leaders happen to appoint the same exclusive market share of 10 %. These competitors are present on
retailer (‘multiple dealership’), often centrally located only one or two national markets. A sells its product
and rather specialised in the product. The remaining through its national subsidiaries to exclusive distributors
20 % of the national market is composed of small local at the retail level, which are not allowed to sell actively
producers, the largest of these producers having a into each other’s territories. In addition, the retailers are
market share of 5 % on the national market. These local obliged to purchase manufacturer A’s products

C 122/38 EN Official Journal of the European Communities 23.5.2002

exclusively from the national subsidiary of manufac- (179) Exclusive customer allocation is exempted by the Block
turer A in their own country. The retailers selling the Exemption when the supplier’s market share does not
brand of manufacturer A are the main resellers of exceed the 30 % market share threshold, even if
that type of product in their territory. They handle combined with other non-hardcore vertical restraints
competing brands, but with varying degrees of success such as non-compete, quantity-forcing or exclusive
and enthusiasm. A applies price differences of 10 % to purchasing. A combination of exclusive customer allo15 % between markets and smaller differences within cation and selective distribution is normally hardcore,
markets. This is translated into smaller price differences as active selling to end-users by the appointed distribuat the retail level. The market is relatively stable on the tors is usually not left free. Above the 30 % market share
demand and the supply side, and there are no significant threshold, the guidance provided in paragraphs 161 to
technological changes. 177 applies mutatis mutandis to the assessment of
exclusive customer allocation, subject to the following
specific remarks.

In these markets, the loss of intra-brand competition
results not only from the territorial exclusivity at the
retail level but is aggravated by the exclusive purchasing
obligation imposed on the retailers. The exclusive
purchase obligation helps to keep markets and territories separate by making arbitrage between the exclusive
retailers impossible. The exclusive retailers also cannot (180) The allocation of customers normally makes arbitrage
sell actively into each other’s territory and in practice by the customers more difficult. In addition, as each
tend to avoid delivering outside their own territory. This appointed distributor has his own class of customers,
renders price discrimination possible. Arbitrage by non-appointed distributors not falling within such a
consumers or independent traders is limited due to the class may find it difficult to obtain the product. This will
bulkiness of the product. reduce possible arbitrage by non-appointed distributors.
Therefore, above the 30 % market share threshold of
the Block Exemption exclusive customer allocation is
unlikely to be exemptable unless there are clear and
The possible efficiency arguments of this system, linked substantial efficiency effects.
to economies of scale in transport and promotion
efforts at the retailers’ level, are unlikely to outweigh the
negative effect of price discrimination and reduced
intra-brand competition. Consequently, it is unlikely
that the conditions for exemption are fulfilled.

(181) Exclusive customer allocation is mainly applied 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.

2.3. **Exclusive customer allocation**

(182) Exclusive customer allocation may lead to efficiencies,
especially when the distributors are required to make
investments in for instance specific equipment, skills or
(178) In an exclusive customer allocation agreement, the know-how to adapt to the requirements of their class of
supplier agrees to sell his products only to one distribu- customers. The depreciation period of these investments
tor for resale to a particular class of customers. At the indicates the justified duration of an exclusive customer
same time, the distributor is usually limited in his allocation system. In general the case is strongest for
active selling to other exclusively allocated classes of new or complex products and for products requiring
customers. The possible competition risks are mainly adaptation to the needs of the individual customer.
reduced intra-brand competition and market partition- Identifiable differentiated needs are more likely for
ing, which may in particular facilitate price discrimi- intermediate products, that is products sold to different
nation. When most or all of the suppliers apply exclusive types of professional buyers. Allocation of final concustomer allocation, this may facilitate collusion, both sumers is unlikely to lead to any efficiencies and is
at the suppliers’ and the distributors’ level. therefore unlikely to be exempted.

