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European Union: New Antitrust Rules on Vertical Agreements

(Apr. 26, 2010) On April 19, 2010, the European Union adopted new, revised antitrust rules (a Regulation and Guidelines) for so-called vertical agreements, that is, supply and distribution agreements. Vertical agreements raise antitrust issues by limiting competition when an agreement between a supplier and buyer includes “restraints” for the supplier or the buyer. When companies having a market share of less than 30% conclude vertical agreements with no “hard-core” restrictions, it is assumed that they do not have a negative impact on competition. Consequently, such agreements are not prohibited based on EU competition rules. Vertical agreements between companies whose market share exceeds 30% are not automatically exempted from the prohibition, but their impact on competition, whether positive or negative, must be assessed under the new Guidelines. The new rules will apply for a period of 12 years, and the European Commission, as the EU competition enforcer, will monitor their implementation carefully. (Press Release, Memo/138, Antitrust: Commission Adopts Revised Competition Rules for Vertical Agreements: Frequently Asked Questions (Apr., 20, 2010), RAPID, available at

Agreements that contain hard-core restrictions are those that limit the ability of the buyer to set the sale price (known as resale price maintenance) or other forms of resale restrictions. The new Regulation contains rules on exclusive and selective distribution. Under an exclusive distribution system, manufacturers are permitted to protect an exclusive distributor from sales by other distributors, so that the distributor can invest to cater to an exclusive customer group. Within such a system, the manufacturer cannot limit the distributor, in response to customer demand, from selling his products within the entire internal market. In selective distribution, the Regulation gives the right to manufacturers to select their own distributors based on selection criteria and to forbid sales to unauthorized distributors. (Id.)

The Regulation also has provisions on Internet sales. Any restrictions imposed on the use of the Internet by distributors are deemed to be hard-core restrictions. Examples include “dual pricing,” whereby a distributor is required to pay a higher purchase price for items sold online, and limits placed on total sales that a distributor can make over the Internet. (Id.)

Suppliers usually can decide on the number and type of distributors they may use within their distribution systems. For instance, suppliers my wish to sell only to distributors that have one or more “bricks-and-mortar” shops. However, once a distributor is accepted within the distribution system, he cannot be prevented from selling products online. The new Guidelines contain a number of examples of limitations on online sales that would amount to hard-core restrictions. Under a selective distribution system, a supplier may require the same quality standards for sales through a website as those offline. In an exclusive distribution system, the supplier may prevent the distributor from actively seeking online customers or customers in areas that are reserved exclusively for another distributor. (Id.)

Several online retailers, including eBay and Amazon, are critical of the new restrictions on online sales, which allow manufacturers of high-end goods to block online retailers who do not have a “bricks-and-mortar” store from selling their products. (New EU Rules Let Brand Owners Block Online Sales, EURACTIV, Apr, 22, 2010, available at
.) The European Alliance, an organization representing the majority of global luxury goods manufacturers, stated that the European Commission recognized the significance of the high-end goods industry, which employs 800,000 persons in Europe. A spokesman from the European Alliance stated that the “new regulatory framework will allow us to continue the significant investment our sector makes for our online presence well as in our physical outlets.” (Id.)

Joaquin Almunia, the European Competition Commissioner, stated: “[t]he rules adopted today will ensure that consumers can buy goods and services at the best available prices wherever they are located in the EU, while leaving companies without market power essentially free to organise their sales network as they see best.” (Id.)