Distribution & Competition
Vertical Agreements
Distribution agreements, Supplier agreements, franchise licensing and agency agreements are vertical agreements under Irish and EU competition law.
Where market share is in excess of 40%, the undertaking may have a dominant position and the arrangements may constitute an abuse of that dominant position.
Exclusivity
There may be justification for exclusive distribution agreements in terms of economic efficiency. The Commission has sought to balance the restrictions on competition arising from exclusive distribution agreements with features that enhance competition between brands.
Exclusive Distribution
Exclusive distribution agreements may benefit from the block exemption for vertical agreements where market thresholds are below 30 percent for each of the distributor and the supplier. However, below these thresholds, the block exemption will not be available if “hardcore” restrictions apply.
Selective Distribution
Selective distribution agreements restrict distributors and impose restrictions on resale. Distributors are entitled to sell only to other authorised distributors or end users.
Compliant Selective Distribution
Selective distribution is permissible in principle provided that it complies with competition law in its terms and in its operation. Selective distribution may be justifiable by reason of the nature of the products.
Cumulative Selective Distribution
Where there is not significant market power, inter-brand restrictions in selective distribution agreements are generally acceptable on the basis that there is competition from other brands.
Single Branding Agreements
The Vertical Agreement Guidelines refer to single branding agreements as non-compete obligations, the main element of which is that that the buyers are obliged to concentrate their orders for a particular type of product with one supplier. If the participants have less than 30% market share, and the agreement is for less than five years, then the block exemption applies.
Resale Prices
Indirect resales price maintenance will generally be prohibited and unjustifiable.Recommended resale prices can readily be found to be part of a concerted practice.
Most Favoured Clauses
A “most favoured” clause provides that the supplier will provide the buyer with the same terms, as it provides to others. It often gives the supplier a right of first refusal to meet other offers, which the purchaser obtained. Such clauses are not necessarily inconsistent with competition law but must be analysed.
Passive Sales
Clauses which restrict passive sales into excluded EU territories or customer groups are excluded from the exemption. This is based on the EU requirements for an integrated market and the long-standing objection to compartmentalisation of the single market.
Active Outside Territory
In exclusive distribution agreements, the supplier usually agrees to appoint a single distributor to sell its products in particular areas or to a particular type of customers. Commonly, the distributor is restricted from making active sales outside of its territory.
The restriction of active or passive sales to end users, by a member of a selective distribution system operating at a retail level of trade, is prohibited. This is without prejudice to the possibility of prohibiting a member of the system from operating out of an unauthorised place of establishment