23.5.2002 EN Official Journal of the European Communities C 122/39

(183) Example of exclusive customer allocation: (185) The possible competition risks are a reduction in intrabrand competition and, especially in case of cumulative
effect, foreclosure of certain type(s) of distributors and
facilitation of collusion between suppliers or buyers. To
assess the possible anti-competitive effects of selective
A company has developed a sophisticated sprinkler
distribution under Article 53(1), a distinction needs to
installation. The company has currently a market share
be made between purely qualitative selective distribution
of 40 % on the market for sprinkler installations. When
and quantitative selective distribution. Purely qualitative
it started selling the sophisticated sprinkler it had a
selective distribution selects dealers only on the basis of
market share of 20 % with an older product. The
objective criteria required by the nature of the product
installation of the new type of sprinkler depends on the
such as training of sales personnel, the service provided
type of building that it is installed in and on the use of
at the point of sale, a certain range of the products
the building (office, chemical plant, hospital etc.). The
being sold etc ( [37] ). The application of such criteria does
company has appointed a number of distributors to sell
not put a direct limit on the number of dealers. Purely
and install the sprinkler installation. Each distributor
qualitative selective distribution is in general considered
needed to train its employees for the general and specific
to fall outside Article 53(1) for lack of anti-competitive
requirements of installing the sprinkler installation
effects, provided that three conditions are satisfied. First,
for a particular class of customers. To ensure that
the nature of the product in question must necessitate a
distributors would specialise the company assigned to
each distributor an exclusive class of customers and selective distribution system, in the sense that such a
system must constitute a legitimate requirement, having
prohibited active sales to each other’s exclusive cusregard to the nature of the product concerned, to
tomer classes. After five years, all the exclusive distribupreserve its quality and ensure its proper use. Secondly,
tors will be allowed to sell actively to all classes of
resellers must be chosen on the basis of objective criteria
customers, thereby ending the system of exclusive
of a qualitative nature which are laid down uniformly
customer allocation. The supplier may then also start
for all potential resellers and are not applied in a
selling to new distributors. The market is quite dynamic,
discriminatory manner. Thirdly, the criteria laid down
with two recent entries and a number of technological
developments. Competitors, with market shares must not go beyond what is necessary ( [38] ). Quantitative
selective distribution adds further criteria for selection
between 25 % and 5 %, are also upgrading their
that more directly limit the potential number of dealers
products.
by, for instance, requiring minimum or maximum sales,
by fixing the number of dealers, etc.

As the exclusivity is of limited duration and helps to
ensure that the distributors may recoup their 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 for exemption are
likely to be fulfilled.

(186) Qualitative and quantitative selective distribution is
2.4. **Selective distribution** exempted by the Block Exemption up to 30 % market
share, 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 exempts selective distribution
(184) Selective distribution agreements, like exclusive distri- regardless of the nature of the product concerned.
bution agreements, restrict on the one hand the number However, where the nature of the product does not
of authorised distributors and on the other the possibilit- require selective distribution, such a distribution system
ies of resale. The difference with exclusive distribution
is that the restriction of the number of dealers does not
depend on the number of territories but on selection
criteria linked in the first place to the nature of the ( [37] ) See for example judgment of the Court of First Instance in Case
T-88/92 Groupement d’achat E [´] douard Leclerc v Commission
product. Another difference with exclusive distribution

[1996] ECR II-1961.
is that the restriction on resale is not a restriction on
( [38] ) See judgments of the Court of Justice of the European Communiactive selling to a territory but a restriction on any sales
ties in Case 31/80 L’Oréal v PVBA [1980] ECR 3775, parato non-authorised distributors, leaving only appointed graphs 15 and 16; Case 26/76 Metro I [1977] ECR 1875,
dealers and final customers as possible buyers. Selective paragraphs 20 and 21; Case 107/82 AEG [1983] ECR 3151,
distribution is almost always used to distribute branded paragraph 35; and of the Court of First Instance in Case T-19/91
final products. Vichy v Commission [1992] ECR II-415, paragraph 65.

