CEU eTD Collection

Supervisors: ProfessorTiborVá In partialfulfillment of therequirements forthedegreeof E XCLUSIVE

A Department ofLegalStudies Central EuropeanUniversity NTITRUST Doctor of Juridical Science Doctor ofJuridicalScience D Budapest, Hungary ISTRIBUTION Dragan Gajin Submitted to 2011 By A

rady andProfessorJulesStuyck © CentralEuropean University, 21May2011 SPECTS OF A GREEMENTS

CEU eTD Collection pertinent implicationsfor thearbitralproceedings. territories should beconsidered asmandatory la two jurisdiction havetowards thelegality of excl issues ispotentially stricter intheEU thanin arbitration both intheU.S. andtheEU; thatth antitrust issues arising outofan exclusiv between exclusivedistributionagreements andarbi to theEU’s approachtoexclusive territories facilitating privatedamagesactionsintheEU ofthefiningpolicy,trendtowards argues that,ifnotfollowedbyareconsideration the EU, essential role of the Commission anditsviews isstressed. Further, the paper damages havecontributedtothecurrentstate As fortheU.S.,emphasisisonwayin also addresses some enforcement aspects with airtight exclusivedistributionagreements, borderswith which structured ruleofreason.Conversely,thepa approach towardsnon-airtight per selegality,isqualifiedas reason asthe optimal rule. Compared to this appropriate approachforjudgingthelegalityof exclusive territories.Tothis laws ofthesetwojurisdictionscanbeseenas of exclusive distribution agreements. Themain This paperanalyzes thewayinwhichantitrus end, thepaperfirstlaysdownwh inappropriate. Ontheotherha exclusive distributionagreem A BSTRACT e distribution agreemen rule, thecurrentU.S.approach,borderingwith ii . Finally, thepaperaddressesrelationship the U.S.,inparallelwiththeapproach thatthe e courtreviewofawards per criticizestheEU can leadtoaninadequateoutcome can connected of thelawofexclusive territories.Regarding regards toexclusive distributionagreements. purpose ittoevaluate the extent towhichthe beinginlinewiththeeconomic theoryof w inbothoftheanalyzed jurisdictions,with whichideologyandthe usive territories; finally, thelawof exclusive t lawsof theU.S.EUassess legality exclusiveterritories, tration. Inthisrespectthepaperfindsthat

nd, thepaperpraisesEU’s ents, characterizingitasa per seillegality.Thepaper at itconsidersasthemost ’s toughstancetowards t canbereferredto dealing withantitrust identifying aruleof existence oftreble CEU eTD Collection Finally, Iwouldliketothankmy colleagues contributed tothefinaloutlookofpaper. I wouldalsoliketoth dissertation; Ihavebenefitedalo I wouldliketothankProfessorVáradyforgui ank ProfessorStuyck;hi t from hisknowledge andexperience. A CKNOWLEDGMENTS for thesupportin iii s commentsontheearlierdrafts significantly ding me through theprocessofwritingthis

last threeyears. CEU eTD Collection 8 Sources...... 7 Conclusion ExclusiveDistribution andArbitration...... 6 ExclusiveDistribution a 5 ExclusiveDistribution inEULaw...... 154 4 ...... 107 ExclusiveDistribution inU.S.Law 3 2 Theoretical Underpinnings...... 1 Introduction...... Tbeo eiltv n eae aeil ...... Tableoflegislativeandrelated materials Tableofcases...... 349 8.4 ...... Periodicalmaterials andworksincollection 8.3 8.2 ...... 8.1 Books Identifyingthemain problems...... 6.2 Arbitrability 6.1 of Exceptionstotheprohibitionof ...... Developments afterConsten-Grundig 4.4 4.3 Thelegalframework...... 154 4.2 The 4.1 early cases...... Allocationofexclusiveterrito 3.5 3.4 Post-Sylvania 3.3 Sylvania...... developments Thelegalframework...... 107 3.2 The 3.1 early Towardsanappropriateruleforexclusiveterritories...... cases...... Exclusiveterritoriesandefficiency 2.5 ...... Potentialimpact ofexclusiveterritories 2.4 Introductiontoexclusiveterritories...... 2.3 Modesofproductdistribution...... 2.2 2.1 . Mandatorycharacterofthe 6.5 Assessment...... Courtreviewofawardsd 6.4 6.3 Socialcostofenforcement...... 251 5.4 Assessment...... Enforcement intheEU...... 5.3 Enforcement intheU.S...... 5.2 5.1 4.7 Assessment...... Horizontalcooperationandexclusiveterritories 4.6 Parallel 4.5 trade and Staredecisisinantitrustcases...... 3.7 Assessment...... 3.6 antitru price discrim nd Antitrus S st issues...... st UMMARY OF UMMARY ealing withantitrustissues law ofexclusiveterritories ries throughajointventure t Enforcement...... nto ...... ination absolute territorialprotection iv C ONTENTS

...... 322 .....322 ...... 1 ...... 1 ..317 ..317 363 326 322 259 259 176 164 127 121 113 101 141 314 309 283 261 256 228 207 207 204 201 196 189 151 147 89 47 31 5 5 CEU eTD Collection 2 Theoretical Underpinnings...... 1 Introduction...... Ptnilipc fecuietriois...... Potentialimpact ofexclusiveterritories 2.3 Introductiontoexclusiveterritories...... 2.2 Modesofproductdistribution...... 2.1 .. utfctos...... 2.3.1 Justifications Exclusiveterritoriesand resale pricemaintenance...... 2.2.5 Exclusive Some rationalebehindexclusiveterritories...... 2.2.4 territories 2.2.3 ...... Notionandtypesofverticalrestraints 2.2.2 Exclusive 2.2.1 territories ...... defined Distributionthroughanoutsiderepresentative...... 2.1.3 2.1.2 In-house 2.1.1 Direct ...... distribution sales...... 2.3.1.6 Quality ...... certification 2.3.1.5 Specialized ...... information 2.3.1.4 Expanding market 2.3.1.3 Facilitating ...... Wider salesmargins andlowermonitoring costs coverage...... new 2.3.1.2 ...... entry 2.3.1.1 Elimination of ...... free-riding ...... 2.1.3.2 Distributorship ...... 2.1.3.1 Agency Disadvantagesofin 2.1.2.2 ...... Advantagesofin-housedistribution 2.1.2.1 2.1.3.2.3 Exclusive ...... distributorship ...... Agencyanddistributorshipcompared 2.1.3.2.2 2.1.3.2.1 Distributorship ...... defined Commission businessandmediation...... 2.1.3.1.3 AgencyunderEUlaw...... 2.1.3.1.2 ...... AgencyunderAmerican law 2.1.3.1.1 2.1.2.2.6 Legal ...... considerations 2.1.2.2.5 Economies Diseconomies ofscale...... of 2.1.2.2.4 ...... scope Outsiderepresentativesbetterequippedfordistribution 2.1.2.2.3 ...... Integratedmanufacturers bearmore risk 2.1.2.2.2 In-housepresencecanbecostly...... 2.1.2.2.1 2.1.2.1.4 Legal ...... considerations 2.1.2.1.3 Double marginalization...... 2.1.2.1.2 Control 2.1.2.1.1 Transaction costs...... 2.1.3.2.2.6 Tax ...... treatment ...... 2.1.3.2.2.5 Compensation ...... Thelevelofrisk 2.1.3.2.2.4 Authoritytoactonbehalfoftheprincipal...... 2.1.3.2.2.3 ...... Thepassageoftitle 2.1.3.2.2.2 ...... 2.1.3.2.2.1 Control T and exclusivedealing...... ABLE OF ABLE -house distribution v C ONTENTS ...... 12 ...... 12

...... 1 ...... 1 47 31 63 62 59 58 52 47 47 44 40 36 34 31 28 28 27 26 26 25 24 24 23 23 22 20 19 19 19 17 15 14 13 12 12 11 10 5 5 8 6 6 6 5 CEU eTD Collection ExclusiveDistribution inEULaw...... 154 4 ...... 107 ExclusiveDistribution inU.S.Law 3 . Dvlpet fe ose-rni ...... Developments afterConsten-Grundig 4.3 4.2 The early cases...... Thelegalframework...... 154 4.1 Allocationofexclusiveterrito 3.5 3.4 Post-Sylvania 3.3 Sylvania...... developments 3.2 The early cases...... Thelegalframework...... 107 3.1 Towardsanappropriateruleforexclusiveterritories...... 2.5 ...... Exclusiveterritoriesandefficiency 2.4 . Staredecisisinantitrustcases...... 3.7 Assessment...... 3.6 4.3.2 Block exemption 2010 ...... 180 ...... 180 Blockexemption 2010 ...... Thesignificance ofblockexemptions 4.3.2 4.3.1 CasesbeforetheCommission...... 4.2.3 ECJ 4.2.2 ...... cases 4.2.1 The ...... Forms ofanalysis Goalsofenforcement...... context...... 4.1.3 ...... Themain sourcesoflaw 4.1.2 4.1.1 ...... Otherpossiblechallengesofexclusiveterritories 3.4.2 ...... 127 TheSylvaniaruleofreason 3.4.1 3.2.2 Schwinn...... 3.2.1 White ...... Forms ofanalysis Goalsofenforcement...... Motor...... 3.1.3 ...... Themain sourcesoflaw 3.1.2 3.1.1 TheFreiburgSchool(Ordoliberals)...... TheChicagoSchool...... 93 2.4.3 ...... 89 Efficiency,welfare,andgoalsofantitrust 2.4.2 2.4.1 ...... 2.3.2 Concerns 4.2.3.2 Consten-Grundig...... 4.2.3.1 Maschinenbau 3.4.2.2 Horizontal ...... 3.4.2.1 Boycott...... Beforethelowercourts...... 3.4.1.2 BeforetheSupreme Court 3.4.1.1 ...... 2.3.2.8 Price Softeningupstream competition ...... discrimination 2.3.2.7 Higherpricesandloweroutput...... 2.3.2.6 ...... 74 2.3.2.5 Facilitating Deterringnewentry horizontal ...... 2.3.2.4 Specialservicesmay beover-supplied ...... collusion ...... 2.3.2.3 Advertisingandbarrierstoentry 2.3.2.2 Privatev.generalinterest...... 2.3.2.1 ...... Healthandsafetyconsiderations ...... 2.3.1.8 Loweringthecostsofdistribution 2.3.1.7 ries throughajointventure vi ...... 176 164 127 121 113 101 141 151 147 176 170 168 168 166 164 163 159 154 138 135 135 130 127 117 113 111 108 107 89 99 83 82 77 75 72 68 67 67 67 65 CEU eTD Collection ExclusiveDistribution a 5 5.3 Social cost of enforcement...... 251 Socialcostofenforcement...... 251 5.3 ...... Horizontalcooperationandexclusiveterritories 4.6 Parallel 4.5 trade and Exceptionstotheprohibitionof 4.4 . Enforcement intheEU...... 5.2 Enforcement intheU.S...... 5.1 4.7 Assessment...... 5.3.1 Enforcement errors...... Healthandsafetyconsiderations 4.4.6 ...... Dealingthroughasubsidiary 4.4.5 Specific 4.4.4 ...... sectors 4.4.3 New Lackofappreciableeffect...... 190 entrant...... 4.4.2 4.4.1 Active ...... sales 5.2.2 Private ...... enforcement 5.2.1 Public ...... enforcement 5.1.2 Private ...... enforcement 5.1.1 Public ...... enforcement 4.4.2.2 On inter-state trade...... 193 Oninter-statetrade...... 193 4.4.2.2 4.4.2.1 On competition...... Assessment whentheblockexemption doesnotapply...... 4.3.2.2 Theapplicationoftheblockexemption...... 4.3.2.1 ... Privatedamagesactions...... 5.2.2.3 ...... 5.2.2.2 Nullity Euro-defenseandeuro-offense 5.2.2.1 5.2.1.3 National Nationalcompetition authorities...... courts...... 5.2.1.2 TheEuropeanCommission...... 228 5.2.1.1 ...... Inparidelictoandenforceability 5.1.2.3 ...... Theelements ofdamages actions ...... 5.1.2.2 Exclusiveterritoriesandtrebledamages 5.1.2.1 ...... 214 StateAttorneysGeneral 5.1.1.3 TheFederalTradeCommission...... 5.1.1.2 TheDepartment ofJustice 5.1.1.1 .... Cnlc flw sus...... Conflictoflawsissues 5.2.2.3.4 Article101(3)analysis...... 4.3.2.2.2 Article101(1)analysis...... 4.3.2.2.1 .... Distributors’andsupplie 5.2.2.3.3 5.2.2.3.2 The Commission’s standpoint...... 5.2.2.3.1 ECJ case-law...... Theamount ofdamages...... 5.1.2.2.4 ...... 5.1.2.2.3 Standing 5.1.2.2.2 Antitrust injury...... 5.1.2.2.1 Causation...... 5.2.2.3.4.3 Multiple damages...... 5.2.2.3.4.2 Applicable ...... law 5.2.2.3.4.1 Jurisdiction...... 5.2.2.3.1.2 Manfredi...... 5.2.2.3.1.1 Courage...... price discrim nd Antitrus t Enforcement...... nto ...... ination absolute territorialprotection vii rs’ righttodam ages...... 196 189 228 207 207 204 201 251 249 248 247 247 196 195 194 193 190 189 188 182 182 180 244 241 239 237 237 237 235 233 233 231 230 228 225 224 222 222 221 221 215 215 212 207 207 CEU eTD Collection 8 Sources...... 7 Conclusion ExclusiveDistribution andArbitration...... 6 5.4 Assessment...... 8.3 Table of cases...... 349 Tableofcases...... 349 ...... Periodicalmaterials andworksincollection 8.3 8.2 ...... 8.1 Books Courtreviewofawardsd 6.3 Identifyingthemain problems...... 6.2 Arbitrability 6.1 of 6.5 Assessment...... Mandatorycharacterofthe 6.4 6.2.1 General considerations...... 5.3.2 Inefficient vertical integration...... 8.3.1 U.S. ArbitrabilityofEU 6.2.3 ...... Arbitrability ofantitrust issuesintheU.S. 6.2.2 .. Crusacsta rge adtr ue ...... Circumstances thattriggermandatory rules 6.4.3 Rome ...... Antitrust legislation asmandatorylaw 6.4.2 I...... 6.4.1 ...... 6.3.2 EU ...... 6.3.1 U.S. ... Arbitrabilityininte 6.2.1.2 Theconceptofarbitrability...... 6.2.1.1 ... FTCdecisions (listedalphabetically)...... 8.3.1.2 Courtdecisions (lis 8.3.1.1 Theimpact ofMitsubishi...... 6.2.2.4 Some limitations ofMitsubishi...... 6.2.2.3 ...... 6.2.2.2 Mitsubishi TheAmerican Safetydoctrine 6.2.2.1 Lawapplicabletoarbitrability...... 6.2.1.4 Arbitrabilityinnationallegislation...... 6.2.1.3 ... Theimpact ofEcoSwiss...... 6.3.2.4 ...... Reviewbeforenationalcourts 6.3.2.3 Arbitrators’dutytoapplyEU 6.3.2.2 EcoSwisssecondlook...... 6.3.2.1 ...... 286 Manifestdisregardofthelaw ...... 6.3.1.2 Mitsubishisecondlook 6.3.1.1 6.2.2.3.3 Waiver of remedies...... 275 Waiverofremedies...... 275 6.2.2.3.3 ...... 275 Choiceoflaw 6.2.2.3.2 ...... Domestic v.internationalcontext 6.2.2.3.1 .... tl ...... 6.3.2.3.5 Italy ...... 6.3.2.3.4 Switzerland 6.3.2.3.3 The Netherlands...... 6.3.2.3.2 Belgium...... 6.3.2.3.1 France...... 6.2.2.3.3.3 Equitable ...... reliefs 6.2.2.3.3.2 Litigation costs...... 6.2.2.3.3.1 Treble ...... damages antitru st issues...... st competitionlaw ealing withantitrustissues rnational instrum ted alphabetically) law ofexclusiveterritories viii com ...... petition lawexofficio...... petition ents...... 322 .....322 ..317 ..317 261 256 326 322 259 259 314 309 283 261 261 253 262 355 349 349 281 278 277 277 275 274 274 270 268 268 265 263 313 311 309 307 306 303 302 301 298 298 291 290 290 283 283 CEU eTD Collection

. Tbeo eiltv n eae aeil ...... Tableoflegislativeandrelatedmaterials 8.4 .. te ...... 8.4.3 Other ...... 8.4.2 EU ...... 8.3.3 Other ...... 8.3.2 EU .. S...... 8.4.1 US ... Nationalstatutes(listedalphabe ...... 8.4.3.2 Treaties(listedchronologically) 8.4.3.1 Relatedmaterials (lis 8.4.2.2 8.4.2.1 Legislation (listed Relatedmaterials (listedalphabetically)...... chronologically) 8.4.1.2 Nationalcourts (listedalphabeticallyaccord 8.3.3.1 Commissionalphabetically) decisions(listed 8.3.2.2 ECJandGCdecisions(listedalphabetically)...... 355 8.3.2.1 ... Arbitrationrulesandmodel laws(listedalphabetically) 8.4.3.3 8.4.1.1 Legislation (liste ...... 362 Arbitralawards(listedchronologically) 8.3.3.2 d alphabetically) ted chronologically) ix tically accord ...... 363 ...... 363 ...... n otecuty ...... ing tothecountry) ...... 359 ...... 359 ing tothecountry)...... 368 ...... 368 363 367 367 366 364 364 363 360 355 368 363 360 CEU eTD Collection Guidelines EU Vertical Concept Effect onTrade ECN European ECJ Guidelines DoJ Vertical DoJ De minimis Clayton Act Brussels I BER American ArbitrationAssociation Article 102 Article 101 APR AAA notice Article 102TFEU Article 101TFEU Commission GuidelinesonVertical 101/81 contained inArticles[101]and[ Commission Notice-Guidelines ontheeffecttradeconcept January 1985,50FR6263-03 U.S. DepartmentVertic ofJustice [TFEU] (deminimis), OJ[2001]C368/13 not appreciablyrestrict competiti Commission Noticeonagreements ofminor importance whichdo 52–53 Clayton AntitrustActof1914, civil andcommercialmatters,OJ[2001]L12/1 jurisdiction andthe recognition a Council Regulation (EC)No44/2001of22December2000on U.S. DepartmentAntitrustDivision ofJustice, European CourtofJustice Block exemptionregulation Area ofprimary responsibility Competition A BBREVIATIONS x Network 15 U.S.C.§§12–27,29

102] oftheTreaty,OJ[2004]C nd enforcement ofjudgments in on under Article [101](1) of the on under Article[101](1)ofthe al Restraints Guidelines of 23 Restraints, OJ [2010] C 130/1 Restraints,OJ[2010] CEU eTD Collection NYC NCA NAAG Merger Regulation LCIA ICC Horizontal Guidelines Horizontal BER Guidelines on101(3) Guidance on102 [U.S.]FederalArbitra GC FTC FAA Awards of1958(NewYork Convention),330U.N.T.S.38 Convention ontheRecognition and Enforcement ofForeignArbitral control ofconcentrationsbetween Council Regulation(EC)No139/2004of20January 2004onthe 11/1 European Uniontohorizontalco- applicability of Article101 of Communication from theComm agreements, OJ[2010]L335/43 of theEuropeanUniontocerta on theapplicationofArticle101(3 Commission Regulation(EU) Treaty, OJ[2004]C101/97 Commission Guidelinesontheappli OJ [2009]C45/7 exclusionaryconductbydominantundertakings, [TFEU] toabusive Commission's priorities enforcement Communication from theCommission —Guidanceonthe International Chamber ofCommerce National AssociationofAttorneysGeneral General Court(previously:C London CourtofInte National Competition Authority xi rnational Arbitration tion Actof1925,9USC§§1-14 ourt ofFirstInstanceorCFI) the TreatyonFunctioningof No 1218/2010of14December 2010 in categoriesofspecialisation ission –Guidelinesonthe operation agreements, OJ[2011]C undertakings, ) oftheTreatyonFunctioning cation ofArticle[101](3)the in applyingArticle[102]ofthe OJ [2004]L24/1 CEU eTD Collection Vertical BER TFEU Sherman AntitrustAct of1890,15U.S.C.§§1–7 SMEs Sherman Act Section 2 Section 1 RPM Resale Rome II Rome I Regulation 1/2003 Guidelines Old Vertical Sherman Section2 Act Sherman Section1 Act practices, OJ [2010]L102/1 European Uniontocategoriesofve application of Article Commission Regulation330/2010 115/47 (TheLisbonTreaty) Treaty ontheFunctioningofEuropeanUnion,OJ[2008]C obligations ,OJ[2007]L199/40 Council of11July2007onthelaw Regulation (EC)No864/2007oftheEu obligations, OJ[2008]L177/6 Council of17June2008onthelaw Regulation (EC)No593/2008oftheEu [101] and[102]ofthe implementation of therules oncompetition laiddown inArticles Council Regulation (EC)No1/2003of16December2002onthe 291/1 Commission Notice-GuidelinesonVe Small andmedium enterprises price maintenance xii 101(3) oftheTreaty on

Treaty, OJ[2003]L1/1 of 20April2010onthe rtical agreementsandconcerted applicable tonon-contractual applicable to rtical Restraints,OJ[2000]C ropean Parliament andofthe ropean Parliament andofthe the Functioningof contractual CEU eTD Collection shows howtheAmerican approach hasevol U.S. andintheEU. the papercould beseen asanattempt ofcompar exclusive territories should be.Once themost exclusive territories ispresented. Thisisall inorder toestablish whatan appropriate rulefor anticompetitive effectsofexclusiveterritories. vertical restraint. are andwhy amanufacturer wouldimposeexclus short introduction toexclusive territories. The ai when hemaydecidetoappointanexclusive product; whenhemay decidetoperform dist In thisrespect, itisshown inwhichsituations market hisproductandwhatarethefactorshe product distribution.Thepurposeofthispartis basis fortherestofth antitrust laws. Exactly these aspects areat For example, it canbeseenas exclusive distributor.This t he optsforanoutsiderepresentative,one to thefinalcustomer, throughin-housedistribut The secondchapterpresents theAmericanlaw The centralpartofthefirstchapter belongs The dissertation isdivided into five chapters. Thefirst chapter represents a theoretical In general,amanufacturer may distributehis e paper.Attheoutset,itcontainsadiscussionaboutmodesof ype ofproductdistribut restrictingcompetition andth 1

I NTRODUCTION thecenter of this ribution throughhisown employees; andfinally, ved overtime andhowitreachedthe current option istomarket 1 amanufacturer may optfordirectsalesofhis takes intoaccountwhenmaking thatdecision. distributor. Afterthis, appropriate approachis toadiscussion abouttheprocompetitive and Further, empirical proof ing this approach with ion, orthroughanoutsiderepresentative.If toshowinwhatwaysamanufacturer can m hereistodefinewh products inthreeways:throughdirectsales ive territoriesandnot ion raisesmany interestinglegalissues. of exclusiveterritories. The chapter first

dissertation’s focus. ereby invoketheapplicationof his productsthroughan the chapterpresentsa those prevailinginthe identified, the restof abouttheimpact of at vertical restraints some othertypeof CEU eTD Collection agreements andarbitration. Thisdiscussion is private enforcement. the enforcement effortsandanalyzesome recentdevelopments regarding thefacilitation of exclusive territories.Whenitcomes totheEUpa structure inanattempt toexplainhow thisstructure influenced thecurrent state of thelawof issues willbeaddressedintu enforcement issuesintheU.S.aresomewhat to haveinmindtheprocedure order tobeablecorrectly means analmostoutrightprohibition approach towardstheprohibitionofparalleltr agreements underthepresentEUlegalregime. distribution, italsoanalyzes theissuesof in theEU.Apartfrom providinganhistori aim hereis alsoto compare theU.S.developmen comparing the EUrules withthedesired approa has beenofrelevanceforthedevelopmen venture. Finally,thechapterdealswithdoctrineof chapter also considersthesituationwhereexcl boycott andhorizontalcooperationw addresses some horizontal aspects. Mostnotabl state. Apartfrom purelyvertical Finally, the fifth chapterdealswiththe The fourthchapterdealswithenforcement i The thirdchapterexamines theEUapproa understand thesubstantivelawofexclusiveterritories,oneneeds rn. As fortheU.S.,focusisonoutliningenforcement surrounding theenforcement ofth aspectsofexclusiv of airtight exclusive territories. ith regardstoexclusiveterri t of thelawof exclusiveterritories. 2 mostimportance forexclusivedistribution different from thoseintheEU;bothgroupsof ade between Member States,whichineffect cal overview oftheEUlawexclusive usive territories are allocated through ajoint significant becauseof relationship betweenexclusive distribution ts concerning exclusive territories withthose y, itanalyzes the infl ch laid down inthe theoretical chapter, the Most notably,theempha rt, the goal istoidentify themain actorsin ssues. Thisaspectisimportant becausein ch toexclusivedist e distribution agreements, thechapter also stare decisis e substantive law.The main tories. Relatedtothis,the andthewayinwhichit uence oftheruleson ribution. Apartfrom theimportance that sis isonthestrict CEU eTD Collection with theprocess ofcomparingtheAmerican state ofthe lawofexclusive territoriesin a without takingintoaccountthe correctly assessedwithoutconsideringtheprocedure thatfollowsthem. Consequently, enforcement aspects.The rationaleforthisis rules onantitrust had ontheformation of theEuropeanCommunities. developed atanearlierpointintime,butalso development of EUcompetitionlaw. Thisisnot than inEurope.Inaddition, law istakenasabasis,for tworeasons. First, American law of exclusivedistribution withthat down inthe first part of the to compare thecurrent approachesinthesetwo regards tothelawofexclusive U.S. antitrust lawandEU competition lawhave territories canbeconsidered Finally, thechapteraddressesth the levelof reviewthat the courts willafford to the awards dealingwith antitrust issues. antitrust issues (the issue of arbitrability). If the answer isin chapter first determines whether agreement with antitrust implications endsup before anarbitral tribunal. Inthis respect, the dissertation affords attention tocertain issues arbitration hasforsolvingcommercialdisput The jurisdictions analyzed inthis dissertat Another important aspectofthedissertationis as belonging tothis law. paper. Further,thedissertati the American approachhashadagreatinfluenceonthe distribution. Asnotedabove,one procedural rules,onecouldnot e issueofmandatory lawandwhethertheofexclusive the arbitraltribunalwouldha given jurisdiction.Anaddi antitrust lawintheU.S.developedmuch earlier 3 and EUlaw.Acomparis whichmay arise if an ion werechosenbasedontheimportance that becauseoftheinfluencethatAmerican twofold.First,substantiverulescannotbe oftheEU.Inthiscomparison theAmerican on the global level, bothingeneral andwith onlyduetothefact thatU.S.antitrust had jurisdictions withthetheoretical basis laid es intoday’sworld. that itaffords significant attention to the the positive,arelatedquestionis on alsoaimsatcomparing the ve thepowertodecideon getaclearpictureaboutthe aspect ofthedissertationis exclusivedistribution tional reasonhastodo on thatinvolvesonly Consequently,the CEU eTD Collection covered (analyzed further inthepaper). down inthe theoretical chapter) withtheonethat case canbebestseenbycomp Other factors,suchasideologya exclusive distributionbothintheU.S.and exclusive territories.Neverthele approach, aseconomic considerationshaveplayed legal literature,butalso asignificantamount ofeconomicwriting. Thisisaninevitable effects ofexclusive distribution agreements. In only oneof thetwoischanged, theequilibrium inalegal system may bedisturbed. have inmind withregardstothepossiblechanges balanced byproceduralrulesth of substantiverules.Sometimes thesubstantive between the twolegalsystems. Procedural rule substantive rulescould beflawedinthesense The dissertationtoacertainextent represents at make enforcement more difficult. This isalso important to aring therulebasedsolelyon economic considerations(laid ss, thepaperwillshowthatcurrentstateoflaw nd politics,alsoplayarole.Th the EUisnotbasedsolelyoneconomic theory. 4 that itmight notfullycapturethedifferences thisrespect thepape s cantoagreat extent modifytheperception law provisionsconsideredastooharshcanbe averyimportan iscurrently prevailing inthejurisdictions a reviewofthecurrent literature onthe in eithersubstantiveorprocedural law.If e extenttowhichthisisthe t roleinshapingthelawof r considersnotonlythe CEU eTD Collection 5 4 3 2 1 selling usuallyoccursthroughprinte his productdirectly product. the servicethroughhisownemployees the productdoesrequiresuchservice,manufact the most significantonesiswhethertheproduct market aproductdirectly,themanufacturer takes thereby avoidingthelevels ofwholesaleandre 2.1.1 2.1 exclusive territories. concludes with whatthis paper considersanoptimal antitrust rulefor judging thelegality of procompetitive andanticompetitive effects of ex Subsequently, asubstantialpartofthech territories and comparing thistype of restraint withsome othervertical restraints. other form ofproductmarketing. Thechapterc manufacturerexplaining whya It doessobyfirstdivingin ABA Id. Id. Id. Id. at 1. at 1-2. at 1. at 2. The purposeofthischapteristolayoutatheo

Modes ofproductdistribution S ECTION OF There arecertaintypesofproductsthatam In general,directsalescanbeperformed Direct sales 3

A NTITRUST NTITRUST throughthefirm’s factorybranches. 2 L

AW

, A T to theeconomics ofproductdi HEORETICAL HEORETICAL NTITRUST NTITRUST would wanttooptforexclus d catalogsorthroughtheInternet. 2 L oroptforanoutsiderepresentativetomarket the AW AND AND AW 5 apter isdevotedtopresentingthepossible U requires point-of-saleorafter-saleservice. ontinues byintroducingthelawofexclusive tail. When facedwithadecision whetherto clusive territories. Based onthis,thechapter in twoways.First,amanufacturer may sell E into accountseveralco NDERPINNINGS CONOMICS OF OF CONOMICS retical basisfortherestofdissertation. a urer shouldeitherbepreparedtoprovide nufacturer canselldirectlytoconsumers,nufacturer 4 However,intoday’sworlddirect P ive distribution and not some ive distributionandnotsome RODUCT RODUCT stribution, withthegoalof

D 5 TheInternet isatool ISTRIBUTION nsiderations. Oneof 1 (2006). (2006). 1 1 If CEU eTD Collection OF ECONOMICS makes thenumber ofpotentialcustomers virtuallyunlimited. distributor. Inaddition,thefactthat hedoesnothavetosetuphis minimum, as salesinthismannerBy performing amanufac 11 10 L 9 8 7 6 about transactioncostsandthei account thetransactioncostsofeach. determine whichof the twosolutions is less solution would belesscostlythandealingwith 2.1.2.1.1 2.1.2.1 2.1.2 representative, arestillthemost comm marketing solutions,suchasperformingdistri manufacturer markets theproduct endanger hisrelationshipwithexistingdistri person beforedecidingtopurchasethem. Inaddition,manufacturer’s suitable foron-line purchase. that manufacturers canusenotjust for advertising theirproducts butalso for selling them. Whelan, restraints, such asthe expenses of the lawyers required to draft andenforce contracts. N. Popular consumer goods are thistype more goods for apt consumer Popular Wegener, Richard J. Wegener, See AW AND Transaction costs are costs that parties incur in the inthe pr that partiesincur arecosts costs Transaction See Whelan,

infra

Although thevolume ofInternetsa A rationalm In-house distribution , E.C.L.R. 2010, 31(1), retail, E.C.L.R. 2010, age of online the in Selective distribution E SP050 ALI-ABA 43, 123 (2009). For the advantages of selling through the Internet, seePeter Internet, the selling through of advantages ALI-ABA the SP050 For (2009). 43, 123 Advantages of in-house distribution distribution in-house of Advantages Part 2.1.3.2.3 (about dual distribution). distribution). dual (about 2.1.3.2.3 Part CONOMICS OF OF CONOMICS supra note 6, Transaction costs supra noteat 30. 6, 211

(2004). Restricted distribution 2009: thirtysomething Sylvania and the state of nonprice vertical vertical nonprice of state the and Sylvania thirtysomething 2009: distribution Restricted . anufacturer would anufacturer at 124. P RODUCT RODUCT 9 D

Therearecertaingoodswhichc ISTRIBUTION ssue ofwhetheracertainfuncti directly tofinal customers. on wayofprovidinggoodstoconsumers. 11 have vertically integrated distribution only if sucha Oneofthegreatestcontributors tothediscussion , supra of sales than capital and other durable goods. A les isconstantlyontherise, ternet doesnotrecognizeadministrative borders ocess ofagreeing and followi bution in-houseoractingthroughadistribution 6 butors, sincetheywouldbebypassedifthe expensive, themanufacturer hastotakeinto note1-2. 1,at own distributionnetwor turer cankeephisdi adistributionrepresen 7

on shouldbeperformed inside 10 onsumers prefertoinspectin

G Forthis reason traditional 26-37,at 29-30. REGORY ng through on a bargain, 8 stribution costsata notallproductsare k oruseanoutside Internet salesmight M tative. Inorderto ANKIW ,

P NTITRUST RINCIPLES 6

CEU eTD Collection 16 A 15 14 13 12 circumstances. Thelonger theduration ofthe lower theparties’transacti thereby avoidingcertaincosts.However,al a long-term legalrelationshippart rather than several shor transaction costs. in-house distributionevenifdealingwithanout potential thattranscends thatofthemarket. as they occur. contracting for theirresolutioninadvancehewoul manufacturer tolowerthetransaction cost transactions costsofdealingwithanagentor outside representativewhen the transaction costsofprovidingitinthemarket. its ownonlyincaseswherethecostsof market. and concluding aseparatecontractforeachexchangetransactionthattakesplaceonthe perform certainfunctionin-house, afirm a has the firm isRonald Coase. also the American Economic Association Lateral Integration Lateral Coase, E. Oliver Williamson, 8 P Coase, R.H.Coase, MERICAN Sanford J. Grossman & Oliver D. Hart, HILLIP HILLIP Coase alsoemphasizes thatif Applied totheissueofdistribution,amanuf 13 note 12, at 391. at 391. supra 12, note at 390-91. supra 12, note This means thatafirm willacquire aservi E A CONOMIC CONOMIC REEDA REEDA The Nature theFirm Nature of The 14 , T Inaddition,undercertainconditions & HE R

D EVIEW The Vertical Integration of Production: Market Failure Considerations J ONALD ONALD OURNAL OF OURNAL ter ones, certaintransactioncosts can beavoided. 12 , Vol.61,No.2,Papers and Proceedings Coaseargues that,whendeciding F.

on costsitcanalsoexposethem totheriskof changed T

URNER (May, 1971), pp. 112-123, at 112. at 112. 112-123, pp. 1971), (May, P , E OLITICAL costs ofhavingverticallyinte CONOMICA ies canavoidtheneedto(re)n ,

The Costs and Benefits of Ownership: A Theory of Vertical and Vertical Aand of ofTheory Ownership: andBenefits Costs The A partiesmake onecontract NTITRUST LAW LAW NTITRUST E CONOMY 15 , New Series, Vol. 4, No. 16 16 (Nov., Series,Vol. No. 1937), 4, pp. 386-405. , New distributor.In-housedistributionmay the enable Thisexplainswhyamanufacturer might optfor doing something in-housearehigherthanthe s sinceinsteadofanticipatingproblems and though alastingcontract 7 side representativewouldincurrelativelylow to takeinto accountthe costsofnegotiating contract, thehigherthis , Vol. 94, No. 4 (Aug., 1986), pp. 691-719. 691-719. pp. 1986), (Aug., 4 No. 94, Vol. , d beableto adjustfor future contingencies acturer willoptfor distributionthroughan 129 ce inthemarket rather than perform iton

(1989). (1989). afirm may possesscoordinating oftheEighty-Third Annual Meeting of whether itwouldbeefficientto grated distributionsurpassthe foralongerperiodoftime egotiate thecontractterms, ual arrangement can 16 riskwouldbe.In Thisisbecausein , T HE See CEU eTD Collection 21 20 19 A 18 R 17 only limited controloverhisagentsanddistributors. employees involvedinth product willbesold. integrated manufacturer hascomplete control distribution processthantheonethatisacting throughanoutsiderepresentative.An 2.1.2.1.2 acceptable tobothsides. will still have to“negotiate” withhis ownempl will not completely avoid transaction costs if he which means thatcertaintrans continually involvedinrenegotia on aseriesofshort-term or example, AlchianandDemsetz emphasize that Ithasalsobeenarguedthatintoday’swo acquiring aservicethroughanemployment cont have anticompetitive effects, meaning thatantitrust lawsmay apply. a viablesolution:the longer theduration of thecontract, the more likelyitisthatcould addition, thereisareasonoflegalnaturew Treaty on the Functioning the Euro of theFunctioning on Treaty But see five years).But OJ [2010] L 102/1 (Vertical BER), Art. 5(1)(a) (excluding exemption for non-compete obligations exceeding 8 A Armen A. Alchian &Harold Demsetz, EV MERICAN R Id. See, e.g. ICHARD ICHARD . 491, 501 (1984) (“the duration of the franchise is irrelevant to the economic inquiry”). at 777. REEDA In gener , Commission Regulation 330/2010 of 20 April 2010 on the application of Article 101(3) of the E C Control CONOMIC CONOMIC & HRISTOU

T URNER Louis M. Solomon & Robert D. Joffe, Exclusive distributionand antitrust al, avertically integrated manuf ,

R I , supra NTERNATIONAL AGENCY NTERNATIONAL EVIEW 20 Also,hecantoalargeextentmonitortheperformance ofhis note 14, at 129. at129. 14, note , Vol. 62, No. 5 (Dec., 1972), pp. 777-795, at 784. at784. pp. No. 5(Dec., 777-795, 1972), 62, , Vol. e distributionprocess. indefinitelengthcontracts.

actions costsareinevitable. pean Uniontocategories tion ofcontractsthatmustbe Production, InformationCosts, Economic and Organization , DISTRIBUTION hy along-term distributi 8 over priceandotherconditionsunderwhicha mostemployees areactuallyemployed based oyees andcome toacontractwhichwouldbe decides toperform distributionin-house –he rld thereisnosubstantialdifferencebetween 21 acturer hasmuch greatercontrol over the Conversely,amanufact ract andacquiringitinthemarket. For of vertical agreements and concerted practices, , AND LICENSING AGREEMENTS LICENSING AND 18 19 Consequently,theemployer is Thismeans thatamanufacturer acceptabletobothparties, 17 on agreement may not be

urer canexercise , 53 F , 53 868 (2003). ORDHAM , T HE HE L.

CEU eTD Collection , T Restraints Vertical & R.A.Winter, F. Mathewson G. afirm through positive.” organization internal .are 2009), manufacturer’s interests. 27 26 25 24 23 22 manufacturer aboutthecustomers’ On theotherhand,itmight bethecasethatan product tobeimproved, especiallyiftheydonot necessarily havetobethecase.In-housedistri the manufacturer ifdistribution feedback regardingthe product,supposing thatit respond fastertoconsumer views. performing thedistributionfunctionin-house. would optforadistributionrepresentativeonly However, forthishewouldhavetoincurcerta order toalleviatetheproblem, arises withregardstothe effortwithwhich cannot exercisecomplete controloveragents manufacturer, while theagentw the principalfindsdesirable. cannot perfectlymonitor theagen (the agent representative themoral hazard problem may 8 A costs of monitoring the any of “where solution a is not good distribution in-house economic parlance, In M Here the term “agentis understoodas aneconomic agent T Id. HOMAS ANKIW

REEDA

at 2-4, 2-5. As aresult, thereisarisk thatrepresentati Regarding control,ithasalsobeenarguedth , F.

