When may a vertical agreement be permitted?
Vertical agreements are permitted if they are not subject to competition rules or if they meet the requirements for block exemption or efficiency defence.
Vertical agreements can be beneficial for competition and consumers, as they can, for example, lower prices and promote competition based on factors other than price, as well as improve service quality. Many vertical agreements are therefore unproblematic from the perspective of competition rules.
Agreements outside the scope of competition rules
Certain vertical agreements are not subject to competition rules. Such agreements are permitted.
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An agreement that grants a representativean agent the authority to negotiate and/or conclude contracts on behalf of the principal for the purchase of products or services or for the sale of the principal’s products or services is not considered a prohibited vertical agreement. The nature of the agency relationship implies that the principal can decide, for example, on the pricing of the products sold under the agency agreement. A condition for classifying the agreement as an agency agreement is that the agent does not bear any financial or commercial risks related to the activities covered by the agency agreement.
Note: If the agent has multiple principals or engages in other activities required by its principals in the same product markets at its own risk, competition rules may likely apply to the agency agreement.
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Only vertical agreements that appreciably restrict competition are prohibited. If the market shares of all parties to the agreement are below 15 %, the agreement is considered minor and falls outside the scope of competition rules.
Note: If suppliers and distributors use similar vertical agreements more broadly in the market, these agreements have a cumulative effect on competition. In this case, a vertical agreement falls outside the scope of competition rules only if each party’s market share is below 5 % or if similar agreements cover less than 30 % of the market.
Note: Agreements containing hardcore restrictions cannot be considered minor, even if the market shares of the parties to the agreement are below the thresholds mentioned above.
Agreements covered by block exemption
A vertical agreement that meets the conditions set out in the vertical block exemption regulation may benefit from the so-called block exemption. A vertical agreement that benefits from the block exemption is thus permitted, even if it would otherwise be prohibited under competition rules.
A vertical agreement between two or more undertakings is within the scope of the block exemption and is generally permitted when all of the following conditions are met:
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The block exemption benefits all agreements for the purchase and distribution of final or intermediate products or services. Other than purchase, sale, or resale terms fall outside the block exemption.
Note: Outside the block exemption are, for example, terms related to the transfer or use of intellectual property rights that do not directly relate to the use, sale, or resale of the products or services covered by the vertical agreement.
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Vertical agreements between competitors, i.e., undertakings operating at the same production or distribution level, do not generally fall within the scope of the block exemption. The permissibility of such agreements must be assessed separately.
Note: However, the vertical components of agreements between competitors may fall within the scope of the block exemption and thus be permitted if the agreement is not reciprocal and involves dual distribution. In dual distribution, the supplier of products or services also operates at a later stage of the supply chain and competes with its independent distributors.
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Vertical agreements where the market share of each party is at most 30 % are presumed to be more beneficial than harmful to competition and are therefore within the scope of the block exemption.
Note: If in a multi-party agreement one undertaking both purchases products and sells them onward, the undertaking’s market share must be below 30 % in both the purchasing and selling markets. Otherwise, the 30 % threshold is exceeded, and the agreement is not within the scope of the block exemption.
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Hardcore restrictions are those that are likely to restrict competition and harm consumers. If the agreement contains one or more hardcore restrictions, it does not fall within the scope of the block exemption, nor is it likely to meet the requirements for the efficiency exemption.
Read more about the hardcore restrictions
Agreements meeting the requirements for the efficiency defence
Vertical agreements that do not benefit from the block exemption may, on a case-by-case basis, produce efficiencies that benefit consumers. If a competition-restricting vertical agreement meets the so-called efficiency defence requirements, it is permitted despite the restriction on competition.
The applicability of the efficiency defence requires that the vertical agreement:
- Improves production or distribution or promotes technical or economic progress,
- Leaves consumers with a fair share of the resulting benefits,
- Imposes only restrictions that are indispensable to the attainment of those benefits, and
- Does not eliminate competition in respect of a substantial part of the products or services covered by the agreement.
- A company must assess whether its vertical agreement meets the cumulative requirements of the efficiency defence. The efficiencies must fully compensate for the likely negative effects of the vertical agreement.