C 122/40 EN Official Journal of the European Communities 23.5.2002

does not generally bring about sufficient efficiency (189) Where the Block Exemption applies to individual
enhancing effects to counterbalance a significant networks of selective distribution, withdrawal of the
reduction in intra-brand competition. If appreciable block exemption or disapplication of the Block
anti-competitive effects occur, the benefit of the Block Exemption may be considered in case of cumulative
Exemption is likely to be withdrawn. In addition, the effects. However, a cumulative effect problem is
following guidance is provided for the assessment of unlikely to arise when the share of the market covered
selective distribution in individual cases which are not by selective distribution is below 50 %. Also, no
covered by the Block Exemption or in the case of problem is likely to arise where the market coverage
cumulative effects resulting from parallel networks of ratio exceeds 50 %, but the aggregate market share of
selective distribution. 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 not applying selective
distribution, the less likely the foreclosure of other
distributors. If all five largest suppliers apply selective
distribution, competition concerns may in particular
(187) The market position of the supplier and his competitors arise with respect to those agreements that apply
is of central importance in assessing possible anti- quantitative selection criteria by directly limiting the
competitive effects, as the loss of intra-brand compe- number of authorised dealers. The conditions of
tition can only be problematic if inter-brand compe- Article 53(3) are in general unlikely to be fulfilled if
tition is limited. The stronger the position of the the selective distribution systems at issue prevent
supplier, the more problematic is the loss of intra-brand access to the market by new distributors capable of
competition. Another important factor is the number adequately selling the products in question, especially
of selective distribution networks present in the same price discounters, thereby limiting distribution to the
market. Where selective distribution is applied by only advantage of certain existing channels and to the
one supplier in the market which is not a dominant detriment of final consumers. More indirect forms of
undertaking, quantitative selective distribution does not quantitative selective distribution, resulting for instance
normally create net negative effects provided that the from the combination of purely qualitative selection
contract goods, having regard to their nature, require criteria with the requirement imposed on the dealers
the use of a selective distribution system and on to achieve a minimum amount of annual purchases,
condition that the selection criteria applied are necessary are less likely to produce net negative effects, if such
to ensure efficient distribution of the goods in question. an amount does not represent a significant proportion
The reality, however, seems to be that selective distri- of the dealer’s total turnover achieved with the type
bution is often applied by a number of the suppliers in of products in question and it does not go beyond
a given market. what is necessary for the supplier to recoup his
relationship-specific investment and/or realise 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.

(188) 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- (190) ‘Entry barriers’ are mainly of interest in the case of
authorised dealers in selective distribution. This is foreclosure of the market to non-authorised dealers. In
designed to give selective distribution systems a closed general entry barriers will be considerable as selective
character, making it impossible for non-authorised distribution is usually applied by manufacturers of
dealers to obtain supplies. This makes selective distri- branded products. It will in general take time and
bution particularly well suited to avoid pressure by price considerable investment for excluded retailers to launch
discounters on the margins of the manufacturer, as well their own brands or obtain competitive supplies elseas on the margins of the authorised dealers. where.

23.5.2002 EN Official Journal of the European Communities C 122/41

(191) ‘Buying power’ may increase the risk of collusion (195) Selective distribution may be efficient when it leads to
between dealers and thus appreciably change the analy- savings in logistical costs due to economies of scale in
sis of possible anti-competitive effects of selective transport and this may happen irrespective of the nature
distribution. Foreclosure of the market to more efficient of the product (efficiency 6 in paragraph 116). However,
retailers may especially result where a strong dealer this is usually only a marginal efficiency in selective
organisation imposes selection criteria on the supplier distribution systems. To help solve a free-rider problem
aimed at limiting distribution to the advantage of its between the distributors (efficiency 1 in paragraph 116)
members. or to help create a brand image (efficiency 8 in
paragraph 116), the nature of the product is very
relevant. In general the case is strongest for new
products, for complex products, for products of which
the qualities are difficult to judge before consumption
(so-called experience products) or of which the qualities
are difficult to judge even after consumption (so-called
(192) Article 5(c) of the Block Exemption provides that the credence products). The combination of selective and
supplier may not impose an obligation causing the exclusive distribution is likely to infringe Article 53 if it
authorised dealers, either directly or indirectly, not to is applied by a supplier whose market share exceeds
sell the brands of particular competing suppliers. This 30 % or in case of cumulative effects, even though
condition aims specifically at avoiding horizontal col- active sales between the territories remain free. Such a
lusion to exclude particular brands through the creation combination may exceptionally fulfil the conditions of
of a selective club of brands by the leading suppliers. Article 53(3) if it is indispensable to protect substantial
This kind of obligation is unlikely to be exemptable and relationship-specific investments made by the authwhen the CR5 is equal to or above 50 %, unless none orised dealers (efficiency 4 in paragraph 116).
of the suppliers imposing such an obligation belongs to
the five largest suppliers in the market.

