Author Definition
Definition
Article 101 of the TFEU prohibits agreements regarding price, quantity, quality, and other conditions for sale between companies horizontally or vertically. The vertical agreement regarding a distribution condition is often called the Distribution Agreement.
Distribution Agreements can be conducted in two types: (1) Exclusive distribution and (2) Selective distribution.
- Exclusive distribution
Under an exclusive distribution system, a supplier allows only one or a few specific distributors to resale its product to a specific geographic area or to a specific customer group. It can violate the TFEU101 (1) if it gives the supplier absolute territorial protection.
- Selective distribution
Under a selective distribution system, a supplier sets some criteria for selecting "authorized distributors". Once distributors meet those criteria, the supplier does not supply to non-authorized distributors. Additionally, the supplier prohibits authorized distributors from reselling the product to non-authorized distributors. It is prohibited by TFEU 101 (1) if it doesn’t meet the criteria by Metro I
Commentary
Since there are also entries for ’Selective distribution’ and ’Exclusive distribution,’ I will mostly discuss distribution agreements in general here.
From the suppliers’ perspective, distribution agreements have some benefits to prevent other undertakings from free-riding the investment by some distributors and suppliers. Such positive effects can typically be led by vertical restraints that give territorial protection to the dealers.
On the other hand, distribution agreements can lead to the foreclosure of the distribution network, which causes an anti-competitive effect in the sense of diminishing intra-brand competition in a market. Such negative effects of the agreement can be found especially in a highly oligopolistic market containing highly differentiated products. Generally speaking, this anti-competitive effect can be evaluated based on the circ*mstances of both intra-brand and inter-brand markets. If the inter-brand competition is not lively due to product differentiation, for example, the distribution agreement might have more tendency to reduce competition overall.In the EU, Article 101 (1) of the TFEU prohibits distribution agreements between companies related vertically if such a distribution system causes an anti-competitive effect on competition without producing enough pro-competitive effects. If such a system has a pro-competitive effect overwhelming its competitive harm, then Article 101 (3) exempts such an agreement from applying Article 101 (1) .
The Guidelines on Vertical Restraints by the European Commission (2022/C 248/01) also stated that “restrictions on the territory in which, or the customers to whom, the buyer may sell goods or services covered by the vertical agreement, subject to certain exceptions that enable the supplier to operate exclusive or selective distribution systems.”
Types of distribution agreements are originally defined by Regulation (EU) 2010/330 and those are now defined by Article 1 of the Regulation (EU) 2022/720 (the new Vertical Block Exemption Regulation: vBER) as follows:
- ‘Selective distribution system’ means a distribution system where the supplier undertakes to sell the contract goods or services, either directly or indirectly, only to distributors selected on the basis of specified criteria and where these distributors undertake not to sell such goods or services to unauthorised distributors within the territory reserved by the supplier to operate that system.
- ‘Exclusive distribution system’ means a distribution system where the supplier allocates a territory or group of customers exclusively to itself or to a maximum of five buyers and restricts all its other buyers from actively selling into the exclusive territory or to the exclusive customer group.
In evaluating whether the agreement is eligible for the block exemption by the VBER, it is first checked whether the distributor or the supplier holds more than 30% of the market share as a safe harbor. Also, vBER listed the “Restrictions that remove the benefit of the block exemption” as “hardcore restrictions.
Whether a distribution agreement is exempted under Article 101(3) is first assessed by whether it falls under the block exemption provided by the VBER. If not, one might consider if the agreement falls within the scope of Article 101(3) TFEU individually, but it is rarely approved.
In Metro 1(Metro v Commission (1977)), the court showed that the pure-qualitative distribution agreement presumed to be part of a competition and compatible with TFEU 101 (1), if the “resellers are chosen on the basis of objective criteria of a qualitative nature relating to the technical qualifications of the reseller and his staff and the suitability of his trading premises and that such conditions are laid down uniformly for all potential resellers and are not applied in a discriminatory fashion” (para 20), and the agreement did not go further than necessary. This so-called Metro1 criterion is still applied today (E.g., Coty Germany v Parfümerie Akzente (2017)).
It is important to note that the agreement does not need to meet those criteria by Metro 1 to be block-exempted by VBER. Also, the fact that the agreement is not block-exempted does not mean it violates Article 101 (1).
