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Vertical Restraints Policy in the EU: Open Questions in the Face of Policy Compromises

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Vertical Restraints Policy in the EU: Open Questions in the Face of Policy Compromises I SSUE 3-4, 2011 Vertical Restraints Policy in the EU: Open Questions in the Face of Policy Compromises By Peter Alexiadis (Partner, Gibson, Dunn & Crutcher LLP/Brussels) & Alison Kop (Associate, Gibson, Dunn & Crutcher LLP/San Francisco)* I. Introduction practices, the Commission ran a Public Consulta- Although the view is commonly expressed tion process in the year 2009 with all relevant around the world that vertical agreements stakeholders. This consultation process culmi- (between economic operators at different parts nated in a significant recalibration of policy of the supply chain) are less harmful to competi- objectives in the arena of vertical restraints tion than agreements between competitors (at under EU competition rules which now reflect, the same level of the supply chain), one of the inter alia: enforcement priorities of the European Commis- sion (‘‘the Commission’’) for well over fifty years changes in the way in which economists has been to prevent manufacturers from dividing consider ‘‘efficiencies’’ to arise from vertical up the European Union (‘‘EU’’) by entering into commercial relationships, the need to take a agreements with their distributors not to export more ‘‘effects-based’’ approach towards goods to another Member State (i.e., geographic restrictions of competition in general, and a segmentation). The emphasis on the enduring more realistic approach as to the types of need of European competition policymakers to conduct which infringe Article 101TFEU by support the realization of the Common Market – reference to their object (assessed in a manner and thereby to support intra-brand competition more akin to a per se violation) or by their as much as inter-brand competition - has been so effect (assessed in their particular factual strong that their approach to vertical restraints setting); arguably presents the most stark example of the a shift the institutional dynamic between the differences in antitrust enforcement between the enforcement practices of the Commission world’s two leading antitrust legal models which and the National Competition Authorities dominate global commerce. of the EU Member States adopted since 2004 through the provisions of Regulation Impetus for change 1/2003; In response to a series of emerging shifts in the raising by the European Courts of the economic thinking, the institutional administra- standard of proof required to be satisfied tion of competition rules, and commercial by the Commission in those cases where it *The views of the authors are personal, and do not necessarily reflect the views of the Firm’s clients. Many thanks to A´ lvaro Garci´a-Delgado and Elissavet Kazili of the Brussels office of Gibson Dunn for their invaluable research skills in assisting the authors in the production of this paper. Thanks also to Rachel Brass of the San Francisco office for her helpful comments on the an earlier draft of this paper. Any errors of judgment or interpretation remain exclusively those of the authors. [ 31 ] This article originally appeared in The Antitrust Report, a twice-yearly newsletter published by LexisNexis. It is available both in print and online. ANTITRUST REPORT seeks to establish the existence of tacit anti- between suppliers and distributors.7 As such, competitive agreements between firms at they are supposed to guide firms in their ‘‘self- different levels of the production/distribu- assessment’’ of whether their vertical practices tion/maintenance value chain;1 are enforceable in EU Member State courts.8 significant shifts in value brought to the That guidance is all the more important given global marketplace through the rise of the the fact that the decentralized model of antitrust Internet as a means of distributing goods enforcement set forth in Regulation 1/2003 means and services, on the one hand, and the recog- that the old system of pre-notification of agree- nition that market power is increasingly ments exclusively to the Commission has been resting in the hands of large European retai- completely overhauled. Under the new regime, lers, on the other; and not only are parties involved in distribution rela- the migration over time of certain markets tionships expected to have a greater level of from a national level to a pan-European understanding of the antitrust principles to be level. applied in any self-assessment exercise in which they engage, but national courts and regu- Adoption of a new vertical restraints regime latory bodies are also required to be more familiar with the application of those principles TheendresultofthePublicConsultation in the event of the inevitable wave of national process was the adoption by the Commission of litigation that will occur under the new regime.9 a new vertical restraints regime which came into The recalibration of Commission policies is effect on 1 June 2010, made up of an updated set reflected in the fact that the new Guidelines of interpretative Guidelines on Vertical Restraints 2 adopt an explicitly more lenient view on vertical (released on 19 May 2010), having previously restraints than had ever occurred in the past fifty approved the revised Block Exception Regulation 3 years, explaining that ‘vertical restraints are gener- 330/2010. As a result of the changes effected, ally less harmful than horizontal restraints...,’ (at vertical distribution agreements are now sub- para. 6), and requiring that the assessment of ject to a single overarching block exemption— vertical restraints be undertaken in the context Regulation 330/2010,whichreplacedRegulation 4 of the wider objective of achieving an integrated 2790/1999, although agreements entered into internal market. The new Guidelines also repre- under the auspices of the vertical restraints sent a shift in competition objectives, based on regime before the adoption of Block Exemption the application of a sounder economic analysis. Regulation 330/2010 will continue to benefit Thus, whereas the previous version of the Guide- fromthesafeharbororiginallyavailableto lines stated that the main objective of the EC them. This Block Exemption Regulation brings competition policy is to protect competition (at together a number of more narrowly defined para. 7), the new Guidelines shift the ‘primary’ block exemptions for particular types of distribu- 5 objectives, by stating that the objective of tion, and applies to all agreements which meet Article 101 TFEU is to ‘ensure that undertakings the conditions contained in that Regulation. It is 6 do not use agreements ... to restrict competition on due to expire on 31 May 2022. the market...’. The operation in tandem of the new Guidelines The new approach reflects the Commission’s and Block Exemption Regulation does not obviate recognition that certain agreements might be the need for an analysis of the competitive effects pro-competitive under various factual scenarios, of vertical agreements on their own terms, but with the agreements themselves not needing to these instruments do map out the presumptions be prohibited ab initio in order to protect compe- and analytical framework which the Commis- tition on the market; instead, the effects of the sion would apply in assessing the compatibility agreements need to be assessed in their own of certain types of agreements entered into [32] I SSUE 3-4, 2011 particular circumstances. This is also consistent to customers. However, the Court did not with the balancing exercise expected from express its own views on whether the restriction National Competition Authorities when acting by object could be justified on the basis of the under the auspices of Regulation 1/2003 in their criteria set forth in Article 101(3) TFEU, prefer- application of Articles101(1)and(3)TFEU. ring to leave that decision in the hands of Taking these principles into account, the Guide- the relevant national court involved in the lines go on provide guidance on a number of proceedings. advances in distribution techniques, particularly Given that the genesis of the dispute in this with respect to the emergence of Internet sales. case stems from the time when the Public The changes effected in June 2010 (discussed in Consultation on the vertical restraints regime Section III below) have gone a long way towards was already underway, and given the fact that bridging the significant gap that had existed national courts continue to have very little between vertical restraints policy applied across guidance on how to apply the criteria listed in both sides of the Atlantic (recent US policy devel- Article 101(3) TFEU to a particular factual situa- opmentsarediscussedinSectionIIbelow). tion under the new regime, the final resolution of However, while it is clear that progress has this case before the French courts will hopefully been made in bringing together the different provide practitioners with greater legal certainty streams of economic theory, institutional compe- as to how to advise suppliers and distributors in tence and commercial developments, achieving anything other than the most straightforward of the confluence of these streams reflects a series of distribution scenarios. policy compromises which are just as easily capable of producing strained legal interpreta- II. Developments Across the Atlantic tions and distorted commercial decision- making. As such, they are most prone to different The process of re-evaluating the economic and legal standards by which to assess vertical rela- interpretations in practice, and hence likely to generate a wave of litigation across the EU,
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