(196) To ensure that the least anti-competitive restraint is
chosen, it is relevant to see whether the same efficiencies
can be obtained at a comparable cost by for instance
(193) Foreclosure of other suppliers is normally not a problem
service requirements alone.
as long as other suppliers can use the same distributors,
i.e. as long as the selective distribution system is not
combined with single branding. In the case of a 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
(197) Example of quantitative selective distribution:
principles set out above on single branding apply.
Where selective distribution is not combined with a
non-compete obligation, foreclosure of the market to
competing suppliers may still be a problem when the
leading suppliers apply not only purely qualitative
selection criteria, but impose on their dealers certain In a market for consumer durables, the market leader
additional obligations such as the obligation to reserve (brand A), with a market share of 35 %, sells its product
a minimum shelf-space for their products or to ensure to final consumers through a selective distribution
that the sales of their products by the dealer achieve a network. There are several criteria for admission to the
minimum percentage of the dealer’s total turnover. Such network: the shop must employ trained staff and
a problem is unlikely to arise if the share of the market provide pre-sales services, there must be a specialised
covered by selective distribution is below 50 % or, area in the shop devoted to the sales of the product and
where this coverage ratio is exceeded, if the market similar hi-tech products, and the shop is required to sell
share of the five largest suppliers is below 50 %. a wide range of models of the supplier and to display
them in an attractive manner. Moreover, the number 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 this
market. Its largest competitors, B, C and D, have market
(194) Maturity of the market is important, as loss of intra- shares of respectively 25, 15 and 10 %, whilst the other
brand competition and possible foreclosure of suppliers producers have smaller market shares. A is the only
or dealers may be a serious problem in a mature market manufacturer to use selective distribution. The selective
but is less relevant in a market with growing demand, distributors of brand A always handle a few competing
changing technologies and changing market positions. brands. However, competing brands are also widely

C 122/42 EN Official Journal of the European Communities 23.5.2002

sold in shops which are not member of A’s selective the supply and on the demand side, and there is strong
distribution network. Channels of distribution are vari- brand image and product differentiation. The five
ous: for instance, brands B and C are sold in most of A’s market leaders have strong brand images, acquired
selected shops, but also in other shops providing a high through advertising and sponsoring, whereas the two
quality service and in hypermarkets. Brand D is mainly smaller manufacturers have a strategy of cheaper prodsold in high service shops. Technology is evolving quite ucts, with no strong brand image.
rapidly in this market, and the main suppliers maintain
a strong quality image for their products through
advertising.
In this market, access by general price discounters 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
In this market, the coverage ratio of selective distriand pre-sales services rule out most price discounters
bution is 35 %. Inter-brand competition is not directly from the network of authorised dealers. As a conseaffected by the selective distribution system of A. Intraquence, consumers have no choice but to buy the five
brand competition for brand A may be reduced, but
leading brands in high service/high price shops. This
consumers have access to low service/low price retailers
leads to reduced inter-brand competition between the
for brands B and C, which have a comparable quality
five leading brands. The fact that the two smallest
image to brand A. Moreover, access to high service
brands can be bought in low service/low price shops
retailers for other brands is not foreclosed, since there
does not compensate for this, because the brand image
is no limitation on the capacity of selected distributors of the five market leaders is much better. Inter-brand
to sell competing brands, and the quantitative limitation
competition is also limited through multiple dealership.
on the number of retailers for brand A leaves other high
Even though there exists some degree of intra-brand
service retailers free to distribute competing brands. In
competition and the number of retailers is not directly
this case, in view of the service requirements and the
limited, the criteria for admission are strict enough to
efficiencies these are likely to provide and the limited
lead to a small number of retailers for the five leading
effect on intra-brand competition the conditions for
brands in each territory.
exempting A’s selective distribution network are likely
to be fulfilled.

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
(198) Example of selective distribution with cumulative
will have to be withdrawn because of its cumulative
effects:
effects resulting in less choice and higher prices for

consumers.

On a market for a particular sports article, there are
seven manufacturers, whose respective market shares
are: 25 %, 20 %, 15 %, 15 %, 10 %, 8 % and 7 %. The
five largest manufacturers distribute their products
through quantitative selective distribution, whilst the
2.5. **Franchising**
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: shops are required to have trained
personnel and to provide pre-sale services, there must
be a specialised area in the shop devoted to the sales of (199) Franchise agreements contain licences of intellectual
the article and a minimum size for this area is specified. property rights relating in particular to trade marks or
The shop is required to sell a wide range of the brand in signs and know-how for the use and distribution of
question and to display the article in an attractive goods or services. In addition to the licence of IPRs, the
manner, the shop must be located in a commercial franchisor usually provides the franchisee during the
street, and this type of article must represent at least life of the agreement with commercial or technical
30 % of the total turnover of the shop. In general, the assistance. The licence and the assistance are integral
same dealer is appointed selective distributor for all five components of the business method being franchised.
brands. The two brands which do not use selective The franchisor is in general paid a franchise fee by the
distribution usually sell through less specialised retailers franchisee for the use of the particular business method.
with lower service levels. The market is stable, both on Franchising may enable the franchisor to establish,