23 supra &

C ) performs ataskonbehalfof

T LASEN URNER note 11, at 480. at 480. 11, note HE ,

I , supra NTERNATIONAL AGENCY AND DISTRIBUTION AGREEMENTS AGREEMENTS DISTRIBUTION AND AGENCY NTERNATIONAL RAND 22 note 14, at 129. at129. 14, note

Inother words,inarelations J OURNAL OF

25 ould beeitheran agentor a distributor. Since amanufacturer is performed byitsownemploy the manufacturer willwant toexercise control over them. Appliedtoourdiscussio satisfactionwiththeproduct. t’s behavior,theagenttendsto 27 E Thislineof reasoningseems torelyoncustomers’ CONOMICS they willpromote themanufacturer’s product.In another person(theprincipal). 26 9 in costs.Consequentl bution employees couldlackincentivesforthe

anddistributors,the , Vol. 15,No.1(Spring,, 1984),at29. outside distributorisdiligentininforming the arise. This problem occurswhenone person ismore likely thatsuchresponsewillreach ves willnotalways actinaccordancewith a and not as an agent in the legal meaning of the word. word. the of meaning legal the in agent an as not and see aclearbenefitforthemselves outofit. if thosecostsarelower thanthe costof at anintegratedmanufacturer isableto hip betweenamanufacturerandhis n, theprincipalwouldbea ees. However,thisdoesnot undertakelesseffortthan y, arationalmanufacturer (Matthew Bender 1990, Bender (Matthew moral hazardproblem An Economic Theory Theory of Economic An 24 If theprincipal

Supp. CEU eTD Collection Vertical Integration and Antitrust Policy Antitrust and Integration Vertical Extensions of the Classic Case 567. 34 33 32 31 30 29 28 will decrease. Asaresult,themanufacturer’s raises thepricehechargestofinalcust will havefor theother firm. only theirownprofit-maximizing pr the retailpriceaboveit. marginal cost,whilethe retailertakes thiswholesalepriceashisownmarginal costandsets above theirownmarginalcost marginal costs, significant .Since the competitive market doesnot upstream ordownstream market is competitive thedoublemarginalization disappears,since higher) profitmaximizing pricethanthemanufacturer. retailer havesignificantmarket marginalization problem. 2.1.2.1.3 OF (Decemberpp. 2006), pp. 347-352). For a relatively extensive discussion about double marginalization, seeJ marginalization, double about discussion extensive a For relatively pp. 347-352). goods, discussed According to price theory, whenever the price rises, James L.Hamilton & Ibrahim Mqasqas, Secrieru, Oana Secrieru, H In modern economics, the problem seems to have been first discussed by Spengler. See I NDUSTRIAL NDUSTRIAL ERBERT H OVENKAMP Since thedemand fortheproductisdetermined bytheretailprice, Let usbriefly considerwhathappensif A m note 30, at 804. at 804. supra 30, note H Double marginalization OVENKAMP anufacturer couldalsooptforin-house anufacturer O infra RGANIZATION Economic Theory VerticalRestraints Theory of Economic 31 , supra bothamanufacturer anda in Part 2.3.1.6. 797-822, at 804. ,

note 29, at 12-13. at 29, 12-13. note F EDERAL ANTITRUST POLICY ANTITRUST EDERAL 32 28 , S 174-75 (1988). (1988). 174-75 Thiswayboththemanufacturer and Theproblem canonlyoccurwhenbothamanufacturer andhis 33 OUTHERN

leadtopricedistortion. power–inthatcasethereta . Themanufacturer willsetth the essenceofmonopoly isthe , T Double Marginalization and Vertical Integration: New Lessons from New from Lessons Integration: Vertical and Marginalization Double E HE HE CONOMIC CONOMIC ice, disregarding theeffect th J OURNAL OF OURNAL omer, thedemand forthemanufacturer’s product retailer wouldwant tosetthe price they charge the demand falls. However, consider the so-called Veblen J 10 336 (2005). OURNAL , J revenue willalsodecline, making boththe P OURNAL OF both amanufacturer an OLITICAL OLITICAL distribution inordertoavoidthedouble , Vol. 62, No. 3 (Jan., 1996), pp. 567-584, at 567-584, pp. (Jan., 62, No. , Vol. 3 1996), 30

29 E Ontheotherhand,ifeither E CONOMY CONOMIC CONOMIC iler willhaveadifferent(and e wholesale price above his e wholesalepriceabovehis the retailertakeinto account ability toset , Vol. 58, No.Vol. 4(Aug., , 1950), at their output restriction S URVEYS See EAN JosephJ.Spengler, d hisretailerhave T , Vol. 20,No., 5 IROLE 34 if theretailer prices above ,

T HE T HEORY HEORY CEU eTD Collection Structure (Jul. - Dec., 1989), pp.409-426). pp.409-426). 1989), Dec., - (Jul. Structure & Ralph Winter, anarticle for 1979); Cir. (9th F.2d 429 601 Ltd., Motors, subsidiary is not subject to Article 101 toArticle101 TFEUscrutiny). is subject not subsidiary Peijper v Sterling Drug Inc. outside the reach of [Sherman Act Section 1]”). For the EU, see Case 15-74 Corp. 467 U.S. 752, 776 (1984) (“[T]he coordinated behavior of a parent and its wholly owned subsidiary falls without more, cannot be held violative of the Sherman Act.”) and Copperweld Corp. v. Independence Tube it could give themanufacturer astrong incentive tovertically integrate. of hisproduct.Thisises minimize theeffectthatantitrust laws haveon Consequently, byperforming distributionin-h profits for the integrating firm manages to eliminate transactions withamonopo S 40 39 38 37 36 35 manufacturer toterminate anagreemen agents anddistributors.Thepurposeofsuchle the EUantitrustlawsgenerallydonotapplyto vertically integrated di 2.1.2.1.4 marginalization problem. integration canbeanefficien manufacturer and the LAW LAW in Court Act of 1956, 15 U.S.C. §§ 1221-1225 (fora 15 U.S.C. §§ 1221-1225 Act Court 1956, of in termination of exclusive distributionagreements indefinite of duration 1961; of [U.S.] AutomobileDealers’ Day Law the unilateral on [Belgian] L382/17; OJ agents, [1986] commercial self-employed States relating to manufactur ifthe even integrates, Therefore, if the retailer is a monopolist, it would be in the interest of consumers that the manufacturer vertically TATISTIQUE Forthe U.S., see: U.S. v. Columbia SteelCo., 334 U. H E.g. See See Id. OVENKAMP at 335. Although it at 335.Although 601 (2004). R , Council Directive 86/653/EECof 18December, 1986 on infra ICHARD Another important factortobetaken into Probably them Part 5.3.2. Legal considerations , No. , 15/16, Dynamiques des marchés etstructures industrielles / Market Dynamics and Industrial ,

W supra , A Regulation Dealer Automobile Economic Effectsof The HISH note note 29, ,

C is counter-intuitive, itseems thatone OMPETITION OMPETITION customer worseoff. stribution istheapplicat ost important legalconsiderati [1974] ECR 1147, para. 41 (the allocation of tasks as between parent and dependent dependent and parent asbetween of tasks allocation (the 41 ECR1147, para. [1974] pecially important

at 336. er itselfis also amonopolist.

t solutionifthatwouldbeth L AW and lowerpricesforconsumers. 608

t withhisdistribut (2009); A (2009); 35 in thepresenceofintrusiv case concerning the the Act, se case concerning Ifthroughverticalinte 11 S. 495, 525 (1948) (“[V]ertical integration, assuch ion of antitrust laws. assessing the impactofthe Act, see Frank Mathewson the wayinwhichheorganizesdistribution conductinsideavertic LISON ouse amanufacturer cantoalarge extent gislation istomake itmoredifficult for a list retailer,theendre account islegislation aimed atprotecting is better than two . thecoordination ofthe laws of theMember on thatmay leadamanufacturer tohave J ONES ONES ion representatives. & e wayofeliminating thedouble

B RENDA RENDA NNALES D NNALES Centrafarm BV and Adriaan de e Sherman v. British Leyland Leyland British v. e Sherman 37 gration themanufacturer S e antitrustlegislation,as BothintheU.S. andin UFRIN 39 36 'É ally integratedfirm. sult willbringhigher

Therefore,vertical CONOMIE ET DE DE ET CONOMIE ,

EC 40 COMPETITION COMPETITION Thepresence 38

CEU eTD Collection 44 43 L. 42 4 41 representative. distribution process,themore likelywi party toshare the risk with. manufacturer alsoassumes allth manufacturer enjoystheentiremargin manufacturer complete controloverthedistri 2.1.2.2.2 for everyfirm,regardlessofitssize. an important considerationforbiggercompanies set uptheirowndistribution. substantial investment bythemanufacturer. Cons solution –establishingare 2.1.2.2.1 2.1.2.2 distribution representativeandra preferred way ofdoingbusiness.As aresult,he of suchlegislationcouldmake themanufacture distribution: the creation of a new legal standard for European Union competition Union for European standard legal of a new thecreation distribution:

C Emmanuel P. Mastromanolis, V (2002). (2002).

Id. 559, 591 (1995). (1995). 591 559, HRISTOU ALENTINE ALENTINE

One ofthem Vertically integrateddistributiondoesnot Disadvantages of in-house distribution distribution in-house of Disadvantages , Integrated manufacturersbearmorerisk In-house presencecanbecostly

supra K ORAH note 20, at 868. at note 20, 868. &

D ENIS ENIS ain argumentsain of infavor O’S Insights from U.S.antitr Insights 41 44 ULLIVAN

tail networkoracquiringan Thisisespeciallythe casewithsmaller firms. Therefore, the larger the risk anduncertainty related tothe ther optforthein-houseoption. e riskrelatedtodistribution, ,

D generated bythesale ISTRIBUTION ISTRIBUTION 12 ll themanufacturer optforadistribution ust law on exclusive andrestrictedterritorial bution process.Consequently,anintegrated r’s positionlessflexible as well–keepingcostslowisanimperative couldbediscouraged equently, some firms may lackresourcesto A in-house distribution isthat itenables a nec GREEMENTS GREEMENTS essarily have tobethemostefficient totheenduser. U existing oneusuallyinvolves NDER THE NDER THE as thereisnoexternalthird EC , 15 andhence affecthis from dealing witha

C

U. 43 OMPETITION 42

However,such P However,itis A .

J.

I NT ' L R B ULES ULES US .

CEU eTD Collection have real expertise. they in which chain supply the levelof the in to specialize businesses isfor today trend the and that fashion of 429 (1965). for theirpurchases. that therewouldbesomeoneonthegroundwhom Also, alocalrepresentativewouldbeableto 50 49 J 48 47 46 45 support. complex goods,sincesimpleproductsusually output, andthefactthatadealerusuallyhasmo distributor couldbethe manufacturer’s toolinovercoming thisgap. originate from acompletely different cultural market isparticularly an assetininterna wholesalers havespecialized that oneofthemain reasonswhyfirms donotdist market andbroader accesstocustomers thanamanufacturer. production andleavethedistributi involved withmanufacturing. concentrates onlyondistribution,itshouldknow proposition thatspecialization manufacturer when itcomes toproductmarketing. 2.1.2.2.3 OURNAL OF OURNAL C RobertBork, Stiglitz, PatrickRey&Joseph G See See LASEN IORGIO C M LASEN ANKIW Further advantages include areduction ofselling costs, more accurate estimation of Similarly, ithas beenarguedthatarepres Som ,

supra M Outside representatives bett E ONTI CONOMICS , e authorshaveargued thatadistributor hascomparative advantage overa

, supra note 22, at 2-1, 2-2. The and the per seconcept: and market division II

supra note 22, at 2-1, 2-2. 2-2. at 2-1, 22, note ,

EC See, e.g. note note 11, COMPETITION LAW LAW COMPETITION 50 , Vol. 26, No. 3 (Autumn, 1995), pp. 431-451, at 432. at432. 431-451, pp. 1995), (Autumn, 3 No. 26, Vol. , This isanespecially important , C

HRISTOU at 283. The Role of Exclusive Territories in Producers' Competition Territories inProducers' Exclusive Role of The 46

Consequently,amanufacturer information aboutthemarket. makes the distributionprocessmore effective.Ifafirm ,

supra on toanoutsiderepresentativespecializedforthisfunction. 349

note 20, at 869. at869. 20, note (2007). Someare ofopinion that vertical integration hasgone out er equippedfordistribution tional transactions, wher 13 providelocalpartsandservice,whichmeans re expertiseinretailingthanamanufacturer. do notrequiremuch servicingandcustomer setting thanhiscustomers. Anagentora entative hasgreaterknowledgeoftheretail customers trustandcouldholdaccountable ribute goods themselves isthatretailers and it much betterthan a 45 Theargument seems torelyonthe consideration whenitcomes tomore might choosetofullyfocuson 47 48 Some authors evensuggest Familiarity with the local e amanufacturer might firm which isalso firm which , 75 L.J. , 75 Yale 373, , T HE RAND

49

CEU eTD Collection and A correlated. are efficiency Prior toKaldor thatpositively itwas and generally expansion considered , T Restraints Vertical the manufacturer exhibits diminishing productivity.” G.F. Mathewson & R.A. Winter, 57 56 55 54 53 52 51 to theproblems incoordination,whicharei the firm becomes, theharder itistomanage a firm growslargerandmorecomplex, problems inmanaging thefirm may arise. the distributionfunctionto of scalearise. circumstances. Finally,iftheaverage totalcost could opteitherforin-housedistributionorfo average total costremains thesa his costs. manufacturer would beinclined the firm producesthe moreefficient andcomp with anincrease inoutput, thefi the quantity of outputcanberelated inthreeways. First,if afirm’s averagetotal cost falls manufacturer’s averagetotalco 2.1.2.2.4 also Kaldor, growth causes a shortage of raw materials or skilled labor. labor. rawmaterialsskilled of or a shortage causes growth increase as the size ofthe whole in firm iscompeting. Consequently, ex costs insidea single firm, while extern M S In other words, distribution in-house would not be an efficient solution when “the entrepreneurial capacity of M effects. anticompetitive also have Economiesscale could of M LFRED Id. LOMAN O ANKIW ANKIW ANKIW at 283. Diseconomies ofscale can be internal and external. Internal diseconom LIVER The Equilibrium theFirm of Equilibrium The M There areseveralreasonsfortheemergence ofdiseconomies ofscale.First,asthe The notionofdiseconom ARSHALL , 52 , , ,

supra supra at 11, ofthe note 283. One this to problemnotice first economists wasKaldor. at 283. 11, supra note at 283. 11, supra note Diseconomies ofscale W Thesecondsituationiswhen afirm hasc ILLIAMSON 54 note 54, at 128. at 128. 54, note Inthepresenceofdiseconomies ofs ,

P , T HE RINCIPLES OF RINCIPLES HE RAND ,

T J OURNAL OF OF OURNAL HE

E J an outsiderepresentative. OURNAL OF CONOMIC CONOMIC dustry increases, which could for example happen when the industry’s

E ternal diseconomies of scale existwh ,TheEconomic Journal, Vol. 44, No. 173 (Mar., 1934), pp. 60-76,at 68-69. CONOMICS al diseconomies ofscale areconcer st andthequantityofhisoutput to verticallyintegrate into di me withanincrease inoutput. rm isfacingeconomies of scale. P OLITICAL OLITICAL ies ofscale ies I NSTITUTIONS OF OF NSTITUTIONS E CONOMICS 265 (1920). (1920). 265 E CONOMY nherently presentin 14 nd adequately allocate its resources. This isdue r adistributionrepresen , Vol. 15, No. 1 (Spring, 1984), pp. 27-38, at 29. at 29. 27-38, pp. 1984), (Spring, 1 No. 15, Vol. , rises withanincrease See etitive itwillbe. In is basedontherelationshipbetweena C , Vol. 89, No. 6 (Dec., 1981), pp. 1228-1238. 1228-1238. pp. 1981), (Dec., 6 No. 89, Vol. , J See APITALISM APITALISM cale, arationalmanufacturer wouldleave 55 OHN

Richard Schmalensee, onstant returnstos S LOMAN stribution sincethatwouldlower ere a firm’s costs per unit of output 163 ned with the industry in which inwhich the industry the ned with 53 Herearationalmanufacturer ,

(1985).

. Theaverage totalcostand E any largeorganization. 51 CONOMICS Thismeans that themore tative, dependingonthe in output,diseconomies ies areconnected with the such circumstances a An Economic Theory Theory of Economic An EconomiesScale of cale, i.e.whenthe 129 (2000). 129 (2000). 56 See Thebigger See, e.g.,

Nicholas See 57

As CEU eTD Collection AND ability than thelargeones, hardly eliminate it.Inaddition,small firms Good management overthedistributionemploy 63 62 E 61 60 59 58 economies ofscope. products. Inotherwords,productdistribution that distribution issometimes profitable for a di process isbecause distribution isof 2.1.2.2.5 distribution function. tasks orifemployeeswouldf would forexample bethecaseifexpansio firm’s growthcausesitsworkerstobecome processes inside the firm,andasaresultdecrease inefficiencycouldarise. integrate intodistribution,itwouldbemore unable toefficientlycontrolthefirm’s operations. actually happeningthroughoutthefirm. the firm grows,itbecomes more and more di CONOMICS LeeE.Preston, EricRasmusen & Todd Zenger, S G K See LOMAN ERALD ORAH C W ONTEMPORARY ONTEMPORARY ILLIAMSON One ofthereasonswhyam ofAnother possiblereasonfortheemergence diseconomies ofscalecouldbeifthe & , W.

supra ,

Economies ofscope O’S

&

S

O TONE ULLIVAN RGANIZATION note 54, at 128. at 128. 54, note Restrictive Distribution Arrangements: Economic Analysis and Public Policy Standards, ,

supra noteat 55, 163. ,

P C ROBLEMS ORE ORE 63 ,

supra Theterm “economies ofscope”seems tohavebeencoinedbyPanzar E CONOMICS , Vol. 6, No. 1 (Spring, 1990), pp. 65-92, at 87. 87. at 65-92, pp. 1990), (Spring, 1 No. 6, Vol. , note 41, , Vol. 30, No. 3 (Summer, 1965), pp. 506-529, at 512. 512. at 506-529, pp. 1965), (Summer, 3 No. 30, Vol. , Diseconomies of Scale in Employment Contracts 61

whichcouldbeanargumen eel as an insignificantly small 187 (2008). (2008). 187

at 4. ten arelatively lowprofit activity. anufacturer woul anufacturer 58 Consequently, themanagement might Consequently, become 15 less motivated andhencelessproductive.This often betteridentifyandrewardtheworkers’ fficult forthemanagement toknowwhatis difficult forthemanagement tocontrolthe n wouldmake employees perform repetitive could beprofitableonlyifitinvolvesthe stributor onlyifhedealswithavarietyof ees couldalleviatetheproblem, butcan 59 Therefore, if a firm would vertically Therefore,ifafirmwouldvertically d wanttostayoutofthedistribution part ofalargeorganization. t againstexpandingintothe , J 62 OURNAL OF Thisisduetothefact L AW ,

L AW 60

CEU eTD Collection J products, i.e. the products that are naturally produced together, such as wool, lambmeat, and mutton. economies ofscope.” exhibits function cost multiproduct .the aresubadditive morelines two or product input to sharable the of services the costs of providing the economists,“[w]henever language of at Inthe 268. pp. 268-272, 1981), Papers and Proceedings of the Ninety-Third the AmericanAnnual MeetingofEc disc. paper no.Bell 33, Laboratories (1975). producing busesandtanks. Because ofspecializedknowledge, product linesinonefirm thantoproducethem separately.” 69 68 67 66 65 64 new product. might havelowercostsinmarketing anewproductthandistributorfocusingsolelyonthe department. undertake thepromotion ofanewproductat illustration wouldbea firm withanestablished marketing department –such a firm can might forthesame reasonhavecostadvantag full capacity. could leadtoaninefficientoutcome, wheredist Consequently, thesituationinwhichdist the maximum andthedistributionnetworkw distribution, this excess capacitywould existif shared bytwoormore productli exploiting some ofthefirm’s excesscapacity,wh and Willig. OSEPH OSEPH S P &Willig, Panzar C.&Robert D. John Panzar Willig, Id. See TONE AUL

J. Panzar & R. Willig, R. Willig, & J.Panzar E. A. , The lowercostsarisingoutoftheeconomies One illustrationofeconomies ofscopeis

supra S

S TIGLITZ AMUELSON AMUELSON 64 69 note 59, at 187. at 187. 59, note Theydefine itasa situation where “it Similarly, adistributorthatalreadyhasexpertiseinsellingcertainproducts , supra

E Id. CONOMICS CONOMICS & The concept of economies of scope should be distinguished fromthe concept of joint note65,

W ILLIAM ILLIAM Economies of Scale and Economies of Scope in Multi-Output Production in Multi-Output Scope Economies of and Scale Economies of 333 68 at 268. Appliedtoourdiscussion,afi

D.

(1993). (1993). EconomiesScope of

N ORDHAUS a firm producingtrucks andcarshasacostadvantagein nes withoutcomplete congestion. ,

E CONOMICS 16 ribution functionwould e overafirm dealingwithonlyone.Another ould beabletohandleadditionalproducts. ribution resourceswouldnotbeusedtotheir , T the distribution infrastructure isnot usedto the manufacturing oftransportequipment. ich becomes possiblewhenthereisaninput HE a lowercostthanfirm withoutsuch of scopearerelatedto 340 A is less costly to combine two ormore MERICAN MERICAN

(1989). (1989). 65

rm distributingseveralproducts E CONOMIC CONOMIC onomic Association (May, be performed in-house 66 R Relatedtoproduct EVIEW theopportunityof , Vol. 71, No. 2, See , econ.

67

CEU eTD Collection distribution andtheeconomies ofscope 72 71 70 outside rep 2.1.2.2.6 to thediseconomies ofscale. effectiveness oftheeconomies ofscope.Inot broadened. involved into multi-product distribution, his manufacturer couldlackexpertiseindistri a sophisticatedonedistributionby may leadtoaninefficientoutcome. Thequoted be costeffective. product isafairlysimple one, more willa verticallyintegrat whether in-housedistributionisanefficientso This paragraphshowsthatthenatureof See Preston, F.M. supra

S from theirprimary suppliers. specialization typically require that retail different skills,attitudes,andspansof automobiles, major appliances, orphoto fit between manufacturer its productisresoldtoconsumers. A own retaildistributionfacilitiesinor manufacturer ofpapertowels,crescent diversity of manufacturers. Itwoul one roofdozensoreventhousandsofpr Retailers commonlysecureeconomies ofscopebyofferingtheconsumer under mostOne ofthe wellknowndiscussions There areseveralwaysinwhichlegalconsiderations canfavordistributionthroughan Despite thepossibilityof CHERER supra Part 2.1.2.2.4. Legal considerations 71 resentative. Onelega Thiscouldmake themanagement of note 62, at 512. at512. 62, note &

D AVID R OSS ,

I NDUSTRIAL MARKET STRUCTURE AND ECONOMIC PERFORMANCE PERFORMANCE ECONOMIC AND STRUCTURE MARKET NDUSTRIAL 72

ed distributionnetworkmake sens a verticallyintegrateddistri l concerncouldbethat certainjurisdictions achieving theeconomies ofscope,integrateddistribution a separateentitymi 70 product linesand retail outlets’ scope, asin

has beenprovidedbySchererandRoss: bution. Inaddition,ifa der tocontroltheconditionsunderwhich nd evenwhenthereisareasonably close 17 her words, multi-producther words, product playsanimportant roleindetermining d beprohibitivelyexpensiveforthe managerial focus,andtheadvantagesof lution. Themore sophisticatedtheproduct, wrenches, orantibiotics to establish its paragraph suggeststhat oducts, oftengatheredtogetherfrom a supplies, thetwostagesrequirequite ers bekeptseparateorganizationally functional rolewouldbesubstantially abouttheconnectionbetweenproduct the firm moredifficult, annulling the ght stillbeabettersolution,sincethe bution networkwouldprobablynot e. Ontheotherhand,if manufacturer wouldget distribution couldlead even iftheproductis simply donot 542

(1990). (1990). CEU eTD Collection 123 Stat115. procedure, Similarly, importregulationsoften requirement, hehasnootherchoicebutto In otherwords, ifamanufacturer wantsto and propellingeconomicgrowth. countries haveinstitutedstimulus programs ai consequences oftheglobalfinancialcrisis.Inor to bethecaseincurrenteconomic situ governments seem tofavordomestic companies in all countries aredeclaratively for unrestrained competition andfree trade,almost all rationale forsuchrequirement tobeth seems 77 76 75 74 73 is achievedbysettingupanew such lawsdonotapplytoconductinsideafirm. distribution generallyenablesa practical limitations. domestic companies;thisshow contracts frequentlyspecifythatforeign where hedoesnothaveanes some countries intheMiddleEastwhereuse allow foreign manufacturers tomarket their prod C See See, e.g. Id. Id. LASEN

infra Rules onverticalmergers couldalsobeof However, ofmore importance arelimita , , American Actof Recovery Reinvestment and 200

Part 2.1.2.1.4. supra 74 making it virtuallyimpossible forthes note 22, at 2-2, 2-3. 2-3. at 2-2, 22, note tablished agentordistributor.

distribution system –amanufact manufacturer toavoidtheapplic s thatthedeclarativesupportfor freetradehassignificant 76 require participationofaloca However,suchprograms aregenerallylimited toaiding suppliers havetobelocallyrepresented. doitthrougharepresentativeontheground. 18 e protectionofdomestic businesses.Although haveaccess tothemarkets withthesaid med atraisingtheleve ation, whentheworldisstillsuffering 77 der toalleviatetheeffectsofcrisis, many of alocalrepresentati However,thisisthe case onlyif integration uct directly. This is 9 (Stimulus Bill), PL 2009, 111-5, February 17, tions of a different kind–governmenttions ofadifferent one wayoranother.Thisespeciallyseems upplier tomarket g relevance. Vertical integration into l representative intheimport urer’s decision to acquirean ation ofantitrustlaws, since for example the casein ve islegallyrequired. l ofeconomic activity oods inaterritory 75 Themain 73

CEU eTD Collection the Sherman Act to forbid a firm’s sales manager to tell his salesmen what prices to charge.” R a to charge.” tellhis firm’s what forbid salesmen prices to Sherman Actto the salesmanager interpreting of theabsurdity in avoiding behelpful may sometimes saleagency between and “[d]istinguishing and for treatment agency distri for antitrust different 2.1.3 market power. manufacturer from acquiringanexistingdistributionnetwork,especiallyifhehassignificant P 80 79 78 Sherman Section1. Act agreements, holdingthatgenuineagencydoesnotrepresentanagreement inthemeaning of the manufacturer until itistransferred tothefinal customer. not acquirefromthemanufacturer thegoodsthat principal’s behalf.Appliedtoth or otherwiseconsentssotoact.” on theprincipal's behalf andsubjecttotheprincipal's control,andtheagentmanifests assent person (a‘principal’) manifests a 2.1.3.1.1 2.1.3.1 on verticalmergers aremorelenien existing downstream firm might in lowerprices anda better allocation of re-sources.” integration and if conducive to cost and price reduction, should be looked upon with favor by a court interested amount of horizontal acompetition-suppressing by if unaccompanied integration, “vertical that conclude Spengler, competition.” to intensify operate from competition, deviations may,ridden economy and isalready ifthe by competition to reduce assuch, serve . does not, integration is integration that vertical show to first economists always not has Antitrust C 31/5. OJ[2004] undertakings, assessment of horizontal mergers under the Council Regulation on the control of concentrations between controltheon concentrations of between undertakings, OJ [2008]C 265/6 OSNER U.S. v. General Electric Co., 272 U.S. 476, 488 (1926). It could be debatable whether it is justified to have R Compare ESTATEMENT ESTATEMENT ,

Distribution throughanoutsiderepresentative American antitrustlawhastraditionally In Am A Agency Agency NTITRUST NTITRUST Commission Guidelines on the assessment of non-horizontal mergers under the Council Regulation Agency underAmerican law erican law,agency isdefinedas“the (T HIRD L AW ) OF OF 154 A 80

(1976). (1976). GENCY GENCY Thedeterminationwhetheran arrangement represents agenuine

§ e issueofproductdistribution,thismeans thatanagentdoes trigger antitrus

79 1.01 ssent to another person (an ‘agent’) that the agent shall act Thekeypartof thisdefinition isthat an agentacts onthe t thanonhorizont

(2006). (2006). usually harmless was Spengler. He noted that “[v]ertical butorship. In this respect Posner has noted that that has noted Posner this respect In butorship. Id. 19 at 352. t rulesonverticalmerg favorably looked at vertical integration. One of the the One of atintegration. vertical looked favorably he markets. Rather,ownershipremains with fiduciaryrelationship had alenient approachtowards agency al integration, supra with Commission Guidelines on the the on Guidelines Commission note 27, at 347. This led him to 78 they can stillimpede the ers. Althoughtherules that arises whenone ICHARD A.

CEU eTD Collection negotiate and conclude such transactions on behalf of and in the name of that principal.”). pur thesaleor negotiate to authority who has continuing also wher for resale pricemaintenance 84 83 82 81 rather actsonthemanufacturer’s behalf. Therefore, here as welltheagent does notacqui an agentasa: 2.1.3.1.2 relevance. upon hisdealer,thedetermination aboutwhethe agency isgenuine.Ontheother hand,ifamanufacturer imposes or adistributorship.From thisitwouldfollowth price restraintsatisfiestheruleofreason,rega Following different approachestowardspr agency wasespeciallyimportantduring the Commission Guidelines on Vertical Restraints, OJ [ OJ Restraints, Vertical on Guidelines Commission U.S.36 (1977). 433 See See Council Directive 86/653/EEC, Art. 1(2) (defining a commercial agent as a “self-employed intermediary intermediary asa“self-employed agent acommercial (defining Art. 1(2) 86/653/EEC, Directive Council Valuepest.com of Charlotte, Inc. v. Bayer Corp., BayerCorp., Inc. v. Charlotte, of Valuepest.com infra the principal,orsaleofgoodsservicessupplied bytheprincipal. name orinthename oftheprincipal,forpurchasegoodsorservicesby contracts onbehalfofanotherperson(t legal orphysicalpersonve Sim

Part 3.2.2. 83 Agency underEUlaw Continental T. V.,Inc. v.GTESylvania Inc. ilarly to thedefinition of agencyinthelawof theUnitedStates,EU lawdefines

e agency agreement isgenuine).

ice andnon-pricerestraintscont sted with thepowertone 2010] C 130/1 (EU Vertical Guidelines), para. 12. Guidelines), (EUVertical 130/1 C 2010] Schwinn era. 20 561 F.3d 282, 284 (4th Cir. 2009) (no antitrust liability antitrust Cir.2009) (no (4th 282, 284 F.3d 561 rdless ofwhethertherelationshipisanagency he principal), either intheagent's own re the product that is chase of goods on behalf of [the principal] . . principal] to or [the of on behalf of goods chase at it is also not of r agencyisgenuineseems tostillbeof , 82 whatmatters isthataverticalnon- 81 Currentlythelawseems have to gotiate and/orconclude ained inagencyagreements. aresalepricerestriction significance whetherthe to bedistributed,but 84

See CEU eTD Collection Agent in Light of Article 81(1) EC: How Many Criteria? Many Article81(1) in Light EC:How of Agent separate undertaki principal fromappointingotheragentsinagive Competition lawmay stillapply if the agencyrelationship isexclusive (i.e. if itprohibits the agent substantially bear thefinancial orco However, thisisthecase onlyifanagencyag 91 90 89 88 87 86 R 85 therefore seldom becondemned. exclusive agency provisionswillonlyra inherent partoftheagencyagreement, ther on theterritoryinwhichag situation ratherthanthelegalform. assessment mustbemade onacase-by-case basis, andconcerningthe economic realityofthe not vestintheagent, or theagentdoes agreement will generally beconsidered asagency whereproperty inthecontract goods does volume 29 , issue 1 , pp. 5-10. the parties or national legislation is not is relevant. not legislation parties or the national cases 56and 58-64 General Court and the European Court ofJustice ina num ofthe Article[101](1) in the prohibition fall under not and on behalf of an enterprise or to conclude transactions in their own name and on behalf of an enterprise, do of the common market, to negotiate transactions on behalf those in which commercialagents with (“[C]ontracts made para I. 139/2921, OJ [1962] Agents, Commercial with Contracts Dealing Exclusive on Notice Commission are the Risks? The CFI's Judgment inDaimlerChryslerAG vCommission Communities the European of 299 ( 13. para. EUVerticalGuidelines, of application the excluded had Commission The EVIEW Id. Id. Id. Id. Id. , para. 19. , para. 18. givento their agreement by –the qualification agreement ofthe , para. matters17. What substance isthe , para. 16. Consten-Grundig , issue 3, volume 2006, pp. 102-107; Emmanuel Dieny, Dieny, Emmanuel 102-107; pp. 2006, volume 3, issue , Also, EUcompetition lawinthe main The principal may decide toimpose territori See also id. Établissements Consten S.à.R.L. and Grundig-Verkaufs-GmbH v Commission ng from theprincipal. ), at 430. Forthe GC, see for example CaseT-325/01 , paras. 14-16 (discussingthetypes of [2005] ECR II-3319, para. 88. para. ECRII-3319, [2005]

ent may sell theproductisgenera 88

Id. 90 , para. 13. However,evenin thiscase itisconsidered that 101(1) to agency agreem to agency 101(1) mmercial riskarising outoftheagreement. not himself supplythecontractservices. rely leadtoanticompetitive effects eby fallingoutsidecompetition lawprovisions. 21 Treaty.”). The exception was later theconfirmed by exception Treaty.”). The reement i.e.ifitdoesnotmake the isgenuine, , E ber of occasions. For the ECJ, see forexample Joined of an enterprise, to conclude transactions inthe name transactions conclude to enterprise, of an UROPEAN UROPEAN agents undertake, for a specified part of the territory territory the part of aspecified for undertake, agents n territory),sinceanagentisconsidereda See also does notapply toagencyagreements. al restrictions upon his agent. Alimitation The Relationship Between a Principal and its risks relevant for this assessment). this for risks relevant C Paul Henty, OMPETITION OMPETITION , E DaimlerChrysler AG vCommission UROPEAN ents alreadyin 1962. lly consideredtoform an Agency Agreements- What L AW C OMPETITION OMPETITION R EVIEW (2008), (2008), [1966 ]ECR [1966 See 91 and will andwill L AW 87 86 The An 89 85

CEU eTD Collection collude on marketing strategy or to exchange se ortoexchange marketing strategy on collude the thirdpartyisconcludedonbehalfandforaccount oftheprincipal. account oftheprincipal.Onth entering intolegalrelationships withthefi collusion betweenmanufacturers. absolute –thegenuineagencysafeharbordoesnotapplyifagreement of whethertheyaregenuineornot.Further, agreements arenotexemptedfr as genuinearenotafforded complete immun 95 94 93 92 commission business,mediation seems toexpose entering intoanylegalrelationshipwithth with athirdperson,withoutpar principal). Ontheotherhand,amediatorassumes the principal withapersonwhowillnegotiate toen otherwise. obligations towardstheprincipalcease,unlessth agreement betweenthe principalandtheth behalf andfor theaccountofprincipal. obligation toperformoneorseve 2.1.3.1.3 the same agents whilecollec Art. 771(1). (asamended), of 1978 Lawon Obligations [Serbian] Id. Id. Id. , Art. 813. , Art. 790(1). ex this for that would note , para. 20. The Guidelines Finally, itisimportant toemphasize thateven Comm 95 Commission businessandmediation From thisitcanbeseen thatamediator isonly theretoconnect theprincipal ission businessis arelationship inwhich thecommissionagent assumes the tively excluding others from using these ag

e otherhand,inregularagency om theprohibitionofabuse ticipating intheexecutionofth ral transactions entrusted tohim bytheprincipal, onhisown 92

nsitive market information between the principals. principals. the marketbetween information nsitive 93 Therefore,in acommi nal customer inhisowncapacity,butforthe 22 eventheexemptionfromArticle101isnot ity from EUcompetition law.First,agency at thirdperson.Compared toagencyand ird partyhasbeenc ample bethecase where a number of principals use e partiesto theagencyagreement stipulated ter into acontract withhim (i.e.withthe the principaltomost risk,sincemediators obligation totryfindandconnecthis agencyagreements thatareconsidered ents, or when they use the agents to agents the ortheyuse ents, when dominant position,regardless agreements thecontractwith e contract,andalsowithout ssion businessanagentis oncluded, theagent’s is usedtofacilitate 94 Id. Oncethe

CEU eTD Collection (1997). (1997). agreements agreement. distribution ofproductswithin is much more important thanthat of anagen manufacturer untilitistran distributor from anagent,sinceinagency thetitletoproductremains withthe from amanufacturer.Atthesame time thisis follows oneofthekeyelements ofthisrela 97 96 the distributionagreement, whichmaycontain his owninteresttochooseth agreement, the resellerobtai manufacturer’sdistributor undertakestodistributetheproduct 2.1.3.2.1 2.1.3.2 assume and theaims he wishestoachieve. business ormediation, theprincipalshouldtakein with athirdperson.Consequently,whendecidingwhethertooptforagency,commission are generallynotassuminganyre Carolita Oliveros, Carolita Ivor Cary Armistead III, Eric Jaeger,

The difference betweenagents Distributorship isarelationshipbetween Distributorship Distributorship , CDII MA-CLE 9-1 (2009). MA-CLE (2009). , CDII 9-1 Distributorship defined 97 Heismainly independentinchoosingth International distribution issues: distribution agreements sferred tothefinalcustomer. ns therighttobuyproductandresellitothers. e most effectivewayofdistri

James Pollock & Elisabeth C. Sanghavi, James &Elisabeth Pollock C.Sanghavi, the assignedterritory,inacco sponsibility regarding and distributorsdoesnotend 23 tionship: adistributoractuallybuysproduct t. Adistributororganizesandimplements the provisions regulatingthe themain characteristic thatdistinguishes a a distributorandm to account thelevelofriskheiswilling to e wayhewillselltheproducts–itisin the contractthatis bution. Heishoweverlimited by in acertainarea.Basedonthe rdance withthedistribution , SB75 ALI-ABA 739, 742 Distributorshipssales and there. Adistributor’s role a distribution process. nufacturer wherethe tobeconcluded 96 From this CEU eTD Collection exclusive distribution agreements of indefinite duration of 1961. regulated 101 100 99 98 manufacturer doesnotimposere distribution process.Attheendofhier an outsiderepresentativebut next inlinewouldberestricted agency, whereamanufacturer also hasalot of the wayinwhichhisproductreaches themarket exercised ifdistributionispe process, thefollowinghierarchyc the application of antitrust laws. to controltheretailpriceor autonomy thewayheconductshisbusiness. regarding Inaddition, amanufacturer’s attempt This is mainly duetothelegal nature of di customers, as well asnot tocompete in anywaywiththeprincipal. charge particularprices,todealonlyonpart much strictercontrolover his control thataprincipal has overanagent/distrib arrangements alsohaveanumber ofdifferences. 2.1.3.2.2.1 2.1.3.2.2 C jurisdictions. casein of amajority This the seems be to D.G. Id. LASEN at 3-11.

G On theotherhand,suchtightcontrolusuall Based onthelevelof controlthatamanuf As aresultoftheirsim OYDER ,

98 supra Agency anddistributorship compared usuallytheprinciplesofagencyapply. Control , noteat 22,3-6.

EC COMPETITION LAW LAW COMPETITION other conditionsunderwhichaproductismarketed couldinvoke rformed in-house–insuchacas

agents thanoverhisdistributors. distribution,i.e.asituationwh a manufacturer imposes certain straints onhisdistributor. ilarity, incountrieswheredist ould beestablished.Certainlyth 180

(2003). (2003). 24 stributorship, whichgivesadistributorcertain archy wouldberegulardistribution,wherea But see But utor. Ingeneral,amanufacturercanexercise sayregardingthedistributionprocess.The icular terms orwith limited categories of iscomplete. In the secondplacewouldbe One ofthemain differencesisthe levelof y cannotbeexercisedoverdistributors. acturer exercises over the distribution [Belgian] Law on the unilateral termination of 99 However,thesetwotypesof ere distributionisperformed by e amanufacturer’s controlover 100 Agentsmaybeinstructed to ribution isnotspecifically restrictionsregardingthe e highestlevel 101

of controlis CEU eTD Collection 2.1.3.2.2.2 the mediator isnotassuming anyriskhimself. In anycase,mediation canbesaid execution oftheagreement, itis mediator ismerely connecting the parties to the completely independent andactsonhisownbe commission agentonhisownbehalfbutforth agency anddistributorship: anagent actsonbeha be includedinthehierarchy.Inthatcaseco 106 105 279 104 103 102 and thefinalcustomer, anddoesnotconcer does hehaveanyliabilitiesunderit. manufacturer andthefinalcustomer means that actually negotiatingandc of theprincipal. they onlysolicitordersforthepr to customers inhis territory. from theprincipalforhisownaccount,takestitle passes toadistributor,whileitdoesnotpassanagent.

