EU law of product distribution

• Pages: 343-474

CHAPTER IX

EU LAW OF PRODUCT DISTRIBUTION

A. Introduction

Distribution agreements under European Union (EU) law are assessed

under Articles 101 and 102 of the Treaty on the Functioning of the

European Union (TFEU).1 Article 101 TFEU applies to all distribution

agreements entered into by two or more entities (“undertakings”) carrying

out economic activity, provided that the agreements under review are

capable of appreciably affecting competition and trade between EU

Member States. Article 102 TFEU applies to distribution agreements

entered into by a firm that holds a dominant position in a relevant market,

generally the market on which the products are sold or, less frequently, a

market vertically related or adjacent to it. In order for Article 102 TFEU

to apply, the dominant position must exist within the EU internal market

or in a substantial part of it, and the conduct must be such that it may affect

trade between the EU Member States. This chapter will examine the

application of both Articles 101 and 102 TFEU to product distribution.

While both Articles 101 and 102 TFEU may be applied to the same

agreement, it appears to be the practice of the European Commission to

investigate agreements under Article 102 TFEU rather than under Article

101 TFEU whenever both provisions would apply.

This chapter is structured as follows: Section B focuses on the key

elements of the legal framework applicable to all distribution agreements

(e.g., the scope of application of Articles 101 and 102 TFEU in relation to

product distribution agreements). Section B also discusses Commission

Regulation (EU) No. 330/2010 of April 20, 2010 on the application of

Article 101(3) of the TFEU to categories of vertical agreements and

concerted practices2 in general and its application to the most common

1. Treaty on the Functioning of the European Union, Dec. 13, 2007, 2008 O.J.

(C 115) 47 [hereinafter TFEU].

2. Commission Regulation (EU) No 330/2010, of April 20, 2010 on the

application of Article 101(3) of the Treaty on the Functioning of the

European Union to categories of vertical agreements and concerted

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344 Antitrust Law and Economics of Product Distribution

forms of product distribution. Section C deals with resale price

maintenance, Section D with customer and territorial restraints, Section E

with exclusive dealing, Section F with conditional rebates,. Section G with

tying practices, Section H with price discrimination, and Section I with

distributor termination and refusal to deal. Finally, Section J deals with

most favored nation (MFN) clauses.

B. Key Elements of the Legal Framework

1. Article 101 TFEU

a. The General Framework of Article 101 TFEU

Article 101 TFEU consists of three paragraphs. Article 101(1)

prohibits agreements, concerted practices, and decisions of associations of

undertakings (together “agreements” unless the context requires

otherwise) that have as their object or effect the restriction, prevention, or

distortion of competition within the internal market (meaning the

European Economic Area) and have an effect on trade between EU

Member States. Article 101(2) provides that agreements prohibited under

Article 101(1) are void. Article 101(3) sets out exemption criteria for

agreements that fall within Article 101(1) but nevertheless create

efficiencies. 3 Such agreements are not prohibited provided that four

cumulative conditions are met:

(1) the agreement contributes to improving the production or

distribution of products or services, or to promoting technical or

economic progress, i.e., the agreement generates efficiencies;

(2) consumers are allowed a fair share of the resulting benefits, which

is construed as meaning that the net effect of the agreement must

be neutral or positive for consumers;

practices, 2010 O.J. (L 102) 1 (explaining the application of Article 101(3)

of the Treaty on the Functioning of the European Union to categories of

vertical agreements and concerted practices) [hereinafter VBER].

3. For the European Commission’s approach to Article 101 in general and

Article 101(3) in particular, see Guidelines on the Application of Article

81(3) of the Treaty, 2004 O.J. (C 101) 97 [hereinafter Guidelines on Article

81(3) Application]. The approach is analytically similar to the ancillary

restraints doctrine in the United States.

EU Law of Product Distribution 345

(3) the agreement does not impose restrictions beyond those that are

necessary for the attainment of the efficiencies; and

(4) the agreement does not give rise to the possibility of eliminating

competition with respect to the products or services in question.

Agreements, decisions and practices which do not have the object or

effect of restricting competition do not fall under Article 101 TFEU. For

example, certain aspects of agency and subcontracting agreements are

considered to be outside of the scope of Article 101 TFEU.4 In certain

cases, restrictions objectively necessary for the existence of an agreement

or for the protection of a legitimate commercial or noncommercial purpose

also fall outside Article 101(1) TFEU.5

b. Tests of “Object” or “Effect”

Article 101(1) TFEU sets out two tests for determining whether an

agreement is anticompetitive: an “object” test and an “effect” test. An

agreement is restrictive by object when it tends, by its very nature, to

restrict competition so that proof of anticompetitive effects is not

necessary.6 This is similar to, but not the same as, per se anticompetitive

cases in the United States. The similarity is that, for the prohibition to

apply, both in EU object violations and in U.S. per se violations the

authority or plaintiff does not have to prove that the arrangement or

conduct has anticompetitive effects. The difference is that per se violations

in the United States can never be justified because of countervailing

economic benefits, whereas in EU law any restriction of competition

within the meaning of Article 101(1) TFEU, including restrictions by

object, can be justified if it meets the conditions set out in Article 101(3)

TFEU. However, in practice, it is unlikely that restrictions by object,

4. See Guidelines on Vertical Restraints, 2010 O.J. (C 130) 1, ¶¶ 8-22

[hereinafter Vertical Restraints Guidelines].

5. See e.g., id. ¶¶ 60-64; see also Guidelines on Restrictions of Competition

“By Object” for the Purpose of Defining Which Agreements may Benefit

from the De Minimis Notice, §§ 3.1-3.4, SWD (2014) 198 final (June 25,

2014) [hereinafter Guidance on Restrictions].

6. Id. § 1; see also Case C-67/13 P, Groupement des cartes bancaires (CB) v.

Comm’n, 2014 E.C.L.I. 2204, ¶ 49 (Eur. Ct. Justice) (stating that certain

“types of coordination between undertakings [which] reveal a sufficient

degree of harm to competition that it may be found that there is no need to

examine their effects”).