Supply and distribution agreements are contracts between undertakings operating at different production or distribution levels regarding the terms of purchasing, selling, or reselling products or services. These so-called vertical agreements differ from contracts between competitors operating in the same market.
Vertical agreements often benefit undertakings, consumers, and competition alike. However, they can also lead to a restriction of competition. Vertical agreements are generally harmful to competition only if there is insufficient competition at one of the trading levels involved in the agreement.
The purpose of competition rules is to prevent companies from using their vertical agreements to restrict competition in a way that is detrimental to consumers. If a vertical agreement includes restrictions or requirements affecting the activities of either party to the agreement, it may constitute a prohibited restriction of competition. Vertical agreements that have the purpose or effect of appreciably restricting competition are prohibited.
Anti-competitive contractual terms must not be applied or enforced. An undertaking is responsible for ensuring that its vertical agreements do not restrict competition.
Key rules regarding vertical agreements:
- Competition Act Sections 5 and 6
- European Commission’s Vertical Block Exemption Regulation
- European Commission’s Communication on Guidelines for Vertical Restraints
National competition rules are interpreted in accordance with EU competition rules. Therefore, the interpretative guidelines of EU competition rules also directly apply to domestic vertical agreements.