C V C C Id.

(1992). HRISTOU HRISTOU LASEN ALENTINE ALENTINE

Another distinctionbetweenagencyanddist To make this hierarchy morecomplete, The factthatanagentis onlyanintermed ,

supra , ,

The passageoftitle supra supra K ORAH noteat 22,3-12. 104 note 20, at 57. at See note 20, 171. also Theycandosoeither byintroducing &

W ARWICK ARWICK oncluding thecontract. 103

A. Ontheotherhand,agentsdonotbuymarketed product;

questionable ifmediationcanbe R incipal orparticipate inthe toplacethehighest OTHNIE C 106 LASEN Thelegalrelationship isbetweenthemanufacturer ,

E XCLUSIVE DISTRIBUTION AND THE THE AND DISTRIBUTION XCLUSIVE mmission businesswouldbesomewhere between n the agent.However, inthe caseof ,

25 supra sales agreement and is not participating inthe commission businessandmediation canalso half andforhisownaccount.Lastly,sincea 105 the agentis notaparty tothatcontractnor iary inconcludingtheagreement betweena e accountoftheprincipal;adistributoris lf of and for theaccountofprincipal;a lf ofandfor to theproductpurchased,andthenresellsit note 22, at3-5. 22, note

r level of riskon th ibutorship is thattitletotheproduct 102 the twoparties to eachother or by Adistributorpurchasesaproduct making ofagreements onbehalf placed in thesaidhierarchy. EEC e manufacturer, since COMPETITION RULES RULES COMPETITION del credere

CEU eTD Collection is notpresumed, andhencehasto 113 112 111 110 109 108 107 risk towhichanoutsiderepres 2.1.3.2.2.4 profit margin isusuallyhigherthantheoneof anagent,inaccordance withtherisk. his principal for far lessindemnification thananagentcould. one hand,thismeans thatadistributorassumes far the principal, whileadistributor’s acts can rarely beattributed tothemanufacturer. principal byhisacts. distributor doesnot. 2.1.3.2.2.3 the case of product, butundertheagreement betweentheagen other words,theagent’sliabilitydoesnot secondary. Thisisopposedtoadistributor’ noted thatalthougha whom failstopaytheprincipal. hefinds manufacturer andthebuyer. agency theagentcan alsobeliablein authorization on behalf of the principal, only if he if only the principal, of behalf on authorization c from contract arising the fulfillmentobligations of C C C C Id. E.g. Id. HRISTOU LASEN HRISTOU LASEN at 3-9. , [Serbian] Law on Obligations of 1978, Art. 801(1) The riskconnectedwiththedistributionpr In general,anagentdoeshaveauthority In , ,

supra supra del credere , , del credere

The levelofrisk Authority toactonbe supra supra noteat 22,3-1. noteat 22,3-5. note 20, at 172. at note 20, 172. at note 20, 173. 111 110 agencythe agentundertakes toindemnify hisprincipal if thecustomer del credere agency theagent isnot liable tothebuyer butonly totheprincipal. Fromthisitalso follows thatactsof anagentcanoften beimputed to Adistributorisan

agent canbe liable to themanufacturer, thisliability isonly half oftheprincipal entative isexposed toand theriskthatamanufacturer bespecificallycontracted for. 107 gives a particular written guarantee in that respect.”). respect.”). a gives inthat particular written guarantee oncluded through his mediation, or concluded by his his by concluded or mediation, his through oncluded Theagent’s obligation toindemnify theprincipal s liability,whichisconsideredasprimary. connection withtherelationshipbetween arise underthecontractwithbuyerof independent contractor, 26 (“An agent shall be liable to the principal for principal to the liable shall be (“Anagent to actonbehalfoftheprincipalwhilea ocess canbedividedintotwogroups:the t andtheprincipal.Consequently, evenin more riskthananagent,ashecanlookto 113 Ontheother,adistributor’s 108 However,ithas tobe and doesnotbindthe 112 Onthe 109 In

CEU eTD Collection through lackofcreditcontro enforce. and hencehavemore capitalfromwhichth The reasonseems tobethatdistributorsgene 117 116 115 114 manufacturer’s product.Ontheonehand,anagentreceivesacommissiononeachsalethat 2.1.3.2.2.5 to thedistributor, the dist delivery, butonlyafterthesaletofinalcustom manufacturer willusuallycreditthe distributor bynotaskingfor thepayment rightafter control overtheextent principal istakingthecr greater fortheprincipaldealingwithanagen of non-payment byhisoutsiderepres often assumeobligations inrelation towa buyer. Consequently,distributors of thegoodsfrom amanufacturer, possible exceptionof agents aregenerallynotliabl risk of bad debts,i.e.theriskthat thefina undertakes bydealingwithanou C C Id. Id. HRISTOU LASEN at 876. Others however arguethatmore principals Agents anddistributorsdonotreceivethe On theotherhand,anexample ,

supra ,

Compensation supra noteat 22,3-13. note 20, at 875. at note 20, 875. del credere oftheriskwhichdistributortakes. ributor willnotbe edit riskonallofthedistribut

e undercontractsbetweenthepr l overtheirdistributors tside representative.Anexampl undertaketheriskofbadde agency). Onthe ot and theyaretheonesentering entative. Ithasbeenproposed of theriskbornebyma l customerwillnotfulfill hisobligations.Asshown, rranty claims,maintenance, andadvertising. abletopaythemanufacturer. 27 t thanfortheonedealingwithadistributor. rally undertakebiggerinvestments thanagents e debtors(includingth sam er ismade. Andif thecustomer fails topay havelostmoney orgoneoutofbusiness her hand,distributors e kindofcompensationformarketinge a or’s customers, withouthavingany than foranyotherreason. 117 bts onthesalestheymake, and Thisisdue tothe fact that the incipal andthebuyer(witha e oftheformer wouldbethe nufacturer would into thecontractwith that thisrisk e manufacturer) could acquireownership seems tobe be therisk 114 116

The 115

CEU eTD Collection 121 120 119 118 agreement cantailortheagreement th manufacturer decidestomarket 2.1.3.2.3 tax liability. manufacturer shouldconsider whether dealing the manufacturer.Inabsenceofan would betaxedbothbythejurisd double taxation.Inthiscontext,taxation taxation oftheagen as permanent establishments, whichcansubject themanufacturer tolocaltaxation (i.e.to manufacturer, especiallyifhe 2.1.3.2.2.6 well, andconsequentlytheyhavemore in invest more intheplacement oftheproduct,ther distributors. distributors undertake. higher than thatofanagent.Thisisundersta not justofdifferentkindbutal the manufacturer andthe pricethey chargeth discount, andthenearnonthemargin betweenthepriceforwhichtheygetgoodsfrom he makes on themanufacturer’s behalf.Onth C C J C ONES HRISTOU LASEN LASEN Party autonom Perform & , ,

S supra supra Exclusive distributorship , UFRIN

Tax treatment 119 supra Risk,remuneration, andentrepreneurialsp noteat 22,3-2. noteat 22,3-14. ing distributionthroughanagentcan ing ,

note 20, at 211-12. at note 20, 211-12. supra noteat 37, 598. t’s jurisdiction). 118 y isafundamental principle Thisalsoseems toexplainwhyagentsarenot asentrepreneurial as

is marketinghisproductsabroad.Agentsareoftenconsidered so ofdifferentlevel hisproductthroughadistributor iction towhichtheagentbelongsandbyjurisdictionof 120 e waythatbestsuitstheirneeds. Thisisparticularly apr centive toincreasesalesthanagentsdo. agreement onavoidingdoubletaxation,the 28 ndable, taking intoaccount thegreaterriskthat e finalcustomer.Thecompensationisusually with anagent couldexposehim toadditional e otherhand,distributorsgetthegoodsata would occuriftheprofitmade bytheagent eby theirriskishigher – adistributor’sprofitmargin isgenerally of contractlaw. Consequently,whena havecertaintaxconsequencesfora irit areinter-connected:distributors , partiestothedistribution oblem ifitwouldleadto 121 , theprofitmargin as Thechoiceofthe CEU eTD Collection from handling the goods of competing suppliers. exclusive distribution is also used to describe the arra this as beon seems track well. to Commission European The 123 122 This form ofdistributionexistswhereama restraints. regardless ofwhetherexclusiv territories clause,regardless of whethertheterritorial protectionisabsoluteornot, and exclusive distribution agreement isdefinedasanagreementthatcontains anexclusive to hisdistributoranex the purposesofthisdissertation Thereseemstobeacertaindegreeof “exclusive distribution”. importance to determine thenot since thatiswhereexclusivedi on theotherwouldbethosethatdo.Thispape one sidewouldbeagreements thatdonotcontai commitment oflocalentrepreneurs. exercise, thecapitalhe wishes parties willdependonseveralfact encompasses allotting an exclusive customer group. authors consider thatapart from a distributor an exclusive right of [1969] ECR 295, paras. 5-7. 5-7. paras. ECR 295, [1969] what this paper considers as exclusive distribution. Oliveros, dealing. define exclusive distributorship as the relationship which combines both exclusive territories and exclusive described arrangement is what this paper calls “exclusive First, the term is used in order to denote the le First,theto denote term inorder isused 8 A REEDA Generally speaking,distributionagreements Related tothedefinition of exclusivedistribution istheconceptof dualdistribution. &

T URNER supra note 97, at 744. Finally, sometimes the term “” is used to describe , supra 123 clusive right ofsales inaspecified territory. Inother words, an sales in a specified territory. territory. salesinaspecified note 14, at2. 14, note Unlessnotedotherwise, anexclusive distribution agreement for llotting anexclusivesales areathe te

to commit toit,his experience ion ofexclusivedistribution. e territoriesarecoupledwith stribution agreements belongto.In refers tothelegalrelationship ors, suchas the level of co 122 Asaresult,distributorshipcantakemany forms. gal relationship in which a manufacturer grants to his tohis grants amanufacturer inwhich relationship gal See See E.g. Solomon& Joffe, ngement where a distributor promises asupplier to refrain 29 , e.g. nufacturer sellsaproducttoanindependent , J dealing” or “single branding”. Further, some authors n restraintsonthedistributionprocess,while r ismainly concernedwiththelattergroup, OANNA OANNA , Case 5/69 confusion aboutthemeaningconfusion oftheterm See See can bedividedintotwogroups:onthe Solomon & Joffe, EU Vertical Guidelines, para. 51. The term G OYDER rm “exclusive distribution” also Franz Völk v S.P.R.L. Ets J. Vervaecke supra ntrol themanufacturerwantsto and hisneedfortheenergy , in whichamanufacturer grants

EU some otherform ofvertical note 17, at 495. However, the

D thisrespectit ISTRIBUTION ISTRIBUTION supra note 17, at 491. Some at 491. 17, note L AW isofgreat 66

(2005). (2005).

CEU eTD Collection Industrial Distribution 128 127 126 125 124 distribution asaver one.” “[o]n balance,dualdistributionsupports averticalcharacterization more thanahorizontal should beconsideredashorizontalorvertic important legal aspects, sinceit manufacturer andthedistributo the downstream market. However,dualdistributi relationship hashorizontalelements, asthemanuf his distributors. in directselling,themore hewillbeobligedto has onhisrelationswithdistributors.They empirical study,FeinandAndersonexamine theeff distributor, sincethelatter’sprofitscould cause some problems in therelationshipbe distributor butalsosellsdirectlytocustomers in the distributor’s area. 1989). 1989). horizontal relationship); International Logistics Group, Ltd. v. Chrysler Corp., 884 F.2d 904, 906 (6th Cir. ‘horizontal.’”); Ryko Mfg. Co. v. Eden Services, 823 F.2d 1215, 1230-31 (8th Cir. 1987) (dual distribution not a at 6265(“[T]hefact Guidelines), Sylvania a Way out? Way a Sylvania Tyler A. Baker, Adam J.Fein & Erin Anderson, 8 A See See, e.g.,U.S. Department Gu VerticalRestraints Justice of 126 Vertical BER, Art. 2(4); EU Art. 2(4); BER, Vertical REEDA Dual distributioninvokessome legalissues.On important theonehand,sucha BothU.S. &

T URNER 125 Interconnected Problems of Doctrine and Ec , 67

, T 127 tical arrangement.

, supra V HE andEU A . J

L. OURNAL OF OF OURNAL

note 14, at 78. at78. 14, note R that asupplier also engages in distribution does not make arestraint EV Patterns of Credible Commitments: Territory and Brand Selectivity in in Brand Selectivity and Commitments: Territory of Credible Patterns Vertical Guidelines, para. 28. 28. para. Vertical Guidelines,

.

1457, 1511-12(1981). 128 r belongtodifferentmarket le might notbeclear if restraints lawseemtobealongthisline,i.e.theyconsiderdual M ARKETING , Vol. 61, No. 2 (Apr., 1997), at 32. 1997), 2(Apr., No. 61, , Vol. 30 diminish by the manufacdiminish bythe al. Despitetheambiguit find thatthemoremanufacturer isinvolved offer exclusiveterritorie tween themanufacturer and theexclusive acturer iscompeting w on isalsoavertical idelines of 1985, 50 FR 6263-03 (DoJ Vertical Vertical (DoJ FR6263-03 50 1985, of idelines ect thatthemanufactur onomics in the Section One Labyrinth: Is Labyrinth: One inthe Section onomics arisingoutofdualdistribution vels. Thisambiguity hassome y, itwouldseem that 124 turer’s action. Inan s, inordertoappease relationship,asthe ith thedistributorin Thesituation may er’s directselling CEU eTD Collection 132 131 130 129 depends mainly onthemarket structureandthedivisionofbargainingpowerbetween restriction of competition. firms may purchase,sell, or resell thecontracted products, words, verticalrestraintsar describing theproductcharacteristicsandqua order tobeconsideredasavertical Generally speaking,everyagreement restrainsth towards thelatter. of greatpractical importance, as antitrust la downstream market. Determining whetheranarra upstream market,whilethemarket inwhicha a distributor.Themarket inwhic which isat thecenterof thispaper’s atten in theproductionordistributionchain. 2.2.1 2.2 7-23 (2000), at 7. (2000), 7-23 (DoJ Vertical Guidelines), at 6264. (DoJ VerticalGuidelines), IMPLICATIONS competing atthe samemarket level. 2010, Art. 1(a).Conversely, horizontalagreements would beagreements concluded between undertakings sell the partiesmay under purchase, which conditions the agreement or the concerted practice, at a different level of the production or distribution chain, and relating to practice entered into between two or more undertakings each of which operates, for the purposes of the VerticalBER,Art. 1. [withdrawn] FR 50 6263-03 1985, January of 23 Guidelines Restraints Justice Vertical of U.S. Department Lever, &Jeremy Neubauer Silke E.

T Introduction toexclusiveterritories HOMAS Notion andtypes ofverticalrestraints Vertical agreements couldbedefinedasag Not allverticalagreementsar 217 (1998). Forexample, inEU lawvertical ag S ULLIVAN ULLIVAN &

J EFFREY EFFREY 132 e verticalarrangements thatrestricttheconditionsunderwhich Whether averticalagreement w

Vertical restraints, their motivation and justification and motivation their restraints, Vertical L.

H h amanufacturer iscompeting is ARRISON restraint e atthesame time consider 129 ,

tion –therelationshipbetweenamanufacturer and U Atypicalverticalagreement wouldbetheone NDERSTANDING ANTITRUST AND ITS ECONOMIC ECONOMIC ITS AND ANTITRUST NDERSTANDING , averticalagreement hastogobeyondmerely 31 ntities inwhichitistobesupplied. ws generallyhaveamo or resell certain goods VerticalBER or services.” or resellcertaingoods e partiestoacertainextent.However,in ngement is horizontalorverticalcouldbe distributor operates is referred to as the distributor operatesisreferredtoasthe reements betweenfirms atdifferentlevels reement isdefined as“an agreement orconcerted ill containaverticalrestraint 131 andtherebyrepresenta usuallyreferredtoasthe ed asvertical restraints. re lenient approach , E.C.L.R. 2000, 21(1), , E.C.L.R.2000, 21(1), 130 Inother CEU eTD Collection cannot beeffectively providedbydistributors. distributors areregionalorlocal manufacturer may forexample initiatethe prog conduct ofdistributors. competition among distributors ofthe same 137 136 135 134 133 a manufacturer identifiescustom directly tocertaincustomers. type ofcustomers heissupposedtodealwith. the distributor can market theproduct, whileth typically divided intoterritorial andcustomer limitations; the former limit theareainwhich maintenance price resale maximum or minimum restraints limit thedistributor’s freedom toset restrictions, astheyaffect the distribu hand, verticalrestraintsbelongi restraints belongingtotheformer type ofverticalrestraints. parties. level. Another combination could be between an exclusive territory and an exclusive dealing clause. OF John F. Cady, Forexample, amanufacturer canimpose exclusive territoriesonthe wholesale leveland RPM onthe retail Secrieru, M Id. See ARKETING

William S.Comanor, 133 In general, verticalrestraintscould A manufacturer willimposecustomerrestraints Intrabrand restraintscouldbefurtherdivide Finally, itis important to notethat a ve note 30, at 819. at 819. supra 30, note , Vol. 46,No.3(Summer,, 1982), pp.27-37,at 28. Reasonable Rules and Rules of Reason: Vertical Restrictions on on Distributors Restrictions Vertical ofReason: Rules Rulesand Reasonable 135 Vertical arrangements and antitrust analysis 134 Sincetheylimit competition am

A typicalcustomer restraintis , orifcustomers requireservicingortechnical assistance that ng tothelattergroupareusually er accountsthatareservicedandsoldbyhissalesforce. grouparereferredtoasintrabra tor’s abilitytopurchase otherbrands. 32 manufacturer;andthoselimiting thebuying be divided into two groups:thoselimiting 137 the retailprice andcouldariseinthe form of e latter constrain thedi ram ifacustomer isnationalinscopeand Thisisoften thecase withthegovernment rtical agreement may contain more thanone (RPM). Non-price intrabrand restraintsare d intopriceandnon-pricerestraints.Price insituations whereheprefers tosell ong distributorsofthesame brand, a major accountprogram,where , 62

N.Y.U. nd restrictions.Ontheother referredtoasinterbrand

stributor re L.

R EV .

1153 (1987). , T HE garding the J OURNAL OURNAL 136 A CEU eTD Collection seller requiresthebuyertopur exclusive dealing.Tyingisanarrangement wh interbrand restraints isalsoof relevance. T 144 143 142 141 140 139 138 i.e. withproducersofotherbrands.Exclusived would bepresentifadistribu products exclusivelyfrom These arearrangements whereabuyerpromises tobuyitsrequirements ofoneormore importance forourdiscussionareex to onlyone. form ofselectivedistribution,wherethenumber ofdistributorsinacertainterritoryisfixed fixing thenumber ofdealers. supplier ismoreexplicitly limiting thenumber of provided bysalespersonnel. selected onthebasisofsome objectivecriteria, his dealersoneitherqualitativ final buyersorotherdealersin supplier selectshisdealersbasedon some crite quantities and involvelow sellingand deliverycosts. or corporationsoperatingatthenationalle H P 175. para. EUVerticalGuidelines, Note, See Id. See OSNER OVENKAMP , para. 175. , para. EU VerticalGuidelines, EUpara. 129. K ORAH Another type of intrabrand restraint is se Although thispapermainly de Restrictedchannels of distribution underthe ShermanAct ,

note 80, at 171. at 171. 80, supra note & ,

supra O’S ULLIVAN note 29,436. at , supra note 41, at 7-8. aparticularsupplier. 141

tor wouldundertakenottodeal 140 the selectivedistributionnetwork. e or quantitative basis.In th Basically,exclusivedistributioncanbeseenasanextreme Ontheotherhand,whenusingquantitativecriteria See also chase asecondproductfrom him. clusive dealing(o als withintrabrandrestrain DoJ Vertical Guidelines at 6264. ypical interbrandrestraintswouldbetyingand 33 ere a condition of the sale ofoneproductthe aconditionofthesale ere ealing is especially important since itisoften vel, sincethose customers purchase large 144 ria andpermits eachofthem tosellonly suchas thelevelof Relatedtodistribution,exclusivedealing dealers inacertain area,for example by lective distribution. Insuch asystem a 138

, 75 r singlebranding

H ARV e former case thedealers are with themanufacturer’s rivals, .

L. 139

R ts, ashortdescriptionof Thesupplier may select EV 142 .

795, 817 (1962). trainingorservices However,ofmore 143 ) arrangements. CEU eTD Collection (July 2005),at 536. having hisownterritory. distribution ofhisproductsthrough anetworkof Exclusive territoriesgenerallydonotexistin isolation –amanufacturer usuallyorganizesthe 151 150 149 148 147 146 145 only precludedfrom activesa making sales outsidehisterritory.Ontheotherhand, be made betweenairtightandnon- clause limits thedistributor’ssalesoutsideofhisexclusiveterritory. avoid confusion,thepartiesare making thesaleshimself, i.e.whethertheag exclusive territory. two clauses. newspaper distribution, geographical area. In such an arrangement a manufacturer grants 2.2.2 further in thischapter. combined withexclusive distribution, andfor th Analysis ofthe Malt-Beverage Industry dimensions in industrial distribution channels 177, at 153. Santiago González-Herna J. Tim R.Sass& David S. Saurman, Secrieru, Id. Id. See

G Exclusive territories are airtight if the dist By thefirstclause,amanufacturer undertakesnottouseot The stric

OYDER infra Exclusive territoriesdefined Part 2.2.5. note 30, at 798. at 798. supra 30, note ,

supra test formofverticalterritorial restra note at70. note 123, 146 150 Exclusiveterritoriesarepresentin Hereitcouldbedisputablewhethe 145 147 ndo, Víctor Iglesias &Juan A. Trespalacios,

149 audiocomponents, hearingaids,sailboats,softdrinks,andbeer. Consequently,exclusivedistribu

Mandated Exclusive Territories and Economic Efficiency: An Empirical AnEmpirical Efficiency: Economic and ExclusiveTerritories Mandated , J advised addressthisissuein OURNAL OF airtight exclusiv les outside of theassigned territory, i.e.heisprohibited , I NDUSTRIAL NDUSTRIAL L AW 34 in non-airtightarrangements thedistributoris reement allowsdualdistribution.Inorderto ributor iscompletely precluded from making & ints istheimposition of exclusiveterritories. M exclusiveterritories,with eachdistributor

is reasonwillbeanalyzedinmore detail e territories. E to his distributor exclusivity withina ARKETING ARKETING CONOMICS r themanufacturer isprecludedfrom avarietyofindustries,including M , Vol. 36, No. 1 (Apr., 1993), pp. 153- pp. 1993), (Apr., 1 No. 36, Vol. , Exclusive territories andperformance tion agreements usuallycontain ANAGEMENT their agreement. Thesecond her distributorswithinthe 151 Hereadistinction can , Volume, 34, Issue 5, 148

CEU eTD Collection presence ofalocationclausecustomers can exclusive territories asitdoesnotcomplete location approved bythesupplier. Thisclause 156 155 154 153 152 contract. invading theareasassignedtoother distributors’ areas isgene a distributorisnotonly the sale ismade(profitpass-over). outside histerritory,heisusuallyrequiredto expected toconcentrateonsalesintheterritory assignedtohim. divides the territories between assigning territoriestodistributors. responsibility (APR).Thesimilar operation toaspecificphysicalsite. Territorialrestraintscanalsotakeot distribution agreement may containalocation distribution agreements. EU competition lawaffordssubstantiallydifferent approach toairtight andnon-airtight territory. As willbeshown below,thisclassifi more pernicious, astheycompletely elimin from solicitingcustomers outside the territory.Airtight exclusive territories areconsidered as Cady, Id. Id. Id. Id.

Similarly, amanufacturer may assignhi supra note 136, at 136, 28. note expected

the distributors. Inthepresen butalsoobliged stribution is that APR also consists ofity withexclusivedistributionisthatAPRalsoconsists 156 152 154 Ontheotherhand,inexclusivedistributionagreements Inotherwords,adistributormay operateonlyfrom a However,thedifference isthatAPRlessstrictly still traveltoanylocationtheydesire. 35 ly eliminate intrabrand competition –inthe cation is especially important intheEU, since ate intrabrand competition within acertain compensate the distribut her, less extreme forms. Forexample, a islessrestrictive tolimit hissalesto the assigned territory – clause, whichrestrict s distributorstheareasofprimary ce ofAPRthedistributoris rally treatedasabreach of 155 Incasehemakes asale than theimposition of or in whose territory or inwhoseterritory s thedistributor’s 153

CEU eTD Collection differentiated andretailershavearole Imperfect competition generally arises dueto increased demand. Unrestrained competition between distributors manufacturer wouldnot be interested inlimiting competition among hisdistributors. motivation behindexclusiveterritorieshastobeofprimarily economic nature. However, sucharequirement isanexceptionratherthantherule.Consequently, 162 161 160 159 158 157 setting andtakingintoaccountth when theconditions intheretailmarket ar note that amanufacturer wouldbeinclinedtoim territories and vertical restraints ingeneral exclusive territories alsobringsce manufacturers useexclusiveterritories despite have anincentivetoraisethe brings with itcertain costs, since adistribut with Bahrain,whereitisrequiredthattrade jurisdiction inwhich he wishesto marketthe pr 2.2.3 Mathewson & Winter, Cady, C Id. Id. See LASEN at 31. Cady, Since demand foraproductrises withadecreas Perhaps themost persuasiveexplanationofwhymanufacturers impose exclusive One reason Some rationalebehindexclusiveterritories supra , supra noteat 22,11-14. supra note 136, at 30-31. at 136, 30-31. note note 136, at 30-31. 159 whyamanufacturer Fromthisfollows thattheimpositionof exclusive territories inherently supra note 55, at 28. note55,

price abovethe competitive level. rtain benefitsforthemanufacturer. e principal-agentproblem, vert ininforming consumer aboutproducts. wouldoptfor exclusivedi e not consistentwith conventional competition. has beenofferedbyMathewsonandWinter.They intermediaries haveanexclusiveappointment. 36 or protected from intrabrand competition will oduct so requires. This is for example thecase thesecostsshowsthatthedeployment of pose restrictionsonresale would leadtothelowestretail priceand the fact thatretail markets are spatially e inprice,itcouldbeexpectedthata ical restraints 160 However,thefact that stributorship is if the prices or locations arenecessary 162 Insucha 158 157 161

CEU eTD Collection outlets. distributors: aproportionofadvertisingmessage positive externalities arising from effect issimilar totheeffectofvertical different profit-maximizing price. the doublemarginalization problem, sincethemanu profits, thedistributor willbe inclinedto increase of theincreasewouldflowtomanufacturer. the increaseinprofits 171 170 169 168 167 166 165 164 163 distributor’s incentive to raisetheretail price. distributor andthesupplierworseoff. promoting theproduct.Thisw Thetwohorizontal externalitie distributors face.Thefirstoneisahorizonta end resultthatboththe distributor from investinginadvertis This isexplainedbythepresenceofthreeex unrestrained competition between distributors is for maximization ofthemanufacturer’s profits. Mathewson & Winter, Id. Id. See infra Id. Id. Id. Id. Id. at 32. at 33. at 32. 170 The verticalexternalityarisesbecause the The other horizontal externality isa p Inthepresenceofthisexternalityth Part 2.3.1.1. supra that resultsfrom hisadditionaleffo manufacturer andthedi note 55, at 32. note55,

ould inturnlead 166 advertising accrue nottothe manufacturer buttoother Inaddition,theverticalex ing andotherforms ofproductpromotion, s haveastheir effectan in ternalities –oneverti 37 externality,thedifferencebeingthathere 171 l externality withadvertisingspillovers. stributor are worseoff. 165 Byraisingtheretail price theretailer would s from outletincreasesdemand one atother not anymore in the manufacturer’s interest. to adecreaseindemand, making boththe distributor doesnot completely appropriate Inordertoappropriate theretailprice. This in turn could lead to ecuniary externality, which reduces the e distributorwillbe facturer andthedistributorwouldhavea 163 Therefore,inthese circumstances rts inpromoting theproduct:apart ternality woulddiscouragethe cal andtwohorizontal. crease indemandthatother 168

discouragedfrom a larger part of the ofthe part alarger 167 withthe 169 164 Its

CEU eTD Collection demonstrations. of perfume and cosmeticsmanufacturers, who often use their own employees when performing product examples of partial integration – amiddle ground between these two unhappy choices.”). territories exclusive aMinimum are and one. isnot happy maintenance resaleprice complete integration independent dealings(nocontrol)andverticalintegration(complete control). tackled withverticalintegrati This waythemanufacturer wouldbeableto 177 176 175 174 173 172 the distributionprocess.Forexample, Frazie exclusive territoriesisclosely the casewithexclusivedistributionagreements. manufacturer could try toeliminate theexte vertical integrationcouldbecostly quantity ofdesireddealerse Amanufacturer could eliminate these threeex would forexample beagoodsolutionwhenthema on whichoneisdominant. increase inprice) haveopposite effectsonthe (pushing foranincreaseinprice)andthehoriz increase inthedemand thathiscompetitors ar raising the priceretailerwould causea would buytheproductfrom retailer from retailers who chargealowerprice,and confer apositive externalityon OF relation, Preston, Benjamin Klein & Kevin Mechanisms M. Enforcement Murphy, Contract as Restraints Vertical L See See supra Id. Id. AW AND

Secrieru, 45 In away,restrictivedistributionagreem

supra UCLA Part 2.1.2.2. E CONOMICS Id. note 30, at 798-99. 798-99. supraat 30, note note 62, at 506. at506. 62, note

L.

R EV Vol. 31, No. 2 (Oct., 1988), pp. 265-297, at 292. Klein and Murphy offer the example example the offer Murphy and at 292. Klein pp. 265-297, 31, No. 2 , Vol. (Oct.,1988), .

143, 186 (1997) (“[T]he choice between complete reliance on the market and 173 See also rvices isalso very largeandnoteasilymeasurable.

on, butwithouttheshortcomings of

connected withamanuf other retailers.Consumers canbeexpectedtobuytheproduct Alan J.Meese, and leadtoanothersetofproblems. s whochargethelowerprice. 38 if one retailer wouldraisetheprice consumers retail price,and whichonewillprevail depends rnalities bydeploying ontal pecuniary external decrease inthe demand r andLassardemonstrate thatthemore resolve some oftheproblems thatarealso Price theory and vertical Empirical studieshaveshownthattheuseof e facing.Therefore, the ents representthemiddle groundbetween nufacturer's margin isverylargeandthe ternalities byintegrating vertically. This acturer’s desireto thefullverticalintegration. restraints: A misunderstood 172 exclusive territories. exclusive ity (pushingagainstan Inotherwords,by exercise controlover he isfacingandan 175 vertical externality Forthisreason a 177 174 Thisisalso , J However, OURNAL 176

CEU eTD Collection Control Over Marketing Channels, Vol. 60, No. 4 (Oct., 1996), at 42. at42. 4 1996), No. (Oct., 60, Vol. 187 186 185 184 183 182 E 181 180 179 178 rely toomuch onlowpricesinstead maximize thecombined profitsofthemanufacturer other. costs, retailersaremore likelytoengagein then selectsthemix ofpri heterogeneous intheiro time ittakesconsumers totravelorsearchamongstores. costs ofobtainingaproduct. markets. First,theroleofservicesprovided Inalaterpaper,Winter furtherelaborat notes thattheincentive for vertical restraints manufacturer’s interference. agreement isexclusive, i.e.insuch acaseth find that the supplier can exertmore influence ov efforts thananon-exclusiveone. distributor willhavemore incentive tobere more willing hewillbetogrant exclusive territories. manufacturer needs toclosely coordinatethedistributionpro CONOMICS RalphA. Winter, VíctorIglesias, JuanA.Tr Gary L. Frazier & Walfried M. Lassar, Id. Id. Id. Id. Id. Id. Id. at 63. at 62. 186 Since consumers whoswitchbetweenretaile Compared withthe optimal mixof thepr , Vol. 108, No. 1 (Feb., 1993), pp. 61-76. 61-76. pp. 1(Feb., 1993), No. , Vol. 108, Vertical Control and Price Versus Nonprice Competition PriceVersus and Control Vertical pportunity costsoftime. espalacios &Rodolfo Vázquez, ce andservicethathefinds 180 182 J

OURNAL OF OURNAL OF

Second,retailersaredifferentia 179 Determinants of Distribution Intensity Determinants of Distribution Alongthesameline,Iglesias,Trespalacios,andVázquez of highservicetoattractconsumers. M ARKETING ARKETING ceptive towards the manufacturer’s coordination price thaninnon-pric by retailersistoreduc 39 e distributor willbemore willingtoaccept the es therationalebehind 184 flows from threecharacteristics of retail er thedistributionprocessif Inorder toattractconsumers, eachretailer C Effects of Exclusivity Agreements on Supplier’s Supplier’s on Agreements Exclusivity Effects of ice andservices(i.e.themix thatwould HANNELS andthe retailer), unrestrained retailers most optimal forhisprofits. rs aregenerallythosewithlowtime- 178 , Vol. 7(4) 2000, at 2000, 75. Vol. 7(4) , Thisisbecause anexclusive 183 ted becauseoflocationandthe cess withthedistributor, , T Andthird,consumers are e competitionamong each , T HE e consumers’ opportunity HE Q vertical restraints. UARTERLY UARTERLY J 187 OURNAL OF Vertical restraints J 185 OURNAL OF OURNAL M

ARKETING 181 He , CEU eTD Collection reduced.”). territoriesto retailers, doubl exclusive . the assigning manufacturer’s product.And exclusive territoriesadistributorhasmono 195 194 193 192 191 190 189 188 this reasonitcouldbe interesting tocompare th can bothbe usedinorder toresolveexternalit 2.2.4 territories and thenimpose maximum manufacturer can combine exclusive territories could bemagnifying the consumers. higher pricesinthedownstream market, lead toaninefficientoutcome. the problem ofdoublemarginalization. has adominant position intheupstream market, described above,thistypeofrestraintmay cau distortion by eliminating theinter-retailer margin andcross-elasticities. related services. could correctthisdistortiona equal to thus Secrieru, marginal costand eliminate verticalequal externality. the the reduced sales.”). a greater markupwill charge competition, the wh over limited absenceefficiency ofsuch benefits, producersare harm tojustify aspects of distribution public-good significant Unless otherwise noted, in this in Unless RPMotherwise noted, by section wemainly refertominimum RPM. Rey&Stiglitz, See See See infra See Id. Id. at 64. at 62. M M id. Although exclusiveterritories Exclusive territories and RPM Exclusive territoriesand OTTA ASSIMO at 432 (“Earlier proponents of the legalization of exclusive territories have argued that there must be must be there that argued have territories exclusive of legalization the of proponents at 432 (“Earlier Part 2.1.2.1.3. 192 ,

supra note 190, at 308.Inthe alternative, the Therefore,by trying tointernalize M supra 48,at431. note OTTA 188 Morespecifically,exclusive territo ,

C OMPETITION OMPETITION vertical externality.

nd encouragedealersto as shownabove,twomonopolies 191 P OLICY Insuchcircumstances exclusive territories canlead to resale pricemaintenance 195 RPM onhisexclusivedistributors. 309 (2004) (“[B]y reducing competition downstream, e.g.by competition (“[B]y reducing 309 (2004) can beusedin bothbelongtothegroupof 190 Thisis duetothe fact thatinthepresence of 40 thereby decreasingtotalwelfareand hurting e marginalization problem isaggravated and welfare is ed by‘doublemarginalizatiowith n’ becauseretailers, a producer's granting an exclusive territory, since in the territory,since the anexclusive in granting a producer's ies arisingoutofthedistributionprocess.For se anothersetofproblems. Ifamanufacturer ese twotypesofrestraintsandassesstowhat poly withregards to theselling of the andRPM–hecould 193 granting exclusive territ manufacturer could simply setthe wholesale price horizontal externalities, themanufacturer olesale price, meaning that the producer is that meaning hurt the by producer olesale price, In order to solve this problem, the provideanadequatelevelofproduct- order toresolve ries canbeused tocorrect the supra 30, at802. note in averticalstructuremay intrabrand restraintsand 189 194 first grant exclusive

ories couldleadto

the externalities CEU eTD Collection Vol. 76, No. 5 (Dec., 1986), pp. 921-939, at 922. at 922. 921-939, pp. 1986), 5 (Dec., No. 76, Vol. Restraints and the Law: A Note A Law: the and Restraints 203 202 201 200 199 198 H 197 196 asymmetry betweenexclusive territories andRPM isjustified. control overthedistributors antitrust laws. exclusive territories,eventhough theformer isgenerallyaffordedbettertreatment by do nothavethesame effectisthefactthat Conversely,there arealsoopinionsthat necessarily substitutes. purposes has ledsomeauthorstoconcludethatexclusiv a non-pricerestraint,theyinevit distributor’s margin andtheresaleprice. territories protectadistribu competition andconsumer welfare. equivalents, i.e.thattheyhavethesame competition. Forexample, Borkargues that for thesetwo typesofre extent they canbeusedassubstitutes. Arelated issueiswhetheradifferent legaltreatment distribution, 183 (1983); Mathewson & Winter, ARV Waterson, supra David W. Boyd, R S.Comanor, William R Id. See, e.g. See, e.g. OGER OBERT at 297. .

L. usive territories and RPM have thesameeffecton According tooneview,exclusiveterritoriesandRPMhave

R D. 198 , Patrick Rey&Jean Tirole, Mathewson, &Winter, EV H. A

B andhenceshould beaccorded thesame legaltreatment. . 983,. 984 n.6 (1985).