In the U.S., neither courts nor competition authorities rely on the two categories of distribution agreements mentioned above. Distribution agreements can be prohibited by Section 1 of the Sherman Act as a vertical restraint if the agreement harms competition overall (Continental TV v GTE Sylvania; Leegin Creative Leather Products Inc v PSKS Inc.). Generally speaking, distribution agreements are presumed to be pro-competitive and evaluated under the “rule of reason.” That is because, partly due to the influence of the Chicago School, non-price vertical restraints are generally considered to have no anticompetitive effects that would outweigh efficiency.
In fact, most decisions by US Courts after the Sylvania case apply the rule of reason to vertical agreements that give dealers territorial or customer restrictions. Courts generally consider (i) the purpose of the agreement, (ii)the anti-competitive effect of such agreement in a relevant market, and (iii)balance the pro-competitive effect and the anti-competitive mentioned in (ii) (See ABA, Antitrust developments 8th, pp.152-157.).
In Japan, Article 12 of General Designation defined “trading with another party on conditions which unjustly restrict any trade between the said party and its other transacting party or other business activities of the said party” as “Trading on Restrictive Terms.” Such conduct is prohibited by Article 19 of the Japanese Anti-monopoly Act (JAMA).
The Japanese Supreme Court showed that a non-price vertical restraint is presumed to be pro-competitive if it is ‘somewhat reasonable’ and it is applied to other distributors in a non-discriminatory manner (Supreme Court, 18 December 1998, 52-IX Minshu 1866 (Shiseido case); Supreme Court, 18 December 1998, 1664 Hanrei Jiho 14 (Kao case).)
“Guidelines Concerning Distribution Systems and Business Practices Under The Antimonopoly Act” by the Japanese Fair Trade Commission (JFTC) also clearly mention that adopting the selective distribution system is lawful when the criteria of selection are somewhat reasonable from the consumer’s point of view, and the criteria applied are non-discriminatory to all trading parties. Notably, JFTC also uses the “Selective Distribution System” category when JFTC mentions the distribution agreement in guidelines since 2015.
Case references
230/16 Coty Germany v Parfümerie Akzente ECLI:EU:C:2017:941
Case KVZ 41/17 Asics ECLI:DE:BGH:2017:121217BKVZ41.17.0
Leegin Creative Leather Products Inc v PSKS Inc., 551 U.S. 877 (2007)
Case 26/76 Metro SB-Großmärkte GmbH & Co. KG v Commission, ECLI:EU:C:1977:167 (‘Metro I’)
Continental TV v GTE Sylvania 433 US 36, 97 S.Ct. 2549 (1977)
Bibliography
David Bailey and Laura Elizabeth John (eds.), Bellamy and Child: European Union Law of Competition (8th ed, 2018), paras 7.094–7.117
Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their Application, Volume VIII, Chapter 16A and 16D.]
Masako Wakui, Antimonopoly Law: Competition Law and Policy in Japan (2nd ed), Chapter 6.
Institution Definition
Agreements which concern the conditions for the purchase, sale or resale of the goods or services supplied by the supplier and/or which concern the conditions for the sale by the buyer of the goods or services which incorporate these goods or services.
Exclusive distribution : In an exclusive distribution agreement, the supplier agrees to sell its products to only one distributor for resale in a particular territory. At the same time, the distributor is usually limited in its active selling into other (exclusively allocated) territories. The possible competition risks are mainly reduced intra-brand competition and market partitioning, which may facilitate price discrimination in particular. When most or all of the suppliers apply exclusive distribution, it may soften competition and facilitate collusion, both at the suppliers’ and distributors’ level. Lastly, exclusive distribution may lead to fore closure of other distributors and therewith reduce competition at that level.
Selective distribution : Selective distribution agreements, like exclusive distribution agreements, restrict the number of authorised distributors on the one hand and the possibilities of resale on the other. The difference with exclusive distribution is that the restriction of the number of dealers does not depend on the number of territories but on selection criteria linked in the first place to the nature of the product. Another difference with exclusive distribution is that the restriction on resale is not a restriction on active selling to a territory but a restriction on any sales to non-authorised distributors, leaving only appointed dealers and final customers as possible buyers. Selective distribution is almost always used to distribute branded final products. © European Commission
After luxury teas, top-of-the-range chocolate (pt. 27)...
On February 15, 2024, the French Competition Authority (Autorité de la concurrence) made public a decision no. 24-D-02 adopted a few days earlier, on February 6, 2024. This decision, which followed an investigation by the Brigade(...)
