Vertical distribution agreements under E.C. competition law -background and the new Block Exemption Regulation
Abstract: Vertical distribution agreements are favourable for the market. They facilitate distribution and make it more efficient. Moreover, by the appointment of independent distributors, it gets easier for the manufacturer to distribute his goods over a wide geographical area and overcome barriers inherent in international trade. However, the co-operation between manufacturer and distributor gives rise to difficulties that must be solved in the distribution agreement. In order to safeguard both the manufacturer's and the distributor's interests, the agreement often results in clauses that restrict competition and divide the market. The last aspect is of special relevance in a European perspective, where the openness of the Single Market plays an important role in competition policy. In Europe, most vertical distribution agreements are assessed under Article 81 of the Treaty. Traditionally, the prohibition in Article 81(1) has been given a broad and formalistic interpretation, which as a result has captured a wide range of vertical distribution agreements. Consequently, it has been necessary for many agreements to receive the exemption under the third part of the Article either in form of compliance with a Block Exemption or by notification and individual exemption. The European method of assessing vertical distribution agreements has attracted much criticism over the years. Firstly, a form-based approach has been applied without any opportunity for economic analysis neither in applying the prohibition nor the exemption system. Secondly, the administration surrounding Article 81 has been excessively complicated, resulting in that undertakings have drafted all their agreements to comply with a Block Exemption. Both the Commission and the Community Courts have tried to mitigate the imperfections with the system. The Commission mainly by facilitating the administration system and the Community Courts by reducing the scope of Article 81(1). However, the steps taken have not been enough to make Article 81 function as intended, namely to sort out harmful vertical distribution agreements and allow the beneficial ones. On the 1 June 2000 a comprehensive Reform of the competition policy on vertical distribution agreements took place. Vertical agreements will even after the Reform be assessed under Article 81 and fall foul of the prohibition in Article 81(1) to the same extent as before. However, a new wide Block Exemption has been adopted and the compulsory notification abolished in relation to vertical distribution agreements. The intention is to introduce a new system, which is more efficient and directed by economics. In principle it is appropriate to maintain the assessment of vertical distribution agreements under the heading of Article 81. Nevertheless, it would have been desirable with some clarifications from the Commission to make undertakings more certain how to apply the Block Exemption and assess the likelihood for individual exemption. Furthermore, the Single Market objective still takes a too predominant place in the system, which threatens to impair the economic analyses. The new system has a potential to effectively protect competition in relation to vertical restraints. However, there is a risk that the new system will soon degenerate and adopt the same shortcomings which the old one suffered from. To avoid this, the Commission must by all means uphold efficiency, firstly, by better educating undertakings how to assess their agreements, and secondly, by safeguarding fast decisions when agreements are challenged in national courts.
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