B MERICAN MERICAN LAIR ORK 201 note 201, at 296. or dealer exclusive & Inlinewiththis,some arguethat ,

T

D HE E AVID AVID Vertical Price-Fixing, Vertical Market Market Vertical Price-Fixing, Vertical CONOMIST A 200 NTITRUST NTITRUST straints is appropriate. L. Accordingtothisapproach,thebe , T

K HE ASERMAN supra supra tor fromcompetition, whichin

, Vol. 40 Issue 2(Fall1996 40 Issue , Vol. RAND P than exclusive territories ably haveaneffectonthereta ARADOX ARADOX The Logic of of Vertical Logic Restraints The note 55, at 28. note 55, at 28. B 196 , L

J OURNAL OF OURNAL Thisapproach relieson thereasoning that exclusive AW AND ECONOMICS OF VERTICAL INTEGRATION AND CONTROL AND INTEGRATION VERTICAL OF ECONOMICS AND AW 280 197 Inotherwords,althoughexclusiveterritoriesare

(1993). (1993). economic impactandthesame relationto some manufacturers impose RPMratherthan 41 e territoriesand RPMgenerallyservethesame E thesetwo restraints represent economic LAIR CONOMICS exclusiveterritoriesandRPMarenot & ), at 86; Michael Waterson, at 86;MichaelWaterson, ), Restrictions, and the New Antitrust Policy the NewAntitrust and Restrictions, RPMcanenablemanufacturers more

K territories? Toward a theory of product ASERMAN , Vol.19, No. 2 (Summer, 1988), at 293. 202 , T andthataccordinglyalegal st proof thatthesetworestraints 203 HE HE il price.Thislin turn inevitably affects the turninevitablyaffectsthe ,

A

note 198, at 183. supra at 198, 183. note MERICAN MERICAN 199

E CONOMIC CONOMIC On Vertical On Vertical e ofargument R EVIEW , 98 ,

CEU eTD Collection 210 209 208 207 206 205 204 absence of RPMsome retailers whoseemarginal control over interbrand competition inthedownstream market. be achieved byexclusive territories. the incentive forcustomers toseekalowerpr when itcomes topreventingarbitrage. Ifim that RPMcannotachieve. to hisdistributors amanufacturer maybeable more thanoptimal numberof exclusive territoriescan beusedinordertoav spans tohis distributors. achieve theeconomies ofscaleandscopeby adjusting tothechangesinlocalconditions. while inthepresence of RPMsome degreeof exclusive territoriesintrabrandcompetitioninsi eliminating thepotential for inter-distributor free-riding. example, exclusive territories seem tobemoreefficient thanRPM whenitcomes to exclusive territoriescan besaid tohaveso Bothexclusive territories andminimum RP distributors provideanadequatelevelofpr which can result insqueezing individual dealers toinefficiently small scales). Waterson, supra S Klein & Murphy, supra Id. Id. Id. See CHERER at 294-95. at 294-95. at 294.

id. id. On theotherhand,minimum RPMcouldbemo Further, exclusiveterritoriesseemto be (if the price and margins(if the and distributor are settoo price high, entryby new encouraged, will be distributors &

R OSS note 201, at 295. ,

supra at 70, 559. note note 174, at 280. at280. note 174, 205 208 Conversely,suchadjustment isnotpossiblewithRPM.

retailers in acertainarea. 209 Inaddition,RPMcouldenableamanufacturer more me advantages overRPM,andviceversa.For 42 posed overalldistributor In caseofalowdemand, themanufacturer can competition between distributors still exists. todictatethe equilibrium, whichissomething ice elsewhere,whichissomething thatcannot oid aninefficient equilib oduct-related services.Incertainsituations assigning largeterritori de acertain areaiscompletely eliminated, more flexible than RPMwhen itcomes revenue in excessof marginal cost willstart M canbeused inorder to ensurethat re effective thanexclusive territories 207 Byassigning exclusive territories 204 Thisisbecause incase of 210 Thisisbecause inthe s, RPMcoulddestroy es and broad product es andbroadproduct rium arising out of a rium arisingoutofa 206 Finally, Finally, CEU eTD Collection 217 216 215 214 213 212 211 the manufacturer’s decision aboutwhichrestra different problems. Bothoftheserestraintsha differ toacertainextent, astheycanbeusedindifferentcircumstances andforaddressing exclusive territoriesandRPM. territories. cycle, theworse isthe residualfreeriding exclusive territoriesandRPMdependsontheli uncertainty themanufacturer uncertainty themanufacturer willpreferexclusive,whileinthepresence ofdemand uncertainty inthedownstream market. Reyand Tiroleshow thatinthepresence ofcost needed forsolving the inter-dealer free-riderproblem. these territorieswould is duetothe fact thatitisgenerally impractical tograntretailers exclusive territories, since are more aptfor thewholesale level, whileRPMisbetterequipped for theretail level. the market level atwhich the restraint isto be control interbrandpricerivalry,wh prices andthesituation inwhichsome territories arenotserved. price-cutting, even inthepr Boyd, Boyd, Rey&Tirole, Klein & Murphy, supra Id. Id. Id. Id. at 282. Based ontheabove,itcanbe The choicebetweenexclusive territories One ofthefactors thatinfluencethechoicebetween exclusive territoriesandRPMis supra at 201, 87. note 217

supra note 200, at 937. at937. note 200, note 174, at 280. at280. note 174, have tobeuneconomically largein esence ofexclusiveterritories.

wouldratheroptforRPM. It seems withoutdoubtthatexcl ile exclusive territoriescannot. concluded thattherecertai problem, whichwouldinclinetowardsexclusive 43 ve certainadvantagesas int tousewilldependonthecircumstances of imposed.Inthisrespect fe cycleoftheproduct–longerlife andRPMalsodependsonthelevelof 215

211 ordertohavethemarket power 216 Thiscouldlead toadecrease in Finally,thechoicebetween usive territoriesandRPMdo 212 213 nly isadifferencebetween Inother words,RPMmay

wellasdrawbacksand exclusive territories 214 This CEU eTD Collection seen byadistributor asamanufacturer’s confirm this.Forexample, AndersonandWeitz s exclusive dealingclausecouldrepresent the be of othermanufacturers. manufacturer’s interest, sincehe competition inhisterritory. On theotherhand, exclusive dealing ischiefly inthe Territorial exclusivity protects primarily the dist 222 221 220 219 218 location, therebytakingadvantageof facilitiesor goodwillcontributed by thesupplier ofthe having anongoingsupply relationship with tackles interbrandfree-riding.Anexample ofin agree toanexclusive dealingclause. in turngives anincentive tothedistributor exclusivity ina certain area distribution agreements. accepted bythedistributor nottohandle competing goodscanoftenbefoundinexclusive 2.2.5 of restraintsdoesnotseemjustified. each particular case. Channels Erin Anderson & Barton Weitz, 8 A S Klein & Murphy, supra Id. CHERER

REEDA As aresult, adistribution agreement thatco Regardless ofwhetheritiscalledexclus Unlike exclusiveterritories,aimed atcurb Exclusive territories , J OURNAL OF & &

R

T OSS URNER ,

supra at 70, 558. note M , supra 218 ARKETING ARKETING note 174, at 280. at280. note 174, However,asubstantiallydifferent 219 note 14, at 143. at143. 14, note Thisisbecausethe territorial TheUse of Pledgesto Build and Sustain CommitmentinDistribution

) can beregarded asconsid R ESEARCH and exclu can relyon thefactthatth 222

, Vol. 29, No. 1 (Feb., 1992), at27. commitment tothedistribution relationship. sive dealing to show hiscommitment bybeingmore willingto 44 one suppliersellsaseco ive dealingorsingle ributor, sinceitinsulateshim fromintrabrand st solution for thepart terbrand freeridingwouldbewhenadealer ing intrabrandfree-ri how that thegrant of exclusive territories is ntains both aterritorial restraint and an e distributor willnot handle goods legal standardforthesetwotypes eration forexclusivedealing. restraint (i.e. thedistributor’s branding, theobligation ding, exclusivedealing nd brandatthesame ies. Empirical studies 221 This 220

CEU eTD Collection 138 (2003). 230 229 228 227 226 225 224 223 its investments. Underanexclusivedealing arrangement thisproblem wouldbeavoided, the manufacturer’s products,whic up” themanufacturer. The coulddosobythreatenin distributor manufacturer makes adistributi and becomes alesscredibleadvocateforanyofthem. when adistributorcarriescompeting brands,he givestheappearance arrangement willgive his bestefforts, si supposed toundertakewithregard make moneyonanyotherbrand. gives thedealerastrongincen could usetheinvestments in making thepromotion investments inthe firs with asimilar butunadvertisedbrand. between him andthedealerisno advertisement, amanufacturerexpe competitors. benevolently, sincenofirm wouldwanttofinanceadistributionnetworkforits first brand. Klein, Steuer, R E B.Klein, H.P. Marvel, R.M.Steuer, H INER OBERT OVENKAMP Another form ofinterbrandfree-ridinghasto Exclusive dealing canalsobeused Exclusive dealing alsosolvestheproblem of E supra at 226, 135. note supra LHAUGE LHAUGE S Exclusive Dealing as Competition for Distribution “On the Merits” the “On for Distribution Competition as Dealing Exclusive COTT 223 224 , note 224,at 125. Exclusive Dealing in Distribution Exclusive Dealing Thesupplierofthefirstbrandwouldce

supra

& &

J

ODY ODY D note note 29, AMIEN AMIEN K RAUS G

at 434. ERADIN , , J

C

ONTRACT LAW AND THEORY THEORY LAW AND ONTRACT OURNAL OF order tosellrivalproducts. tive topromote thecontract on-related investment, thedist 227 t exclusive,thedealermay s ,

h wouldcausethemanufacturer s toproductpromotion –thedealerinanexclusivedealing G

cts toincreasethesaleof LOBAL LOBAL nce itisinhisinterest todo so. L 225 , 69 AW AND A Thiswoulddiscourage NTITRUST NTITRUST

C 45 topreventthehold-upproblem. ORNELL ORNELL t place,because hewould knowthatdealers E CONOMICS L AW AND dowithadvertising.When investing in L. 229 definingtheefforts 329

R

EV rtainly notlookat

(2007). (2007). , Vol. 25, No. 1(Apr.,Vol. , at 7. 1982), . 226

101, 128 (1983). 128 (1983). 101, ed good,sincethedealercannot E CONOMICS CONOMICS Conversely,exclusivedealing ubstitute thea his product.Ifthearrangement ributor may attempt to“hold g to ceasewithdistributing , 12 to suffer acapitallosson

the manufacturer from G 502 of endorsingthemall, 228 EO

. Ontheotherhand, (2007). (2007).

M that thedealer is dvertised product suchasituation ASON ASON L. 230

R Oncea EV .

119, CEU eTD Collection will bereluctant togrant exclusive territories. will limit its options–distributors willtendnot example, FeinandAndersonshowthatinhi enough profitbysellingexclusivelyalittleknow able tosellthegoodsofotherma dealing ifthemanufacturer has potential buyersofhisproduct. carry other(more popular)brandsaswell,sinc reason, foramanufacturer withasmall market sh manufacturer’s market shareissmall, thenumbe only ifhespecificallywants brand oftheproductinquestion. Inother words, in thedistributor’s retail outlet theconsumer a manufacturer entersinto anexclusivedealing Otherwise, hisdecisioninthatdirectionmight notberationalfr 232 231 interbrand competition, thecombination of these twoarrangements couldbeconsideredas supplier’s andthedistri could beanoptimal solutionforadistributi would bemoredifficulttorealize. since thedistributorwouldnotbeabletose Fein &Anderson, Marvel, In addition,itisnotclearwhatwouldbe Therefore, anarrangement thatcombines A manufacturer willoptforexclusive supra note 225, at 225, 10. note supra note 125, at 125, 32. note butor’s interests. However,asitrestricts both intrabrand and

a smallmarket share. Thedealer the manufacturer’s brand,andnotanyother.Andifthe nufacturers aswell,sinceitis ll anycompeting goods,andthereforehisthreat ghly competitive productcategoriesneitherside 232 46 on relationship,sinceitcanadvanceboththe willbeable tofind onlythemanufacturer’s arrangement withhisdistributor,itmeansthat

acceptexclusive dealing, andmanufacturers the consumer will decide e thatwayhecanincreasethenumberof r of suchbuyerswillnot begreat.Forthis exclusive territories andexclusive dealing brand. Empiricalstudiesconfirm this.For are itmay bebetterto the dealer’sincentivetoacceptexclusive dealing onlyifhisbrandisstrong. om perspective.If abusiness not likelythathewouldearn wouldprobablyprefertobe allowhisdealerto togotheretailer 231

CEU eTD Collection (Oct., 1960), pp. 86-105. 86-105. pp. 1960), (Oct., exclusive dealing. market productsofsome othersupplier.This riding exists whenadistributor uses thefaci distribution, twotypesoffree 237 236 235 234 233 order toassurethattheyprovi by LesterTelser. to verticalrestraints,theproblem seems toha monopolistic rightsgran assigning exclusiveterritories. brand alsobenefitfromthepromotion efforts. of acertainbrandinvest someone who receivesacertainbenefitbutavoidspaying forit. enables amanufacturertoeliminate thefree-ri 2.3.1.1 Justifications 2.3.1 2.3 scrutiny byantitrustlaws. agreement shouldtake intoaccount thatthei more perniciousthaneachofthem isindividually. competition Why Should Manufacturers Want Fair Trade? Fair Want Lester Manufacturers G. Telser, Why Should Mervyn Martin, M See infra See ANKIW EU VerticalGuidelines, EUpara. 162. Potential impactofexclusiveterritories

One of themostoften mentioned justificati The free-rider problem wasnoticedasearlythefifteenthcentury,incontextof Elimination of free-riding free-riding of Elimination , 35 Part 2.2.5. ,

note 11, at 226. at 226. 11, supra note

S YRACUSE Sole distribution agreements in the context of the general principles of free trade and 237 235 AccordingtoTelser, amanufacturer limits competition among dealersin Ontheotherhand,intrabrandfree-ri J.

I s inthepromotionofthatbrand,wh ted tocompanies for NT ' L .

L.

-riding couldoccur:interbrand and intrabrand.Interbrandfree- de adequateservices.Althoughin

&

C OM .

77, 82 (2007). (2007). 82 77, lities providedbyonema 47 long distancetrade. ve beenfirstintroduced der problem. Generallyspeaking,afreerideris r relationship couldcome underan increased Amanufacturer may solvethis problem by form offree-ridingisusuallytackledby 233 ons forexclusivedistributionisthatit Consequently,thepartiestosuchan ,

J OURNAL OF ding wouldoccurwhenadistributor ile otherdistributorsofthesame 236 hisanalysisTelsermainly 234 L However, when it comes However,whenitcomes AW AND AND AW Relatedtotheissue of into economic analysis nufacturer inorderto E CONOMICS , Vol.3, CEU eTD Collection No. 2 (Oct., 1990), pp. 409-417, at 409-410. at 409-410. 409-417, pp. (Oct., 1990), No. 2 244 243 242 241 240 239 238 attempt tofree-rideonthemanufacturer’s reputat be tointernalize thehorizontal externality withspillovers. certain saleseffortgetsthe territory. Thepurposeof suchrestraint istomake surethatthebusiness unitthatprovided avoid thisoutcome, themanufacturer could decrease in overallsales, tothe detriment of alldealers and of themanufacturer. As aresult, thedistributed brandwouldbecome lesscompetitive and therewould bea can beexpectedtotakethesame pathand be able to charge a lower price and thereby increase his sales. run adistributorwouldbeinclinedtowardscuttingthesales services he arises dueto aconflict betweenadistri making both themanufacturerandth providing specialserviceswouldstopdoingso Therefore, insuchasituation exclusive territories. This ishowTelser de focuses onresalepricemaintenance, theresults rationale under EEC competition law EECcompetition under rationale Bork, Luc Gyselen, Lester G. Telser, Why should manufacturers wantfreetradeII? See infra Id. Id. Id. at 91. The essenceofthefree-riderproblem is special servicesgetafreerideatth paying thelatteralowerprice.Inthiswayretailerswhodonotprovide persuaded tobuytheproduct.Buthepurchasesproductfrom another A customer, because ofthespecialservicesprovidedby oneretailer,is Apart from free-ridingonacti special servicesthemanufacturer thinksnecessarytosellhisproducts. customers tobuytheproduct.Asaresult note 49, at 436. supra at436. 49, note Part 2.2.3. Vertical Restraints in the Distribution Process: Strength and weakness of the freerider the of weakness and Process: Strength the in Restraints Distribution Vertical benefit when such salesoccur. an inefficientequilibrium would

,

21

CML e potentialcustomer worseoff. ons takenbyotherdistributo

R butor’s short-runandlong-runinterest. EV scribes theessence ofthefree-riderproblem: ., pp. 647–668 (1984), at 649. at 649. (1984), 647–668 pp. ., shirk ontheprovisionofproduct-relatedservices. e expenseofthosewhohaveconvinced 48 make adistributor exclusive foracertain connected with amarket imperfection which ion. Thepotentialforthistypeoffree-riding few ornoneoftheretailersoffer he reached arealsovalid inthecontext of and sales of the product woulddecline, andsalesoftheproduct , J OURNAL OF OURNAL 244 243

Inotherwords,thegoalwould 241 occur –thedistributorthatwas However,otherdistributors L 239 rs, adistributormay also AW AND AND AW

providesinorderto E CONOMICS 238 240 242

Intheshort Inorderto , Vol.33, CEU eTD Collection manufacturer’s profits. an incentive toengageintofree-riding since afall insaleswilldirectlyharm the would beapotentialforfree- products onhisownandanother shown above,dualdistributionisasituationwh that influence thequality of th that caseadistributorwouldhaveanincentive 252 251 250 249 248 247 246 245 into free-riding practices. even ifotherdealersdonot,whichcouldgive manufacturer-owned outletswillhaveastrong the free-riderproblem isevenmore pronoun profits andmake pronetoward him less distributor anexclusiveterr manufacturer’s pointofview future loss of salesdue todeterior short-run profithewouldgain there isadequaterotationoftheproduct. would forexample bethecasew exists whereconsumers cannotdetectpre-sa H Klein & Murphy, supra Id. Id. Id. Id. Id. Id. OVENKAMP . . at 274. Related totheissueoffree-ridingons ,

supra note 29,490. at note 174, at 273. at273. note 174, 251 252 Ontheotherhand,independent

itory. Thiswouldenablethe riding bydistributors.Manufactu

e product,suchasprovidingade , onewayofsolvingthispr byengagingintosuchpractic ith productsthathavelimite part throughadistri ation inthemanufacturer’s reputation. s engaging inshirking activities. 247 le servicesthatinfluenceproductquality. Hewoulddosoifhe 49 ced inthepresenceofdualdistribution. an incentivetoindependentdealersengage to avoidperforming certainpre-saleservices incentive toprovidepro ere amanufacturer dist upplier’s reputationis the observationthat bution network.Inth distributor toearnquasi-monopoly dealers can assume that the oblem wouldbetograntthe d shelflife,suchasbeer. quate storage and assuring that quate storageandassuringthat rer-owned outletsdonothave es wouldbehigherthanthe would calculate that the 249 duct-related services

ributes part of his ributes partofhis is situationthere 248 From the 245 250 246 This As In CEU eTD Collection toothpaste. usually shoparoundandbuysthemattheneares Convenience goodsarethewithrelativelylowpriceforwhichbuyerdoesnot available. is directly related tothenumber ofdist exclusive territoriesw only forshoppinggoods.Itgenerallywillnotbe goods canbedividedintotwolarg 258 257 256 255 254 253 exclusive territories.As practicehasshown, the saleofshoppinggoodsamanufacturer ma thesepoints.Consequently,inorder performed at matters isnot(only)thenumber ofdistributio changes withregardsto shoppinggoods.Thisisbecausein thesaleofshoppinggoodswhat cost ofgettingitthere,refl restraints, aproductwillbeavailableinallout groups, theclassificationcanbeinstructiv making his decision. the purchase foraconsiderable time andperhapstravelingconsiderabledistances before purchase ofwhichtheconsumer islikelytoi Cady, See Id. Id. Id. Act,supra the Sherman under of distribution channels Restricted at 32. Bork, supra Bork, An important issueiswhichgoodsaregene In this light,itw Empirical studiesconfirm therelationship supra 256 254 Incasethedistributionprocessispe note 136, at 136, 32. note Ontheotherhand,shoppinggoodsare note 49, at 446. at446. 49, note 255 ith regardstoconvenien Although itisnotalwayseasytoclassifyagoodintooneofthesetwo Although ould seem thatan exclusive dist ected intheproduct's price.

e groups:convenienceandshoppinggoods. e withregardstoth nvest more effortand compare brands, deferring ribution pointsatwhichtheseproductsare 50 manufacturers areespeciallykeenonimposing y decidetodeployexclusiveterritories. ce goods,sincethesalesvolume ofsuchgoods n points,butalsothepr lets wherethe consumer iswillingto paythe between thenatureof to ensuretheprovision oftheseservicesin t availablestore,such inamanufacturer’sinteresttoimpose rally pronetofree-riding.Ingeneral, rformed withouttheuseofvertical note 138, at 795. at795. note 138, 257 relatively expensiveitems inthe ribution arrangement makes sense Ontheotherhand,analysis e analysisathand. oduct-related services agoodandtheuseof asfood,cigarettes, 258

253

CEU eTD Collection Reconsidered not fit the realworld.”). not fit rider theory can carry only very limited weight. It is true to beabetter solutionat theretail level. generally moreaptforthewholesalelevel,while distributor fortheproductatwholesalele above meaning, itisnotrarethatthemanuf Although tobacco andalcoholicbeverages might notbeconsidered asshoppinggoodsinthe more likely hewillbeto grantexclusive territories. more amanufacturer positions hisbrand as high A Riding orOutput? 265 264 263 262 261 260 259 free-rider problem seems tobemodest. actuallyoccurs debatable howoftenfree-riding the argument offersapowerfuljustificationfo level. arrangements donotmake senseattheretaille the productwillbedistribu the relationship between exclusiveterritories and distribution intensity. certain investments bythedealer. this typeof restraint whentheproduct invo manufacturer relies onnumerous retailers spectrum ofthegeneral market”. NTITRUST NTITRUST

See See infra Id. Act,supra the Sherman under of distribution channels Restricted Id. See Act,supra the Sherman under of distribution channels Restricted at 40-41. They define targetfocus as “the extent F.M. Scherer, F.M. & Lassar, Frazier 262 Finally, aword ofcautionisneededwithre Apart from the natureofaproduct,thelevel Anexample wouldbethedistributio L. Part 2.2.4. , 56

J.

41 (1991).

A , 1989 NTITRUST NTITRUST The Economics VerticalRestraints Economics of The See also

W supra note 178. They define distribution intensity as “the extent to which a IS . LJ.

L.

George A. Hay, A. Hay, George

R 27, Id. EV

at 41.

ted. This isbecausethere 35 .

1255 (1989);Robert Steiner, L.

(1987); Willard F. Mueller, F. Mueller, Willard (1987); 259 in each trade area tocarry its brand.” Relatedtothis,Frazierand Lassarempiricallyexamine 264 The Free Rider Rationale and Vertical Restraints Analysis Restraints Vertical and Rationale FreeRider The

265 lved isexpensiveand Anumber ofproductsaresimple consumer to which amanufacturer 51 vel. Asshownabove,ex in some cases. Butinalargeclass ofcases itjust does acturer ofthesegoodsappointsanexclusive r theimposition of exclusiveterritories, itis in practice.Theempirical significance ofthe , 52. quality and thehigher his target focus is,the vel, butcanbereasonableatthewholesale n oftobaccoandalcoholicbeverages. some restraints(suchasRPM)seem other 261 gards tothefree-rid

of tradealsoinfluencesthewayinwhich A

NTITRUST NTITRUST note 138, at 803. at803. note 138, at806. note 138, The Sealy Restraints: Restrictions Free on Restrictions Restraints: The Sealy Sylvania Economics - A Critique are goodsfor whichexclusive L.J.

Id. 687, concentrates on a narrow complicated andrequires at 40.

692 er argument.Although 260 clusive territoriesare

(1983) (“[T]he free free (“[T]he (1983) Theyfind thatthe ,

60

263

CEU eTD Collection support. anticompetitive. restraint is still employed, itislikely 272 271 270 269 268 267 266 be betteroffinlight ofincreased sales, incentive topolicehisterritory. competition onadistributor,since asamonopo territories amanufacturer istransferring the promotional activities, all of wh gives anincentivetodistributors the gainfromsupplyofdesiredserviceswillaccruetoother retailers. territories achieve this by eliminating nearby re distributors thanitwouldbethecasewithanon-exclusiveappointment. 2.3.1.2 imposing therestraint. the product isasimple one,thiscould bea signal that there isananti-competitive reasonfor than intheirpresence. riding therewouldprobablybemore varietyindi restraints areimposed inordertocurbthefree-riderpr products forwhichspecialservicesarenotneede new rule of reason approach Philip C. Zerrillo, Jon M. Flemming &AngelaMcKee, C. M.Flemming Zerrillo, Jon Philip S Klein & Murphy, supra S Comanor, supra Wegener, Id. CHERER CHERER

If theservice thatthedistributor isprovidi An important effectofexclusive territories Wider sales margins and lower monitoring costs costs monitoring lower and margins sales Wider & & supra note71. 6,at

R R OSS OSS note 135, at 1157. at 135, 1157. note 267 , ,

supra at 70, 558. note supra at 70, 558. note Thisisbecausein asettingwhere there are noservices proneto free- note 174, at 265-66. 268 , 22 Consequently, if exclusive territori

J.

C

ORP 272 tohavelargerinve ich benefitsthemanufacturer. . As a result,boththemanufac Asa

L.

705, 711 (1997). 711 (1997). 705, while consumers willbene 52 burden ofmonitoring that thepurposebehind tailers, lessening the possibility that some of Vertical territory and customer resale restrictions:a stribution services without vertical restraints ng isnotpronetofree- d. Insuchcasestheargument thatvertical list inhis areathedi is thattheyprovide widersales margin to ntories andinvestmore inadvertisingand oblem doesnotstand. es areuseddespite thefactthat 271 turer andthedistributorwill Byestablishingexclusive fit throughbetterproduct unauthorized intrabrand stributor has allthe riding andavertical 270 therestraint is 266 Awidermargin

269 Exclusive CEU eTD Collection cheat on promises to sell high quality output.”). output.”). quality sellhigh on to promises cheat ameans can be prices, firmsfor thecompetitive making of margin that above ismarket not distributor, prices nonperforming dealersandincreasethel this respectexclusiveterritories influence thedistributionprocess. ensuring highprofitstothedistributor,ma and interests. motivated toeagerlypromote theproductand above competitive profits,hewill 280 279 278 277 T 276 275 N 274 273 higher profitmargin canalso achieved byassuringquasi-monopoly profitstodistributors,making thetermination costly. the exclusivedistributionsystem aim exclusive territoriesachievebyreducingeach margins, themanufacturer can solvetheprobl manufacturer couldbeseenabond distributor relationshipcouldbe and attorney. Such confidence could safely not could be re confidence Such attorney. and ourfo the physician: health to our We trust intrusted. only of equal, but of much superior ingenuity, on account of the precious materials with which they are workmen. The wages of goldsmiths and jewellers areeverywhere superior to those of many other workmen, not (2007) (“[T]he wages of labourvary HE W Goldberg, Goldberg, Klein & Murphy, supra Victor P. Goldberg, Id. Id. See Id. Id. .

J U. OURNAL OF OURNAL at 280. See also Benjamin Klein &Keith Benjamin Klein B. Leffler,

L. If adistributor isprotected from intrab Apart from lesseningthedistri In otherwords,byprovidingadistributo

R EV supra A .

736, 273 DAM P OLITICAL OLITICAL note 274, at 749. Thiswaythemoral hazardproblem

749 (1984). S The freeThe rider problem, imperfect pricing,theeconomics and retailing of services MITH note 174, at 267. at267. note 174, E ,

A CONOMY N I NQUIRY INTO THE THE INTO NQUIRY help the manufacturer recruitthe bestdealersinthearea.

accordingly tothe small or great trust whichmust be reposed in the , Vol. 89, No. 4 (Aug., 1981), pp. 615-641, at 617-18 (“[W]ider sale (“[W]ider at 617-18 615-641, pp. 1981), (Aug., 4 No. 89, Vol. , mitigated –theprivilegeofcon canbeusedinordertod 275 possessindividualmarket power. be reluctanttolose The Role of Market Forces in Assuring Contractual Performance

butor’s incentivetoengagein free-riding activities, a for thedistributor’sperformance. ong-run gaintoperforming dealers. N posed in people inpeople of a veryposed low mean condition.”). or rtune and sometimes ourlifeand reputation tothe lawyer ATURE AND ATURE 53 em ofmonitoringdistributor’s the efforts. comply themanufacturer’s with suggestions rand competition andishence abletoearn nufacturer ispayingfortheopportunityto dealer’s demand elasticity,sincedealers in r theopportunityof that privilege.Consequently,hewillbe C AUSES OF THE THE OF AUSES arisingoutofthemanufacturer- ecrease theshort-rungainto tinued future dealing withthe W EALTH OF EALTH 278 having higherprofit Thesecondaim is 274 Therefore,by N 277 ATIONS Theformer 68-69 280 , 79 276 The

, In

279

CEU eTD Collection who canbeexpected to achievehigher distribution agreements. examine theeffectofexclusive territoriesoncontractualperformance inexclusive plan hisproductionaccordingly. the manufacturer agoodestimate regardingthe 287 286 285 284 283 282 281 of thistyperestraint.Forexample, one that theadequateprovis positive light thanitisthe caseinanon-exclusive distributorship. distribution relationship isexclusive, eachside manufacturer andthe territory toanotherdealer. cost ofdistributionwithlittl would ratherprovideth sale services insteadof retaining thedifferenc can choosethemost solventdealerforacertainarea. to choosethemost themanufacturer capabledealer canalsomi prospect ofsupra-competitive and do not significantly decrease competition. competition. decrease significantly do not and T distributorships is to recruit better distributors). betterdistributors). isto recruit distributorships HE González-Hernando, Iglesias &Trespalacios, Richard A.Posner, S Id. Id. Act,supra the Sherman under of distribution channels Restricted See CHERER U at 541. This leads the authors to conclude that ex that conclude to the authors leads at This 541. at 805. NIVERSITY OF OF NIVERSITY Baker, Baker, Despite these arguments justifying the useof One might askwhythedistributorwoulduse & supra

R OSS note 126, at 1519 (the most important reason why manufacturers grant exclusive C ,

supra at 70, 558. note HICAGO The Rule of Reason and the Economic Approach: Reflections on the Sylvania Decision Sylvania the on Reflections Approach: Economic the and Reason of Rule The distributor haveahi ion ofspecialservicescouldbe ose services thanpocket thediffe 286 L 285 AW Theyshowthatinexclusive Relatedto this,Iglesias, Tres R

e service since otherwise themanufacturer willreassign the profits isagoodwayofattracti EVIEW 284

, Vol. 45, No. 1 (Autumn, 1977), at 4. at 4. 1977), No. 1(Autumn, 45, , Vol. Id. salesforthemanufacturer’s product. supra 150. note at 542. gher roleperformance. argument isthatproductsandservicescouldbe 54 clusive distribution agreemen distribution clusive product demand, sothatthemanufacturer can e. According toPosner, anexclusive dealer sees theother side’sperformance inamore exclusiveterritories, therearealsoviews 283 extra profitsinorde Also,anexperience ensured evenwithoutthedeployment note 138, at 805. at805. note 138, rence between a high price and the rence betweenahighpriceandthe distribution arrangements boththe palacios, andVázquezempirically ng dealersofsuperiorability nimize hiscreditrisk,sincehenimize 287 Inother words, whena ts areefficiency-enhancing r toprovideafter- d dealercangive 282 Bybeing able , 281

CEU eTD Collection distributor isputtingintopromo It wouldbeextremely difficultforthemanufacturer surpass thecostsrelatedtonegotiatinganden monitored, withouttheneedforexclusiveterritor Therefore, according to thisproposal theprovi simply contract for the appropriate levelof special services. distributor, making thedistributed brand less competitive inthemarket. that the costsincurred on itsmaintenance woul the firstplace.Inaddition,th turn awaypotentialcustomers from making th This wouldentailatleasttwoproblems. First, suchasystemcouldseemcomplicated and 293 292 291 290 289 288 compliance withtheagreement andrefuseto perform thespecialservices. agreement wouldstipulate whatservices and system which would enablecharging customers fortheproduct-related servicethey obtain. curbing theproblem. be nofree-riderproblem noneedto andhence special service withthecostsin priced separately. H ARV Telser, S.Comanor, William Id. Id. Id. See

. Meese,

L. However, thissolutionwouldalsobec Another argument isthatinsteadofimposi However, suchasolutionwouldnotbepr

R supra note 237,at 92. EV . 1419, 1430 (1968). (1968). 1430 . 1419, supra note 177, at 191. at191. note 177, 288 Thiswayitwouldbepossibletodirectly match the income from a Vertical Territorial and Customer Rest

e operationofthesystem would 291 tion oftheproduct.Andevenif curred inprovidingtheservice.Inotherwords,therewould Themanufacturer wouldthenmonitor thedistributor’s 55 forcing anexclusivedistributionagreement. e purchaseoftheproduct(andservices)in pay forservicesnot d havetobebornbyth for whatcompensation thedistributor will oupled withsignificantcosts,whichwould ies asameans ofensuringindirectcontrol. sion ofspecialserviceswouldbedirectly impose exclusive territories asameans of ng intrabrandrestraintsamanufacturer can actical, asitwouldrequiresettingupa tomeasure theamount ofeffortthatthe rictions: White Motor and Its Aftermath 290 Insuchacasethedistribution not becostless,whichmeans that sort of control would be that sortofcontrolwouldbe adequately performed. e manufacturer andthe , 81 289 293 292

CEU eTD Collection the special services. exclusive territoriesthanitwouldbetoobserve Nevertheless, itwouldstillbe might bebettertorelyonprivateenforcemen 300 299 298 297 296 295 294 violates otherdistribut manufacturer toattributeresponsib supervise distributorcomplian manufacturer must determine theoptimal sizeof performance, exclusiveterritoriesarenotacomp observance of exclusiveterritories, thele connected with transactioncosts–themore diff Dutta, Heide, andBergenshowsthattheimposition of exclusiveterritories is closely enforced penaltiescanactu way toobjectivelymeasure theoutput,exp otherwise difficult to measure thedistributor’s pe satisfactory toacourt. be prohibitivelyexpensivetomeasure andsp possible, anexplicitcontractre and IndustryEvidence W Cady, Bergen, B. &Mark Jan Heide Dutta, Shantanu Klein & Leffler, Klein & Murphy, supra See Id. ILLIAMSON

Telser, Telser, Another costforthemanufactureris Although theyenableamanufacturer tolo In addition, amanufacturer can be expected supra supra note 136, at 136, 31. note ,

supra supra note at94. note 237, , T note 55,187. at HE note 276, at 634. at634. note 276, 299 note 174, at 267-68. 294 J ors’ territory. Theobservanceofex Intheformercaseitwouldbe OURNAL OF OF OURNAL Forthisreason,ratherthanrelyingonathird-partyenforcer,it ally beabetter solution.

ce, andinsome casesresolv garding this performance notbemade would because itwould easier forthe manufacturer M ility tothebreachingdistributor. ARKETING ss likely itisthat he willdeploy them. Vertical Territorial Restrictions and Public Policy: Theories Policy: Public and Restrictions Territorial Vertical , Vol. 63, No. 4 (Oct., 1999), at 131. at131. 1999), 4(Oct., No. 63, , Vol. t bythreatoftermination ofthecontract. 56 licit contractualsolutionswithgovernment whetherthedistributor isactuallyproviding icult itisfor themanufacturer tomonitor the ecify thebreachinaway thatwouldbe letely costlessletely mechanism. Forexample,the rformance. Ifthereisafeasibleand cheap cost ofmonitoring whetheradistributor exclusiveterritories, 296 to useexclusive territories onlyif itis wer thecostsofmonitoringcontract Related tothis, anempirical study by easierandlesscostlyfor the e disputesamongdistributors. clusive territorieswillbealso to monitor theobservanceof 300

selectdistributors, 297

295

298

CEU eTD Collection of bootlegging. However, the manufacturer willnot punishallviol 308 307 306 305 304 303 302 301 case ofexclusiveterritoriesasupplier canbe system bethatinthelattersome would oftheaims areachievedmore directly.While inthe other distributors. network, limiting pricecompetition thesupplier wantsto excludediscounters from hisdistribution aspects, suchaspre-saleservicesor selective distribution system isto limit pr distribution ifhisproduct Similarly tothedeploymentofex section couldalsobeachievedbyanothertypeof relationship withthe bootlegging hasonthedistributor’smargin, as expected totakeintoaccounttheimportanceof beyond theirassignedterritories,which isapr shows thatevenwithwidersalesmargins dist swiftly report tothe manufacturer monitored bythedistributors Bootleg J M K Shantanu Dutta, Mark Bergen & George John, B Id. Id. Id. ONES ORK ORAH ONTI at 85. at 84. , M , Based onthis,oneofthedifferencesbetween Finally, itis important to mention that some of theaims described in this andprevious

& note 45, at 370. at 370. 45, , supra note supra at 196, 291. note 307 & ARKETING ARKETING

S

O’S UFRIN sinceotherwisetheywouldbeabletofr ULLIVAN 303 , supra 308 When decidingwhethertoreact S CIENCE

bootlegging distributor. , supra noteat 41,7-8. note 37, at 641. , Vol. 13, Issue 1 (Winter 1994), at 83. at83. 1994), Issue1 (Winter , Vol. 13, requires pre-saleservices.

themselves, sinceitcanbee clusive territories,asupplierwi any crossingofterritoriallines. the locationfrom whichtheproductissold. The Governance of Exclusive Territories When Dealers Can 304 ice competition andrather focuson non-price 57

well asthemanufacturer’s commitment tothe ributors might still have anincentive tosell actice usuallyreferredtoasbootlegging. theproduct-relatedservices,effect that intrabrand restraint – selectivedistribution. seenasgrantingexclusive territoriesas ations butwillrather ee-ride onpre-saleservices providedby anexclusiveandselectivedistribution 305 bootlegging,themanufacturercanbe Thepurposebehindestablishinga xpected thatdistributorswill ll generallyoptforselective 301 Relatedtothis,a study tolerate certainlevel 306 By By 302

CEU eTD Collection consumer experience.”). them exposes asmaller products to peril established itcan marketbe isrisks, inthe without not participation 313 312 311 310 S 309 entrant isbecauseinsuchacase consumers aremorelikelytodemand the market potential,withoutexclusiveterr fear offree-riding. potential market fortheproduct does nothaveanexclusiveappoi he recoupsthecostsof that others willnotbeable tobenefit from ac distributor knowsthatother extensive promotion inorderto Althoughthey canbebeneficialevenfor exclusive territoriesareespeci 2.3.1.3 harshly. solution than theuseof exclusiveterritories, especially if thelawtreats thelatter more in certaincasesamanufacturer may decideth only dealers withacertaindegreeofcompeten which distributorsmay become partofthene distribution system perform thisinamore di compensation intheprocessofrecruiting TATISTICS Cady, 8 A Id. Id. E.g.

REEDA , Ioannis N. Kessides,,

Another reason why exclusive te Another reasonwhyexclusive supra Facilitating new entry entry new Facilitating , MITPress, vol. 68(1), pages 84-95 (February 1986), at 87 (“While [incumbents’] further & note 136, at 136, 32. note

T URNER 312 , supra Sinceamanufacturer might lacktheresources needed fordeveloping undertaking thoseefforts. Advertising, Sunk Costs,andBarriers to Entry note 14, at 511-12. at511-12. 14, note

ally usefulfornewproducts.Wh gainfootholdinthemarket. ntment, an inefficient outcome would arise: therewouldbea ntment, aninefficientoutcome wouldarise: but noneofthedistributorsw s will not free ride on his efforts, onhis notfreeride s will rritories areespecially useful inthecontextofanew itories potentialdema than the new entrant with an untested product and no tivities related tothemarket development before 58 reasonably assumed thatth rect manner. Bysettingthecriteriabasedon ce willbedistributing his product.Therefore, twork, themanufacturerismaking surethat at aselectivedistributionsystem abetter is sufficiently competent dealers, selective products alreadyestab 311 Forthisreason,ifth 309 Thiscanonlybeprovidedifa ould developitbecauseofthe , T en aproductisnew,itneeds nd couldgounsatisfied. HE R eir continued operation with EVIEW OF EVIEW lished inthemarket, post-sale services as 310 e initialdistributor i.e.ifheknows E CONOMICS AND AND CONOMICS 313

CEU eTD Collection all customers inacertainarea,themanufacturer couldgrant manufacturer hasaninterestthat 321 320 319 318 317 316 315 314 will tendto limit hissales effortstothe earn byserving additional customers presence. 2.3.1.4 to distributionofanewproduct. lenient towardsexclusive territorieswhentheyareimposed byanewentrant orwith regards the market morecompetitive. Consequently, itseems thatthelawshould beparticularly exclusive distributorship canbeseen asam ensure thatthedistributor willprovide adequate main reasonsfor amanufacturer to of advertisingin services than afirm alreadyestablished inthe territories canassist anewentr services than itwould befor more difficultforanewentranttofinddistri is awayofensuringthatthes an assuranceofthequalityproduct D entrants ameans to attractcustomers from firms.”). existing UKE 8 A Strasser, Kurt A.Strasser, Id. Id. See See See infra

L Cady, M REEDA AW

A manufacturer couldalsoim Apart from the factthatanewentrantis ANKIW Expanding market coverage coverage market Expanding 319 J Part 2.3.1.1. supra OURNAL supra & Inaccordancewiththelawofdiminishi

, T

supra URNER note 314,at 808. note 136, at 34. Vertical Territorial Restraints after Sylvania: A Policy Analysis and Proposed NewRule Proposed and A Analysis Policy Sylvania: after Restraints Territorial Vertical order togainfootholdinthemarket. , Vol. 1977, No. 4 (Oct., 1977), at 808. at808. 1977), 4(Oct., No. 1977, , Vol. note 11, at 381 (“[A]dvertising allows381 (“[A]dvertising ne note 11, at , supra note 14, at 511-12. at511-12. 14, note

e services areindeedprovided. ant inovercoming thisproblem. 318 adistributorcarrieshisentire an alreadyesta

enter into anexclusive arrange pose exclusive territoriesin will diminish ashisefforts expand. 314 andithas beenshown that exclusivedistribution eans ofovercoming barrierstoentryandmaking more profitablecustomers orproducts. 59 market, anewentrantisalsoingreaterneed advertisement ofthe butors willingtoinvestinproduct-related blished supplier. ingreaterneedofguaranteeingpost-sale w firms toenter more easily becauseitgives ng returns, theprofitsadistributorcan 317 Takingintoaccountthatoneofthe 315 productlineorthatheserves Atthe same time, itwillbe the distributoranexclusive ment withadist order toexpandhismarket 316 Theuseofexclusive manufacturer’s product, 320 Asaresult,he ributor isto 321 Ifa , CEU eTD Collection low-cost buyerswithoutlosing price hechargestothe context ofdifferentiatedproducts. 330 329 328 327 326 325 324 323 322 territories. higher profitsfrom low-costbuyers)isma more pricesensitive). buyers thatareharder tosellbecausethey that areeasily reached orarepa competitors. differentiated brand,theretailpricemay be market power toincrease salesand profits. carry alarger percentage of themanufacturer’s total items. proposal andfindthatinthepresenceofexclusive manufacturer's product line. to subsidizesaleseffortslessprofitablecustomersorof on salestothatpartofthemarket mosteasily territory. that power.”). the result of the kind of contractual negotiation process described above, a process unrelated to the exercise of minimum andexclusive RPM territories, power flows from the existence of product differentiation, the presence of such differentiation suggests that marketless worrisome than differentiation Cady, Cady, Iglesias,Trespalacios & Vázquez, See Id. Id. Id. Id. Id.

id. Exclusive territoriescanespecially beus supra supra

322 330 Inthiscasethemanufactur 327 note 136, at 136, 33. note at 136, 33. note

Inthatcasetherewouldbeadistinc 328 distributor abovethemarket level,an Inordertomaximize hisprofits,a See also 323

supra Iglesias,Trespalacios,andV sales tothehigh-costbuyers. Meese, rticularly attracted for instance, are vehicles for reducing transaction costs, and thus are power connected with a dominant position: “to the extent that market that extent the “to position: a with dominant connected power 325 note 180, at 75. at75. note180, Insuchasettingmanuf er’s rationale isthatdist note 177, at 189 (market power arising out product supra out product arising power at (market 177, 189 note 326 60 de possiblebytheimposition ofexclusive reached andthenusetheextraprofits inorder set somewhat abovethelevelchargedby setsomewhat are more costlytoreachorbecausetheyare Duetothemarket powerarisingoutofa ed forobtainingmarket coverageinthe territories thedistributo tion betweenlow-cost to the brand) andhigh-cost buyers (i.e. 324 manufacturer could firstraise the d thenextracthigherprofitsfrom

329 lessprofitableproductsinthe ributors canearnextraprofits ázquez empirically testthis Thesecondstep(extracting acturer may useavailable r ismore willingto buyers (i.e. CEU eTD Collection absence ofverticalrestraints, buyers. The distributorscanthenusetheseextraprof resources. exceed marginal costs, whichistheoptimal solution withregardstoanefficient allocation of consumer welfare. with substantial market power may leadto 339 338 337 336 335 334 333 332 331 an arrangement. misallocation ofresourcesandtherebyjustifyan significant market power,thedeployment of being abenefitforsomebuyers higher pricestoallbuyerswit exclusive territories distributors are protected from intrabrand competition and can charge distribution whenitwouldleadto distribution. available tothosewhowouldnotbuyitifthey increases . increases . Furthermore, there lessst in is compete increasing intere manufacturer's to perhaps alarge ability larger, the importance to consumers of having some choice between competing sellers of the same brand exclusive on the part of his dealers and distributors. Mo of his brand, and this advantage should make his franchise more attractive and so reduce the need for an difficult to justify. Inthe first place, also independently relevant. As it increases, the manufacturer's use of distribution restrictions becomesmore

See Id. Id. Id. Id. Id. Id. Id. Id. at 34.