AdC investigates sales restrictions practiced by a trader of Business Application Software*
The investigation
The Portuguese Competition Authority (AdC) is currently investigating a sales restriction imposed by one of the leading trader companies of Enterprise Application Software ("EAS")(...)
This quarter, it’s impossible not to note two decisions by the French competition authority (Autorité de la concurrence), which in two different cases penalized two distribution network promoters for (among other things) restricting their distributors’ ability to sell online. Even if we(...)
On December 19, 2023, the French Competition Authority imposed a €91,600,000 fine on Rolex France SAS [hereinafter "Rolex"] for implementing a vertical agreement aimed at prohibiting its authorized distributors from selling its watches online.
The decision follows referrals from the Union de(...)
After Parisian palaces, the distribution of high-end hi-fi and home cinema equipment, and top-of-the-range teas, here come luxury watches!
The least we can say is that the Autorité de la Concurrence has positioned itself as the zealous defender of consumers with high purchasing power. In any(...)
This quarter, it’s impossible not to note two decisions by the French competition authority (Autorité de la concurrence), which in two different cases penalized two distribution network promoters for (among other things) restricting their distributors’ ability to sell online. Even if we(...)
A bitter pill for Mariage Frères teas, for which the Autorité has imposed a penalty of 4 million euros. Acting on an administrative investigation report drawn up by the DGCCRF, the Authority found that for almost fifteen years, the Mariage Frères group, one of France’s leading producers of(...)
On December 11, 2023, the French Competition Authority issued a decision no. 23-D-12 in which it jointly and severally imposed a fine of 4 million euros on Mariage Frères International SAS and its parent company, Mariage Frères SAS (pt. 185), for having implemented, from July 2008 until the(...)
Facts. A stationery supplier has a long-standing relationship with Casino’s central referencing body, which negotiates and signs commercial agreements with the various suppliers on behalf of the group’s companies. The supplier was supplying 64 of the chain’s stores when relations became(...)
The facts. For a description of the facts, please refer to C. Mouly-Guillemaud’s comments (see Focus above).
Problem. The ruling touches on a number of subjects that should not be overlooked by observers of commercial negotiations, as the lessons it contains appear to be of practical use in(...)
Facts. Following several press articles reporting a Galec practice known as the "Lidl tax", the DGCCRF and, at regional level, the Dirrecte (Drieets) investigated the conditions under which the E. Leclerc imposed an additional 10% discount on suppliers of national-brand products (Heineken,(...)
The Coty saga has reached an unexpected and rather discreet conclusion after years of legal proceedings and numerous twists and turns.
Background to the Coty saga
Coty France operates a distribution network for luxury cosmetics and perfumes of various brands, for which the parent company(...)
Facts. Several PC game publishers entered into a distribution agreement with a company operating an online gaming platform, enabling their users to access games on the said platform. The European Commission opens an investigation after receiving information about the possible blocking of games(...)
Facts. The CEPC ruled on the compliance with the provisions of the former article L. 442-6, I, 1° and article L. 442-1, I, 1° of the French Commercial Code of the practice whereby an IT company successively issued five flat-rate annual invoices on the basis of a subscription contract to the(...)
Facts. Le Roy Muribane (the "supplier"), a fruit and vegetable wholesaler, had been supplying fresh produce since 1996 to supermarkets operated under the Leader Price franchise by Distribution Bretagne Atlantique (DBA or the "distributor"). Changes in the company’s capital structure between(...)
Articles
Competition law is being shaken up by a new economic context, be it inflation, shrinkflation or the structuring of central purchasing bodies at European level. It must adapt. At the risk, once again, of incurring the reproach of instability and legislative inflation.
Table of contents A(...)
This section selects books on themes related to competition laws and economics. This compilation does not attempt to be exhaustive but rather a survey of themes important in the area. The survey usually covers publication over the last three months after publication of the latest issue of(...)
This section selects books on themes related to competition laws and economics. This compilation does not attempt to be exhaustive but rather a survey of themes important in the area. The survey usually covers publication over the last three months after publication of the latest issue of(...)
This section selects books on themes related to competition laws and economics. This compilation does not attempt to be exhaustive but rather a survey of themes important in the area. The survey usually covers publication over the last three months after publication of the latest issue of(...)
