Vertical agreements have been a hot topic in the European Union`s competition law landscape. These agreements refer to the agreements between two or more undertakings operating at different levels of the production or distribution chain. The EU competition law prohibits anti-competitive agreements, and vertical agreements are no exception. This article discusses the basics of vertical agreements and their implications on EU competition law.
What are vertical agreements?
Vertical agreements are agreements between companies that operate at different levels of the supply or distribution chain. These agreements are common in industries such as retail, manufacturing, and distribution. They involve two or more companies that agree to buy or sell products or services. The contracts involved in vertical agreements include distribution agreements, agency agreements, as well as franchising agreements.
Implications of vertical agreements on EU competition law
The EU competition law prohibits anti-competitive practices, including vertical agreements. The European Commission (EC) and national competition authorities scrutinize vertical agreements under Article 101 of the Treaty on the Functioning of the European Union (TFEU). Article 101 prohibits agreements between two or more undertakings that restrict competition. Vertical agreements that affect trade between EU member states fall under the jurisdiction of the EU.
To determine whether a vertical agreement violates EU competition law, the EC and national competition authorities analyze the following factors:
1. Market power: The EC analyzes the market position of the parties to the vertical agreement. If one party has a dominant market position, it may abuse its dominance by imposing unfair conditions.
2. Restrictions on competition: The EC looks at the restrictions imposed by the vertical agreement on competition. Restrictions on resale prices, territorial exclusivity, selective distribution, and non-compete clauses are generally anti-competitive.
3. Benefits to consumers: A vertical agreement may benefit consumers, such as improving product quality or increasing distribution efficiency. The EC may consider these benefits while assessing whether the agreement violates competition law.
4. Duration of the agreement: The duration of a vertical agreement may affect whether it violates competition law. Long-term agreements may have greater anti-competitive effects than short-term agreements.
Penalties for violating EU competition law
Violating EU competition law can lead to severe penalties, including fines up to 10% of a company`s global turnover. The EC can also order companies to cease anti-competitive practices and invalidate anti-competitive agreements. The national competition authorities in EU member states can impose fines, order companies to stop anti-competitive practices, and revoke a company`s license to operate.
Conclusion
Vertical agreements can have significant implications on EU competition law. Companies that engage in vertical agreements need to ensure that their agreements comply with EU competition law. Companies should seek legal advice to ensure their agreements do not violate competition law. The consequences of breaching competition law can be severe and can lead to significant fines and reputational damage.