Restrictedchannels of distribution underthe Sherman Act 337 Cady showsthattheuseofexclusiveterritoriestoexpandmarketcoverageforbrands Conversely, amanufacturer withsubstantialma Thiswaytheadditional costs ofdistribu 334 332

Insuchasituationlow-costbuye 339

331 Thiswillhappen ifdistributors a substantial share ofthe market in

distributors expandcoverageonly hout fearthatanother distributor willcharge alower price. andhigherpricesforall. anincreaseinproductdemand. a misallocation ofresour 61 reover, as the market share of one manufacturer becomes rs would subsidize high-costbuyers. its inorder tosubsidize salestohigh-cost titrust lawintervention exclusive territories couldlead toa werechargedthefullmarginal costof tion arespreadoveral note 138, at 833-34 (“Market share is share , supra(“Market at 138, 833-34 note rket powermightpreferamore costly are inducedtomake theproduct dicates widespread consumer acceptance 338 Therefore,inthepresenceof aslongmarginal revenues 335 ces andareductionin incondemning such Inthepresence of l buyers,theresult 333 Inthe 336

CEU eTD Collection 347 346 345 344 343 342 341 340 do so.”). against its rivals – as by permitting aterritorial restric then beabletoadjust theirpric the otherhand,ifamanuf manufacturer generallyhasle him. manufacturer, sincecompetitionamong distributors willbring pricesdowntothelevel setby distribution processisnotrestrained,thema informed tomake party marketing deci choose thecorrectresponsetoaretail-costshock. exclusive distribution system eachdistributor ha territories are theoptimal strategy for amanufact and inputprices. demographics, whileretail-costuncertaintyis determined bytechnologicalchanges,wages uncertainty. Demand uncertaintydependson market ischaracterized bytwotypes of uncertainty: demand uncertainty andretail-cost of decentralizedinformationthan relevance. one whichapplieseveninsituationswher 2.3.1.5 Dutta,Heide & Bergen, Rey&Tirole, Secrieru, Rey&Tirole, Id Id. Id. Id. . 345 at 928.

Suchasituationmight notbetheopt Rey andTirole offer another justification for the imposition of exclusive territories, In the presence of information asymmetries,exclusive territories enable the better Specialized information information Specialized 340 note 30, at 806. at 806. supra 30, note Theyarguethatundercerta supra supra 342 note 200, at 928. at928. note 200, note 200. Reyand Tiroleshow that inthe pr supra acturer grantsexclusiveterritoriestohisdistributors,theywould note 297, at 123. ss information about the market than hisdistributors do. ing totheconditions inthemarket. unrestricted distribution orRPM. in conditionsexclusiveterr sions basedonitssuperiorinformation. tion, for example –than inai 62 e product-relatedservic rket price isbasically thepricesetby 343 s amonopoly inhisterritoryandisableto imal profit-maximizing strategy,sincea factors suchasconsumer tastesand

urer. Thisisdue tothefact thatinan esence ofcostuncertainty exclusive ding a small manufacturer to to manufacturer asmall ding itories make abetteruse es arenotof much 347 341 Consequently,by Thedownstream 344 If the Ifthe 346 On

CEU eTD Collection manufacturer. on theirwillingnesstopay,therebyachieving By evaluating thetruevalueof J 355 354 353 352 351 350 349 348 retailers areresponsiblenot argument seems tohavebeenfirstdevelopedbyMarvelandMcCafferty. that adistributormight bee 2.3.1.6 will befurther addressed below. and distributor’sprofitsdoesnothavetobeinth obtain. appointment –otherwiseotherdealerswillco example ofacardealer's abilitytolearninfo require some consumers beneficial forconsumers, asallowingprici market conditions. likely todeployexclusiveterritorieswhenthei informational superiority. granting anexclusive territoryamanufacturer developed the argument related to RPM, it is submitted OURNAL OF OURNAL Howard P. Marvel & Stephen McCafferty, Dutta,Heide & Bergen, Rey&Tirole, See infra Id. Id. Id. Id. at 123. 353 Another argument thatapplieseven inthe absence ofservic In accordance with ReyandTirole, Dutta,Heide, andBergen findthatfirms aremore Quality certification certification Quality Thisisalsoagoodexample ofhowapr Part 2.3.2.8. E CONOMICS 352 supra However,thiswillbe possibleonlyif the distributor hasanexclusive 349 note 200, at 928. at928. note 200, , Vol. 15, No. 3 (Autumn, 1984), pp. 346-359. Although Marvel and McCafferty McCafferty and Marvel Although 346-359. pp. 1984), (Autumn, 3 No. 15, Vol. , Inthisrespect they also note that supra 348 to payahigherprice. note 297, at 131.

ndorsing aproductbytheme just forwarehousingproductsobt

acartothecustomer, thedealer cansegment customers based 354

Resale Price Maintenance Certification and Quality PriceMaintenance Resale ng flexibility under info 63 rmation from customer a atthepointofsale. mpete awayanymargins thesalespeoplecould that it can also serve to justify exclusive territories. exclusive tojustify alsoserve itcan that r distributorshavebetterinformation about can benefitfrom theexclusivedistributor’s e interestofconsumers, whichisatopicthat higher profitsbothfor 350 actice thatmaximizes themanufacturer’s Toillustrate this point, they offer the this doesnotnecessarilyhavetobe re factthatitis ained from suppliers–they es prone to free-riding is es pronetofree-ridingis rmation asymmetry may himself andforthe 355 carryingit.This Theynotethat , T HE RAND 351

CEU eTD Collection derive acertainprestige forthemanufacturer. that thedistributorstocks would enablethedistributorwidermargins and 363 362 361 360 359 358 357 356 for establishingaselectivedistributionsystem. the productcanalsohelpmanufacturer in price. Veblen effect,i.e.thephenomenon wherethede exclusivity. Thisaura could bethe result of ahigh products, sincecustomersmight beoptingfor high standardswhenitcomes could finditoptimal tograntanexclusiveterritoryadistri will rely on adistributor tocertify theproducts’ quality. such certification will be valuabletomanufacturers. regard some dealersashavingsuperiorabilities reputation andtherebycert certain product theretailerisshowing that choose tomarketthose products that willmost likelyappealto theirclientele. Journal of Economics, Vol. 64, No. 2 (May, 1950), pp. 183-207, at 189. at 189. 183-207, pp. 1950), (May, 2 No. 64, Vol. Economics, of Journal H. Leibenstein, Comanor, supra See Act , supra the Sherman under of distribution channels Restricted See Id. Id. Id. at 347. at 348. Goldberg, Restrictedchannels of distribution underthe Sherman Act Related tothisistheargument thatha A number ofconsumers are ignorant regard Related toprestige,insteadofusingexclus 362 Connected tothis,the fact note 274, at 744. at 744. 274, supra note Bandwagon, Snob, and Veblen Effects in the Theory of Consumers' Consumers' Demand of EffectsintheTheory Veblen and Snob, Bandwagon, note 135, at 1158. at 135, 1158. note the manufacturer’sproducts. ifies theproduct’s quality.

to choosingproductsitsells. thatonlyasingle,welle toappealhighclassconsumers. 64 the productisinaccordance withhisoverall 361 ving onlyonedealerforacertainareamay this couldserve ascompensationforensuring mand foragoodisincreaseswithanincrease In otherwords,asuppliermay useselective tocertifythecharacteristicsofaproduct, Thisis especially the case withexpensive price. Inthisrespect a certainproductbecauseofitsaura ive territoriesamanufacturermay alsoopt 358 ing thecharacteristicsofaproductand 357 note 138, at 805. , supra at 138, 805. note

Consequently,aslongconsumers note 138, at 805. at805. note 138, 359 Consequently,amanufacturer 360 butor thatisknownforhaving quipped dealercandistribute This way the manufacturer Thiswaythemanufacturer considertheso called 363 356 , The Quarterly Quarterly , The

Byofferinga CEU eTD Collection 36, pp. 1007-1025,(November 2003). greatly rely onanim selective distributionisoften reason beingthatnon-brandedpro be usedtoavoidthed 373 372 371 370 369 368 367 366 365 364 consisting of numerous independentlocalmark achieved by eliminating inefficientcompetition betweendownstream firms. Inanindustry order tominimize transportationcosts a result,theduplicatedentrycostsf territories andtherebydividethedownstream entry costs twice. market hastoincuranentrycost. Matsumura showstwowaysinwhichthiscouldhappen. 2.3.1.7 exclusivity may ratheroptfor aselective rath more lenientlythanittreats exclusive distribu distribution willgenerally be distribution inordertocreateanau Matsumura, Toshihiro J. G 174. para. EUVerticalGuidelines, J Id. Id. Id. Id. Id. Id. ONES at 1008-09. at 1008-09. at 1008. OYDER

Apart from avoidingtheduplicatedcostofentr Exclusive territoriescan alsobebeneficial & Lowering the costs of distribution distribution of costs the Lowering

S UFRIN , supra , supra note 123, at 107. at107. note 123, 370 Ontheotherhand,ifamanufactur Consumer-benefitingterritories exclusive age ofexclusivity. note 37, at 641. uplication of entrycosts. used withregardsto thedi

used inthesaleofexpensiv 369 acing distributorscouldbeavoided. ducts arenotconnect Ifadistributor enterstwolo ra ofexclusivitysurroundingtheproduct. related tothedistributionprocess. 366 Therefore,ifthelawtr er thanforanexclusivedistributionsystem. 65 tion, amanufactureraiming tocreateanauraof markets,economies ofscalecouldarise. ets, eachdownstream firmpaystransportation 368 Ingeneral,adistri if they lower thecostsof distribution. y, exclusive territoriescould beusedin stribution ofbranded products, , C ed withexclusivity.Inthisrespect 367 ANADIAN e perfumes, sin First, exclusive territoriescould er decidestoimposeexclusive cal markets, hehastoincur J OURNAL OF OF OURNAL eats selective distribution 372 butor enteringalocal

373 ce theseproducts E This could be Thiscouldbe CONOMICS 364 Selective 365 , Vol. 371 one As CEU eTD Collection Competition: Exclusive Territories? Or Exclusive Competition: the more efficientfirm. result, theaveragetransportation cost ofthetw distance betweenamarket a transportation costs. opposite sideofsome relevant 382 381 380 379 378 377 376 375 374 situation representedanaturalmonopoly. the grantofexclusivete monopolisteffectively bea in of exclusiveterritorieswouldbeanoptimal solution,sincetheexclusivedistributorwould process wouldbeleastcostlywhenperformed by twoormore. monopoly iftheentiremarket demandcanbesatisfiedatlowestco lead tolowerpricesforconsumers. able toserve distant markets. downstream firm isthemonopolist inmarkets n less efficient firm (i.e. thefi costs toship productsto eachofthelocalmarkets. very high in relation to the profits to be gained; in in profitsto be gained; tothe in relation very high have been profitable forthe dealers. In areas in which subscribers are widely scattered,the costs of serviceare Vol. 3 (2005) (showing that the same effect could be achieved by imposing maximumRPM). Newberry v. Washington Post Co., 438 F.Supp. 470, 470, F.Supp. 438 PostCo., Newberry v. Washington R Id. Id. Id. Id. Id. Id. Id. ICHARD at 1009. See also In general,itcan In thisrespect,consider A. Tatsuhiko Nariu & David Flath,

P OSNER 381 , Inthefieldofdistributionnatura 375

N ATURAL MONOPOLY AND ITS REGULATION ANDITS MONOPOLY ATURAL

rritories inthefieldofnewspape beexpectedthatthe 378 Ontheotherhand,inanexclusivedistributionsystem each nd thelocationoffirm. rm furthestfrom themarket) also sellsineach market.

379 the exclusiveterritory.Forexam This willreduce thecosts for also theconceptofnatural region,anexclusivedistributionsystemcouldlowerthe , R Retail PriceStipulations? Maximum 380

Vertical Control of Cournot Wholesalers in Spatial 382 high-density areasan established dealer withyears of

transportation costincreases withthe increase in 66 by onlyonefirm. Insuchacasetheimposition 474 (D.C. Cir. 1977) (“[C]ompetition simply would not (D.C.Cir. not 474 simply (“[C]ompetition would 1977) o downstream firms ishigherthanthecostof ear itslocation,sodistributorswillnotbe 374 Iftwodownstream firms locateatthe l monopoly exists if thedistribution 1 (1999). (1999). 1 376 r distributiononthegroundsthat Without exclusive territories,the monopoly. Amarket isanatural the manufacturer and inturn ple, oneU.S.courtjustified EVIEW OF st byonefirm ratherthan M ARKETING ARKETING S 377 CIENCE Asa , CEU eTD Collection those efforts are substantial”). effortsaresubstantial”). those monetize consumers’ surplus canyield ne 386 385 384 383 mind in delivery wereefficient contracts with tailored territory had aspects of a naturalmonopoly arising from specified territories the inthe factthat the dealer effective service in the area would face lower costs th conduct increasestheindividua a divergence betweenprivat who wroteaboutthisissueisRonaldCoase.A situations adiscrepancybetweenprivateandgeneralinterestc better offin thepresence ofsuch anarrangement benefits forthepartiesthatenterinto it,it 2.3.2.1 2.3.2 locations areproperlyassigned establish an exclusivedistribut distributors willbe worse off. Inorder to product’s reputation,saleswill would alsoharm themanufacturer–ifaproductismarketed inawaywhichharms the result inharming boththeconsumers andthedeal “dumping” spoiledorexcessinventor product andtomonitor theproduct’squality. from alocationthat istooremote toinstru exclusive territoriescouldprovetobebenefici 2.3.1.8 R.H.Coase, 8 A See Id.

8A REEDA

Apart fromstrictlyeconomic reasons,ther Although anexclusivedistributionagreement potentiallyprovidesanumber of Concerns Health and safety considerations considerations safety and Health Private v. general interest interest general v. Private REEDA &

T The ProblemThe of SocialCost URNER &

T URNER , supra , supra note 14, at 507-08. at507-08. 14, note e andsocialnetproducts. note at See note 14, 522. also l’s welfareitalsodecrea and customers properlyserved. ion system. This way he can maion system. wayhecan This decrease, andasaresultbot t private gains and net social losses ifthe transaction costs that attend , J ies totheareasofother dealers. OURNAL OF an any dealerattemptingto and had long been worked worked been long had and avoid suchanoutcome, themanufacturer can does notnecessarily mean thatsociety willbe 67 ct consumers regardingtheproperuseof al. Forexample, adealercouldbemaking sales ccording toCoase,certainactionsmay leadto L 383 AW AND AND AW er inwhose territory the saleis made. They W Inaddition,adeal . Thisisdue to the fact that incertain ILLIAMSON e aresome othersituationsinwhich 385 ses thewelfareofsociety. Inotherwords,althoughaparticular E CONOMICS ,

ould occur.Oneoftheauthors supra h themanufacturerand , Vol. 3, (Oct., 1960), pp. 1-44. 1-44. pp. 1960), (Oct., , Vol. 3, enter. Thus each dealer note 55, at 373(“efforts to to 373(“efforts at 55, note by competent dealers.”). ke surethatthe dealers’ 384 Suchactionswould er couldengagein 386

CEU eTD Collection Nevertheless, itcouldbearguabl the externalitiesonconsumers. from theperspective ofthepartiesthat signit Applied toourdiscussion,althoughanexclus third parties. 394 393 392 391 390 389 388 O 387 arrangements ensurethatdistributors pr perhaps the main justifications for the deployment of exclusive territories is thatsuch advertisement inordertoattractmorebuyers. typically ofthatkind, charge apriceabovemarginalcost. makes senseonlyfordifferentiatedproducts, 2.3.2.2 of consumers. and distributordonotnecessarilyhavetomaximi other words,exclusivedistributionagreements th the manufacturer anddistributor, territories accountshouldbetakennotjustof contract butdonotrealizethe Drink Industry RGANIZATION RGANIZATION M Rey&Tirole, Zvika Neeman, See supra See See supra See Id. ANKIW at 686. M Rey & Stiglitz,

This happensduetotheexistenceofexte Exclusive territoriesandadve ANKIW Advertising and barriers to entry entry to barriers and Advertising ,

Part 2.3.1.1. Part 2.3.1.1. note 11, at 380. at 380. 11, supra note , T 387 15 (1999), pp. 685-703, at 685. at 685. 685-703, pp. (1999), 15 , 390

supra HE supra Inthepresence ofexternalitiesindivi The Freedom to Contract and the Free Rider Problem

J OURNAL OF OURNAL supraSee at 48, 445-47. alsonote note 11,380. at note 200, at 932. at932. note 200, 392 anexclusivedistributor willhave anincentivetoinvest in I NDUSTRIAL NDUSTRIAL

full extent ofthesocialconsequences oftheiractions. but also whateffectthearrange e whetherthisaspectofex 389 391 Consequently, whenevaluating theimpact ofexclusive E rtising arecloselyconnected CONOMICS Sinceproductssubjecttoexclusivedistributionare ovide theadequatelevelofadvertising. 68 , publicinterventionmay whether such anarrangeme Barbara G.Katz, ive distributionagreement may beefficient , Vol. 27, No. 1 (Sep., 1978), at 95. 1978), 1 No. (Sep., 27, Vol. , i.e. productsforwhichamanufacturer can 393 at maximize theprofits ofthemanufacturer ze thegeneralwelfare orbeinthe interest rnalities, i.e.negativeexternaleffectson What ismore,ithasbeenshownthat duals enjoythebenef , J Territorial Exclusivity in the Exclusivity the Soft Territorial in OURNAL OF OURNAL clusive distributionshouldbe ment hason thirdparties.In . Ingeneral,advertising be appropriate due to L AW nt isbeneficialfor , its of entering a E CONOMICS , AND 388 394

CEU eTD Collection on the use of the product.”). terms and price instruction and reliability, of sale, and selleridentity on as]information competition – [such to differences betweenvariousbrands,wh Apart from the priceincrease, advertising was barriers toentry of advertisingalsoargued consumers. was thatadvertising isamajor barrierto true competition and efficientservice to 404 403 402 401 R 400 399 398 397 396 395 information andassuchameans ofentryinto amarket. sides ofadvertisingwas Telser. the influenceofChicagoSchool. goods. differentiation andmakes buyerslessconcerne of demand facingthe is sociallydesirable. considered as procompetitive or not, since there that many economists viewed 27. The Economic Aspects of AdvertisingThe EconomicAspectsof that anearlyproposition at For 537. pp. 537-562, 1964), restrictions as of dubious value to consumers.”). obtain only a fraction of the fruits of advertising. Telser, firms to industries competitive can be expect in ifthey Rather, discouraged would fromadvertising. advertising EVIEW Telser, B.Louis, Martin Posner, M Telser, Competition Lester and G. Telser, Advertising See See infra Id. Id. ANKIW To this argument Telser responds that this does not have to mean that reduced competition isaresult of that meancompetition this thisdoes have argumentnot to To Telserresponds that reduced Posner, 397 , Vol. 76, No. 2 (Dec.,Vol. 76,No.2at270. , 1977), The perceptionofadvertisingstartedtochangeinthe1960s,alargeextentdue Economic theoryusedtoviewadvertising supra note 395,at 558. supra note 395,at 559. Asaresult,theadvertisingfirm isable supra Part 2.4.2. ,

note 11, at 381. at 381. 11, supra note 395 supra Thisisbecause themain effectofadve note 285,at 4. 400 Vertical Distribution Restraints after Sylvania: APostscript and Comment, note 285, at 4 (“One reason reason at4 (“One note 285, andfacilitates . advertised product. the presaleservices encouraged by resa See also id. See also at 541 (“there are some kinds of that inmany productdifferentiationleadstohigher industries

, T HE 403 R Henotedthatadvertising 402 EVIEW OF OF EVIEW Oneof thefirst ones to ich was seenas awastefulactivity. , T why Telser's analysis was not more is the wasnot why influential [in Telser's analysis 1960s] HE 401 396 69 E J

Italsoincreasesth OURNAL OF OURNAL OF CONOMIC CONOMIC advertising isasee activity, Kaldor, advertising wasteful Nicholas supra seen asartificiallycreatingaperceptionof is noconsensus whether advertising assuch d withpricedifferencesamong similar as aharmfulactivity.Theprevailingview tochargeapriceover marginal cost. note 395, at 537. at537. note 395, rtising is thatitd S TUDIES P OLITICAL OLITICAL le price maintenance andcognate nonprice 404 , Vol. 18, No. 1 (1950 - 1951), pp. 1- pp. 1951), - (1950 1 No. 18, Vol. , emphasize theprocompetitive According toTelser, direct advertising are that . essential advertising E is animportantsourceof CONOMY e perceptionofproduct ecreases theelasticity , Vol. 72,, No. 6 (Dec., 399 Theopponents M ICHIGAN ICHIGAN L AW 398

CEU eTD Collection 15, No. 2 (Oct., 1972), pp. 337-352, at 338. at 338. 337-352, pp. 1972), 15, (Oct., No. 2 inferior comparedtoalocal dealer. They concludethatthemanufact such circumstances themanufacturer wouldhave Upadhyaya. 414 413 412 411 410 409 408 407 406 405 examined thepricesofeyeglasses acrosstheU.S. andtheextenttowhichdifferencein overcome thisdeficiency. the priceandqualityof introduced. Forexample, some authorsaddedth intrabrand competition willcause special services suchaslocaladvertising todiminish. territories has onadvertising, they find that whenexclusive territories are made illegal advertising effortsandtherebyovercome a order toovercome thelegalobstacles,manufact will inturn leadto adecr towards theuseofexclusive te superior towhathecalls“impersonal” advertisingbymanufacturers. extent substitutes. manufacturersadvertising byand 433-39. 433-39. Exclusive Restraints: in Vertical Territories Beer Distribution (Mar. - Apr., 1970), pp. 311-329, at 311. 311. at 311-329, pp. 1970), Apr., - (Mar. LeeBenham, Behavior Consumer and Nelson, Information Phillip Franklin G Mixon, Jr. & Kamal PUpadhyaya, Advertising asSpecial ServiceProvision under Non-price Telser, Id. Id. Id. Id. See Id. . at 438. at 95.

id. Telser’s arguments werelaterconfir Apart from Telser’sarguments, otherjus at 91. supra note 237,at 95. 409 The Effect ofAdvertising onthe Price of Eyeglasses Inexamining theinfluencethatlegal regime affordedtoexclusive 405 Accordingtohisview,productpr ease intheamount ofproductpr 413 Alongthislinewasalso goods theyarebuying,suggesting

rritories, free-ridingbetweendistributorscouldoccur,which urer’s ability toeffectively provideadvertisinglocallyis 412 special servicesprovidedbydi

decline inproductpromotion bydistributors. 70 , T med inan empirical studybyMixonand HE to stepinwithhisown advertisingeffort. at consumers oftenlackinformation about J , Applied Economics,vol. 28(4) (April1996), pp. OURNAL OF OURNAL tifications foradvertisingbegantobe urer wouldthenbeforcedtoincreasehis a studyconductedbyBenham. omotion performed by distributors is , J omotion performed bydealers. OURNAL OF P OLITICAL OLITICAL that advertisement may help stributors are to acertain L AW AND 406 E CONOMY If thelawishostile E CONOMICS , Vol. 78, No. 2 414 , Vol. 408 410 407 He

In In 411

CEU eTD Collection 420 419 418 417 416 415 purchase information ratherthanmemory inor advertising may leadtoadecreaseinprices. which consumers havetorely impact ofadvertisingdependsonthetype that advertisingactually about theimpact ofadvertisinghasbeensettle particularly beneficial important inthecontextofexclusivedist advertising formaking itmore fornewfirms difficult toenterthemarket. consumers’ knowledgeand on this,heconcludedthatadve advertising hadsubstantiallylowerpricesofeyeglassesthanthosethatprohibitedit. advertising leadstohigher with thosethatprohibitedit,Benhamwanted more orlessrestrictions.Bycomparing thepr of thestatescompletely prohibitedadvertisingof eyeglasses, whileothers alloweditwith in whichtheeffectofadvertisingcouldbebest prices wasrelatedtoadvertising.Hefocusedon leads toa price increase). Review 57 (November-December 1979), pp. 173-184 (an empirical study showing that advertising actually Selected Id. percent. A. Mitra & J.G. Lynch, Jr., Paul W. Farris & David J. Reibstein,

See supra Id. Id. Id. at 351. emphasized Healso that such restrictionscan beinstrument an forachieving pricediscrimination. 349. at 338, adver on limitations showed that study at The 352. , M Id. Although Benham’s arguments seempersuasive Upon analyzingtherelevantdata,Benha at 344. ARKETING ARKETING Part 2.3.1.3. L ETTERS if usedbyanewentrant. leads tohigher prices. Advertising Effects onConsumer Welfare: , Volume, 7, Number 1(January 1996), pp.19-29, at 27. pricesforconsumers. lead tolowerprices.

onmemory togeneratebrandnames forconsideration, How Prices, Ad Expenditures and Profits are Linked are Profits and Expenditures Prices,Ad How rtising canbebeneficialfo 420 71 d. Forexample, some otherstudieshaveshown the advertisedproduct. Conversely,whenconsumersrelyonpoint-of- 419 ribution, sinceexclusiv 418 tising increased the prices from 25 to more than the more 100 fromto than prices increased 25 tising observed.This wasduetothefactthatsome ices inthestateswhich allowedadvertising 416 the eyeglassesmarket, asthatwasthemarket to testthethenprevailingpropositionthat Thiscouldbeexplainedbythefactthat

der tochoosethebrand,neteffectof Consequently,hecritic m foundthatthestateswhich allowed , itdoesnotmean thatthediscussion Prices Paid and Liking for Brands r competition asitimproves For productsregarding e territories can be e territoriescanbe 417 ized restrictionson Thisisespecially , HarvardBusiness 415 Based CEU eTD Collection alternative productsandtheir could besaidthatadvertisingisbeneficialsinceitprovidesinformati producer’s profits. and Stiglitznote,exclusiveterritoriesmay leadto if usedexcessively.Thiscouldalsobethere 428 427 426 425 424 423 422 421 are thosethatdonotknowenoughaboutth product canbedividedintotwogroups:ignorant andknowledgeable. Comanor offersanexampleofhowthiscanha of exclusiveterritoriesarebeneficial,aproblem 2.3.2.3 have distinctiveproducts. to productdifferentiationexclusiv distributors’ promotional effortsisalsolooke beneficial activity,thentheuseofexclus search costs anddecreasesth that inmost industriesrather advertising. studies ofdifferentindustriescame to advertising willbetoincrease prices paid. (showing that advertising decreasesconsum that advertising (showing Surplus, Profit, and Social Welfare Social and Profit, Surplus, Comanor, supra Kessides, Rey&Stiglitz, See Id. Id. See, e.g., Id. at 84. M

Overall, the role of advertising seems tobe positive. Empirical studies haveshown Even ifitisbeyonddoubtthatthedistribut ONTI Special services may be over-supplied over-supplied be may services Special CarolHortonTremblay supra note 309,at 93. 422 ,

supra Inaddition,evenif supra 72,at446. note note 197, at 992. note 45, at 354. at note 45, 354. 423

427

, C being abarriertoentryadvertis

price-quality characteristics. & Victor J. Tremblay,& VictorJ. eir brandloyalty ONTEMPORARY advertisingisnotharmful as e distributionwouldhelpcons er welfare inthe cigaretteindustry). 421 E 72 CONOMIC Fromthisperspective, itisnotsurprising that d atbenevolently.Inthislight,bycontributing different conclusionsabouttheimpactof sult of theuseof exclusiveterritories. AsRey ive territories asameans ofencouraging ppen. Henotesthatcons may ariseiftheseservicesareover-supplied. andinertia. The Impact of Cigarette Advertising on Consumer e product,andhencevaluetheproduct excessive advertising,therebyloweringthe or servicesencouragedbythedeployment P OLICY 425 ing actuallyfacilitatesentry. Thisinturnreduces consumers’ 13(1) (January 1995), pp. 113-124 113-124 pp. 1995), (January 13(1) 426 such, itcouldbecome harmful Ifadvertisingisseenasa umers satisfytheirneedto on abouttheexistenceof 428 umers ofaparticular Ignorantconsumers 424 It CEU eTD Collection optimum. more likelyitisthat those special services wi not needextrainformation a with thepreferencesof product. Forthisreason, themanufacturerwill and consequentlytheonewhosepreferencesar 435 434 433 432 431 430 429 of servicesshouldnotbe supplied dohappen,inmostcasestheproblem self-correcting. Inotherwords,over-supply is services. simply stopbuyingthatproductan forces. This wouldhappenbecausethosecons market. services couldbeaproblem onlyincase often thesituationhedescribes actuallyoccurs inpractice. Inaddition, anover-supply of marginal buyer isthebuyerwhowouldleaveth vertical restraintsinorder pay forit. those thatdonotneedadditional information a information andarewillingtopayforit. M Comanor, supra M Id. Id. Id. Id. OTTA ANKIW

Since ignorantconsumers willbethemarg Comanor’s arguments doseemtohavesome grounds.However,itisarguablehow 434 435 ,

433 supra 430 Otherwise,theproblem describedbyCo ,

note 11, at 139. at 139. 11, supra note Therefore,althoughsitua

note 190, at 190, 316. note note 197, at 992. to providetheextrainformation abouttheproducttothem. seriousantitrustconcern. ignorant consumer. Asmenti bout theproduct,andmore

d ratheroptforaproductwhichdoesnotcontainextra tions whereproduct-relatedserviceswouldbeover- 429 Ontheotherhand,knowledgeableconsumers are 73 the supplierisamonopolist intheupstream ll beover-suppliedinrelationtotheconsumer bout theproduct andarehencenotpreparedto e market first ifthepricewereanyhigher, umers thatdonotvalueextraeffortwould adjust the priceandtheamountofservices e decisiveregardingth inal ones,themanufacturer might impose manor wouldbecorrectedbythemarket oned, knowledgeableconsumers do there aresuchconsumersthe e market price ofa 431 The 432

CEU eTD Collection Review and Critique 441 440 439 438 437 436 would increasehiscostsofentry. distribution network.Thiswayhewouldbefor available, meaning thatinorderto enterth provision. the caseif theexclusive distribution agreement alsocontains an exclusive dealing manufacturer may deployexclusiveterritoriesinthedownstream market. use exclusive territories. organize thedistributionoftheirproducts. would raisethecostsofitsups dominant firm may trytoextenditsmonopolythedownstream activities. that onlyonefullmonopoly return competition inthedownstream market. power intheupstreammarket evenifhe competition inthe downstream market. In gene restriction of competition throughvertical in can beusedinordertopr 2.3.2.4 retailing, exclusive dealing arrangements can raise small rivals' costs of distribution.”). arrangements can raise smallcosts distribution.”). of dealing exclusive rivals' retailing, (May, 1983), pp. 267-271, at 268; Dutta, Heide & Bergen, &Bergen, at Heide Dutta, 268; pp. 267-271, 1983), (May, No. 2, Papers and Proceedings of the Ninety-Fifth Annual Meeting of the American Economic Association S Steven C. Salop & David T. Scheffman, anFor overview the of raising rivals Bork, See Id. ULLIVAN ULLIVAN at 402-03. at 402-03. Salop & Scheffman,

In ordertoraisethecostsofdistribu Another concern relatedtotheuse ofexclusive note 49, at 402. supra at 402. 49, note Deterring new entry entry new Deterring 437 440 & However,there areviewsthatinorder Inthatcasetheprospectiveentrant w

H ARRISON , 2001

, C

supra note 439, at 267 (“If there are scale arethere supra at 267(“If note439, OLUM note 129, at 178. event newfirms from enteringamarket. Ontheonehand,a .

B

US Post-Chicago Antitrust: A ’ costs doctrine, Antitrust: see Herbert Hovenkamp, Post-Chicago .

tream rivals,sinceitwouldbe 441 L.

Raising Rivals' Costs Rivals' Raising R Asaresult, the manufacturer EV canbetakenfrom aseri 436 .

257, 318-23 (2001). Thisisduetodoublemarginalization andthefact 438 Tothisend,theupstr 74 e market hewould needto establish his own tegration canhaveonlyalimited impacton manages tocompletely eliminate interbrand ral, a manufacturer cannot expandhis market ced tooperateatbothmarketlevels,which supra tion incurredbyhisrivals,adominant ould havenoexistingdistributionchannels to secureitsupstream market positiona note 297, at 125. at125. note 297, , T territories isthatthis type of restraint HE economies or other entry barriers in A MERICAN market. Thiswaythefirm market. eam monopolist could also more costlyfor them to ’s (upstream) rivalsmight E es ofverticallyrelated CONOMIC 439 Thisisespecially R EVIEW , Vol. 73, CEU eTD Collection 447 446 445 444 443 442 market. for facilitating . Firstly, exclusive territori 2.3.2.5 dealers. territories totheirdistributors, deterring newentrants. the producer's profitsinotherterritories,an exclusive distributordoe to haveatougherresponse exclusive territoriescould deternew entry. They exclude thoseunabletoma interfere witharrangements thatlower afirm’s cost competitors outof business. forecloses competitors. Thiswould bethecase intervene. Sometimes thereisnoviolation ev fact thatan arrangement raises competitors’ a significantpartofthemarket. not beabletoaccessthedownstreammarket, si H Dutta,Heide & Bergen, Rey&Stiglitz, P Id. Id. HILLIP HILLIP OVENKAMP

Apart from raisingrivals’ costs, Reya Another concernrelated However, the theory of raising rivals’ cost 447 446 Facilitating horizontal collusion collusion horizontal Facilitating A Manufacturerscanuseexclusiveterritories

REEDA REEDA ,

supra supra 48, at446. note &

H note 29,453. at ERBERT supra 445 s nottakeintoaccount Inthealternative, thenew firms tch thecostreductions. H note 297, at 125. OVENKAMP 442

entry thananon-exclusiveone. Therefore,itshouldnotbeth orotherwisetheywouldnot to theuseof exclusive territoriesisthattheycan beavehicle ,

F UNDAMENTALS OF ANTITRUST LAW LAW ANTITRUST OF UNDAMENTALS 75 costs does not mean thatantitrustlawshould d couldthereforeengageintoastrategyof nce theexclusive arrangement couldforeclose the effectofadecreas en iftheexclusive arrangement completely es canbe used forcollusion in theupstream showthatanexclusiv 443 s shouldnotbeextendedtoofar.Themere nd Stiglitzshowanotherwayinwhich if thefirm issoefficient that itdrives s, eveniftheimpact ofreducedcostsisto

in ordertoeffectivelydividemarkets would also needtoofferexclusive 444 e purposeofantitrustlaws to Thisisdue tothefact thatan be abletoattractcompetent 18-28 e ofhisownpriceupon e distributorislikely

(2004, Supp. 2009). 2009). Supp. (2004, CEU eTD Collection well as make thedetectionofcheatingeasier. For thisreasonthedivisionofterritorieswoul agreement. agreements ismonitoring whether cartel members are complying with the have astrongincentivetocheat,andhenceone 458 457 456 455 454 453 452 451 450 449 448 monitor the system. if exclusiveterritoriesareimposed bythema themselves sincethatway eachofthem w Apartfrom manufacturers, di cover uptheirhorizontalcollusion. cartel members areusing exclusive territories. only ifthecombined market powerofitspa manufacturers will division among exclusive territoriesarecombined withexclus cheating canbedetectedbyobservingretailprices. each ofthem isprimarily responsible monitor prices andnumberof salesattheretail level. their distributors, the po among themselves, H Louis, H Strasser, H Posner, Id. Id. Id. Id. Id. OVENKAMP OVENKAMP OVENKAMP at 450. at 826. By imposing exclusiveterritori supra at 400, 824. note supra supra 450 , , , Incaseallmembers ofthecarteluse ex

note 285,at 7. supra supra supra note 314,at 823. note 29, at 453-54. 453-54. at 29, note note 29,453. at note 29,453. at 448 458 therebyreducingthepossibilityofcartelcheating. Inaddition,thelawtreatsvertical ssibility ofcheatingwill

beevenmore fortified. Retailers couldbeinterested in dividingterritoriesamong stributors couldalsouseexclusiveterritoriesinorderto es on retailers,acartelof fortheretailpric ould become amonopolistin hisownterritory. 76 457 455 rticipants reachesmonop d remove many oftheincentives to cheatas of themain problems withtheenforcement of nufacturer, sincehewouldbebetterableto ive dealingarrangements, sincethen market Forthecolludingretailersitwouldbebetter

be significantlyreduced. 453 451 clusive distributionarrangements with Cartelizationiseven more likelyif Inthis case therivals willknow that e ofhisproduct. restrictionsmore favorablythan 454 However,thecartel willwork manufacturers may beableto oly powerandifall 449 452 Cartel members members Cartel Consequently, 456

CEU eTD Collection own retailnetwork. Rather, amanufacturercouldearn want toorganizeadownstream cartelandallo However, eveniftheseconditionswould besa can leadtoanincreaseinpricesandareduc 464 463 462 461 460 459 2.3.2.6 more interestedinpursuing. cartelization isaseparateantitrustoffense a to thelegalityofexclusivedistribution.This concern ofcartelizationshouldnot Nevertheless, instanceswhenthiswouldbethe exclusive territoriescanbeusedasa the retailers subjectto theterritorial restraint needtohavesufficientmarket power. restriction hastobeusedbyaveryhighperc distribution system hastobeamonopolist inthe areawhere theretailer isoperating; is realistic onlyundercertainconditions: allocation. manufacturer wouldbetreatedmuch more leniently than ahorizontal agreement onmarket horizontal ones, H See Id. Id. Id. Id. OVENKAMP at 449. Telser, Telser,

One oftheconcernsarisingoutuse Taking this intoaccount, itcanbeconcluded thatunder certain circumstances Despite theseconcerns,itshouldbenotedth Higher prices and lower output output lower and prices Higher supra ,

supra 459 note 239, at 417. at417. note 239, note 29,450. at 464 andanexclusivedistributionsy

significantlycontributetothe morebysellingtoadditional tion inoutput.These concernsareconnectednot entage ofthemanufacturers inthemarket; nd onefor whichantitrustauthorities are much means ofcoveringuphorizontal collusion. 77 tisfied, itisnot clear w thedistributorsto the manufacturer instituting theexclusive case seem tobequiterare.Consequently,the is especiallyduetoth at theproblem ofdistributorcartelization exclusive territories isthat thispractice stem seemingly establishedbya law’s strictnesswithregards retailers orestablishingits earnmonopolyprofits. why manufacturers would e factthathorizontal 461 460 and the 463 462

CEU eTD Collection case ofanyriseinthe priceconsumer would notbeabletoraisethepriceabovecomp When productsarenotdifferentiated(thatisif by imperfect competition. Thiswould for example be the case if products are differentiated. noted thatexclusive territoriescould causeapr 470 469 468 467 466 465 output. are worseoff. leads tohigherpriceandfewersalesofthe charge ahigher price. territories: themain idea behind this type of re negative. Actually,apriceincrease naturally Theeffectthatthepriceincreasehas on even if exclusive territories cause aprice incr demand andconsumers’ readinesstoswitchcompetingproducts. certain extent.Theextenttowhichhewould hand, iftheproductisdifferentia restraints can lead tohi restraints wereGouldandYamey. Inadebate and outputisambiguous, sincede restraints. Aswillbeshown inthissection,the only withthedeployment ofexcl B Scherer, J.R. Gould & B. S. Yamey, Id. Id. Act , supra the Sherman under of distribution channels Restricted ORK at 833. 470 Among firstauthorstoemphasize the the ,

supra at 196, 296. note Consequently,inthepresenceofavertical supra note 265, at 265, 694. note 469 AccordingtoBork,thedistributor’s 468 gher priceandreducedoutput. With regards tothis,Borkarguesth Professor Bork onvertical price fixing,76

fining what constitutes output canbe subject toadebate. usive territories, butalsowith ted, thedistributorwouldbeab s wouldswitchtocompetingproducts. physical product,itdoesnotmean thatconsumers 78 straint istoput the distributor ina position to be abletodosodependsontheelasticityof effect thatexclusive distributionhason prices follows from theimposition of exclusive ice increase onlyifamarket ischaracterized ease, itdoes notmean theyareperfectsubstitutes),adistributor welfare isinconclusive.Ontheonehand, withBork,theyargued thatintrabrand etitive level.Thisisduetothefactthatin restraint theconsumer isofferednotjust anticompetitive potentialofintrabrand 465 effortsalsocountasaneconomic note 138, at 832-33. at832-33. note 138, With regardsto this,itshould be at evenif anintrabrand restraint

Y ALE ALE theuseofotherintrabrand L. 467 le toraisethepricea

J.