This section selects books on themes related to competition laws and economics. This compilation does not attempt to be exhaustive but rather a survey of themes important in the area. The survey usually covers publication over the last three months after publication of the latest issue of(...)
This section selects books on themes related to competition laws and economics. This compilation does not attempt to be exhaustive but rather a survey of themes important in the area. The survey usually covers publication over the last three months after publication of the latest issue of(...)
This section selects books on themes related to competition laws and economics. This compilation does not attempt to be exhaustive but rather a survey of themes important in the area. The survey usually covers publication over the last three months after publication of the latest issue of(...)
The implementation of competition law in agriculture and, more broadly, the food sector constitutes an important area of study, of particular importance during this period of inflationary tendencies. The paper examines the broader competition policy issues that arise in the context of global(...)
What is the competition balance sheet of Emmanuel Macron, Minister of the Economy and then President of the Republic? It is remarkable that Emmanuel Macron had a very strong reforming will in competition and distribution law, by opening markets (regulated professions, bus transport, rail(...)
This section selects books on themes related to competition laws and economics. This compilation does not attempt to be exhaustive but rather a survey of themes important in the area. The survey usually covers publication over the last three months after publication of the latest issue of(...)
This section selects books on themes related to competition laws and economics. This compilation does not attempt to be exhaustive but rather a survey of themes important in the area. The survey usually covers publication over the last three months after publication of the latest issue of(...)
This section selects books on themes related to competition laws and economics. This compilation does not attempt to be exhaustive but rather a survey of themes important in the area. The survey usually covers publication over the last three months after publication of the latest issue of(...)
This section selects books on themes related to competition laws and economics. This compilation does not attempt to be exhaustive but rather a survey of themes important in the area. The survey usually covers publication over the last three months after publication of the latest issue of(...)
This section selects books on themes related to competition laws and economics. This compilation does not attempt to be exhaustive but rather a survey of themes important in the area. The survey usually covers publication over the last three months after publication of the latest issue of(...)
This section selects books on themes related to competition laws and economics. This compilation does not attempt to be exhaustive but rather a survey of themes important in the area. The survey usually covers publication over the last three months after publication of the latest issue of(...)
The “Litigation, Arbitration and Settlements in the Pharma Sector” workshop organised by Concurrences in partnership with Fréget Glaser & Associés and NERA Economic Consulting took place in Paris on November 30th, 2022.
The third edition of “Distribution, Concurrence & Pratiques Restrictives” conference organised by Concurrences in partnership with Deloitte, Frontier Economics, Gide Loyrette Nouel, White & Case and Wilhelm & Associés took place in Paris on November 24th.
The “VBER: New Rules, New Challenges” webinar organised by Concurrences, in partnership with Hogan Lovells, with Christel Delberghe (Director General, EuroCommerce), Johannes Holzwarth (Case-handler officer, DG COMP), Erwann Kerguelen (Deputy General Rapporteur, Autorité de la concurrence), Kai-Uwe Kuhn (Former Chief Economist of DG Competition), Stephen Kinsella (Specialist Partner, Flint), University of East Anglia) and Eric Paroche (Partner, Hogan Lovells).
Law & Economics lunchtalk organised by Concurrences, in partnership with Allen & Overy and RBB Economics, with Emmanuel Combe (Vice President, Autorité de la concurrence), Florence Ninane (Partner, Allen & Overy) and Laure Schulz (Principal, RBB Economics).
2nd Webinar of the 12th « New Frontiers of Antitrust Conference » organised by Concurrences, in partnership with E.CA Economics, with Svend Albaek (Adviser - CET, DG COMP), Laurence Idot (Emeritus Professor, University Paris II Panthéon-Assas), Luc Peeperkorn (Professor, Brussels School of Competition | College of Europe), Thibaud Vergé (Professor, ENSAE | University of Bergen) and Alexis Walckiers (Director, E.CA Economics).
2nd Webinar of the « 1st Distribution, competition & restrictive practices Conference » organised by Concurrences, in partnership with Fidal. Panel with Pierre Chambu (Chef de service de la protection des consommateurs et de la régulation des marchés, DGCCRF), Anne-Sophie Choné-Grimaldi (Professor, Paris Nanterre University), Nathalie Dostert (Vice President, Paris Commercial Court), Richard Panquiault (Director General, Institut de liaison des entreprises de consommation - ILEC) and Philippe Vanni (Head of Distribution/Competition Practice - Partner, Fidal).