23.5.2002 EN Official Journal of the European Communities C 122/43

with limited investments, a uniform network for the also produces the colouring liquids. The quality and
distribution of his products. In addition to the provision freshness of the liquid is of vital importance to producof the business method, franchise agreements usually ing good sweets. The manufacturer made a success of
contain a combination of different vertical restraints its sweets through a number of own retail outlets all
concerning the products being distributed, in particular operating under the same trade name and with the
selective distribution and/or non-compete and/or uniform fun image (style of lay-out of the shops,
exclusive distribution or weaker forms thereof. 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
(200) The coverage by the Block Exemption of the licensing franchise fee, contribute to common advertising and
ensure the confidentiality of the operating manual
of IPRs contained in franchise agreements is dealt with
prepared by the franchisor. In addition, the franchisees
in paragraphs 23 to 45. As for the vertical restraints on
are only allowed to sell from the agreed premises, are
the purchase, sale and resale of goods and services
only allowed to sell to end users or other franchisees
within a franchising arrangement, such as selective
and are not allowed to sell other sweets. The franchisor
distribution, non-compete or exclusive distribution, the
is obliged not to appoint another franchisee nor operate
Block Exemption applies up to the 30 % market share
a retail outlet himself in a given contract territory. The
threshold for the franchisor or the supplier designated
franchisor is also under the obligation to update and
by the franchisor ( [39] ). The guidance provided earlier in
further develop its products, the business outlook and
respect of these types of restraints applies also to
the operating manual and make these improvements
franchising, subject to the following specific remarks:
available to all retail franchisees. The franchise agreements are concluded for a duration of 10 years.

1) In line with general rule 8 (see paragraph 119), the
more important the transfer of know-how, the
more easily the vertical restraints fulfil the conditions for exemption.

Sweet retailers buy their sweets on a national market
from either national producers that cater for national
2) A non-compete obligation on the goods or services tastes or from wholesalers which import sweets from
purchased by the franchisee falls outside foreign producers in addition to selling products from
Article 53(1) when the obligation is necessary to national producers. On this market the franchisor’s
maintain the common identity and reputation of products compete with other brands of sweets. The
the franchised network. In such cases, the duration franchisor has a market share of 30 % on the market
of the non-compete obligation is also irrelevant for sweets sold to retailers. Competition comes from a
under Article 53(1), as long as it does not exceed number of national and international brands, sometimes
the duration of the franchise agreement itself. 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. On the market for machines
for colouring food the franchisor’s market share is
below 10 %.
(201) Example of franchising:

A manufacturer has developed a new format for selling
sweets in so-called fun shops where the sweets can be
coloured specially on demand from the consumer. The
manufacturer of the sweets has also developed the Most of the obligations contained in the franchise
machines to colour the sweets. The manufacturer agreements can be assessed as being necessary to protect
the intellectual property rights or maintain the common
identity and reputation of the franchised network and
fall outside Article 53(1). The restrictions on selling
(contract territory and selective distribution) provide an
incentive to the franchisees to invest in the colouring
machine and the franchise concept and, if not necessary
( [39] ) See also judgment of the Court of Justice of the European
Communities in Case 107/82 AEG [1983] ECR 3151, para- for, at least help to maintain the common identity,
graph 35; and of the Court of First Instance in Case T-19/91 thereby offsetting the loss of intra-brand competition.
Vichy v Commission [1992] ECR II-415, paragraph 65. See also The non-compete clause excluding other brands of
paragraphs 89 to 95, in particular paragraph 95. sweets from the shops for the full duration of the

C 122/44 EN Official Journal of the European Communities 23.5.2002

agreements does allow the franchisor to keep the outlets exceeds 30 %. In such cases withdrawal of the Block
uniform and prevent competitors from benefiting from Exemption may be required. Where a company is
its trade name. It does not lead to any serious foreclosure dominant on the downstream market, any obligation to
in view of the great number of potential outlets available supply the products only or mainly to the dominant
to other sweet producers. The franchise agreements of buyer may easily have significant anti-competitive
this franchisor are likely to fulfil the conditions for effects.
exemption under Article 53(3) in as far as the obligations contained therein fall under Article 53(1).

