EU Competition Law and Distribution Agreements – Part 2

In Part 1 of this two-part series (Part 1), we discussed:-

1. Article 101(1) of the Treaty on the Functioning of the European Union (“TFEU”);
2. The importance of carefully considering whether to proceed with an agency or a distribution agreement; and
3. Block Exemption 330/2010 which provides a “safe haven” to certain Distribution Agreements (“the Block Exemption”).

In this Part 2 we will look at the De Minimis Notice which assists companies in establishing whether their agreements fall within the scope of Article 101, TFEU, how Intellectual Property Rights in Distribution Agreements are governed and a brief note on the Technology Block Exemption.  It will conclude with a note of the decisions that can be made by the EU Commission (or the Competition and Consumer Protection Commission) if there has been an infringement of Article 101 TFEU.

De Minimis Notice

In order to assist companies to self assess whether their agreements fall within the scope of Article 101 TFEU, the EU Commission published the 2014 De Minimis Notice.  The De Minimis Notice recognises that agreements of minor importance may not constitute an appreciable restriction on competition law under Article 101 TFEU.

The De Minimis Notice creates a safe harbour for distribution agreements provided the following factors are met:-

1. The market share of each individual party falls below 15%; and
2. The agreement does not contain any “hardcore restrictions”; and
3. The agreement does not contain any restrictions which by their nature have the potential to restrict competition, for example, price fixing, fixing minimum resale prices and restrictions which limit sales into particular territories or to particular customer groups.

If an agreement does not fall within the De Minimis Notice the parties must turn to the Block Exemption for guidance.

Intellectual Property Rights (“IPR”)

The Block Exemption will apply to Distribution Agreements which contain IPR provisions, provided the IPR provisions:-

1. are assigned to, or licensed for use, by the buyer;
2. do not constitute the primary object of the agreement.  The primary object of the agreement must be the purchase, sale or resale of goods and services and the IPR must serve the implementation of the Vertical Agreement;
3. directly relate to the use, sale or resale of the goods of services;
4. do not contain restrictions of competition law having the same object as vertical restraints which are not exempted under the Block Exemption.

If the IPR provisions in a Distribution Agreement are not ancillary to the main purpose of the Distribution Agreement it will not have the benefit of the Block Exemption.

Technology Rights

The licensing of technology rights is dealt with in a separate Block Exemption 316/2014 (“the Technology Block Exemption”).  The purpose of the Technology Block Exemption is to recognise that the efficiency enhancing and pro-competitive effect of such agreements may outweigh any anti-competitive effects.  The Technology Block Exemption applies to agreements between a licensor and a licensee.

However if the technology rights are contained within a Vertical Agreement it must also comply with the Block Exemption.

Conclusion

The European Commission (and the Competition and Consumer Protection Commission)  has powers to investigate an alleged breach of Article 101 TFEU under Council Regulation No 1/2003.  They may take the following decisions:-

1. Require that an infringement be brought to an end;
2. Order an interim measure;
3. Accept commitments from the undertakings involved;
4. Impose fines or periodic penalty payments up to a maximum of 10% of turnover in the preceding business year.

Companies, including suppliers, distributors and agents, must be vigilant of complying with EU competition law.  This will involve a review of existing agreements and ensuring that any new agreements protects itself against the unsavoury consequences of a breach of competition law.

For further information on the above, please contact Paul Keane at pkeane@reddycharlton.ie