New rules in force from 1 June change the treatment of supply and distribution agreements under EU competition law. A new Block Exemption Regulation (which affords a legal “safe harbour” for certain agreements from the full application of the EU competition rules) makes a number of important amendments to the rules.
The key change is that both the supplier’s and buyer’s market shares must now be no more than 30% in order to avail of the exemption. This is in contrast to the previous rules, which applied if one party (normally the supplier) had a market share below 30%. This is a significant amendment which puts an additional onus on contracting parties to know their market position and could result in many agreements falling outside the exemption.
In tandem with the new Regulation, the European Commission has published updated guidelines to assist parties in assessing the compatibility of their agreements with competition law (particularly if the 30% market share is exceeded). The guidelines consider, for the first time, “upfront access payments” (fees paid by suppliers to distributors to obtain access to their distribution network) and “category management” agreements (whereby the distributor entrusts a particular supplier with marketing a category of products).
The revised guidelines also consider the impact of internet sales, clarifying in this context the distinction between active sales (which may be restricted) and passive sales (which may not). Unsolicited e-mails constitute active sales, whereas sales resulting from general internet advertising (such as a general website) are considered passive sales. A requirement on distributors to prevent customers in other territories viewing their websites is a prohibited restriction on passive sales. The new guidelines also emphasise that dealers in selective distribution systems should be free to sell to all end-users via the internet, although dealers may be required to have a “bricks and mortar” shop and to meet reasonable criteria concerning websites.
The imposition of fixed or minimum resale prices brings an agreement outside the scope of the exemption. However, the new guidelines identify limited circumstances under which the imposition of resale prices may be permissible, such as during the introduction of a new product by a manufacturer.
It is critical for companies to ensure that their supply and distribution agreements comply with the new rules. New agreements must comply as and from 1 June 2010, although there is a one year transitional period for agreements in force before that date.
Further changes are afoot: the Irish Competition Authority has recently extended the validity of its own exemptions for supply and distribution agreements (due to expire on 31 May) until November 2010, to allow for a consultation over the summer, and the European Commission has recently launched a review of competition rules on horizontal co-operation agreements.