Block Exemption on Vertical Agreements: A Guide for Businesses
In the world of business, vertical agreements are an essential part of distribution and supply chains. These agreements govern the relationship between suppliers and buyers, often setting out terms such as pricing, territorial restrictions, and non-compete clauses. However, when it comes to the European Union (EU), these agreements are subject to strict regulations under the block exemption on vertical agreements.
What is the block exemption on vertical agreements?
The block exemption on vertical agreements is a set of EU competition rules that apply to certain types of vertical agreements, which are agreements between two or more companies operating at different levels in the supply chain. The rules provide a safe harbor for companies to engage in certain types of vertical agreements without breaching the EU competition law.
The aim of the block exemption is to promote competition and protect consumers by ensuring that businesses do not engage in anti-competitive practices. This helps to ensure that prices remain competitive, and consumer choice is not limited by monopolistic behavior.
What types of vertical agreements are covered by the block exemption?
The block exemption on vertical agreements covers a wide range of agreements, including:
1. Distribution agreements: These are agreements between manufacturers or suppliers and distributors, setting out the terms of supply and distribution of goods.
2. Franchise agreements: These are agreements between franchisors and franchisees, setting out the terms of the franchise relationship.
3. Agency agreements: These are agreements between principals and agents, setting out the terms of the agency relationship.
4. Customer and supplier agreements: These are agreements between suppliers and their customers, setting out the terms of supply.
What are the conditions for the block exemption to apply?
For the block exemption on vertical agreements to apply, the following conditions must be met:
1. The market share of the parties to the agreement must not exceed 30%.
2. The agreement must not contain anti-competitive restrictions (such as price-fixing, market-sharing, or restrictions on output).
3. The agreement must not contain hardcore restrictions (such as non-compete clauses of more than five years, or clauses preventing the sale of goods outside of certain territories).
If these conditions are satisfied, then the agreement is exempt from the EU competition rules, and the parties can engage in the agreement without fear of breaching competition law.
Why is it important for businesses to comply with the block exemption?
Compliance with the block exemption on vertical agreements is essential for businesses operating in the EU. Failure to comply can lead to investigations by competition authorities, fines, and damage to company reputation. Non-compliance can also result in companies losing access to the EU market altogether.
In addition, compliance with the block exemption can provide businesses with a competitive advantage. Adhering to the rules not only ensures that businesses are not engaging in anti-competitive behavior, but also helps to foster a culture of fair competition, which can attract new customers and increase market share.
In conclusion, the block exemption on vertical agreements is an essential tool for businesses operating in the EU. By complying with the rules, companies can engage in distribution and supply agreements without fear of breaching competition law. This not only ensures that consumers benefit from fair competition, but also helps businesses to thrive in a competitive market.