#10184 - Eu And Uk Competition Law - International Commercial Law

- Competition Law is Designed to deal with whether an agreement (a contract) affects competition and to protect the Final Consumer (i.e. the law is concerned with the effect that an arrangement may have upon the competitive dynamic of a market). Therefore, the question is whether a contractual arrangement will have an effect on the ULTIMATE CONSUMER. ICL focuses on vertical agreements (i.e. two separate undertakings at different levels of the supply chain, i.e. they are not competitors e.g. Manufacturer and Distributor).

Horizontal agreements = agreements between competitors– i.e. at same level of the supply chain

Vertical agreements = agreements between non-competitors – i.e. at different levels of the supply chain

Competition law EU

1.¿Which competition authority will investigate?

- In EU = The competition Directorate of the European Commission (i.e. The EU Commission)

2.¿What is the legal basis for its investigation and prosecution?

- In EU = Article 101 TFEU (EU competition law)

Article 102 TFEU (Abuse of market power)

3 .¿Is there a breach of article 101(1) TFEU (anticompetitive agreement between undertakings)? P.383

1. is there an agreement (written/oral/gentlemen’s agreement (P’s intention + conduct))(say that they distribution agreement constitutes an agreement)

2. between undertakings? (YES legal & natural persons, Co.s, P’ships, FIFA, BUT NOT parent & subsidiary nor Agency Agree)(Mention that they are undertakings, because they are separate economic entities in the market unlike agents)

3. which may affect trade between Member States Art 101?NAAT rule = if the combined market share of P’s is less than 5% on the relevant market + Seller’s turnover in the EU is below 40’ it will not affect trade in EU (say specifically)

4. which have as its object/ the prevention/distortion/restriction of competition within the internal market?(say specifically why the agreement is anticompetitive, say what clauses specifically are anticompetitive and say if it relates to the object of the effect on the market and whether they are hardcore or not)

   • Hardcore/Object Restrictions in Vertical Agreements (Object Infringement)

     • Price-FixingNegative effect on Price: Products become artificially expensive.

     • Export BanNegative effect on Choice (and therefore price).

   • (Effect Infringement)Exclusive Distribution Provisions;

     • Depends upon context; what other agreements are in place? Examine wider context.

     • Probably answer; ‘Potentially has an anti-competitive effect but we don’t know on the facts...’

     • Potential Anti-Competitive Clauses (Prep Task Agreement – Just run through and explain – these might be anti-competitive)

       • 2.1 – Exclusivity/Territory: No other distributors in the area;

       • 2.3 – Exclusivity: Producer will not sell direct in the area.

       • Application: Not definitely anti-competitive but taken in conjunction with other provisions it may have that effect.

       • 3.4 & 3.5: Minimum Quantity & Maintenance of Stock: Distributor must order minimum quantity

       • Application: If so restrictive that it has an impact on their freedom – may be. E.g. they have to order so much that they cannot order anything else.

       • 5.3: Control of Packaging

       • Application: May have anti-competitive effect – e.g. language is English – they wish to sell overseas, may be anti-competitive. Legal requirements might be different in different countries.

       • 5.4: Ban on Internet Sales

       • Application: Export ban – hardcore restriction – cannot sell in other countries.

       • 8.2: Competing Goods – Distributor Cannot Sell

       • Application: Potential – less range available to consumer.

       • 8.3: No branch outside territory;

       • Application: Potential – reaching less consumers.

       • 8.4: No exporting/selling outside territory.

       • 15.8: Non-Compete – Post-2 years after termination

       • Application: potential.

2. ¿What is the consequence of that breach? P.388

- For the Companies

• Fine up to 10% of the worldwide turnover

• Cease and Desist(By Art 7 of the M Reg. But may Not be useful as already in breach)

• The breach may make the agreement void(e.g. if being sued, then say the Agreement is void, but then you are in breach so, not such a good idea after all)

• Civil/3^rd Party Action/Claim (i.e. an action for damages 2 Travel Group PLC v CardiffCity Transport)

• Bad image for the brand/co/business

- For the consumer:

• Art 101(a) The goods might be over-priced and too expensive for the consumer.