722, 723 (1967). that their effect is is effect their that 466 Ontheother CEU eTD Collection i.e. thatthe costofthe restra 479 478 477 476 475 474 473 472 471 margin strategy. concentrated, itisevenmorelikely that prices/low serviceandhighprices/highservice. widespread theuseofexclusive territories, out. the overalldemand, some degreeofthecompetit deployed byalargenumber making areductioninefficiencylikelytooccur. take advantageofthehighermargins. market may become overlyfragmented, since add whole. exclusive territoriesoneshouldl territories caninfactharm consumers. Sche consumers aregettingthe output inphysicalterms, antitr distributor. and ontheotheralsocontai a physicalproduct,butproduct Scherer, Id. Id. Id. Id. Id. Id. Id. Id. 475 at 704. at 703. at 704. Themore thishappens, themore likelywillitbethatefficiency isactually reduced, 472 As aresponsetoBork,Scherershowsth In addition,theeffectofexcl Henotesthatasaresultofthehigher supra 471 Inotherwords,evenifexclusiveterri note 265, at 265, 703. note 479

product thattheywant. ofmanufacturers. Inthiscase itis

ust shouldnotbeconcernedwiththistypeofrestraintsince int exceedsthegaintoconsumers. ns theinformation andotherservicessuppliedbythe ook notonlyatasi which ontheonehandconsists usive territoriesis 473 Consequently,theeconomie the manufacturers willpursue ahigh-price/high- rer emphasizesthatwhen 79 the lesschoiceconsumers havebetweenlow 474 margins createdbyexclusive territoriesthe itional firms willtrytoenter the market and 478

ors’ service effortswillcanceleachother at under certain circumstances exclusive ngle manufacturer, but Andiftheupstream market ishighly tories leadtohigherpricesandlower even more ambiguousifthepracticeis likelythatinstead of raising of thesame physicalproduct 477 s ofscalecouldbelost, judgingtheimpactof Therefore,the more at themarket asa 476

CEU eTD Collection (Michael R.Baye &Jon P. Nelson eds., 2001). consumers. Consequently,therearesituations argues, theredoseem tobeplausible situations inwhich exclusive territories could harm I 482 I 481 480 common forthestudiesisthattheyallfound the presence ofexclusiv that foundexclusiveterritoriesharmful of glasses. compared withtheresearchbywhichBenham exam territories. Thisenvironment wasidealfor this type ofrestriction),whileIndianawas theonl all states allowed theimposition of exclusive territories (someevenmandated theuse of this exclusive territoriesinbeerdi market intheU.S.Theyareespecially intere several empirical studies.Probablythemost decrease inefficiency. considered –ifthatlevelishi industry. Inaddition,thelevelofconcentrati take intoaccounttheextent about thispractice.Secondly,whenjudgingthe Theoretical and Empirical Observations Territories: Efficiency Effects and Regulatory Selection Bias Selection Effectsand Regulatory Efficiency Territories: Their Economic Impact and Antitrust Implications Antitrust EconomicImpact and Their David Bradford, Saurman, NQUIRY NDUSTRIAL

See See See supra Sass & Saurman, Sass& Jaffee, L. &Bruce Jordan W. John , vol. 34(3), July 1996, pp. 597-615; Tim R. Sass& David S. Saurman, Scherer’s analysishassome important pol In general,thestudiesofbeermarket The effectthatexclusive territories have Efficiency Effects of Exclusive Territories: Evidence from the Indiana BeerMarket Indiana Evidence fromthe Territories: Effectsof Exclusive Efficiency 480 O Part 2.3.2.2. RGANIZATION

The price of beer: Some evidence from interstate comparisons supra , Volume 9, Issue 2, 1991, pp. 275-289. Volume Issue 2,1991, pp. , 9, 275-289. note 148; Mixon & Upadhyaya, &Upadhyaya, Mixon 148; note

stribution atthetime whenthe studies wereconducted:almost gh, thereisastrongpossibilityth to which thattypeofrestra , 32 The Use of Exclusive Territories Exclusive The Useof

A NTITRUST NTITRUST 481 , 34 andthosethatfoundthem beneficial.

well knownarethestudiesfocusingonbeer well A 80 y stateoftheUnionwhichprohibitedexclusive NTITRUST NTITRUST B sting taking into account the legalstatusof typeofexamination andinawaycouldbe on intheupstream market shouldalsobe where antitrustshould ULL legality ofexclusive couldbedividedintotwogroups–those , in on pricesandoutputhasbeensubjectto icy implications. First,unlike whatBork .

ined theeffectofa 137 (1987);Culbertson, W. supra note 409; Tim R Sass& David S 10 10 A B ULL DVANCES IN .

209 (1989); W. Patton Culbertson & int isdeployedthroughoutthe in the Distribution of of Beer: Distribution in the at therestraintwillleadtoa , I Mandated Exclusive NTERNATIONAL NTERNATIONAL A PPLIED PPLIED dvertising ontheprice territories oneshould be rightlyconcerned e territoriesleadsto M Beer-Cash Laws: Laws: Beer-Cash , E ICROECONOMICS CONOMIC CONOMIC J OURNAL OF OF OURNAL 482 What is is What 55 CEU eTD Collection They conclude thatthe net effectofexclusive te exclusive territoriesincreases prices. is anticompetitive –both theefficiency and However, theyarguethathigher 491 490 489 488 487 486 485 484 483 establish that exclusive territoriesincrease thedemand SassandSaurman alsoestablish thatexcl on consumerwelfare. pack ofbeer in stateswithexclusiveterrito retailers and consumers alike. distribution territoriesha could occur,notingthatb allowed onlywithregardstoproductswhere and more uniform of sale. terms AccordingtoJordanand Jaffee,ifallbr intrabrand competition would beincreased, whichwouldin turnlead to lowerprices of beer theory, empirical researchalsooffersambiguous results. the wellbeing ofconsumers. words, Inother higher prices.However,wherethestudiesdiverge Sass (1993), & Saurman Culbertson, Jordan & Jaffee, supra at 481, 163. note Id. Id. Id. Id. Id. Id. at 172. at 171. at 163. at 229. at 164. 486 supra whichleadshim toconcludethatexcl note 481, at 226. at226. note 481, 487 supra note 148,at 162.

ve anegative effect,since they lead tosignificantly higher pricesfor eer isnot such aproduct. 485

ries consumers arelikelytopayabout11centsmore forasix- Culbertson’s findings are along the same line. Heshowsthat Culbertson’sfindingsarealongthesame line. prices alonearenotsufficient 483 Theyalsoarguethatexcl 489 Apartfrom theprice-increase, theauthors also 81 anticompetitive theories predict thatthe useof inaccordancewiththedivisioneconomic rritories isanincreaseinconsumer pricesbut pre-purchase free-riding on specialservices ewers wouldstopusing is theeffectthathigherpriceshaveon usive territories leadtohigher prices. 484 usive territorieshaveanegativeimpact Finally, theyconclude that exclusive 490 and reduce the retail supply to judgewhetherthispractice usive territoriesshouldbe exclusive territories, 491 488 .

CEU eTD Collection a probleminference of 645. R 498 497 496 495 494 493 492 use exclusive territoriesinordertoreduceth interbrand competition. level of competitionin theupstream market, concerns. However, ReyandStiglitzshowhowth a reduction inintrabrand compe competition inthedownstream market. Therefore, 2.3.2.7 also enhance theconsumer surplus. which leads them toconcludethat exclusive te in thepresenceofexclusive te increase inboth consumer surplus and total surplus. the stateby6percentperyear. territories had significantly and permanently reduced the equilibrium quantityof beer sold in territories are not anticompetitive. Theyobserve that Indiana’s prohibition of exclusive off becausethecostsofpriceincr no significantchangeintotaloutput. note 48. Seealso inframarginal then bothconsumer welf EVIEW Patrick Rey & Joseph Stiglitz, Stiglitz, PatrickRey&Joseph Sass (1996), & Saurman Id. See Id. Id. Id. at 57. at Saurmanapossi 614. However, Sassand leave open at 174. Sass & Saurman Sass& (2001), , Elsevier, vol. 32(2-3) (1988), pp. 561-568. The argument is further developed in Rey & Stiglitz, in isfurther argument Rey&Stiglitz, The (1988), developed pp. 32(2-3) 561-568. , Elsevier, vol.

If theupstreammarket ischaracterized The verypurposeofexclusiveterritories is to reduce (or Finally, in2001SassandSaurman In alaterarticle,thesame authorss Softening upstream competition competition upstream Softening James C.Cooper, Luke M. Froeb, Dan O’Brien &MichaelG. Vita, , I NTERNATIONAL NTERNATIONAL supra note 482,at 614. supra supra Vertical restraints and producers' competition producers' and restraints Vertical

494 rritories beerconsumption is note 482. 482. note are and total output could be reduced. Fromthistheyconclude that J tition wouldnotbesufficient OURNAL OF OURNAL 497 ease areaccompanied byadditionalvalue. 492

Theyargue thatconsumers asawhole arenot worse further corroboratetheirfindings. I e levelofinterbrand co NDUSTRIAL NDUSTRIAL 82 498 by imperfect competition, amanufacturer can rritories notonlyincreas i.e.howitcouldhaveanegativeeffecton uggest additional evidencethatexclusive bility that if a significant number ofconsumersare number ifasignificant that bility the fact that exclusive distribution leadsto 495 is type of restraint couldalso affect the

O RGANIZATION higherbetween3%and11%, exclusive territories lead toan Id.

, E even eliminate) intrabrand to raise serious antitrust mpetition, thereby raising 23 (2005), pp. 639– 664, at 664, 639– pp. (2005), 23 UROPEAN Vertical antitrust policy as as policy antitrust Vertical e thetotal output but 496 E CONOMIC CONOMIC Theyfindthat 493

supra CEU eTD Collection practice. price discrimination, sinceexclus some otherpracticesdeemed Inthis harmful. market. downstream market couldbeareductionof 504 503 502 501 500 499 The linkbetweenexclusive territoriesandprice the supplierengaginginpricedi of exclusive territories, thistype of restraint may 2.3.2.8 and shouldthereforenotbecomplete territories is onintrabrand competition, theyalso haveanimpactoninterbrand competition, lead toreduced interbrand competition. more likelytoassign territorial restrictions Stiglitz, astudyconductedbyDutta,Heide,andBergenhasfoundthatmanufacturersare in thefirstplace, since thatreduction might price reductions. price competition andisfor thisreason lessli assigned territory. Asaresultof themarket power,thedistributor becomes less sensitive to territory toadistri his priceandprofits. 8 A Dutta,Heide & Bergen, Rey&Stiglitz, Id. See See at 131.

REEDA id. id.

This example showsthata consequence of reduced price competition in the Apart from concernsbased onanticompetitive effects thatflow directlyfrom theuse 502 at 563. 504 Price discrimination discrimination Price Thispropositionhasalsobeen empirically confirmed. Inaccordance withReyand Thisisespecially thecase withairtight &

T URNER supra at 498, 567. note 500 Inturn,themanufacturer wouldhave butor, amanufacturer ismaking th , supra 499 supra This could happen in the following way.Bygrantinganexclusive Thiscouldhappeninthefollowing note 14, at 522; H at522; 14, note note 297, at 124.

scrimination tosignifi ive territoriescanbeusedin ly leftoutside antitrust’sreach. 503 OVENKAMP Therefore,althoughtheprimary effectofexclusive notleadtoadecreaseintheretailprice. when theyfacecompetition, whichinturn could kely topassonconsumers themanufacturer’s 83 interbrand pricecompetition intheupstream respect itisimportanttoaddresstheissueof also raise antitrust concer discrimination isespeciallyimportant since ,

exclusive territories,since theycanassist note 29, at 455. at 455. supra 29, note cantly curbthepotentialforarbitrage. alower incentive toreducehisprice e distributoramonopolist inthe ordertofacilitatethis n as itserves to aid 501

CEU eTD Collection markets). markets). importantthepossibility one,because preference. have adominant positionorhaveabrandforwhichthereissignificantconsumer means thatinordertoprofitablyengagepr 511 510 509 508 507 506 505 exclusive territories andprice may assistinsatisfyingthethirdcondition, arbitrage, i.e.resalebylow-pri groups withdifferentpriceelasticities. as itwants. have market power,itwould needto sellbelow be satisfied. First,theseller must for pricediscrimination tobeviable. discrimination isdefinedinthismanner, thene are beingsoldatprices time pricediscrimination –pricediscrimination discrimination. Inthisrespectitshouldbenotedthatnoteverypr impact onthe way acertain jurisdiction treats this typeof restraint. the rolethatexclusiveterritori justifications for and legal analysis of restricting competition of restricting analysis legal for and justifications reconciliation? time for S PeterC.Carstensen, F. & Richard Dahlson, S DanielJ. GiffordRobert & T.Kudrle, Id. Id. Id. CHERER CHERER

See also In orderforpricediscrimination tobeprofita At theoutset,itis importantto determine whatisactually meant byprice & & 509 507 Gifford &Kudrle,

R R Second,thesellerwouldneedtodevise OSS OSS Bysellingbelowtheprevailingpr , ,

supra at 70, 489. note supra at 70, 489. note , 43 U.C. , 43 with different ratios totheir marginal cost.

D note 505, at 1243 (arguing that the third condition is actually the most most the isactually the third condition that supra at (arguing 505, 1243 note AVIS

discrimination is es haveinenablingpricediscrimination canhaveasignificant ce customers tohigh-pricecustomers. of arbitrage would eventually equa L. have acertaindegreeofmarket power. The law and economics of price discrimination in modern economies:

R EV Vertical restraints inbeer dist . 1235, 1239-40 (2010). (2010). 1239-40 . 1235, 510 Andthird,hemust eliminate opportunitiesfor 84 ice discrimination,manuf a mostdirect. xt stepistodetermine theconditionsneeded and thatiswheretheconnectionbetween occurs onlywhentwo the prevailing priceinorder tosell as much ice thefirm wouldsacrificeprofit. , 1986 W , 1986 ble foraseller,certainconditionsneedto a systemofsegregatingcustomers into IS .

lize the price levels in different L.

R ribution: astudy of the business EV ice difference is at the same ice differenceisatthesame .

1, 22-23 (1986). (1986). 22-23 1, 511 or more similar goods Exclusive territories 506 acturer shouldeither Ifafirm not does 505 Onceprice 508 This CEU eTD Collection note 505,at 1241. consumers, based on their choice between different packages. T dema about latter some signal the uses direct is that sellers, andtherecompetition ishigheranddemand more elastic. different levelsofcompetition indifferentge customers indifferentterritori markets, amanufacturer may finditprofitableto make salesatdifferentratesofreturnto At thesame time, thisisalsothe type thispaper is mainly concerned with. accordance withthesegment's demand elasticity. segments withdifferentlevelsofdemand elastic of theproductsold. discrimination, eachcustomer ischargedthemaximum amount heiswillingtopayforaunit Pigou. 520 519 518 517 516 515 514 513 512 willing to engage in price discrimination would widely usedofthethree,a sometimes leadtoanallocative inefficiency. purchased. discrimination ifheissettingtwoormore feasible inreallife. and doesnotleadtoanydeadweightloss. Sass & Saurman, S P This would happen if goods would not be allocated to their highest valued uses. Gifford & Kudrle, P Gifford & Kudrle, supra at 505, 1241. note A. Id. Id. CHERER IGOU IGOU

at 279. C. 512

P In thecase ofadifferenceinpriceelasti Finally, inthird-degreeprice Probably themost wellknowndiscussionab , supra , supra IGOU Heidentifiesthreetypesordegreesof & 516

, R

Thissystem favors buyerswhorequire T note 512, at 279. The main difference between second-degree and third-degree discrimination note 512,at 279. OSS HE , supra note 148,158.at E

supra at 70, 495. note CONOMICS OF CONOMICS 513 515 Pricediscrimination ofthiskindre Ontheotherhand,aselleris nd alsotheonewithmost

W es. Thedifferenceinpriceel ELFARE discrimination asellerfirst identifies separate market 275-89 (1948). (1948). 275-89 514 nd, while nd, the former indirectlybetween differentiates 517 Thisisperfectpricedi pricesforaproductdependingontheamount ographic areas.Insome areastheremay bemore 85

ity andthensetsapric city betweentwogeogr 518 seek todecrease itsprices inthose more price discrimination. Infirst-degreeprice Third-degreediscrimination isthemost IROLE out pricediscrimination istheoneby largeramountoftheproductandcan , ambiguous welfareimplications. moves consumer surplusintotality

note 28, at 135. at 135. 28, supra note engaging insec asticity couldoriginate from 520 scrimination andisrarely Consequently,thefirm e foreachsegment, in aphically separated ond-degree price supra

519

CEU eTD Collection 528 R 527 526 525 524 523 522 521 creating andmaintaining amonopoly arenon-neglig incentive toincreasehisinvestme respect henotesthatif thelawallows price Posner showshowpricediscrimination coul have pointed outadditional instances whenpric the onehand,JoanRobinsonhasshownthatitmay leadtoadecreaseinoutput. the areawithhigherprices. without exclusiveterritori Exclusive territoriesareimportant inthis exclusive distributors fordifferentterritories and competing product.Ofrelevanceforour low elasticity, sinceintheformer caseconsum means thatin the areas withhigher elasticity th elasticity. manufacturer wouldbeto States. to bethecase with regards price elasticity could also betheresult of so competitive areas whilemaintaining higher prices inother locations. pp. 551-561, at pp. 555. 551-561, EVIEW Richard A.Posner, J Carstensen &Dahlson, Id. See Id. See infra Id. OAN

J.A. Kay, 522 , Vol. 41, No. 3 (Spring, 1974), pp. 506-535, at 510-13. at 510-13. 506-535, pp. 1974), (Spring, 3 No. 41, Vol. , R The welfareeffectsofthird-degreepri The system ofdiscrimination wouldworkin OBINSON

523 Part 4.6. Afterthat,hewouldchargediffere Vertical restraints in European competition policy competition in European restraints Vertical ,

T HE ECONOMICS OF IMPERFECT COMPETITION COMPETITION OF IMPERFECT HE ECONOMICS , T Laws the Antitrust Practices and Exclusionary supra es adistributorfrom anareawith note 509, at 509, 22. note

geographically dividehisc to different price elasticities nt inachievingamonopoly position. d beprofitableforamonopolistic seller. respect becausetheycanpreventarbitrage me historical circumstances, whichwouldseem 86 ce discrimination onoutputareambiguous. On discussion, themanufacturer couldappoint discrimination themanuf e discrimination canbeharmful. Forexample, e pricewouldbelowerthanintheareaswith then chargedifferentpr nt pricesbasedonthatelasticity. ers wouldbemore likelyto switchtoa thefollowing way.Thefirst stepfor the ible, thepresenceofpricediscrimination 188-95 , E UROPEAN HE onsumers basedontheirprice lowerpriceswouldtransshipto

(1965). (1965). U across different EUMember NIVERSITY OF OF NIVERSITY E CONOMIC CONOMIC 521 528 acturer willhavean ices ineachofthem. Thedifferencein Sincethecostsof C R HICAGO HICAGO EVIEW 34 (1990), (1990), 34 526 L 527 AW 524 Others Inthis This 525 – CEU eTD Collection strong market, since inthestrongmarket arising out of thelowerpricein theweakermark However, noteveryoutputincrease willprevent a would notbeservedwithoutdiscrimination the shows thatifthird-degreepricediscrimination lower priceintheweakermark discrimination andchargeauniformpriceinboth 536 535 534 533 532 531 530 529 sell hisproductatdifferentpricestoconsum efficiency loss unlessitlead (the weakmarket). Heshowsthatthird- (thestrongmaone withlowdemand elasticity could happen. output, making itbeneficialinte discrimination, theincreaseintransaction co costs. discrimination, especiallythecostsofarbitrag the connectionbetweenpricedisc can leadtomisallocation ofsociety’sresources. T HE RichardSchmalensee, W O Id. Id. Id. Id. Id. A LIVER HISH at 246. at 245. at 243. MERICAN MERICAN 531 In thepresenceofstrongandweak ma Also worthconsidering isthesituation in However, undercertainconditions Consequently, evenifthemanufactur Consequently, ,

supra E.

W E ILLIAMSON note 37, at 749. at 749. 37, note 533 CONOMIC CONOMIC Heanalyzes a setting inwhichtwomarkets havedifferent price sensitivity: Output and Welfare Implications of Monopolistic Third-Degree PriceDiscrimination Third-Degree of Monopolistic and Welfare Implications Output , R

M EVIEW ARKETS AND HIERARCHIES AND ARKETS s toanincrease inoutput. , Vol. 71, No. 1 (Mar., 1981), pp. 242-247. pp. 242-247. 1981), 1(Mar., No. 71, , Vol.

et andatahigher rms ofallocativeefficiency. rimination andtransactioncosts. each unit oftheproductisvalued more. pricediscrimination may also degree pricediscrimination willproduceanet sts willreducethegainsfrom suchincrease. 87 11-13 (1983). (1983). 11-13 rket) andanotherwithhighdemand elasticity rket) 529 leads totheweaker market beingserved that practice canactuallyincreasetotaloutput. ers located indifferent territories. If price e, may lead toanincreaseintransaction whichamanufacturer findsitprofitableto et hasto exceedthedecrease in salesin the er canincreasehisoutputbasedonthe Alongthesame line,Williamson examines markets. Inthealternative, hemaysellata price inthestrongermarket. Schmalensee net efficiency loss–theincrease of output rket, thesuppliermay sellwithoutprice 534

532 Schmalensee showshow this 530 leadtoanincreasein Hefindsthatprice 536

535 ,

CEU eTD Collection supplier effectively “robs Peter topay Paul”). 543 542 541 540 539 538 537 distribution. will beafforded tothis issue in therele in theform of restricting paralleltrade betw considerations, EUcompetitionlawisverymuch concerned withthepreventionofarbitrage On theotherhand,thisisnotcasein discrimination seems tobeindecline, discrimination underEU law.Ontheonehand, However, thepositive lawanalysisinthefollowing chapterswilladdressonly price market. price discrimination wouldbea absence ofpricediscrimination. Asforthesupp if theweakmarket wouldnot be particularlydamaging ifitleads are generallythericherconsumers. often mean atransferfrom poorerconsumers toricherones, high-elasticity grouptowardsthos preventing pricediscrimination leadstothere worse offandconsumersin thestrongmarket w Compared tothesituationwithpricediscrimi discrimination isprohibited, Patman Act act [i.e. the discrimination]”). that price prohibits T W T See infra See Id. Id. IROLE IROLE HISH at 137-38. at 137-38. Gifford & Kudrle, &Kudrle, Gifford mination discri price areprohibitedbothintheU.S.andEU. formsof Certain 541 , , ,

supra supra supra Part 4.6.

543 note 37, at 749. at 749. 37, note note 29, at 139. at139. 29, note at139. 28, note

supra note 505, at 1271 (“fewplaintiffsat 1271 note505, See also

the supplier willcharge a single price inboth markets. llowed, sincehecanalways char be abletobear theuniform pricewhichwouldform inthe e inthelow-elasticitygroup. T 539 to theclosureofweakmarket, IROLE Inaddition,theprohibition 542 inthecontextofexclusiv ,

supra een Member States.Cons 88 vant partabout EUapproachtoexclusive nation, consumers inthe weakmarket willbe note 28, at 139 (by charging a uniform price the distribution ofincome the EU.Mainlybecauseofsinglemarket lier, hewouldinanycasebebetteroffif ill beworseoff.Thisbasicallymeans that interest ofAmerican successfully recoverunder the Robinson- 538 sincethelowelasticitygroups 537 ge theuniform priceineach Inpracticethiswouldmost of pricediscrimination may e territories or otherwise. 540 equently, dueattention from consumers in the whichwouldhappen antitrust lawinprice CEU eTD Collection efficiency, consumer welfare and technological progress technological welfare and consumer efficiency, production.” M Motta, “dynamic efficiency . refers tothe extent to resources were reallocatedto are misallocated –inthatcase 549 548 547 546 545 supra 544 pay for theunit –inthiscasetotal surplu inefficiency isalsopresent ifthemarginal cost marginal costofprodu that value them most. welfare ofsocietyasawhole allocative efficiency an connected with the approach thatalegalsystem hastowardsefficiency. influenced bythewelfarestandardadopted with thestandards of another.Finally, thelegality of exclusiveterritories issignificantly efficient accordingtothe standard there aredifferent types ofeffi notion ofefficiencyandthewayinwhichitissupposedtobemeasured. Inaddition,since straightforward, asitcan entailseveral problems of theimpact thatexclusiveterritorieshave 2.4.1 Efficiency 2.4 MEASUREMENT MEASUREMENT S Brodley, H Some authors add another type Id. Id. IMON OVENKAMP note 190, at 55; at55; W note 190,

Exclusive territoriesandefficiency It isgenerallyconsideredthateconomic The legalstatusofexclusiv B ISHOP ISHOP supra OTTA 25 ,

supra note 544, at 1025. at 1025. 544, note &

(2010).

M , supra IKE IKE note 29, at 75. note 29, at , welfare, HISH W 546 note 190,at 55. d productiveefficiency. ction isbelow whatconsumers are ALKER ,

note 37, at 5; Joseph F. Brodley, F.Brodley, Joseph supra at5; 37, note Itisachievedonlyifprice equals marginal cost. of efficiency, referred to as d 545 ,

and goalsofantitrust

T producing anextraunitofthegood. andisachievedwhen thegoods HE HE ciency, atleast theoretically both theproducerandconsumer E s ofonetypeefficiencya e distribution toalargeextentdependsontheassessment CONOMICS OF OF CONOMICS s wouldbeincreasedbyareductioninoutput. which a firm introduces new products orprocessesof on economic efficiency.Thisassessment isnot 89 , 62 bythegivenjurisdiction,whichisagain 544 is greaterthan whatconsumers arewillingto EC . Attheoutset,thereisnoconsensuson Allocativeefficiencyisconnectedwiththe

N.Y.U. C OMPETITION OMPETITION efficiencyconsists ynamic orinnovationefficiency.

L. The economic goals of antitrust: of antitrust: goals The economic

R ready topay,so EV exclusive distributioncouldbe L .

nd notefficientinaccordance 1020, 1025 (1987). According to to According (1987). 1025 1020, AW areallocatedtothosebuyers would be better off if the wouldbebetteroffifthe : CONCEPTS 548 Similarly, allocative oftwoelements: , APPLICATION AND AND APPLICATION ciety’s resources 547 E.g. In case the , M 549 OTTA

,

CEU eTD Collection has beenoffered underthename However, Paretoefficiency isdifficult toachieve by limiting his output, andhencea ra 558 557 556 555 554 553 552 551 550 of afirm’s outputtoitsinputs. efficiency mainlyhastodowith losses. other words, thetotal value placed onthegain change isefficientaslongthegainers make atleastonepersonbe According toPareto, an assignmen known standardsforevaluatingallocativee is nouniform ruleabouthowthistypeofefficiencyistobemeasured. Oneofthemostwell high forgivenproductioncosts, increase hisprofitsbyrestrictingoutput. not perfectlycompetitive. Amonopolist, unlik require atthe pricetheyareprepared topay. allocative efficiencyisachie H M W Id. Id. Id. Id. Id. Id. OVENKAMP OTTA HISH at 74-75. at 74-75. 557 Under theconditionsofperfect Unlike allocativeefficiency,whichisconcer The wayofevaluatingallocativ , ,

supra

supra ,

noteat 37,5. supra note 190, at 190, 45. note note 29, at 75. note 29,at tter offwithoutmaking atleas

ved, sinceconsumers canobtai 553 anindividualfirm.Productive hisactionswouldleadto 558 t of resources isefficient if “potential Paretoefficiency”. Inthepresenceofproductiveefficiency,goods are competition aproducer cannot affect themarket price e efficiencyentailsitsownsetofproblems, sincethere tional manufacturer will notlimit it. 552 gain enoughtofullycompensate thelosers. . Sinceamonopolist chargesapricethatistoo 551 90 However,theanalysis changes ifamarket is s hastoexceed thetotal value placed onthe fficiency istheoneproposedbyPareto. e aproducer in acompetitivemarket, can inreallife andfor thisreasonanalternative ned withsocietyasawhole,productive t onepersonworseoffaswell. allocative inefficiency. noalternativeassignment will n theamountofgoodsthey efficiency representsaratio 555 Underthismeasure, a 550 Inthatcase 556 In 554

CEU eTD Collection inefficiency. actions thatenhanceproductive ambiguity aboutitscontributiontoeconomic If apracticewouldenhancebo be forcedtoexitthemarket. any firmthatdoesnotproduceatthelowestpossi production processasnecessary. 569 568 567 566 565 564 563 562 561 560 559 productive efficiencyandtoadecr efficiency. more competition andlower prices, whichallco duplicated costsofentry. shown thatinthepresence offixedcostsex markets. basedonth there willbenoselectionamong firms monopolistic firm haveless in acompetitive market. inefficiency couldarise–amonopolist may operate if productiveefficiencyisachie produced using themost cost-effectivecombination ofavailable resources. M W M B W Brodley, Id. See supra See Id. Id. ISHOP OTTA OTTA HISH HISH at 47. H OVENKAMP If allocativeandproductiveefficiencyare , , 564 , ,

& supra supra

supra supra supra 568 Part 2.3.1.3.

W 566 Therefore,exclusive territories can atthesametime lead toanincreasein ALKER noteat 37,4. noteat 37,5. note 190, at 190, 51. note at 190, 45. note note 544, at 1025. at 1025. 544, note Theimposition ofexclusiv ,

supra noteat 29, 75. ,

supra note 547, at 25. at25. note547, 562 567 Thiscouldprimarily occurfortworeasons:first,managers ina However,thepresenceofanumb incentive tomake effort;

561 th allocativeandproductivee 560 ved thenaslittleofsociety’ Conversely,inthepresen ease inallocativeinefficiency. efficiencyandatthesa Thiswillbethe caseunderperfectcompetition because e territoriescouldbeone 91 clusive territories may lead toavoiding the ntributes toconsumer ble costwilloperateatalossandeventually efficiency. Nevertheless,therearecertain achieved, society’swealthismaximized. eir efficiency,asisthecaseincompetitive atahighercostth 563 andsecond,inamonopolistic market ce ofamonopoly productive me timeleadtoallocative er of firms generally leads to fficiency, therewouldbeno s wealthisexpendedinthe 569

such action.Ithasbeen an itwouldbethecase surplus andallocative 559 Inother words, 565

CEU eTD Collection Hylton ed., 2010). surplus couldforthisreasonlookunfavorablyat not objecttotheuseof suchapractice,whil Consequently, anantitrustpolicywhich puts surplus andproducersurplus. significance thedistinction between the twonotionsareonahighlevelofabstra 576 575 574 573 572 571 570 may maximize totalwelfare whileat the above, undercertainconditions pricediscrimina where thedifferencesbetweentwostandards often leadto thesame result, to maximize total surplus ortomaximize consumer surplus. obtained byproducersintheindustry. the profithemakes bysellingthegood,andpr aggregate surplus ofallconsumers. price heneedstopayinorderobtainthegood. and thesurplusofeachconsumer representsthedifference between them. surplus and consumer surplus. surplus. consumer and surplus M Daniel A. Crane, woul which There does policy seemnot anantitrust be to Id. Id. Id. Id. OTTA at 18. Producer surplusis at 28. at 18. Id. at 28 In general, social welfare(alsoreferredto Although thedistinctionbetw When itcomes towelfaremaximization, thego ,

supra note 190, at 190, 19. note The economics of antitrust enforcement antitrust economics of The the excess of whattheextr 575 570

theuse of exclusive territories seems tobeexactly asituation Each consumer has hisownvaluationforthegoodhebuys, Eachconsumer has differentwelfarestandardscouldbeofmore relevance.I 572 573 een allocativeandproductiveefficiencyisimportant, Similarly, thesurplusof eachindividualproducer is

92 an emphasis ontotalsu e apolicywhich atits same time decreasingconsumer surplus. ction. Forthisreason,interms ofpractical tion (made possiblebyexclusive territories) a goods could be sold for above the cost of producing costof producing above the be for could sold a goods could leadtoadifferentoutcome. Asshown thepractice.Inaddition, thestudiesof , d (openly) favor producer producer to insurplus total d (openly) favor relation in 571 oducer surplusisthe astotal surplus) consists of consumer A Consequently,consumer surplusisthe NTITRUST NTITRUST al ofantitrustpolicycouldbetwofold: 574 L AW AND Althoughthetwostandards rplus wouldgenerally E center puts consumer center putsconsumer his valuationandthe CONOMICS sum ofallprofits 1, 2(Keith N. 576

CEU eTD Collection Coase, Olin Centennial Conference in Law and Economics at 581 580 579 578 577 was Ward Bowman’s analysis of ar general. Thefirststepinthedevelopment ofth is knownforitslenientapproachtowardsexclus many practicesantitrustlaw their viewisthatapart from explicitprice- rather thanon traditional industrialorganization. Chicago Schoolhasbeenthatantitrustanalys applied price theoryon antitrustpolicy. Chicago SchoolofLaw. emerge inthe1950’swithworkofAaronDirector,thenprofessoratUniversity teaching oftheChicagoschoolantitrust analysis legal andeconomic theory aswell The ChicagoSchool 2.4.2 EU, itisimportant toturn tothetheoretical bases of thepolicy inthese two jurisdictions. beforetheanalysisproceedsto hand. However, important tohave inmind thewelfarestandard for consumers,whichmayor notnegativelyaffecttheconsumer surplus. beer market describedaboveshowthattheuseof early followers of the Chicago concept, Posn concept, Chicago ofthe early followers Posner, Richard A. Posner, Id. Id. See supra at 933. at 933-34. Law and Economics at Chicago Economics Law and As aresult, for a properassessment of thelegalityof exclusive territories itis The proponentsoftheChica In ordertocorrectly comprehend the current status that exclusiveterritories enjoy in supra Part 2.3.2.6. note 578,at 928. The Chicago School of Antitrust Analysis Antitrust of School Chicago The 578 Inessence, Director’sgreatestco should beconcernedwith.

, J as inpositive law,itisof great importance toconsiderthe OURNAL OF go approachargueforanuno er includes Bowman, Bork, McGee, and Telser. 579 fixing andlargehorizonta FollowingDirector,thebasicapproachof L the University of Chicago (Apr., 1993), pp. 239-254. 239-254. pp. 1993), (Apr., Chicago of University the AW AND AW 93 is shouldbebasedonge rangements. AccordingtoBowman, oneof e school’sapproachtowardsverticalrestraints 580 predominant in theantitrust jurisdiction at the currentantitrustpol exclusiveterritoriesleadstohigherprices

. Itisconsidered thattheschool startedto ive territoriesandvert E , 127 CONOMICS 581

U. Consequently,theChicagoSchool

P A ntribution toantirustisthathe . , Vol. 36, No. 1, Part 2,John M.

L.

R EV btrusive antitrustpolicy– .

925, l mergers there are not not are there l mergers neral economictheory

icy intheU.S.and 925 ical restraintsin

See also 577 (1979). Among the Among (1979).

