The most relevant hardcore restrictions for a selective distribution agreement are: in the context of selective distribution, VABER (in Article 4(c)), notes that the following amounts to a hardcore restriction: (c) the creation of an additional but more limited safe harbour for dual distribution where the supplier and its distributors have an overall retail market share of more than 10 %; but nevertheless the market share threshold of 30 % set out in Article 3 of Article 3 of the DDPER. In such a scenario, all aspects of the vertical agreement remain exempt, with the exception of the exchange of information between the parties to the vertical agreement, which must be assessed in accordance with the rules applicable to horizontal agreements (Article 2(5)) See also, Analysis of vertical agreements under competition law, Block exemption of vertical restraints. For a checklist of the most important steps in assessing vertical agreements, see Vertical agreement checklist. The Guidelines also recognise that certain quality requirements may need to be specifically adapted to the characteristics of Internet distribution. This is illustrated by the possibility that an authorised trader may be obliged to limit the quantity of goods sold to each final consumer in order to prevent sales to unauthorised distributors. If internet platforms make it easier for unauthorized retailers to obtain large quantities of products, quality standards for online sales may need to be stricter to accommodate this. The prohibition of cross-supply between operators on the same network is inherently restrictive of competition in that it restricts intra-brand competition, which runs counter to the very objective of achieving an internal market. Where exclusive distribution is not combined with selective distribution, the prohibition of reciprocal supply infringes the principle of the trader`s freedom to conduct a business. While the distribution system is both exclusive and selective, it infringes the principle of free resale between members of the network inherent in selective distribution.
Article 4(d) of Regulation No 330/2010 considers the restriction of reciprocity between distributors within a selective distribution system to be a hardcore restriction. According to the Guidelines on Vertical Restraints, an exclusive distribution agreement is an agreement whereby `the supplier undertakes to sell its product to only one distributor for distribution in a given territory`. The exclusivity that the supplier must offer is essential to distinguish exclusive distribution from selective distribution. Unlike the authorized reseller, the exclusive distributor enjoys a real monopoly on the sale of the products in the contractual territory. The supplier undertakes not to supply other resellers or customers in the territory, apart from expressly mandated customers. Selective distributors, on the other hand, are subject to unrestricted competition from other members of the network. However, the exclusivity of the exclusive distributor is not absolute. Thus, although the exclusive distributor is exempt from the active sales of other distributors on the network in its territory, it is exposed to their passive sales, that is to say, those which satisfy consumer demand in their own territory which have not been requested by competing distributors. Finally, although it is by definition prohibited for the selective distributor to sell off-grid, it is not subject to such sales restrictions, unless the system operator has opted for a combination of exclusive and selective distribution.
This quick guide provides an overview of how selective distribution agreements are treated under EU competition law. Article 101(1) of the Treaty on the Functioning of the European Union (TFEU) prohibits agreements, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition. Under Article 101(2) TFEU, all those anti-competitive restrictions are void. Under Article 101(3) TFEU, anti-competitive restrictions may prima facie be exempted from the prohibition if it can be demonstrated that the benefits and efficiencies for consumers resulting from the restriction outweigh the anti-competitive effects as a whole. Article 101(3) applies in particular where the Agreement: the VABER contains a list of serious restrictions (so-called `hardcore restrictions`) on competition which, when included, eliminate the benefit of the block exemption from the Agreement in its entirety. This does not necessarily mean that the relevant agreement or restrictions referred to in Article 101(2) are inapplicable. There are two sets of circumstances in which this will not be the case, but both are difficult to apply in practice: the European Commission`s 2010 Guidelines (at paragraph 225) show some weakening of the traditional strict position on this issue, recognising that the maintenance of resale prices may lead to economic efficiency gains in certain circumstances and therefore meets the exemption criterion provided for in Article 101, paragraph 3. The Guidelines emphasise that price maintenance may be justified for resale during an initial product launch phase or for short-term coordinated promotions in a franchise or distribution network. In the context of selective distribution, given the concern of ”parasitism” mentioned above, it is particularly interesting to note that the maintenance of resale prices could be justified in order to prevent parasitism, given that retailers who invest in additional after-sales services may reduce these services if they are undercut by price by retailers who do not provide these services. However, there will be a heavy burden of proof to justify these provisional exemptions under Article 101(3) and caution is advised. Under an exclusive distribution agreement, the distributor has an exclusive distribution territory in which it is protected against competing sales of the supplier and/or designated distributors in other territories.
Somewhat less frequently and alone or in combination with an exclusive distribution territory, the distributor can benefit from the allocation of an exclusive category of customers, again with protection against competing sales of the supplier/other distributors. It is clear that the last of these restrictions is particularly relevant for selective distribution. According to VABER, it is possible to prohibit authorized resellers from reselling competing brands, but any obligation to boycott the products of a particular supplier will not benefit from the exemption. The purpose of that provision is to prevent several suppliers using the same selective distributors from preventing certain competitors from using those distributors, which could lead to a potential market closure for those suppliers. Since 1. In May 2004, the parties will have to draw their own conclusions on the compatibility of their trade agreements with EU competition law. Although many selective distribution agreements are considered non-objectionable from the point of view of competition law, strict conditions must be met and the conditions of such agreements must be examined individually on a case-by-case basis. An agreement which infringes Article 101(1) of the Treaty and which is not eligible for a block exemption may nevertheless be exempted individually on the basis of Article 101(3). While it is for the Commission to demonstrate the appreciable effect of the agreement, it is for the undertakings, once that effect has been established, to demonstrate that there are pro-competitive factors and efficiency gains capable of satisfying the conditions laid down in Article 101(3). .
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