Closing discussion with Virginie Beaumeunier (Director General, DGCCRF), Daniel Fasquelle (Professor, University of Littoral-Côte-d’Opale | Senior Counsel, Squadra Avocats | Former member of the French Parliament), Irène Luc (Vice President, Autorité de la concurrence) and Alexandre Lacresse (Partner, Fidal).
Workshop organised by Concurrences Review in partnership with Magenta with keynote speakers Pierre Rebeyrol (DGCCRF), Richard Panquiault (ILEC) and Béatrice Charlier-Bonatti (Cour d’Appel de Paris).
Law & Economics breakfast organized by Concurrences in partnership with McDermott Will & Emery and Compass Lexecon.
Books
Chapters
Turkish Competition Law – Gönenç Gürkaynak127 Chapter 5 Vertical Agreements Gönenç G ürkaynak, e sq., dılara y eşılyaprak * and a slı suç Oruk ** The main provision governing vertical restraints is Article 4 of Law No. 4054, which, as detailed in the above chapters, prohibits agreements(...)
361 Rethinking Hybrid Restraints w illiam h.p aGe *1 anD John e.l opa Tka ** University of Florida Levin College of Law | Penn State Law Abstract In this essay, we revisit the meaning of “hybrid” and “unilateral” restraints, important and difficult categories within the state action(...)
43 Douglas H. Ginsburg | An Antitrust Professor on the BenchLiber Amicorum - Volume I The Chicago Tradition and Judge Ginsburg EriC m. f rasEr Osborn Maledon barak o rbaCh University of Arizona James E. Rogers College of Law d. d aniEl sokol * University of Florida Levin College of Law(...)
ANTITRUST IN EMERGING AND DEVELOPING COUNTRIES | 2015 E DITION 59 Antitrust Issues in the Pharmaceutical Sector in China THOMAS K. C HENG * thomas.cheng@hku.hk Associate Professor, Faculty of Law, University of Hong Kong Abstract Although China adopted the Anti-Monopoly Law in 2007, the(...)
a
Absolute territorial protection •Abuse of dominant position•Abuse of economic dependence•Access to the file•Actual competitor •Administered prices•Agent•Agreement (notion)•AI Collusion (Algorithm)•Amicus curiae•Ancillary restraints •Annulment•Anticompetitive object or effect•Anticompetitive practices•Antitrust•Applicable law•Arbitration•Article 11 letter •As-Efficient Competitor (AEC)
b
c
Cartel •Clearance phase I (merger)•Clearance phase II (merger)•Collecting society •Collective dominance•Collective redress (class action)•Collusion •Comity •Competence •Competition policy•Complaint •Compliance programme •Compulsory license•Concentration indexes•Concerted practices•Concession•Concurrent jurisdiction•Consortium •Consumers protection•Consumers’ associations•Control (change)•Control (notion)•Cooperation between competition authorities•Coordinated effects•Copyright•Corporate group•Corruption•Cost-based access•Cournot (Nash) equilibrium•Criminal sanctions•Cross subsidisation
d
e
ECHR•Economic analysis•Economic efficiency•Economies of scale •Effect on trade between Member States•Effective judicial protection•EFTA Surveillance Authority (ESA) & Court •Environmental protection•Error costs•Essential facility•European Competition Network (ECN)•Excessive prices•Exchanges of information•Exclusionary practice •Exclusive distribution •Exclusive purchasing•Exclusive right (Art. 106 TFEU)•Exclusivity clause•Exhaustion •Extra-territoriality
f
i
l
m
n
p
Parallel imports (parallel trade)•Passing-on•Passive sales •Patents•Pay-for-delay•Periodic penalty payment•Potential competition •Predatory pricing•Preliminary ruling (Art. 267 TFUE) •Price discrimination •Price leadership•Price signalling•Price-fixing agreement•Prices•Principle of equal treatment•Principle of equivalence•Principle of proportionality•Private enforcement•Privatization•Procedural autonomy•Professional association•Public procurement•Public undertaking
r
s
Sector inquiry•Selective distribution •Self-Preference•Services of general economic interest •Single branding •Sole control•Spill-over effects •Standard-Essential Patent (SEP)•State action defense•State aid (compatibility)•State aid (existing aid) •State aid (notification)•State aid (notion)•State aid (recovery) •State aid (unlawful aid) •State measure •Statement of objections (SO) •Substitutability •Sudden break of established business relationships•Sustainability