(205) It is not only the market position of the buyer on the
upstream and downstream market that is important but
2.6. **Exclusive supply** also the extent to and the duration for which he applies
an exclusive supply obligation. The higher the tied
supply share, and the longer the duration of the
exclusive supply, the more significant the foreclosure is
likely to be. Exclusive supply agreements shorter than
five years entered into by non-dominant companies
(202) Exclusive supply as defined in Article 1(c) of the Block usually require a balancing of pro- and anti-competitive
Exemption is the extreme form of limited distribution effects, while agreements lasting longer than five years
in as far as the limit on the number of buyers is are for most types of investments not considered
concerned: in the agreement it is specified that there is necessary to achieve the claimed efficiencies or the
only one buyer inside the EEA to which the supplier efficiencies are not sufficient to outweigh the foreclosure
may sell a particular final product. For intermediate effect of such long-term exclusive supply agreements.
goods or services, exclusive supply means that there is
only one buyer inside the EEA or that there is only one
buyer inside the EEA for the purposes of a specific use.
For intermediate goods or services, exclusive supply is
often referred to as industrial supply.

(206) The market position of the competing buyers on the
upstream market is important as it is only likely that
competing buyers will be foreclosed for anti-competitive
(203) Exclusive supply as defined in Article 1(c) of the reasons, i.e. to increase their costs, if they are signifiBlock Exemption is exempted by Article 2(1) read in cantly smaller than the foreclosing buyer.
conjunction with Article 3(2) of the Block Exemption
up to 30 % market share of the buyer, even if combined
with other non-hardcore vertical restraints such as
non-compete. Above the market share threshold the
following guidance is provided for the assessment of
exclusive supply in individual cases.
Foreclosure of competing buyers is not very likely where
these competitors have similar buying power and can
offer the suppliers similar sales possibilities. In such a
case, foreclosure could only occur for potential entrants,
(204) The main competition risk of exclusive supply is who may not be able to secure supplies when a number
foreclosure of other buyers. The market share of the of major buyers all enter into exclusive supply contracts
buyer on the upstream purchase market is obviously with the majority of suppliers on the market. Such a
important for assessing the ability of the buyer to cumulative effect may lead to withdrawal of the benefit
‘impose’ exclusive supply which forecloses other buyers of the Block Exemption.
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 can however be expected
when the market share of the buyer on the downstream (207) Entry barriers at the supplier level are relevant to
supply market as well as the upstream purchase market establishing whether there is real foreclosure. In as far
exceeds 30 %. Where the market share of the buyer on as it is efficient for competing buyers to provide the
the upstream market does not exceed 30 %, significant goods or services themselves via upstream vertical
foreclosure effects may still result, especially when the integration, foreclosure is unlikely to be a real problem.
market share of the buyer on his downstream market However, often there are significant entry barriers.

23.5.2002 EN Official Journal of the European Communities C 122/45

(208) Countervailing power of suppliers is relevant, as (212) In the case of a hold-up problem and even more so in
important suppliers will not easily allow themselves to the case of scale economies in distribution, quantity
be cut off from alternative buyers. Foreclosure is forcing on the supplier, such as minimum supply
therefore mainly a risk in the case of weak suppliers and requirements, could well be a less restrictive alternative.
strong buyers. In the case of strong suppliers the
exclusive supply may be found in combination with
non-compete. The combination with non-compete
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 i.e. reciprocal exclusivity
in industrial supply agreements is usually justified below (213) Example of exclusive supply:
the level of dominance.