• Art 101(b) Goods are available only through a distributor, i.e. restriction of choice on consumer

3. ¿How to avoid the breach? P.390

1. ¿Does NAOMI Apply? (It is the Commission’s Notice on Agreement of Minor Importance. its aim is to assess whether an agreement has an appreciable effect on competition, thus saving the Agreement)

Pre-Conditions for NAOMI to apply:

- Vertical Agreements: Parties aggregate market share held by each P to the agreement does not exceed 15% (this % cannot increase over time) - Horizontal Agreements: P’s aggregate market share does not exceed 10%

- Art 4No breach of hardcore restrictionsby P’s

- Art 4(a) Pricing Restrictions: (distributor cannot fix the sale price)

- Art 4(b) Territorial Restrictions: (distributor cannot restrict customer or territories)

- Art4(b)(i) Exception to Art 4(b) (distributor can restrict seller from actively seeking customers in territories given in exclusivity to other sellers (passive selling is not included i.e. the customer approaches the seller))

2. ¿Does Block exemption: VRBE(Vertical Restrain Block Exemption) Apply? (Reg 330/2010)(its aim is to make Agreement exempt from art 101(1) as their “pro-comp” effect outweighs “anti-comp” effect)(Say it is a vertical agreement because they are at different levels of the supply chain, unlike horizontal agreements where Co.’s are at the same level)(It is better to rely on this exemption than on NAOMI as it gives a greater market share available for the Company’s market share to grow (Block exemptions apply for 10 years and then have to be renewed))

Pre-Conditions for VRBE to apply:

- It applies to Vertical Agreements OnlyArticle 1(1)(a)

- Market Share of supplier does not exceed 30% of relevant market where it sells & Market Share of Buyer does not exceed 30% of the relevant market where it purchases Article 2(2)-(4) + Art (3)

-Art 4No breach of hardcore restrictionsby P’s (Effect = the whole agreement is in breach)

- Art 4(a)Pricing Restrictions: (distributor cannot fix the sale price)

- Art 4(b) Territorial Restrictions: (impose export bans - distributor cannot restrict customer or territories)

- Art4(b)(i) Exception to Art 4(b) (distributor CAN restrict Sfrom actively seeking customers in territories given in exclusivity to other Ss (passive selling is not included i.e. the customer approaches the S))

- Art 5 Non-Hardcore restrictions (Effect = the specific obligation will not apply, rest of agreement is OK)

3. ¿ Can the Individual exemption (under Art. 101(3)) apply?

- It is a last resort mechanism to try to rescue the agreement as it has hard core clauses in it. Self assessment (The parties have to prove that the pro-competitive effect of the agreement outweighs its anti-competitive effect) to qualify for exception under Art 101(3) must satisfy:

Positive conditions:

1. ¿does the agreement contribute to an improvement in the production or distribution of goods, or to the promotion of technical or economic progress?; and

2. ¿Will consumers get a fair share of the resulting benefit?

Negative conditions:

1. The agreement does not impose on undertakings restrictions which are not indispensable; and

2. The agreement will not afford them the possibility of substantially eliminating competition

4. Conclusion/advice to client

• Do Not Amend

  • Potentially Serious Penalties

• Amend;

  • To get rid of the anticompetitive clauses and bring yourself within NAOMI Block Exemption VRBE

    • VRBE may be best due to larger Market Share allowance but it is renewed every 10 years.

• Resist Suing others on the Agreement if in Breach of Competition

  • Do not draw attention to the agreement – ramifications of breach of Competition Law severe;

  • Do not annoy (you tend to annoy sometimes) the other party – may report to competition authority;

  • Put on ‘nice paws’ and negotiate.

• NB: Commission have 5 years to go after those in breach – so not out of the woods immediately...

Amending Clauses

• Exclusive Distribution Clause + Supplier’s promise not to quote or supply to a B in A’s territory:

  • VRBE 4(b)(i) - OK

• Minimum Quantity Order per year Terms:

  • Potential Non-Compete Obligation

  • VRBE 1d – TB 502 – Not obliged to purchase to the extent that it takes up >80% produce

• Territory -

  • Hardcore> Exceptions VRBE 4(b)

• Prohibition on Internet Sales

  • Passive Sales: Cannot be prohibited > Customer Approaches You– VRBE 4

  • Active Selling (You approach Customer – e.g. marketing - can Sometimes be prohibited – VRBE 4(b)

    • Can ban active sales;

      • Territorial reasons > Exclusive territory/customer group - 4bi

        • Cannot sell into territory of;

          • Other distributor;

          • Supplier direct sales.

        • Distributor cannot actively promote on the internet.

    • (Sneaky Point: Different Issue - ) Qualitative Criteria – e.g. Nature of the Products;

      • Selective Distribution Agreement

• Price Fixing

  • VRBE 4 – Hardcore

    • 4a – May impose maximum/recommended sale price instead

      • NB: must be recommendation not a back door price fix

• Export Ban – VRBE 4b

  • Delete OR;

  • Restrict – amend to track Article 4(b)(i) – explain.

• No competing products during agreement; VRBE 5.1(a) – pre-termination – 5.1(b) –...