Vertical agreements have been a hot topic in the European Union (EU) competition law, and companies doing business in the region must pay close attention to their compliance with the regulations. These agreements are contracts or arrangements made between two or more companies operating at different levels of the supply chain, such as between a manufacturer and a distributor, or between a supplier and a retailer.
While these agreements can offer many benefits, they can also harm competition, especially if the parties involved use their market power to restrict competition or exploit their position. Therefore, the EU competition law has strict regulations in place to prevent anti-competitive practices in such agreements.
One of the most important EU regulations regarding vertical agreements is the Vertical Agreements Block Exemption Regulation (VABER). This regulation sets out clear criteria for assessing whether a vertical agreement is in breach of competition law or not. According to VABER, a vertical agreement will be exempt from EU competition law restrictions if it meets the following criteria:
1. The parties` market share does not exceed 30%.
2. The agreement does not contain any hardcore vertical restraints, such as minimum resale prices, territorial restrictions, or customer allocation.
3. The agreement does not create a significant negative effect on competition.
If a vertical agreement meets these criteria, it will be automatically exempt from the EU competition law. However, if the agreement does not meet these criteria, it will be subject to individual assessment by the European Commission, which will determine whether the agreement violates EU competition law.
The EU competition law also provides clear guidelines for companies on how to comply with the rules. These guidelines cover various aspects of vertical agreements, such as pricing policies, territorial restrictions, and selective distribution systems.
For example, companies must not set minimum resale prices as this restricts competition and violates EU competition law. Similarly, companies must not impose territorial restrictions that prevent distributors or retailers from selling products in certain areas, as this restricts consumer choice and affects competition.
Selective distribution systems are also subject to strict regulations. Companies must ensure that they do not use these systems to exclude potential distributors or to restrict competition in any way. They must also ensure that the criteria for selecting distributors are based on objective and non-discriminatory factors.
In conclusion, vertical agreements are an essential aspect of business in the EU. Companies must ensure that their agreements comply with the EU competition law regulations and guidelines to avoid any potential violations. By doing so, they can benefit from these agreements while also promoting healthy competition and consumer choice in the EU market.