On a market for a certain type of components (intermediate product market) supplier A agrees with buyer
B to develop, with his own know-how and considerable
(209) Lastly, the level of trade and the nature of the product
investment in new machines and with the help of
are relevant for foreclosure. Foreclosure is less likely in
specifications supplied by buyer B, a different version of
the case of an intermediate product or where the
the component. B will have to make considerable
product is homogeneous. Firstly, a foreclosed manufacinvestments to incorporate the new component. It is
turer that uses a certain input usually has more flexibility
agreed that A will supply the new product only to buyer
to respond to the demand of his customers than the
B for a period of five years from the date of first entry
wholesaler/retailer has in responding to the demand of
on the market. B is obliged to buy the new product only
the final consumer for whom brands may play an
from A for the same period of five years. Both A and B
important role. Secondly, the loss of a possible source
can continue to sell and buy respectively other versions
of supply matters less for the foreclosed buyers in the
of the component elsewhere. The market share of buyer
case of homogeneous products than in the case of
B on the upstream component market and on the
a heterogeneous product with different grades and
downstream final goods market is 40 %. The market
qualities.
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
(210) For homogeneous intermediate products, anti-competi- likely to fulfil the conditions for exemption in view of
tive effects are likely to be exemptable below the the efficiencies and the limited foreclosure effect. Other
level of dominance. For final branded products or buyers are foreclosed from a particular version of a
differentiated intermediate products where there are product of a supplier with 35 % market share and there
entry barriers, exclusive supply may have appreciable are other component suppliers that could develop
anti- competitive effects where the competing buyers similar new products. The foreclosure of part of buyer
are relatively small compared to the foreclosing buyer, B’s demand to other suppliers is limited to maximum
even if the latter is not dominant on the downstream 40 % of the market.
market.

(214) Exclusive supply is based on a direct or indirect
(211) Where appreciable anti-competitive effects are estab- obligation causing the supplier only to sell to one buyer.
lished, an exemption under Article 53(3) is possible as Quantity forcing on the supplier is based on incentives
long as the company is not dominant. Efficiencies agreed between the supplier and the buyer that make
can be expected in the case of a hold-up problem the former concentrate his sales mainly with one buyer.
(paragraph 116, points 4 and 5), and this is more likely Quantity forcing on the supplier may have similar but
for intermediate products than for final products. Other more mitigated effects than exclusive supply. The
efficiencies are less likely. Possible economies of scale in assessment of quantity forcing will depend on the
distribution (paragraph 116, point 6) do not seem likely degree of foreclosure of other buyers on the upstream
to justify exclusive supply. market.

C 122/46 EN Official Journal of the European Communities 23.5.2002

2.7. **Tying** may also lead to higher entry barriers both on the
market of the tying and on the market of the tied
product.

(215) Tying exists when the supplier makes the sale of one
product conditional upon the purchase of another
distinct product from the supplier or someone designated by the latter. The first product is referred to as the
(218) Tying is exempted by Article 2(1) read in conjunction
tying product and the second is referred to as the tied
with Article 3 of the Block Exemption when the market
product. If the tying is not objectively justified by the
share of the supplier on both the market of the tied
nature of the products or commercial usage, such
product and the market of the tying product does not
practice may constitute an abuse within the meaning of
exceed 30 %. It may be combined with other nonArticle 54 ( [40] ). Article 53 may apply to horizontal
hardcore vertical restraints such as non-compete or
agreements or concerted practices between competing
quantity forcing in respect of the tying product, or
suppliers which make the sale of one product conexclusive purchasing. Above the market share threshold
ditional upon the purchase of another distinct product.
the following guidance is provided for the assessment
Tying may also constitute a vertical restraint falling
of tying in individual cases.
under Article 53 where it results in a single branding
type of obligation (see paragraphs 138 to 160) for the
tied product. Only the latter situation is dealt with in
these Guidelines.

(219) The market position of the supplier on the market of
the tying product is obviously of main importance to
(216) What is to be considered as a distinct product is assess possible anti-competitive effects. In general this
determined first of all by the demand of the buyers. type of agreement is imposed by the supplier. The
Two products are distinct if, in the absence of tying, importance of the supplier on the market of the tying
from the buyers’ perspective, the products are purchased product is the main reason why a buyer may find it
by them on two different markets. For instance, since difficult to refuse a tying obligation.
customers want to buy shoes with laces, it has become
commercial usage for shoe manufacturers to supply
shoes with laces. Therefore, the sale of shoes with laces
is not a tying practice. Often combinations have become
accepted practice because the nature of the product
makes it technically difficult to supply one product (220) To assess the supplier’s market power, the market
without the supply of another product. position of his competitors on the market of the tying
product is important. As long as his competitors are
sufficiently numerous and strong, no anti-competitive
effects can be expected, as buyers have sufficient
(217) The main negative effect of tying on competition is alternatives to purchase the tying product without the
possible foreclosure on the market of the tied product. tied product, unless other suppliers are applying similar
Tying means that there is at least a form of quantity- tying. In addition, entry barriers on the market of the
forcing on the buyer in respect of the tied product. tying product are relevant to establish the market
Where in addition a non-compete obligation is agreed position of the supplier. When tying is combined with
in respect of the tied product, this increases the possible a non-compete obligation in respect of the tying
foreclosure effect on the market of the tied product. product, this considerably strengthens the position of
Tying may also lead to supra-competitive prices, the supplier.
especially in three situations. Firstly, when the tying and
tied product are partly substitutable for the buyer.
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
(221) Buying power is relevant, as important buyers will not
sale of photocopying machines (metering). Thirdly,
easily be forced to accept tying without obtaining at
when in the case of long-term contracts or in the case
least part of the possible efficiencies. Tying not based
of after-markets with original equipment with a long
on efficiency is therefore mainly a risk where buyers do
replacement time, it becomes difficult for the customers
not have significant buying power.
to calculate the consequences of the tying. Lastly, tying