R. H. R. CEU eTD Collection 1954), pp. 157-201. 157-201. pp. 1954), types ofverticalrestraints, The approach wasfirst applied tothe analysis of resaleprice maintenance andlater toother Yet anotherstepwastoextend effective distribution. manufacturer wouldnota there isonlyoneprofittobe derived from thesaleofa 588 587 586 585 584 583 582 integration hasto bean increase in efficien product, and asaresult thedemand willfall. that anincrease inthe priceofdistribution wo extend thisanalysisfrom tyingto profits byextendingitsmonopoly in vertically relatedmarkets sinceanupstream Director’s earlyfollowers,afirmdoesnotha open his own outlets to enter; if his entry isantic entry enter; if his to his own outlets open nonexistent. The steps in this analysisare illogical, however, and willmake inturn, of This, chain outlets. his own open will have to to compete, order in (“[W]e must ask why a (sane) manufacturer ever sets up asystem of distribution in which the benefits of higher prices.”). History ofEconomic an Misconception Posner, Posner, S.Ward Bowman, Jr., See See Id. Id. at 927. at 936 (“The thinking was th was thinking id. at936 (“The See also Frank H. Easterbrook, Easterbrook, H. Frank Baker, The rationaleforalenientapproachtowards According tothisview,theproductandits supra supra will find it very costly to buy more outlets than he needs. heneeds. morethan to buy outlets A itverycostly will find supra note 578,at 927. note 578,at 927. note 126, at 1511. at1511. note 126, Tying arrangements and the leverage problem 587 Thelawshould therefore rely Vertical agreements and the rule of reason llow its distributors to including exclusive territories. See also

, T this rationale from vertical integration tovertical restraints. verticalintegrationingeneral. HE Robert Bork, Bork, Robert U NIVERSITY OF OF NIVERSITY to thedownstream market. at if,forexample, supplier ipated, the outlets will be there to greet him.”). to greet there be will outlets the ipated, evidence of monopolization of evidence cy and is hence tobedeemed procompetitive. monopolist cannotachieveadditionalmonopoly 94 584 VerticalIntegration the and ShermanThe Act: Legal have higherprofitmarg uld leadtoanincrease intheprice of the Consequently,thepurposebehindvertical ve anincentivetofacilitatemonopoly in C HICAGO HICAGO distributionarecomplements, meaning vertical restraintsgoe on the manufacturer’s rationality. on the 586 L

, 67 AW , on the other hand, will not have to to have not will hand, other the B, on , 53 acquires all of his retail outlets, outlets, retail his all of A acquires

R particular product,arational Y

583 A EVIEW ALE NTITRUST NTITRUST

582 by such means scant or L.J. Thenextstepwasto , Vol.22,, No. 1(Autumn,

ins than necessaryfor 19, 21(1957). 's entry more B's entry costly. L.J. s asfollows.Since

135, 146 (1984) (1984) 146 135, dealer obtains the the obtains B, 585 588

CEU eTD Collection And ashenotes,“most of thetime itis 597 596 595 594 593 592 591 590 589 approach relies onrationality, thistime the make thepromoted brand cheap services are procompetitive, since they reduce th advertising isseenasanactionthatfurt barrier toentry,aswastheprevailingviewbeforeschoolemerged. towards advertising.ThefollowersoftheChicagoapproachdonotconsideradvertisingasa approach towardsexclusivedistribution.Onesuch Apartfrom theanalysis directlyconcerning territories, therearesome otherparts oftheChic territories. shown below,thisrationale ha easy forcourtstodistinguishbetweenbeneficialandharmful effectsofvertical restraints. effects. should notbeasubjectofseri should beperselegal. best checkonthemanufactur Producers shouldbefreeindeci manufacturing, may sell different goods and charge le and charge goods may selldifferent manufacturing, le using perhaps manufacturers, Other bear. traffic will P of consumers.”). Foralenient approach OSNER Posner, Easterbrook, SeeEasterbrook, &McKee, Flemming Zerrillo, Id. See infra Id. Id. See id. at 938. at 136. at 135-36. ,

592 Such anapproachlogically leadsto thec supra note 80, at 196-201. at 196-201. 80, note supra at 151 (“No plausible story of restricted dealing shows how it could help manufacturers at the expense supra Evenif insome instances certain anticompetitive effects canbeimagined, itis not Part 3.4.1. 595

supra note 588,135. at note 578,at 930. supra note 588, at 141 (“Every manufacturer ma 591 Forexample, Easterbrookhassugge supra at 272, 706. note ers’ conductisthemarket.

ous antitrust attention,since th s had agreatimpact onthe U.S.approachtowardsexclusive ding whatkindofvertical er thanthenon-promoted ones. towards vertical restraints, seealso:B vertical restraints, towards better not to trythan totryandfail.” hers competition. Advertising andother presale consumer’s rationality:arational consumer will ss. This is competition. Consumers ss. Thisiscompetition. will choose.”). ss chocolate per pound permore employing or ss chocolate pound efficient 95 ago teaching thatalsocontributed toalenient e consumer’s search costs and can actually onclusion thatvertical non-price restraints aspectistheschool’sbenevolentapproach verticalrestraints and therebyexclusive 590 y sell what it wants and charge what the charge it and what wants y sell

restraints theywilldeploy ey rarelyhaveanticompetitive sted thatdistributionrestraints 597 ORK Hereas welltheChicago ,

supra note 196,at 225-45; 596 What is more, more, is What 594 Aswillbe 589 -the 593

CEU eTD Collection regards to viabilityof Taking intoaccountthesi 605 604 603 602 601 600 599 598 approach towardsexclusivedistribution. anticompetitive effectsofpricediscrimination cer “[t]he lawsimplyshouldnotconcernitself arbitrage ismade Borkconcludesthat unprofitablebytransportationcosts.Consequently, words, insuch acase exclusive territorieswoul supplier’s rivalsinthelower-pricemarket exclusive territoriesispointless –the presence the otherhand,ifmarkets by transportation costs, thesecosts willhinde the presence ofdifferentrevenue-maximizing prices. discrimination. of opinionthatexclusiveterritoriesshouldne approach towardspricediscrimination. Inthisre advertises thedistributedproduct. since one ofthemain goals of approach towards advertising indirectly also pay more for one brandthanforanotheron SolomonJoffe, & B Solomon and Joffe argue that exclusive distribution neither enable nor promote price discrimination. See supra Id. Id. Id. See supra Id. ORK

Another aspectrelevantfortheassessment ,

supra at 196, 295. note Part 2.3.2.8. Part 2.3.2.2. 600 supra Hearguesthattheimpositionof exclusiveterritoriesdoesnotdependon note at 17, 500 n.39. pricediscrimination, gnificance thatthede

are not deploying this restraint istoen 599

separatedbytransportation from sellinginth ly if theformer ischeaper or better. 96 justifies theimposition of exclusive territories, r thepossibility of price discrimination. with pricediscrimination inanycontext.” d notbeneededforprev of exclusive territories does notprevent the 605 spect paradigmatic isBork’sanalysis.He tainly additionally contributedtothe lenient ver beofconcerninthelightprice ployment ofexclusive thelack ofconcernconcerningthe of exclusivedistribu 601 Firstly,if themarkets are e higher-price market. sure thatadist costs, then theimposition of enting arbitrage,since tion istheschool’s territories haswith ributor properly 598 603 separated Suchan Inother 602 On 604

CEU eTD Collection note 29, at 77(“consumerwelfarenote 29, principle. Vol. 9, (Oct., 1966), pp. 7-48, at 10. 10. at 7-48, pp. 1966), 9, (Oct., Vol. 90 (“Consumer welfare . . . is merely another term forthe wealth of the nation.”). allocated so thatconsumers are able tosatisfy their standard, although he uses the term “consumer welfare”. in consumer welfare.”). This would seem pr impairing without efficiency allocative value theAct aims toprotect isth actually synonymous withtotaloutput, to consumer surplusasidentifiedabove. important toemphasize thatBork’sunderstand increase intotalsurplus,antitrustpolicyshouldnotbec approach seems tobethat,apartfrom anin Bork, itwouldseem thatthefavoredstandard established whatwelfarestandard theschool favor on thegoalsofantitrust enforcement. Thisis 611 610 609 608 607 606 allocative andproductiveefficiencyone apparently doesnotfavoranyof restrictions ofoutput. he drawstheconclusionthatgoalof Sherman “restraintoftrade”was Act cannot be increaseddecree.”).cannot be byjudicial asaterm must understood artsi analysis, be of antitrust who probably believe that maximizing allocative efficiency should be the exclusive goal of antitrust, ofantitrust, goal exclusive the be should efficiency allocative that maximizing believe who probably consumer welfare was inallcases theco B Bork, Robert H. Bork, Id. See See supra ORK at (“Congress' 26 with position resp B ORK , According toBork,thelegisl Of relevanceforthediscussionaboutexclus With regardstotherelationship between supra at 606, 16. note

note 196 at 91 (“The whole task of antitrust can be summed up as the effort to improve improve asthe effort summedup to can be antitrust task of supra at (“The whole 196 91 note Part 2.4.1. , supra Legislative Intent and the Policy of the Sherman Act note 196, at 90 (“Consumer welfare is grea 610

See also the two:heproposes that in ntrolling value under the Sherman Act.”). toshowthat Borkadopts “potential oductive efficiency so greatly as to produce either no orloss no gain a net either asto produce efficiencyso greatly oductive ect to efficiency cannot be explained on any hypothesis than that other any hypothesis on explained be cannot ect to efficiency e maximization ofconsumer welfare. B . . is predicated on the observation that that observation the on . ispredicated ative historyoftheSherma synonymous with“restrictionofoutput”. ORK 608 shouldlookatnetefficiencygains. 607 sinceinhisunderstandingforthedraftersof the note 196, , supra note wants as fully astechnolo asfully wants InBork’s understandi crease ineconomic efficiencyunderstoodasan 97 gnifying any state affairsinconsumer any of welfare which gnifying See ing ofconsumer welfaredoesnotcorrespond becausebased onthis analysis itcouldbe istotalsurplus.Inaddition,theChicago Act isto promote efficiencyand prevent H allocative andproductiveefficiency,Bork s. AtleastconsideringtheworkofRobert ive territoriesareal OVENKAMP test when society's economic resources are oncerned withanyothergoal.

at 52 (“Competition, for the purposes of of purposes the for at 52 (“Competition, , J OURNAL OF , case thereisaconflictbetween

supra gical constraintspermit.”); Paretoefficiency” asthe relevant n Actshows thatthe sole ng “consumer welfare”is note 29, at 77 (“Many people See also everyone L so the school’s views so theschool’sviews AW AND AW H 606 OVENKAMP 611 However,itis isaconsumer.”). Similarly, by E 609 CONOMICS Fromthis state ,

id. supra that that at ,

CEU eTD Collection litigation, thetrendbeingtocurb As willbeshown,thishashadaninfluence onstanding andother aspectsof antitrust they arethose thatareinjuredby brought bycompetitors. Theviewisthatcompetitors have awrongincentive tosue, since regarding antitrustprocedure.Inthisrespect, only totalsurplusineffectfavorsproducers. producer’s interest.Consequently,anantitrust by aconsumer, itseems evidentthattheywould context ofexclusiveterritories By choosingthetotalsurplusstandardBorkispracticallyfavoringprodu 615 614 613 612 very attractive and certainlyless technical sounds goal the terms, insuch Spoken consumers. of welfare maximizebe to the should antitrust goal of the ability toresolveanti indirect relationshipbetweentheChicagoSchool of antitrustdisputes. Even if this connection is suits shouldbelargelydismissed andprivat the society’s wealthisdistributed. proposing atotaloutputstandardBorkisseemi of thedoctrinethatstate s view thatarbitratorsshouldbeabletodecideon generally non-interventionist

B See infra Id. See ORK

H , OVENKAMP Finally, apartfrom lawtheCh substantive Another proceduralaspectofrelevancefor

note 196, at 90 (“Antitrust has nothing to say about the ways prosperity is distributed or waysprosperityused.”). isdistributed supra the tosay has at about 196, nothing 90 note (“Antitrust Part 5.1.2. ,

supra noteat 29, 63. trust disputes.Theconnectioncoul hould stayoutofantitrustenfo . Sinceexclusiveterritoriesar approach andbeliefinpart afirm’s competitive practices. the levelofprivateenforcement. than ‘potential Pareto efficiency’.”). 612 However,thisneutralityseems tobeonlysuperficial. e enforcement shouldbelimited toconsumers. 98 theschooldoesnotlookfavorablyatsuits ngly being neutral regarding the way in which ngly beingneutralregardingthewayinwhich notdirect, itseems thatthere isatleastan policy that is apparent antitrust issuescouldbeseenasanextension approach toantitrust andthearbitrator’s icago Schoolhasalsoexpresseditsviews our discussionistheissueofarbitrability not beusediftheywouldinthe y autonomy. Moreprecisely,the rcement asmuch aspossible. d beimplied from theschool’s e deployedbyaproducerandnot 613 615 Consequently,competitor

ly neutralandfavors cers, atleastinthe 614

CEU eTD Collection application of Article [101](3) of the Treaty, OJ [2004] C 101/97 (Guidelines on 101(3)), para. 105. the on Guidelines Commission innovation”. the in including of shape dynamiceconomic efficiencies efficiency, the ofitsguidelines today. In one EUlaweven in is theprimary rivalry not modern EU of goal competition (1998). (1998). somebody from themarket, evenwhenth 620 619 618 617 616 freedom. a market asafundamentalfreedom, andexclusive this istheFreiburgSchoola ordoliberals wouldhaveaproblemwiththede competition (i.e. rivalry) betweendistributors of into account thatthemain effectofexclus creation andmisuse ofprivateeconomic power. performed aneffectiveanddependabl through unregulated market doesnot of others. all individualstoparticipateinthemarket Freiburg andcanbesaidtohavetwomain el ordoliberal teaching.The teachingdeveloped duri law ofexclusiveterritories approach towardsexclusiveterritoriesasthe 2.4.3 V D M See Id. ALENTINE ALENTINE AVID ONTI

K ORAH Ordoliberals affordspecialattention toriva Although theFreiburgSchoolofOrdoliberal The FreiburgSchool(Ordoliberals) , G

620 supra 616 ERBER Inotherwords,inthecaseofexclusiveagreements therecould beaconflict , Inaddition,themarket needstobere K

supra note 619,104. at note 45, at 23. note45, ORAH ,

L AW AND AW AND ,

A N INTRODUCTORY GUIDE TO GUIDE N INTRODUCTORY C OMPETITION IN IN OMPETITION pproach tofreedom.Ordoliberals couldnotbeproperlyunders

guarantee economic freedom. T WENTIETH WENTIETH Commission considers rivalry as an “essential driver driver of as an“essential rivalry considers Commission without beingconstrainedbytheeconomicpower e exclusiondoesnotharm consumers. EC ements. First,theeconomic system shouldallow Chicago Schoolhas,thedevelopm 99 COMPETITION LAW AND PRACTICE AND LAW PRACTICE COMPETITION ive distribution agreements istoeliminate 618 law, remnants of the ordoliberal approach are present arepresent law, remnants approach ofthe ordoliberal ployment ofexclusiveterritories.Related to e legalframeworkaimed atpreventingthe C thesame brand,itcould beassumed that ng the1930s and1940s attheUniversityof

ENTURY lry, anddonotlookfa agreements canbeseenasrestrainingthis s doesnothaveascomprehensivean gulated toacertainextent,sincean E UROPE tood withoutconsideringthe 617 recognize thefreedom toenter :

Theregulationshouldbe P ROTECTING vorably atexcluding 79 P ROMETHEUS

(2007). Although Although (2007). ent oftheEU 619 Taking 235 CEU eTD Collection competitive process believe thattheconcentrationofprivate economic powernecessarilythreatensthe is notthe aim of ordoliberalism. economy consistingtothelargestdegreepo priority tothe latter. 629 628 627 626 625 624 623 622 621 not correspondtotheoneadoptedbyBork.Un to giveevenmore weighttosome otherva taken intoaccountwhenshapi Bork’s approachinthe freedom isbetter thanatotalitarian butefficient state of affairs. purely economic concerns. prosperity ofthesociety, which couldbeinterpretedasunsympathetic each distributor amonopolist inhis area,thisis monopolies assuch. perceive theconcentrationofeconomic resources asaneviluntoitself andareagainst such concentrationsoratl between efficiencyandeconomic freedom, M G M Id. Id. Id. Id. Id. Id. ERBER ONTI OTTA at 239. at 232. at 240. at 251. In addition,theordoliberalunderstandingof efficiency andwelfaredistributiondoes Although ordoliberals consideracompetitive Ordoliberals alsoargueforthedispersi , , supra

supra ,

supra note 618,at 240. note 45, at 23. note45, note 190, at 190, 24. note 623 625 andthatthe primary goalofcompetition lawshouldbetoeliminate Sinceamanufacturer imposes exclus sense thatthereareothe 626 627 theirfocusismore onhumanist va east reduce their harmfuleffect. Eventhoughefficiencymay be

ng anantitrustpolicy.What is 628 Forordoliberalsastateof lues, such asfreedom, thantoefficiency. towards exclusivedistributionagreements. ssible ofsmall andmedium enterprises. 100 621 anditseems thator r valuesapartfrom effi on of economic powerandstriveforan anotheraspectofth like Bork,ordoliberalsarealsoconcerned economic system asnecessaryforthe a resultofecono ive territories inordertomake more, ordoliberalswouldseem lues than onefficiencyorother 624 629 Asaresult,ordoliberals inefficiency coupledwith Therefore, thisisunlike doliberals wouldgive e ordoliberal teaching ciency thatshouldbe mic freedom, it 622 They CEU eTD Collection decrease inconsumer surplus. situations whereexclusivedistributionwould potentially of greatsignificance forthelawofex Freiburg Schoolwouldbeleaningmore towards Therefore, incontrasttothetotalsurplus 633 632 631 630 an enforcementsystem isoptimal ifitminimi competitive practicesthat arecondemned ordeterred,andthe system itself. that minimizes thetotalcostsofanticompetitive practicesthatescape condemnation, issue ofefficiencythelega has advantagesaswelldrawbacks. decide onitslegalitydepending onwhichaspects prevail. Aswillbeshown,eachapproach enforcer issupposedto weightheproand restraint. Finally,if exclusive territoriesarejudgedunde per selegalifthelawdoesnotcontainanyprohi justifications fordeployingthistypeofrestra situation exclusive territories areoutright towards exclusive territories: 2.5 the gainswouldhavetobesuch would notbesufficientthatanexclusive distri about howefficiencygainsaredistributed Easterbrook, exemp the consider this respect, In See supra See , (2002) CMLR , (2002) Policy Public ECand 81 Article Monti, G. The choiceofanappropriate rule forexclusiv In general, Towards anappropriateruleforexclusiveterritories Part 2.4.1. supra note 588,158. at therearethreepos per seillegality, l systemasawhole.Alegalsy

631 tion process under Article 101(3) TFEU. TFEU. 101(3) Article processunder tion thatmake consumers better off. Inother words, inorder tosatisfy theordoliberal standard it sible approachesthatsubsta standard connectedwiththeChicagoSchool, 101 anticompetitive aspectsofthearrangement and prohibited, withoutevenconsideringpossible int. Ontheotherhand,exclusiveterritoriesare per selegality,andaruleofreason.Inthefirst – priorityshouldbegiventoconsumers. bution agreementbringsnet efficiency gains– zes theoccurrenceofenforcement errors.An lead toanincrease intotalsurplus anda clusive territories, especially takingintothe the consumer surplusstandards.Thisis e territories isdeeplyconnected withthe bition ontheimpositi EV 1057-99, at 1061. at1061. 1057-99, r aruleofreason,theantitrust stem shouldbedevisedinaway 632 ntive antitrustlawcanadopt See infra

Part 4.3.2.2.2. Part on ofthistype 633 Inotherwords, 630

CEU eTD Collection antitrust is generally aself-correcting antitrust problem.”). orev alleviate to emerge practices, or new entrants competition for and in the field of competition law competition the field of in and for competition markets plagued by suspected anticompe anticompetitive to penalize (failing errors the benefitsofexclusiveterritories. Nevertheless, perseillegalitybringswithitsome othercosts. both. the choice betweenaruleofreason anda servesproperlythe Neither over-deterrencenorunder-deterrence 642 641 640 639 638 637 636 A 635 634 of waysinwhichthedeployment ofexclusivete litigation transaction costs aswell the with the antitrust enforcer. antitrust cases, such arulereduceslegaluncertainty, false positivesleadtoover-d have increasedwelfareiscondemned is referred toasa“false positive” (Type Ierror), enforcement error whenaconduct to improper to results.”). economy .it willsometimes lead they may more to be though set general even expeditious policy standards, former isusually self-correcting. "per se rules vs rule of reason" makers, who produceacertain sh that insight the on a case-by-case basis rely primarily bring rigidity and that hence they shou NTITRUST NTITRUST Cady, Cady, that of the false– than ishigher negatives false cost of isthatpositives the approach Chicago School The Steven C. Salop, Kerber, & Wolfgang Christiansen Arndt See See See Sylvania 636 Christiansen &Kerber, id. id. Most importantly, under Perhaps the main advantage of

supra supra at 220. at 220. , 433 U.S. at 50 n.15. The Court however acknowledged that on the other hand hand that onthe other acknowledged however Court at n.15.The , 50 U.S. 433 L.J. note 136, at 29-30. at 136, 29-30. note at 136, 29-30. note

311, 314 (2006). 314 (2006). 311, See also 639 Exclusionary conduct, effect on consumers, and the flawed profit-sacrifice standard the flawed profit-sacrifice consumers, effecton and conduct, Exclusionary and is a way of bypassing informationandknowledgeproblems andisawayofbypassing connected

id. id. at 235 (“[T]headvantages applying of (differentiated) rulesinstead of deciding on supra note 634,219. at , 2 See, e.g. 640 are of wrong decisions.”). decisions.”). of wrong are

J. See also

C

eterrence, whilefalsenegativesleadtounder-deterrence. Per seillegality of exclusive terri OMPETITION OMPETITION per seillegalitymanufacturers andconsumers cannotobtain ld not be used inallcircumstances. ld not be used tition are alsolow. As tition prices rise , Fred S. McChesney, with negativewelfareeffects contracts and practices) will be low, practices)willbeaslong low, and as tocontracts entering barriers 642 Comanor, supra note 197,at 1001 (“Ininterests the ofjudicial Competition policy with optimally differentiated rules instead instead of rules differentiated optimally with policy Competition per se Inthis chapter ithas been shownthatthereis anumber called a“falsenegative”(TypeIIerror). 638 , 52 L. en eradicate the problem. Letting the guilty go go free in the guilty Letting problem. the en eradicate decreases thedanger of illegality isthatitoffers simplicity. costs ofmonitoring byenforcement agencies.

competition authorities and courts courts are imperfect and authorities decision- competition &

102 E per se per

E MORY CON rritories canbebeneficialforamanufacturer while anerror whenabehaviorthat would .

L.J. 215, 225 (2006). rulesshouldbedir Talking about my antitrust generation: generation: myantitrust about Talking

1401, 1412 (2003) (“The cost of Type II II Type of cost (“The (2003) 1412 1401, Id. because of anticompetitive contracts at 50 n.16. is wronglyallowedusually tories basically eliminates goals ofantitrustlaw,and distorteddecisionsin ected atminimizing per se 637 634 rules also also rules Inaddition, Therefore, , 73

635 641

CEU eTD Collection circumstances exclusive territoriescanalso shown inthischapter,apartfrom signi would becondemned. However,suchanapproach positive side ofthisapproachwouldbetheavoi 648 647 646 645 644 643 School, whichhasledtoproposalsthat object tothe useofexclusive te legal. per seillegal,butrathergivereasonswhythispractice territories commentatorslikehim donotanymore exclusive territories. position, andisnowproposingsome ruleofreasonwith sortofa direction, for example byComanor. illegality ofexclusivete to anincrease in litigation costsarising outof efficiency. anticompetitive ones,theruleof these benefits.Inaddition,ifprocompetitive as as wellforconsumers, anda Joffe, some sort of rule of reason).

See, e.g. See, e.g. Compare See Leegin Creative Leather Products, Inc.v.PSKS, Inc., 551 U.S. 877, 895 (2007). Id.

supra noteat17, 525 (“Exclusive distributionshould be Comanor, 647 Diametrically oppositefrom In today’slegalandeconomic theoryth

, B Scherer, at 998; 197, supra note , Comanor, Comanor, supra 643 ORK Finally, supra ,

note 196, at 288 (“Every vertical restraint should be completely lawful.”); supra & Solomon at be completely should lawful.”); 196, 288 (“Every vertical restraint note note note 288. 646 per se Byemphasizing certainanticompetitive aspects ofexclusive note 288 (arguing for for 288 (arguing note rritories, eventhoughinthepastthere hadbeensuggestionsinthis illegality could increase thetotal

per seapproachwouldpreventth rritories. This isto alarge extent the viewof the Chicago per seillegalitywouldbeana per se 645 this typeofrestraintshouldbe However,evenComanor eventuallyrevised his per se illegality could causea decrease in allocative 103 havesome harmfuleffects.Aruleof frivolous suitsagainst legitimate practices. ficant procompetitive as supra note 265,at 706. dance ofsituations whereanefficientconduct illegality) illegality) ere doesnotseemtobesupportfor pects ofexclusive territoriesoutweighthe wouldalsohavesignificantdrawbacks.As propose thatexclusiveterritoriesshouldbe per se with lawful under the antitrust laws.”). antitrust the lawfulunder should notbetreatedas Comanor, supra cost of theantitrust system due ese subjectsfrom enjoying pproach thatwouldnever regardstothelegalityof pects, undercertain per selawful. note197 (accepting 648 per se per se per se 644 The

CEU eTD Collection C 653 652 651 650 649 exclusive territories is astructured rule ofreas structural) ruleofreason. guidelines for applyingtheruleofreason. difficulties inapplication whilestill preservi could be if notcompletely avoided thenat l administrative costsofenforcement. rule of reason approach isthatitleadstodifficulties inapplication andincreases the balancing theseeffectsisnotcostless.Ashas and anotherthingtodoitwithre separate setofproblems. however doesnotmean thattheapplicationof reason wouldhavethepotential procompetitive andanticompetitive sides of an exclusive distribution agreement, a rule of seem thattheappropriateruleforexclusive territoriesisaruleofreason. these effectswouldbepronounced,thelarger legality wouldignorethepoten deserves a largely ignored.”). ignored.”). largely fill could many is volumes, effects,which ofactual evidence effects but anticompetitive to examined predict planning their conduct). in might have difficulties this businesses of that because and is dispositive” nothing isrelevant, everything en oftenunderminesantitrust and ef deterrent real moderate,inlittle the and world has but demonstrati upon only found violations and weighed, OLUMBIA

See See See, e.g. See E.g. Based onthe above,itissubmitted thattheap Firstly, itis onething toweighpro- and Taking intoaccounttheshortcomings of Louis, Cady, Posner, , M ONTI per se , Robert Pitofsky, Pitofsky, , Robert L AW supra supra supra ,

supra noteat 45, 351; Kay, R or treatment itis rule reason of for in than a balancing particular case). EVIEW note 136, at 30. note 400, at 267 (a structural rule mark of which reason is“under one note 285, at 20 (economic theory more functional for deciding whether atype of conduct , Vol.78, No. 1 (Jan., 1978), at2(“A st The "Sylvania" Case: Antitrust Analysis of Non-Price Vertical Restrictions Vertical Non-Price Analysis of Antitrust Case: The "Sylvania" 653

forcement.”); Easterbrook, forcement.”); Easterbrook,

tially harmful effects of exclusive territories, and the more gards toaparticularagreement. tominimize thepossibility supra 651 However,therearewaysinwhich thesedifficulties note 525, at 559; Rey & Tirole, east mitigated. Perhapsthebestwaytoavoid on of specific anticompetitive effects, may sound effects,may sober of anticompetitive sound on specific 652 104 would thesocialcostofrulebe. ng some degreeof flexibility ismaking clear on. Sucharulewouldgivetheenforcercertain been rightly noted, the main disadvantage of a been rightlynoted,themain disadvantageofa fect, produces trials of inordinate length and expense, expense, and length inordinate trialsof fect, produces Thisisoftenreferred per se anticompetitive effects onatheoretical level, aruleofreasonwoul note 588, at 155 (noting that “[w]hen “[w]hen that supra at (noting 588, 155 note propriate ruleforjudgi illegalityand andard underwhich allcircumstances are 650 of enforcement errors.This Inaddition,theprocessof supra per selegality,itwould to asastructured (or d notbringwithita note 200, at 922. at 200, 922. note 649 et structure factors are et structurefactors ng thelegality of Byweighingthe , CEU eTD Collection 658 657 656 655 654 appropriate. agreement couldbeheightened, coupled withanexclusivedealingclause. will most likely beprocompetitive, andshouldbelookedatbenevolently. collusion. at theretaillevelthis maybeasignthatth Since exclusive territoriesaregenerallymore ap distribution generallydoesnot shopping good,thepurposebehindagreement account. Firstly, theenforcer shoulddetermine thetypeofproduct.If balancing the procompetitive andanticompetitive effects of theagreement. would notbecondemned. Iftherewouldbema answer wouldbeinthenegative, the analysis whether thepartiestoanexclusive distributionagreement possessmarket power.Ifthe presence ofmarket power, the deployment of exclusive territories could causeanticompetitive concern onlyinthe reason analysis,whileatthesame time preservingthepossibilityforsome balancing.Since guidelines whichwouldassisthiminovercom

See supra See supra See supra See supra See supra Fourthly, itshouldbeobservedwhetherth Thirdly, ifexclusive territoriesareused bya new entrant into amarket, theagreement Secondly, themarket levelwhereexclusiveterritoriesareimposed In performing thebalancingtest,some of 656 Parts 2.2.5, 2.3.2.4, 2.3.2.5. Part 2.3.1.3. Part 2.3.2.5. Part 2.3.1.1. Part 2.3.1.4.

654 thefirst stepin this structured analysis wouldbedetermining

make senseforconveniencegoods. 658 and inthatcase aheighten e purposebehindtheagreem 105 wouldgenerallystopthere,andtheagreement If itis,theanticompe t for thewholesale level, if theyareimposed ing thevaguenessofafull-blownrule the followingfactorss rket power,theenforcerwouldproceedto e deployment ofexclusiveterritoriesis could beanticompetitive, sinceexclusive ed levelofscrutinywouldbe 655

titive potentialofthe ent isactually retailer hould betakeninto 657 should beobserved. theproductisnota

CEU eTD Collection efficiencies should also lookatother aspects oftheag argument againstupholdi effects ofexclusive territories ar are usedischaracterized byaparallelnetwork of suchagreements. If itis,thenthe positive 661 660 659

See supra See supra See supra Finally, itshouldbenotedthattheabove Fifthly, theenforcershould determine whether themarket inwhichexclusiveterritories Part 2.3.2. Part 2.3.1. Part 2.3.2.6. 660 orcauseanticompetitive harm. ng theagreement.

e likelytocanceleachother out, 106 661 reement that may eitherbringprocompetitive

list shouldnotbeexhaustive–theenforcer 659 whichwouldbean CEU eTD Collection 664 663 662 Section 2. addition, whenusedbyadominant firm exclus exclusive distributionagreem U.S. antitrust lawistheSherman Antitrust Act. 3.1.1 3.1 distribution, thechap to provideabasisforanassessment ofthest arrangements thathavebothverticalandhorizon exclusive territories,thechapteralsoanaly of theU.S.approachtowards exclusivedistributi proceeding tothe assessment ofthepositive law, first examines thestatutory framework app the basisforacomparison withtheEUlawof compare thelawwithproposedrulelaiddow Gavil, Gavil, fi dominant when monopolization law of the with intersects severalthe States, orwith foreign nations.”15 U.S.C. § 2. “Thelaw ofdistributionmarketingand practices combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among conspiracy,in restraint trade of commerce or among theseveral States,with or foreign nations.”15 U.S.C. §1. Braden Industries, Inc., 613 F.2d 751 (9th Cir. 1980). Cir. 1980). (9th F.2d 751 613 Inc., Industries, Braden (2004). Sherman Act Section 2 condemns “[e]very person who shallmonopolize, or attempt to monopolize, or Sherman Act Section 1 proscribes “[e]very contract, combination in the form oftrust or otherwise, or 1-7. §§ U.S.C. 15 1890, of Act Antitrust Sherman This chapterpresentsthe American lawofex Exclusionary distribution practices by dominant firms: striking a better balance The legalframework See, e.g. In generalandwithregardstoexclusive distribution, themostim The mainsourcesoflaw 664 Finally,thepracticecanal , McDaniel v. Greensboro News Co., 1984-1 Trade Cases P 65,792 (4th Cir. 1983); Cowley v. v. Cowley 1983); (4th Cir. Cases P 65,792 Trade Co., 1984-1 News v.Greensboro , McDaniel ter considersthe 3

E XCLUSIVE ents aregenerallychallengedunderSection1oftheAct. stare decisis so bechallengedunderSecti D ISTRIBUTION IN IN ISTRIBUTION 107 exclusive distribution.To ability ofthecurrent approachtoexclusive on. Apartfrom thestrictlyverticalaspectsof ive territoriescanalsobechallengedunder zes thelegalityofexclusive territories licable to exclusive tal aspects(jointventur rm distributionstrategies are challenged.” Andrew I. the chapterprovides a historical overview principle. n inthetheoreticalchapterandtoprovide clusive territories. The 662 Asagreements that restrain trade, U.S.

L on 5of theFederalTrade AW , 72

distribution. Before distribution. Before es). Finally,inorder thisendthechapter goal istwofold:to

A portant sourceof NTITRUST NTITRUST L.J. 663

3, 23 In CEU eTD Collection 669 668 667 666 665 Based onthe relevant case-law,theCourt’s po welfare wouldpermit takingintoaccountsome a it byRobertBork,whichcouldbecharac standard. welfare” isambiguous. Ontheonehand,itcoul welfare. primary (ifnotonly)objective objectives are.Inthisrespect,the Supreme is silent regarding itsobjectives,ithasbeenleft tothecourtsdetermine whatthese useful tobrieflyexam 3.1.2 will bebriefly discussed. decisions about thelegality of exclusive territo and toacertainextent also law. Inthis respect especially significant assessment of thelaw of exclusive territories itis under theSherman Act. Commission Act, likewise come within the within comeunfa likewise affecting commerce.” 15 U.S.C §45(a)(1). comme affecting in methods or competition all “[u]nfair of welfare). (1948) 694 U.S.683, 333 Institute, Cement FTC v. Federal Trade Commission Act of 1914, 15 U.S.C §§ 41-58. Section 5(a)(1) of the Act declares as unlawful See supra See supra E.g. , Leegin Since these statutes arephrased inavery abstractand vaguemanner, foran In addition,itisnotclear In ordertobetterunderstandthe Goals ofenforcement 667 668 However,theproblem withsuchdetermination isthattheterm “consumer Part 2.4.2. Part 2.4.1. Ontheotherhand,termcouldalso , 551 U.S. at 902 (noting that antitrust laws antitrust that U.S.at902 (noting , 551 665 whichhasbeeninterpretedasencompassing allconductthatcouldfall ine thegoalsofAmerican antitrust enforcement. SincetheSherman Act 666 ir trade practice prohibitions practiceprohibitions ir trade

the decisionsoflowercourts.

of antitrustenforcement is whethertheadoptionofBo terized as atotalsurplus standard. current stateofthelawexclusiveterritories,itis are thecasesdecided bytheU.S. Supreme Court (“[A]ll conduct violative of the Sherman Actmay Sherman ofthe violative (“[A]ll conduct 108 Court’s positionwouldseem the tobethat ries, theobjectives of theAmerican antitrust dditional objectivesofantitrustenforcement. are supposed to protect competition and consumer and competition toprotect are supposed rce, and unfair or deceptive acts or practices in or or in practices or acts deceptive unfair or and rce, also necessary to consider the relevant case- of the Trade Commission Act.”). Commission Trade the of sition with regards to thisissuecannotbe d beequatedwiththeconsumer surplus be understoodinthemeaning assignedto However, beforeanalyzingthe the furtheranceofconsumer rk’s conceptofconsumer 669

CEU eTD Collection ( emphasized theroleofallocative efficiency). 676 675 674 673 672 671 670 consumers. In Image Tech.Servs.,Inc. decisions in that theprimarygoalofAc directly supportingthisview,cer consumers receiveafairshareofit. goal ofantitrustcanbeseen efficiencies thatflowdirectlytoconsumers. that whenenactingtheActCongressdidnot the totalsurplusstandardcannotbeaccepteduncritically. In thisrespectsome authorsargue what Borkarguesfor. Court hasatleast leftopen apossibility that when discussingthepurposeofSherman Act. Bork, especiallytakingintoaccountthedecisi determined with absolute certainty. Onbalanc ‘consumer welfare prescription.’”)‘consumer (citing designed to safeguard more than e “acentur aside aCourt for casting Appeals of criticizing NationalCollegiate Athletic Ass'nBoard v. Regents of ofUniversityof Oklahoma, interpretation challenged interpretation ( (1990) 360 328, U.S. 495 Co., F.3d 1421, 1433, 1444 n.15 (9th Cir. 1995). 1995). Cir. (9th n.15 1444 1433, 1421, F.3d consum with issynonymous efficiency “allocative that and view, statingthat“[c]onsumer welfare NCAA 504 U.S. 451 (1992). (1992). U.S.451 504 (1985). U.S.585 472 Gavil, indicatedth expressly casetheSupreme In one Court See E.g. See Brodley, Brodley, asa Act Sherman the designed (“Congress (1979) U.S.330, 342 442 Corp., Reiterv.Sonotone , Robert H. Lande, ) (quoting (quoting ) Accordingly, theviewthatsoleobjectiv In thisrespect, some commentators supra at 664, 18-19. note Aspen SkiingCo.v.HighlandsCorp. supra note 544,1023. at Reiter Aspen , the Court identified consum , the identified Court consumers lostapackagewhichtheyseemed tolike,whilein , 34 671 Wealth transfers as the original and primary concern of antitrust: the efficiency efficiency the concern of antitrust: and primary the as original transfers Wealth

676

H ASTINGS ASTINGS ARCO InbothcasestheCourtcondemned fficiency and consumer welfare.” Atla

t istoprotect consumers. as anincreaseintotaloutput ). The criticized Court of Appeals decision expressly adopted Bork’s Bork’s adopted expressly Courtof ). criticized Appeals decision The is maximized when economic resources tain casescouldbeseenas tacitly supportingthestandpoint L.J.

