Vertical agreements between enterprises competition law and new European perspectives

At the European level, the Commission, together with the guarantor authorities of the individual member states, directly enforces the EU competition rules (Articles 101 -106 of the Treaty on the Functioning of the European Union – TFEU), ensuring fair and equal competition among all companies and thus contributing to a better functioning of the EU markets1 . Indeed, it is important to reiterate how within each and every act of commercial exchange there is the interest of the entire community to ensure that a custom of honesty, fairness and equity is observed in the conduct of trade. Before delving into the’analysis of the new European regulatory framework, it is necessary to take a look at the context in which the new Regulation 720/20222 is intended to be placed.

Between economic potential and unfair competition

Article 101(1) TFEU provides for the incompatibility with the internal market as well as the prohibition of all undertakings from engaging in concerted practices that may have an anticompetitive effect, that is, may affect trade between member states by engaging in activities that prevent, restrict or distort competition within the internal market.

However, it è undeniable how economic choices of business associations taken in a coordinated and concerted manner can certainly develop economic potential of no small impact in the economy of EU markets. In this sense, paragraph 3 of the aforementioned article, provides for the compatibility with the market, of all those agreements that contribute to improving the production or distribution of goods and, at the same time, allow consumers to benefit without, however, compromising the fair exercise of competition. In a nutshell, exempt from the above prohibition are those agreements that – in a cost-benefit – balancing view present more favorable effects to competition than anticompetitive ones.

For this reason, over the years vertical agreements have enjoyed greater favor than horizontal ones. The latter, in fact, involving direct competitors, can in no way result in competitive gains due to the synergies of the firms participating in the cartel.

Vertical agreements: Definition and essential elements

Given the above, è it is only fair to reiterate the definition of vertical cartel contained in the new European Regulation:

Vertical agreements “are defined as agreements or concerted practices between two or more undertakings, each operating, for the purposes of the agreement or concerted practice, at a different level of the production or distribution chain, and which relate to the conditions under which the parties may purchase, sell or resell certain goods or services.3 ” Therefore, for the purposes of the configurability of a vertical agreement, the above provision requires that there must necessarily be the consent (I) and the willingness (II) of at least two enterprises to engage in concerted business practices and also;, that the object of the activity is the purchase, sale or resale of certain goods or services (III) and that it is exercised in a coordinated manner between two or more enterprises characterized by diversity in the production and distribution chain (IV).

It follows that, under the conditions that these produce economic efficiencies such as to outweigh the anti-competitive effects associated with them, only those enterprises reflecting these characteristics may be eligible for the enjoyment of the exemption provided for in Article 101(3) TFEU.

Vertical Block Exemption Regulation (VBER) and new Guidelines

Through the VBERs and the evolutions they have undergone over the years, the Commission has defined and identified the cases in which such agreements may benefit from the outset from the exemption provided for in’Art. 101 paragraph 3 TFEU, thus exempting them from the application of the prohibition in the first paragraph.

The new Regulation updates Regulation 330/2010 for which it was scheduled to expire on May 31, 20224. The new VBER of 2022 - in force until May 31, 2034 - aims to adapt the regulation of vertical agreements to new market developments, while also emphasizing the’importance of e-commerce and online platforms that have undoubtedly facilitated and speeded up trade globally.

The new Regulation 330/2010 is intended to provide a new framework for vertical agreements.

In this regard, one of the main innovations is certainly represented by the so-called “Safe harbor”, that is, the safe market zone in which certain agreements can be freely entered into automatically enjoying the above exemptions. Precisely in view of the above, the new Regulation expands the spheres of actions considered “Safe” by approaching e-commerce and providing that commercial activities carried out through so-called marketplace bans, i.e., online marketplaces, may be exempt from the prohibition. However, stakeholders will be able to take advantage of this exemption only if the individual market shares of the suppliers and the buyer do not exceed a threshold of 30 percent.

An additional novelty è is the one that introduces the so-called dual pricing, i.e., the possibility of applying to the distributor differentiated wholesale prices for the products that the latter will dedicate to online sales, as opposed to those intended for offline sales. This consideration è was included by the European legislature with the clear objective of reflecting the costs incurred for each sales channel, which are considered inherently different. Parallel to this last point, the new VBER also provides for the so-called “equivalence principle” that is, the possibility of imposing different sales conditions for online stores than for physical stores.

Given the above, in the event that the aforementioned agreements are entered into between an association of companies and a single supplier, in order for one to benefit from the exemptions in Article 101 paragraph 3, it is necessary that all members of the association are retail distributors of goods and that no member of the association, together with its affiliated companies, has an annual turnover of more than 50 million euros.

Note that, for the purpose of applying the above turnover threshold, all turnovers (net of taxes and fees), achieved for all goods and services during the previous fiscal year by the party to the vertical agreement concerned and its related enterprises should be added up. In the event that, for two consecutive years, the maximum turnover threshold is exceeded, the exemption still retains its validity, provided that the increase in turnover does not exceed 10 percent.

Key restrictions: borderline cases and exclusion from the benefit of the exemption

At the same time, the new Guidelines, also define a detailed list of agreements that, directly or indirectly, pursue the’objective of preventing distributors from selling their goods or services online and which, therefore, are placed in the “hardcore” restrictions. Such are, for example, all the phenomena of “geoblocking” i.e., all those agreements that contain clauses designed to prevent customers located in a different geographical area than that assigned by the supplier to the distributor from viewing the latter’s website.

Also with the aim of contributing to the development of the market in a logic of fair competition, the new guidelines also impose restrictions for all those vertical agreements that contain clauses aimed at imposing sales exclusively in physical stores or at excluding the distributor’s ability to determine its own sales price, without prejudice, however, to the supplier’s ability to impose a price ceiling for its products.

The exemption referred to in Article 101, paragraph 3 is also excluded in all agreements that impose a direct or indirect non-compete obligation, the duration of which is indefinite or exceeds five years, or obligations aimed at preventing the distributor from offering or selling goods or services under competing suppliers' brands.

Concluding remarks

The new Regulation, by introducing a broader market perspective, guarantees companies the possibility to create vertical agreements also in online platforms and e-commerce.

However, the great potential of the aforementioned agreements, is not è free from limitations. In fact, in order for companies to benefit from the exemptions provided by the Regulation, it will not only be necessary to avoid putting in place all those activities placed among the so-called “hardcore” restrictions, but it will also be necessary to comply with the limit of market share not exceeding 30 percent for supplier and buyer.
 

1 https://ec.europa.eu/info/departments/competition_it
2 Commission Regulation (EU) 2022/720 of May 10, 2022 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices, L 134, 11.05.2022.

3 Art. 1 Commission Regulation (EU) 2022/720 of May 10, 2022 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices, L 134, 11.05.2022.
4 Commission Regulation (EU) No 330/2010 of April 20, 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices, L 102, 23.04.2010.