( [40] ) Judgment of the Court of Justice of the European Communities (222) Where appreciable anti-competitive effects are estabin Case C-333/94 P Tetrapak v Commission [1996] ECR I-5951, lished, the question of a possible exemption under
paragraph 37. Article 53(3) arises as long as the company is not

23.5.2002 EN Official Journal of the European Communities C 122/47

dominant. Tying obligations may help to produce (224) Withdrawal of the Block Exemption is likely where no
efficiencies arising from joint production or joint efficiencies result from tying or where such efficiencies
distribution. Where the tied product is not produced are not passed on to the consumer (see paragraph 222).
by the supplier, an efficiency may also arise from the Withdrawal is also likely in the case of a cumulative
supplier buying large quantities of the tied product. effect where a majority of the suppliers apply similar
For tying to be exemptable, it must, however, be tying arrangements without the possible efficiencies
shown that at least part of these cost reductions are being transmitted at least in part to consumers.
passed on to the consumer. Tying is therefore
normally not exemptable when the retailer is able to
obtain, on a regular basis, supplies of the same or
equivalent products on the same or better 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
2.8. **Recommended and maximum resale prices**
standardisation (see efficiency 8 in paragraph 116).
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 (225) The practice of recommending a resale price to a reseller
designated by the latter. The requirements concerning or requiring the reseller to respect a maximum resale
minimum quality standards would not normally fall price is — subject to the comments in paragraphs 46 to
within Article 53(1). Where the supplier of the tying 56 concerning RPM — covered by the Block Exemption
product imposes on the buyer the suppliers from when the market share of the supplier does not exceed
which the buyer must purchase the tied product, for the 30 % threshold. For cases above the market share
instance because the formulation of minimum quality threshold and for cases of withdrawal of the Block
standards is not possible, this may also fall outside Exemption the following guidance is provided.
Article 53(1), especially where the supplier of the
tying product does not derive a direct (financial)
benefit from designating the suppliers of the tied
product.

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

(227) The most important factor for assessing possible anticompetitive 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.
(223) The effect of supra-competitive prices is considered
Under such circumstances the practice of imposing a
anti-competitive in itself. The effect of foreclosure
maximum resale price or recommending a resale price
depends on the tied percentage of total sales on the
may infringe Article 53(1) if it leads to a uniform price
market of the tied product. On the question of what
level.
can be considered appreciable foreclosure under
Article 53(1), the analysis for single branding can be
applied. Above the 30 % market share threshold
exemption of tying is unlikely, unless there are clear
efficiencies that are transmitted, at least in part, to
consumers. Exemption is even less likely when tying (228) The second most important factor for assessing possible
is combined with non-compete, either in respect of anti-competitive effects of the practice of maximum and
the tied or in respect of the tying product. recommended prices is the market position of

C 122/48 EN Official Journal of the European Communities 23.5.2002

competitors. Especially in a narrow oligopoly, the 2.9. **Other vertical restraints**
practice of using or publishing maximum or recommended prices may facilitate collusion between the
suppliers by exchanging information on the preferred (229) The vertical restraints and combinations described
price level and by reducing the likelihood of lower resale above are only a selection. There are other restraints
prices. The practice of imposing a maximum resale and combinations for which no direct guidance is
price or recommending resale prices leading to such provided here. They will however be treated according
effects may also infringe Article 53(1). to the same principles, with the help of the same general
rules and with the same emphasis on the effect on the
market.