Bork); National Collegiate Athletic Ass'n v. Board of Regents of

65, 110 (1982);Salop, 673 AlthoughtherearenoS er welfare as a fundamental goal of antitrust law and lawand of antitrust goal er welfareasafundamental 672 109 674 the Sherman is Act about something more than Inotherwords,theclaim isthattheeconomic at antitrust is more than just economic ismore just efficiency, than at antitrust y of understanding that lawsare that [American]y understanding antitrust of e itwould seem thatth ons wheretheCourthasreferredtohiswork haveprimarily pointedtoSupreme Court er welfare”. OilCo. Rebel v. have inmind onlytota 670 e oftheSherman Actisthefurtheranceof However,insome otherdecisionsthe supra ntic Richfield Co. v. USA Petroleum note 635. 635. note subjecttoth 675 practices thatseemed toharm are allocated totheirbest use” andEastmanKodakCo.v. upreme Courtdecisions 468 U.S. 85, 107 (1984) (1984) 107 85, U.S. 468 e Courthassidedwith Atl. RichfieldCo., 51 l surplus,butalso e conditionthat Kodak it CEU eTD Collection those ofthemanufacturers. Relatedtotheissu to condemn aconductandthattheinterestsof Therefore, the distributortochargeapr , asthemain rationale behi addition, theCourtclarifiedthatapriceincrease restraints the Courtreferred notonlytoconsumers’butalso overstated. First,indiscussingantitrustlaws’ Brooke GroupLtd.v.Brown&WilliamsonTobaccoCorp. 682 681 680 679 678 677 Inc. read asfurtheringtheconsumer surplusposition. most directlyconnectedwithharming theinterestsofconsumers, arrangement isharmless. an increaseinpricecouldbecondemned even offered byindependentserviceproviders. was foundthatKodak’safter-sale because consumers are required to consumer and are welfare “competition manufacturers because the condemnation ofa pri higher despite demand toincreased willlead conduct this it believes because to itsbrand promote or its strives quality improve product manufacturer to The want. that laws consumersor about toproduce generic not not goods do require manufacturers do know antitrust The of itsgoods. Yet noone would think these actions violat promote awareness agencyto Orit anadvertising hire quality. might thatproduct improve inputs better obtain to concerted action can lead to higher prices. A manufacturer might, for example, contract with different suppliers conduct.”); anticompetitive was likelytohavesucceeded, theory w asa may be matter,general mark the realities ofthe when (2007). U.S.877 551 (1993). U.S.209 509 Gavil, See id. See Id. 680 at 229 (“However unlikely [the possibility that a certain conduct will produce anticompetitive effects] anticompetitive will produce conduct acertain that [the possibility at (“However unlikely 229

Leegin thesignificance of Nevertheless, takingintoaccount at 895 (“Respondent is mistaken in relying on pricing effects absent a further showing of supra at 664, 18-19. note Leegin , 551 U.S. at 902 (noting that antitrust laws antitrust that (noting at 902 U.S. , 551 wouldstandforthepropositionthat horizontal id. at 896-97 (“Many decisions amanufacturer makes andcarries out through 679 Aspen Skiing arrangement. Takingintoaccountthataprice shoulder the increased expense

ice higherthanit ill not standinthe way ofliability.”). service wasoflowerquality and higherpricesthanthat See , Eastman Kodak

id. Leegin Creative LeatherProducts,Inc.v.PSKS, 677 110 at 893. Along the same line, th e the Sherman Actbecausethey nd verticalarrangements isprecisely to allow ces.”). On the other hand, price increase could lead to lead priceincreasecould other ces.”). the hand, On prohibiting certain restraints certain vertical hamper prohibiting et and the record facts indicate that it has occurred and and occurred that ithas factsindicate record the et and theconsumersarenotmoreimportantthan isnotonitsownsufficientforcondemninga e ofexclusivedistribution,thiswouldlean would bepossiblewi approach towards thelegalityofvertical ifeconomic theory claims thatsuchan forced to engage in second-best alternatives and and alternatives in second-best engage forced to a priceincreaseisnotenoughinorder of the inferior practices.”). , andBrookeGroup 678 tomanufacturers’ interest. statedthatconduc increase issomething thatis Brooke Group e Court’sdecisionin thout therestraint. leadtohigher prices. shouldnotbe t thatleadsto couldbe 681 In 682

CEU eTD Collection he refused to set sail on a sea of doubt. U.S. v. Addyston Pipe & Steel Co., 85 F. 271, 283-84 (6th Cir. 1898). 1898). Cir. (6th F.283-84 Pipe &SteelCo.,85 U.S.271, Addyston asea v. doubt. tosetsailon of he refused we atthis point rule reason. of However, structural reason, rule or of truncated and look asquick as such types of analysis well, are other U.S. n.26. There 468 104 687 686 685 684 683 examine procompetitive andanticompetitive aspect less pernicious.Ifapracticeis distribution. rules also has serious drawbacks, especially wi contributes totheefficiencyofenforcement. almost neverhaveprocompetitive justification. his conduct. place, without evengiving achancetothedefenda court willcondemn acertainconductassoon as itestablishesthattheconductactuallytook injury canbe analyzed:the 3.1.3 territories. towards the total surplus standard, andtipthe scaleinfavor of thelegality of exclusive characterizing [a] conduct under the conduct under characterizing [a] are outweighed to this degree, then they are simply not worth identifying in individual cases.”). may harmfulmustpractice aggregate be that faroutweigh the in maybenefits result. benefits If the potential the situations in what particular of costs determining administrative the harm plus competitive potential the that significant and the rule losses will far the outweigh always containadegree of arbitrarin business excuse for their use.”); U.S. v. Container Corp. of America, 393 U.S. 333, 341 (1969) (“Per se rules the inquiryasto caused harm elaborate have the precise or they without illegal therefore and be unreasonable because of their pernicious effectoncompetition and lack and decrease output.”). to alwaysoralmost to the that whether faciallyappears practice be would alwaystend one restrict competition purpose ofthe practice are to threaten in opinion Taft’s Judge with connected is of reason usually rule the of beginning The NCAA In See supra See See Northern Pac. Ry. Co. v. U.S., 356 U.S. 1, 5 (1958) Broadcast Music, Inc. v.ColumbiaBroadcasting System, Inc., 441U.S. 1,19-20(1979) ( On theotherhand,ruleofreasonisrese In theAm Forms ofanalysis the Court stated that “there is often no bright line separating separating the that line stated isoften bright no Court “there Part 2.5. 687 684

Aconductisjudgedunder erican antitrust system therearetwomainwaysinwhichanallegedantitrust per seruleandtheofreason.

ess. They are justified on the assumption that the gains from imposition of the from that gains imposition assumption the ess. on They are justified per se the proper operation ofourpredomin judgedundertherule rule, our inquirymust focus on whether theeffect and . . the per seillegalitywhen itissuch thatitcannever or will concentrate on the two mentioned types of analysis. analysis. mentionedwill concentrate the types of on two 111 686 administrative advantages will result. In In other words, will result. advantages administrative However,asshownabove,theuseofperse ofany redeeming virtue ar (“[T]here are certain agr 685 th regards toapracticesuchasexclusive nt to offer procompetitive justifications for s oftheconductanddecideonlegality Inthatcasetheuseofa rved forpracticesthatareconsideredas ofreason,thecourtissupposedto per se antly free-market economy –thatis, 683 from RuleofReasonanalysis”. Underthe eementsor practiceswhich e conclusively presumed to Addyston Pipe per serule, the BMI per se ) (“[I]n , where rule CEU eTD Collection by perseprohibitions. has ledtothecurrentsituationinwhichonlyha competition itself isunreasonable. argument inordertojustifya of economics injudgingaparticularcase. use ofeconomics inantitrust,since this typeof envisages abalancing 696 R 695 694 693 692 691 690 689 688 completely excludetheuseofeconomics –a of reason,withSylvania influence of theChicagoSchool,Supreme C case –untilthe1960santitrust considered asa“default”ruleofantitrust analysis. extent determine theoutcome of antitrust analysis. reason orshouldratherbeafforded exactly thisinquiry based onwhichofthetwoaspectsprevails. presumption in favor of arule-of-reason standard). firmly avoided ever since.”). in toembark Taft refused Judge on which “sea doubt” the of co that assumption the on based a support defense not Co. of New Jersey v. U.S., 221 U.S. 1, 89 (1911). the the that Courtheld where undueonly Sherman or Actprohibits unreasonable restraintstrade.of Standard Oil EV Christiansen & Kerber, Christiansen Robert Pitofsky, & Kerber, Christiansen Baker, It is generally considered that the rule of reason was born with the Supreme Court’s decision in Id. See See See infra .

583, 587-88 (2002).

Business Electronics Corp. v. Sharp Electronics Corp. 485 U.S. 717, 726 (1988) (noting that there is a Reason does of Rule (“[T]he (1978) 696 U.S., v. 679, 435 U.S. Engineers Professional Soc. of National The more extensive useoftheruler The determination aboutwhetheracertainc supra Part 3.3. note 126,at 1459. Antitrust theat turnof twenty-first Antitrust century: the A view from middle is tobeperformed. supra note 634,at 219. supra note 634,at 218. 695 test, itdoesnotmean thatthe generallyconsidered asawate

certain conduct.Mostnotably,the defendantcannotarguethat enforcement reliedprimarily on 690

per se 689 What isclear that analysis isveryimportant,sinceitcantoalarge mpetition itself is unreasonable itselfis[sincempetition that] create would unreasonable 696 112 688 analysisleavesmore spacefortheapplication However,theuseof eason issometimes connectedwiththewider rd-core horizontalrestra However,itremains anopenquestionhow rule can also be based on economic per serulecanalsobebasedoneconomic ourt slowlystartedlean Addyston 692 onduct istobejudgedundertheruleof However, thishasnotalwaysbeenthe However, 691 rshed decisioninthisrespect. Today the rule of reason can be Todaytheruleofreasoncanbe defendant canuseanyreasonable , and, which [the Supreme]Court has although theruleofreason per se per serulesdoesnot ints arestillgoverned ing towardstherule rules. , 76

S 693 T .

J , Oil Standard Underthe OHN 694 ' S L. That

CEU eTD Collection (4th Cir. 1956). 1956). Cir. (4th 899 F.Supp. 138 Co. Sales v. Corp., Motor Hudson Schwing Cir.); (D.C. Co., 243 F.2d 418 Car Motor Webster Cement Portland 125 Iola Co., v. Phillips Cir. 1915); 280 (5th Fed. 228 Car Co. Hurst, v. Motor Cole 1942); Cir. 822(2d Corp., F.2d 124 General Motors v. Corp. in Warren S.Grimes, involved inatleast sixteen prosecutions ofexclusiv 701 700 699 698 697 than gototrial. court judgmentsontheissue–de DoJ thenstarted challenging practices involving airtight exclusive territories, there wereno vertical restraints, including airti even iftheydidarisein territories. period between 1890and1948theDoJdidnotch agencies initially did not express muchinterest started todeveloprelatively 3.2.1 3.2 analysis. which toanextentcouldbecontributedth been consistentwithregardstothestandard considerations. related sales distribution problems under antitrust laws antitrust under problems distribution sales related W. McLaren, Richard territory. assigned an within other outlet withoneormoreagrees of hehis will that distributors A T Pitofsky, The courts for example upheld the imposition of exclusive franchises, i.e. a restraint where amanufacturer Cady, See NTITRUST HEODOR

id. The earlycases However, in1948theDoJreverseditspositionandannouncedthatitdeemed certain Com White Motor supra at 236-37. at 236-37. 698 supra note 651,at 5-6. B S pared tosome otherareasofAmerican ANKS note 136, at 136, 29. note TheDoJalsodidnotchallengeothertype TORIES 697 701 From Schwinnto Sylvaniato Where? HistoricalRoots Modern of VerticalRestraints Policy , D Bethatasitmay, thischapterwill Aboutthesame time, theFTCalsost 145, 151 (Eleanor M. Fox & Daniel A. Crane eds., 2007). ISTRIBUTION ISTRIBUTION private litigation, the courts

L late. Thiscouldbeexplained AW ght exclusive territories, as illegal (1999, Supp. 2006), at 4-290. Between 1948 and 1963 the DoJ and1963 was Between 1948 at4-290. Supp. 2006), (1999, fendants wereratheroptingto e territories, each of them ending in a consent decree. Fed. 593 (8th Cir. 1903); Packard Motor Car Co. v. CarCo. v. Motor Cir. Packard 1903); Fed. (8th 593 113 not appoint another distributor or sell his product to any any to or product sell his another distributor appoint not for judgingthelegalityof e changingroleofeconomic theoryinantitrust , 11 inpursuingthistype

P RAC generally foundthem legal. Territorial restrictions, exclusive dealing, and antitrust, thelaw ofexclusiveterritories allenge asingleinstanceof exclusive .

show thattheSupreme Courthasnot L arted challengingex AW s ofverticalterritorial restraints and .

79, 81 (1965). 81 (1965). 79, by thefactthatenforcement enter intoaconsentdecree per se exclusiveterritories, See, e.g. of restraint –inthe . clusive territories 700 Althoughthe , BoroHall 699

, CEU eTD Collection into thesametype of exclusive distributorshipagreement. The manufacturerwasdealingth manufacturer, White Motor,that imposed certain territorial restraints upon itsdistributors. 707 706 705 704 703 702 manufacturer’s territorial andcustomerrestrain granted the soleright of selling in the territory its salestotheterritory described in thedistribution agreement. Inreturn, thedistributor is As canbeseen,thisisanexclusiveterritoryprovision,withth read asfollows: would reach theSupreme Court. clauses. Act. TheDoJchallenged thispractice,argui distributors engagedinanunlaw with hisareaofresponsibility. we will keep our focus on the part of the decision dealing with this type type of this restraints. with dealing decision partofthe the focus on we our will keep they would resell the trucks to final customers. However, 59 F.T.C. 1035 (1961). The FT The F.T.C. (1961). 59 1035 F.T.C., 321 F.2d 825,833 (7thCir. 1963). exclusive territories,andconsequently Court of Appeals for the Seventh Circuit decided that the rule of reason is amore appropriate legal standard for U.S. v. White Motor Co., 194 F.Supp. 562 F.Supp. Co., 194 Motor White v. U.S. The company also introduced some cu (1963). U.S.253 372 The first occasion where the FTC challenged Id. Motor, White 707 at 255-56. at 255-56. Consequently,theDoJmoved judgment forasummary thatwouldcondemn thetruck The firstsuch casewas territory. corporations havingaplaceofbusiness an with this agreement, andnottosellsuch Company, nottosellanytruckspurchasedhereunder exceptinaccordance and Distributor agrees todevelop the aforem below, White and Autocartruckspu provided, to sellduring thelife of thisagreement, inthe territorydescribed Distributor isherebygrantedtheexcl 702 Therefore,itwasonlyamatter oftime be 372 U.S.at 280. 706

C condemned the practice as

upheld Snap-On Tools’s territorial restrictions. Snap-On Tools Corp. v. Tools Corp. Snap-On territorialrestrictions. Tools’s Snap-On upheld rough anetworkofaround300dealers,allwhomentered ful combination andconspiracyinviolationoftheSherman White MotorCo.v.U.S. stomer restraints its restraints on priceat stomer as well distributors, the which fixed , 564 (6th Cir. 1961) (District Court (District Court Cir. 1961) (6th , 564 the imposition of exclusive territories was 114 rchased from Companyhereunder. , meaning thatnootherdi ts aswellvertical price fixing asillegal entioned territory tothesatisfaction of trucksexcept toi since of interest aremainly since our territorial of restraints, usive right,except d/or purchasing headquartersinsaid per se ng thatthetruckmanufacturer andits illegal. illegal. fore the issueof exclusive territories 705 703 Thetypical territorialrestraint Id. Thedisputeinvolvedatruck e distributoragreeingtolimit at 10-12. However, on appeal the ndividuals, firms, or White Motor White ashereinafter stributor can interfere In re In ). Snap-On Tools, per 704

CEU eTD Collection illegal. even didnotexcludethe possibilitythatthist per selegal,noreventhatthey condemned as either case theoutcome wouldhavebeenthesa 713 712 711 710 709 708 restrictions areharmful forcompetition ornot. Court couldhavemade aparallelbetweenhor could havereliedonthecasesdealingwithresalepricemaintenance. other conduct,thelegalityof legality of exclusive territories was tomake aparallelbetween thistype of restraint and some also notthatextensive.Oneoptionthe territories. Case-lawon thetopicwas verylimited, andeconomic literature onthesubject was The Motor are suitable for asummary judgment orrather require a full trial. Court issue before theCourtwaswhetherterritori in judgment, butonlythepartrega the SupremeCourt.WhiteMotordidnotchal se. U.S. 300 (1919). (1919). 300 U.S. manufacture and sale of antifriction bearings. the three amarket concerning agreementcompetitors between division Thecaseinvolved (1951). 593 respecting customers to reach a conclusion on the bare bones of the documentary evidence before us.”). effect.”). of competition. stifling except purpose the Court v.U.S., Bearing U.S. Timken Co. Roller 341 territorial cited division, tohorizontal referring When White Motor, Motor, White Motor, White See Id. Id. 708 at 588. at 564. TheDistrict Courtgranted themotion. Dr. Miles Medical Co. v. John D. Park & Sons Co 712 However, theCourtchoseathirdway.Itdidno TheCourtmerely acknowledgedthatitis 372 U.S. at 261 (“[W]e know too little of the actual impact of both that restriction and the one theone and that restriction impactof theactual both little of too know U.S. at 372 261 (“[W]e limitations territorial (“Horizontal at 263 U.S. 372 per seillegal. White Motor whichhadalreadybeendeci

A may limitation vertical mayor purpose territorial haveor that not should bejudgedundertheruleofreason.What ismore,it rding territorialandcustomer wasnot sure how toassess thelegality of exclusive 115 Court couldhavechosenindecidingaboutthe 709 ype of restraint deservestobetreated as perse izontal andvertical divisions of territory. ., 220 U.S. 373 (1911); U.S. v. Colgate & Co., 250 250 Co., & Colgate v. U.S. (1911); 373 U.S. ., 220 White Motor appealed al andcustomer restraintsimposed byWhite lenge thepricefixingpartofsummary me –exclusiveterritorieswouldhavebeen 713 Consequently,theCourtfoundthata notclearwhetherve t saythat exclusive territories aretobe . are restraints with no naked trade of ded. Ontheonehand,Court restraints. Consequently,the 710 Inthealternative, the and the case reached rtical territorial 711 In CEU eTD Collection been publishedafewyearsearlier, time thisargument wasnotaswidely acceptedas the Supreme Court inordertojustify theimpositi This canbeseenasthefirstinstance whereapa have anybearingonthelegalissue.” [White Motor’s]statementsareeconomic arguments orbusinessneces use ofeconomic argumentsinordertojustif economics wasunacceptableforsome oftheJus economic ofverticalterritorialrest analysis rider argument. courts. Consequently,theCourtin 719 718 717 716 715 714 Thedissenthadanotherpeculiarpoint,whic pernicious ashorizontalones,ifnotevenmore. peculiar, since modern antitru grant ofexclusiveterritories isnecessary in against larger companies. importance of vertical restraints for itsability restrictions shouldbedetermin summary judgment wasnotapprop dispose of the described territorial and customer restraints. manufacturer entered into aconsent d

Id. Id. Motor, White See Id. Motor, White Id . there wasno case. However, new trialinthis Af at 279-80. at 279-80. at 256-57. Telser, Telser, In otherwords,theCourtin In arguingthatthecasedeservesatrial supra 372 U.S.at 279 (Clark,J., dissenting). 372 U.S.at 256. note note 237. 715 Itputforwardthefree-riding st policy isnotimaginable withouttheuseofeconomics.

ed inatrialonthemerits. ecree according to which itagreed to WhiteMotor 717 718 riate and that thelegality of customer andterritorial butthedoctrinehadno From today’sperspectivethisviewseems somewhat White Motor order toobtainmaximum salesinagivenarea. 116 ter the Supreme Court rendered its decision, the truck to effectivelycompete in raints. However,eventhemere referenceto y itsdistributionpolicy,noting that “[a]ll of 719 rty triedtouse thefree-riderargument before on the merits, White Motor emphasized the See refused to either acce toeither refused today.Telser’sarticl Theargument for thisviewwasthatprice- tices: the dissentcrit on ofaverticalrestraint.However,atthat 1964 Trade Cas. (CCH) H 71,195. 71,195. H Cas. (CCH) Trade 1964 effectively avoidedengagingintoan h isthatverticalrestraints arejustas 714

argument, emphasizing thatthe abandon itsdistribution practices and t yetbeenembraced bythe e aboutfree-riding had the market, especially icized White Motor’s pt orrefutethefree- sities noneofwhich 716

CEU eTD Collection than thevertical ones. horizontal ones, today itiswidelyacceptedthat anything aboutverticalrestraints’potential 723 722 721 720 remained unsettled.Forthisreason itwas Takingintoaccountthat territories but merely concludedthat atrial on themerits isrequired, thelawonissue 3.2.2 Schwinn restraint iscomplex andcannotbe of exclusiveterritories,butonlyas(correctly)recognizingthat the impactofthistype restraint. Therefore, effects, itsuccessfullyavoided acknowledged thatexclusiveterritories co Court’s decisionin restraints. Aswillbeshown, thiswouldsoon follows thatthedissent waspracticallyarguing for violates theSherman Actregardlessofitspotenti both areviolatingthelaw. Act doesnotdistinguishbetweentheeliminatio pernicious astheelimination agreements are more easilybreached. fixing agreements arehardertopolice thanvert horizontal restraints.”).

See supra Motor, White E.g. Id.

, State Oil Co. v. Khan, 522 U.S. 3, 14 (1997) (“Ver U.S.3, (1997) 522 14 , StateOil Khan, Co. v. All inall,from thestan Similarly, the dissent considered the elimination of intrabrand competition just as Part 2.5. 372 U.S.at 281 (Clark,J., dissenting). White Motor White Motor 721

722

of interbrandcompetition. The Inother words,theeliminat dpoint ofthetheoretical getting intoadeeper cannotbeseenaseitherendorsingorcondemning theuse White Motor determined atasummary stage. couldbecharacterizedas 720 Althoughthemajority opiniondidnotexplicitlysay uld havebothprocompetitive andanticompetitive 117 become theviewofCourt’smajority. only amatter oftime whentheCourtwould didnotdecideonthe for anticompetitiveeffectsascompared to ical territorial divisi n ofinterbrandandintrabrandcompetition – tical restraints tical restraints moreare generally defensiblethan horizontalagreements aremore pernicious al procompetitive justifications. From thisit economic analysisaboutthistypeof per seillegalityof vertical territorial framework developedabove, argument was thattheSherman ion ofcompetition inherently neutral.AlthoughtheCourt ons, andhencehorizontal legality of exclusive 723 the CEU eTD Collection effective didnotmake themlega market more effectively.TheC since theywereeffective,i.e.thatintrabrand In thislighttheCourtwasaddressingargum distribution restraints the issuebefore theSupreme wasthetype Court the District Court’sruling andthecase eventu favor oftheplaintiffandonso wholesaler wasassigned then suppliedalarge 731 730 729 728 727 726 725 724 the restrictions oninterbrand competition, but rath that they were inviolation of the Sherman Act. retailer wasdesignated only acertain location. dealers, the number ofwhich wasalsolimited %. 1951 itssharewas22.5%ofthenationalmarket, whilein1961thesharedroppedto12.8 the legalityofexclusivedistribution– address theissueagain.Theopportunityforth the rule ofreason.the its as stance, changed DoJ the the Supreme Court before Beforethe lowercourtthe DoJ was arguing for Court (District 1965) Cir. (7th F.Supp. 323 & 237 Schwinn S.v. U. Co., Arnold, (1967). U.S.365 388 Schwinn, Id. Id. Id. Schwinn, 725 Thecompanywasprimarily selling itsbicy at 370. For a justification ajustification at For 370. at 371. at 369. The government challengedthesepracticesbefo Schwinn wasabicyclemanuf acturer witharelatively si In analyzing therestraints, theCourtemphasi 388 U.S. at 369-70. at 369-70. U.S. 388 at 368. U.S. 388 employedbySchwinn. number ofretailers. an exclusive territory. of Schwinn’s practices, see W

me Thegovernment pointsinfavorofthedefendant. appealed ourt foundthatthefact l, sincehorizontalcartels also U. S.v.Arnold,Schwinn&Co. 726 per se Thenumberofwholesal 730 118 restrictions allowed Schwinntocompeteinthe 728 ally reachedtheSupreme Court.Consequently, in eachofthe areasmentioned above,andeach king the Court to find Schwinn’s practices illegal under to illegalunder Schwinn’s find Court practices the king

illegality of Schwinn’s practices. However, in case practices.However, in the Schwinn’s illegality of 729 is aroseinanotherla 727 ent that Schwinn’s practices should be lawful ent thatSchwinn’spracticesshouldbelawful

TheDistrict Courtru Thewholesalers thensupplied franchised er thelegalityofintrabrand restrictions. cles throughwholesaledistributors,who ILLIAMSON of analysistobeap zed thatthe issue wasnotthe impact of re aDistrictCourtinIllinois,arguing thatthein ,

supra bringefficienciestotheir note 55, at 183-88. at note 55, 183-88. gnificant market share.In ers was limited, and each ndmark caseconcerning trabrand restraintswere 724 Schwinn ). led onsome pointsin

plied tothe vertical 731

CEU eTD Collection territory. According tothe Court: completely excludethe possibilityfor amanuf distinction basedonthe exclusive territorieswhendecidingaboutthelegali Therefore, ratherthanengaginginanec manufacturer, thenthelegality manufacturer orratherpasse restraints dependsonwhetherthedominion sound. this doesnotmean thattheconclusion towhichtheCourtin 735 734 733 732 on theotherhand,itpasses,thensuchlimitations aretobeconsideredasillegal to theextentthatindividualandgenera members, butthatdoesnotmake suchagreements legal. agent or salesman ofthe manu of an from those the in dealer of are,in fact, question and function indistinguishable theposition and product with his vendee-isa perse whom the product may betransferred-whether by explicit agreement or by silent combination or understanding and risk, he has parted with dominion over the product, and his effort thereafter to restrict territory or persons to resale, a of s thataviolation from1 co results competition such territories.”). of well-calculated division a Price itsparticipants. so, of fixing does position for mayexample, so and competitive profitand the augment to beca Sherman Actproscription; the to avoid enough is not an outlets, dealer and its distributor of increase stability

at 379 (“[W]here a manufacturer sells products to his distributor subject to territorial restrictions upon upon restrictions toterritorial subject to his distributor sells amanufacturer See id.products at 379 (“[W]here Schwinn, See supra Id. at 374-75 (“Schwinn sought a better way of distributing its product: a method which would promote sales, per se vertical ‘confinement’ ofthemanufactur Colgate]. If therestraint stopsatthat poi ‘franchise’ certaindealerstowhom available inthemarket may selecthis a manufacturer ofaproductotherandequi Although After conductingitsanalysis,theCourtfoundthatlegalityof distribution 388 388 U.S. at and therisk to retainswith manufacturer the380 (“Where respect title,dominion, Part 2.3.2.1. violation of the Sherman Act results.”); Schwinn adoptedahostileapproachtoward violation of s 1 of the Sherman Act.”). transfer ofownership. facturer, it is only if the impact ofthe impact ifthe facturer, itisonly

s to thedistributor. If the dominion doesstaywiththe of therestraintsistobej l interestsdonotne onomic analysisaboutthepotentialimpactof 119 , alone,hewillsellhisgoods[Citing nfinement, unencumbered by culpable culpable price fixing.”). by unencumbered nfinement, d augment profits. But this argument, appealing as itis, appealing argument, this But augmentprofits. d at 382 (“Once the manufacturer has parted with title with parted has manufacturer the (“Once 382 id. at customers, andforthispurposehemay use, ina sense,every rest acturer tohaveonlyonedealerinacertain er's ownsalesofthemerchandise to over thedistributed nt-if nothingmore isinvolvedthan ty oftherestra valent brandsofwhicharereadily udged undertheruleofreason. confinement is‘unreason 732 Thisreasoningdoesmake sense Schwinn arrivediseconomically s exclusive territories,itdidnot cessarily coincide. int, theCourtmade aformal rictive practice is designedrictive practice good stayswith the ably’ restrictive of 733 However, per se. 734 If, 735

CEU eTD Collection competition may actuallyleadtoan shown furtherin thepaper that focus onintrabrandcompetitionisnot defensible from aneconomic pointof view–itwillbe effects of exclusive territories, prohibiting this be characterizedasinappropriate. The 739 738 737 736 efficiency-enhancing sideof restraints, the dissentin inefficient vertical integration. taking intoaccountthattheoutco territories seem tobyfar outweigh potentialga costs arising outof the impossibility of achieving theprocompetitive potential of exclusive to dowiththesimplicity inapplic decision containedanythingthat Against business withwhomever hewishes. the restraint atall–thesituati theoretical territories, evenifonlynon-airtig Schwinn erathelawseems tohaverecognizedsome procompetitive sidesofexclusive selling outsideoftheassignedterritory.This he willsell hisproducts,buthecannotlimit Therefore, theCourt’sreasoningseems tohaveb

See infra See infra See supra Id. . at 376. . at376. restriction, onthesefactsalone, selected dealers,andifcompetitive produc

Before turningtothenextSupreme Court Part 5.3.2. Part 3.3. Part 2.5. Schwinn on couldalsobeseenasthe

739 lateritbecame widelyaccepted th Schwinn’s distributi framework presentedabove,

will bebriefly addressed.The dissentmainlyfocused onthe could becharacterizedaseffi ht ones.However,itisarguabl ation that isinherent toevery me ofthecaseledtowhatcanbecharacterized asan increase ininterbrand competition. Schwinn Courtlargely disregarded theprocompetitive would notviolatetheSherman Act. 120 type of restraint across the board.The Court’s could bereadassayi the distributor’s freedom whenitcomes to een thatamanufacturer ins inadministrative e ts arereadilyavaila on restraints,emphasizingthatthebest case dealingwithverticalterritorial case 737 manufacturer’s righttoconduct theoutcome of ciency-enhancing, thenithas at a restriction ofintrabrand e ifinthiscasethereisa per se ng thatevenduringthe ble toothers, the 738 candecidetowhom fficiency, especially rule.However, the Andif theCourt’s 736

Schwinn could could CEU eTD Collection 743 742 741 740 from between1and2%toabout5%. restrictions helpedSylvania improve itsbusines franchisee wasabletoselltheproductsof than onefranchiserperarea.Itwasalsonotanexclusivedealingarrangement, sincethe Sylvania. These restrictionswerenot exclusive territory. Inotherwords, eachfranchisercould sellonlyfrom thelocationassigned toitby These restrictions meant thatSylvania wouldli improve business,themanufacturerimposed certa the case canbesummarized asfollows. Sylvania Inc. 3.3 view intheSupreme Court. shown, inthecourseofsevera distinguished bythemajorit other hand,itarguedthatthereisnosubsta since distributionrestraintsintr hand, itnotedthatthisdistin distinction basedonthefact form ofSchwinn’sincreasedmarket share. justification forSchwinn’sdistri that is in the interest of the individual isat individual the interestofthe isin the that samepoint fromof antitrust the timeview. legal 433 U.S. 36 (1977). U.S.36 (1977). 433 Id. Id. Id. Schwinn, at 388. at 393. at 393. Sylvania Sylvania was atelevision manufacturer facingdecliningsales nation-wide.Inorderto When itcomes tothelawof exclusiveterritories, 388 U.S. at 384 (Stewart, J., dissenting). However, as the majority (correctly) noted, not everything 743 isprobablythemost importantSuprem

y, i.e. whenthetitlepasses and whenitdoes not. whether thedominion overproducts

ction undermines theimportance ofindependentfranchisers, l yearstheviewsofdissent oduced uponthem areconsideredas bution practices is thatthey ac 121 740 mit the number offranchisers serving acertain s andincrease itsshare of thenational market territories, since Sylvaniacouldappoint more ntial difference between the twosituations competing televisionmanufacturers. The Thedissent alsocriticized the majority’s in location restrictions onits franchisers. e Courtdecisiontodate.Thefactsof Continental T.V.,Inc.v.GTE wouldbecome theprevailing tually produced results inthe passedornot.Ontheone per se illegal. 742 Itwillbe 741 Onthe CEU eTD Collection restrictions asperse as violating the antitrust laws. Relying on eventually ledtoacourtdispute,withContin proceeded with itsplanandthenewfranchiseewas appointed. mile from Continental’s store. Continental ob certain point Sylvania decidedtointroduce anewfranchiseeintheSacramento area,justone 748 747 746 745 744 Court recognized that analysis ofwhethertheprinciple distinguishable from employed bySchwinn. necessary to establish whether therestrictionsin Sylvania to Continental, and that non-price restraints filed forcertiorariandthe caseultim be judgedundertheruleofreason. Schwinn andreversedtheDistrictCourt’sdeci distinguished Sylvania’s location restrictionsfrom theterrito Continental seemed tobequitesuccessful inthe franchising business. Continental wasoneof Sylvania’s franchis serving theSacramento area.Taking intoacco Cir. 1976). 980(9th T. F.2d Inc., V., 537 Continental Inc. v. Sylvania GTE 1974). Cir. CasesP (9th 75,072 Trade 1974-1 Inc., T.V., Continental Inc. v. Sylvania GTE Sylvania’s market share in S Id. Id. Sylvania, at 46. This caused therelations between Continental andSylvaniatodeteriorate and After finding thatthe cases were not distinguishable, The issuebeforetheCourtwaswhichtypeof 433 U.S.at 45-46. . Inlightof Schwinn Schwinn issupportedbytheprinciple,butstillconcluded thattheneed 747 unlawful. Inotherwords, thepreliminary issue waswhether acramento exceeded .

Schwinn, theCourtfirstfoundthat inorder todetermine if the 745 746 ately reached theSupreme Court. stare decisispreventsitfrom overruling Thedefendantappeale FollowingtheCourtofAppeals’decision,Continental 15% in 1965. in 1965. 15% 122 ental challengingSylvania’slocationrestrictions sion, findingthatSylvania’srestrictionsshould Schwinn, theDistrictCourtcondemned unt Sylvania’sshareofthenational market, jected tothis,butSylvanianevertheless Sylvania ed retailers forthe re analysis shouldbeaffordedtovertical arebasicallythesame astheones 748 rial restrictionsimposed by d. TheCourtofAppeals theCourt proceededtothe per se titlehadpassedfrom gion ofSanFrancisco, 744 ruleapplies itwas Nevertheless,ata Schwinn. The Sylvania was CEU eTD Collection focused onintra 757 756 755 754 753 752 751 750 749 why amanufacturer wouldwant minimum. order topreventfree-riding provide after-saleservice. position inthemarket, sincetheycanbefacilitatedinordertopromotetheproductand that these restraintsarealsousefulforma promotion ofaproductunknowntotheconsumer. manufacturers thatareentering restraints couldbebene they reducethelevel of intrabrand competition. the outset,itrecognizedthatth illegality standard. that vertical non-pricerestraintsaretobe precedent. for clarifyingthelawofvertical consistent with the efficient efficient di withthe consistent competition”).

Id. Id. Id. Id. Sylvania, See also Id. Id. Sylvania, Id. Schwinn

at 56 (“[M]anufacturers have an economic interest interest economic an at have (“[M]anufacturers 56 at 54. at 47. The Courtnotedthatverticalnon-price restraints are especially justified for Apart from theseefficiency-relatedissues, determinedThe Courtfirst whatthes

, 522 U.S. at 15 (“the primary purpose of purpose primary (“the at 15 U.S. 522 Khan, 749 757 See also infra also See 433 U.S.at 55. 433 U.S.at 50. Consequently,theCourtturnedtosubstanceofdispute,i.e.whether

’s per se brand competition, themajority in 751 Itthenengageditselfinanalyzing Part 3.6. ruletowards verticalnon-price ficial astheypromote stribution of their products.”). products.”). their of stribution 755 756 Itwasalsoacknowledgedthatsu

andallowamanufacturer toke e imposed restraints do have certa non-pricerestraintsjustifiesreconsideringeven a market, since theycan induceretailers toinvest inthe to controlthedistributionpro governedbytheru nufacturers whohavealreadyestablishedtheir 123 e typesofanalysis actuallymean, inter in maintaining as much intrabrand competition as is competition asmuch intrabrand in maintaining 752 the antitrust laws is to protect interbrand interbrand the lawsisto protect antitrust brand competition. However,asopposedtoSchwinn, the Courtalsonoted 754 Inaddition,themajorityemphasized restrictions doesnotsatisfythe le ofreasonorby Sylvania recognized thatintrabrand Sylvania’s distributionpractices.At ep hisdistributioncostsata cess. Forexample, the Court ch restraintscanbeusedin in anticompetitive effects,as 753

some otherreasons per seillegality. 750 such arecent concluding which per se

CEU eTD Collection supra 762 761 760 759 758 theproblem with rule ofreason.However, this typeof restraint can haveanticompetitive effects, which aretobe addressed under the thereof isnot appropriate. On exclusive territories have significant procompetitive potential andthat framework fortheanalysisofexclusiveterr territories, eventheairtightones,are purposes ofourdiscussionthemo satisfy thestandardof distributor ornot. judged undertheruleofreason,regardless price restraints. and non-saletransactionsshouldnotbeofrelevance forjudgingthelegalityofverticalnon- inaugurated by to consumers. restraints relatedtothedistri acknowledged thatoncertainoccasionsitmay assume direct responsibilityforthesafetyandqualityoftheirproducts.” noted that due todevelopments inlaw,“s T.V., Inc.Sylvania v.GTE Inc., 461 F.Supp.1046 (9thCir. 1978). Sylvania’s territorial restraints, found they were reas fr public the was “protecting manufacturer However, the Court of Appeals upheld the manufacture manufacturer’s practices were challenged by one of its wholesale distributors as violating the Sherman Act. involved a beauty caremanufacturer that set certain customer-related re

Id. Id. Id. Sylvania, Id. Id. Part 2.3.1.8. Part 2.3.1.8. at 57-58. at 57-58. at 58. On remand, District Court for Northern District of California applied the rule of reason to to reason rule of the applied California of District Northern for Court District remand, at On 58. v. Co. Court cited at Tripoli the 55. In thisrespect at 55 n.23. The approachtakenby At the end of itsanalysis, theCourt turned 433 U.S.at 57. 759 760 Schwinn. Inthis respect theCourt conclude

761 Consequently,theCourt TheCourtthereforeconcludedthat per se bution processinordertoallevi

the otherhand,italsorecogni illegalityandoverruled st important effectofthe om injury and itselffrom and liability.” ominjury Sylvania to bejudgedundertheruleofreason. onable, and dismissed Continental’s claim. Continental Continental claim. and Continental’s dismissed onable, found thatverticalnon-pri ociety increasinglydemands thatmanufacturers potentiallyrepresentsthemost appropriate Sylvania 124 r’s practices since it found itfound since practices r’s whetherdominion tothegoodspasseson Wella Corp., 425 F.2d 932 (3d Cir. 1970). The case itories. Ontheonehand,itrecognizesthat be justifiableforamanufacturer toimpose to the transfer of dominion distinction ’s approachisthatitdidnotgiveclear Schwinn. vertical non-price Sylvania straints to its distributors. The The its to distributors. straints d thatthedifferencebetween sale zes that under certainconditions ate thedangerof physicalharm Tripoli 762 decisionisthatexclusive that by thepractices the Consequently,forthe , 425 F.2d atSeealso , F.2d 939. 425 ce restraintsshouldbe per seprohibition 758 restraints donot TheCourtalso CEU eTD Collection 766 765 764 763 enforcement. CitingBork,theAppellateCourtin be seenasasteptowardsembracing Bork’sco consumers. infringers, but also recognized thelegitimacy Sylvania decision broughtachangetoth School approachto example, realized thatthesign competition. at interbrand competition –antitrustshould protectboth interbrandandintrabrand enhancing interbrandcompetition. Inaddition,it hand, condemnation withoutevenconsideringtheimpact oninterbrand competition. this type of competition, findingarestricti towards intrabrandrestrictions.Asshownabove,Schwinnwashostile limitations of analysis undertheru obstacle towards properlyassessingth guidelines onhowthisruleofreasonshouldbe consumers.”). assubject [but giants corporate bullying and impersonal the EEC Treaty Gavil, Gavil, inActand the Sherman Competition of on Restraints Revisited: Reason Prohibition Rule of JanPeeters, The See supra See infra Sylvania Apart from shifting thelegalstatus Another aspectof In ordertounderstandtheimportance of supra at 664, 30. note antitrustpolicystoppedvi Sylvania Part 3.4.1. Part 3.2.2. 766 , T

recognizedthatrestric HE A hasbeenseenbysome astherulin MERICAN MERICAN antitrust analysis. ificance ofthiscasegoe le ofreason,anothersignificantaspect Sylvania See also J OURNAL OF OF OURNAL

e antitrustnarrative

id. ofrelevanceforourdiscussionisthatthedecision could at 30 (Following 765 C e impact ofexclusive territories. tions ofintrabrandcompe ewing manufacturers merely aspotentia OMPARATIVE OMPARATIVE Alongthesame line,others of exclusive territories from 125 s whose interests are] in fact aligned with those of those s fact aligned interestswith are]in whose s beyondthelawofexcl on ofintrabrandcompetition sufficientfor of theirown interests applied, whichlaterturn Sylvania also recognized thatweshouldlook notonly ncept withregards tothe goalsof antitrust Sylvania L Sylvania AW when itcomes todistribution:following g wheretheCourtadoptedChicago , Vol. 37, No. 3 (Summer, 1989), at 531. at 531. 1989), 3(Summer, 37,No. , Vol. forAmerican antitrust,itshouldbe , “[s]uppliers [are] no longer viewed as specifically singled outconsumer tition may actuallylead to Sylvania havesuggestedthatthe 763 compared tothoseof per seillegality toan usive territories.For

ed outtobeamajor isitsapproach 764 Ontheother l antitrust CEU eTD Collection 451 (2008). 771 770 769 768 767 he criticized the balancing a Sylvania towards verticalrestraints been criticalofthedecision.On and economictheory.Althoughcomment the interests of small businessesshould alsoplay aroleinshaping theantitrust policy. concept ofeconomic efficiencybeingthesoleob the question towhich extent theCourt in eliminating tothat extent theroleof independent businessmen.” it “createsanincentive forverticalintegr Court notedthatadis Schwinn from theviewpoint that than consumer welfare shouldalso betaken in Sherman isconcernedonlywitheconomic Act efficiency. the same line isthepart ofJusticeWhite products” allowing the manufacturer toac as explicit, butthe statement that“[v]ertical welfare astheonlygoalofSherman Act. efficiency”. Bork). economi the welfareand consumer by exclusively guided intent legislative the that conclusively ‘establish(es) Ginsburg, H. Douglas Sylvania, Sylvania, Id. Sylvania, Courtof Appeals Sylvania at 451. Citing Bork, Justice White talks of the view view talks Bork,Justice ofthe atWhite Citing 451. However, some otherpartsofthe In accordance withitssignificance, ’s approachtoeconomic analysisrepr 768 Sylvania, 433 U.S.atn.26. 57 433 U.S.at 54. couldbereadasemphasizing allo 433 U.S. at 69 (White, J., concurring). Judge Bork, consumer welfare, and antitrust law antitrust and welfare, consumer Bork, Judge tinction basedonwhethertitlehaspassedharms smallbusinesses,since , 537 F.2d at 1004 n.39 (“A study of the legislative history of the Sherman Act Act Sherman the of history the legislative study of (“A at n.39 F.2d 1004 , 537 hasbeenprofessorPitofs pproach putforwardby

itis notintheinterest of sma e oftheleadingcritics hieve certainefficiencies Sylvania ators havegenerallypraised underlying the Sherman Act was that courts should be Sylvania ’s concurringopinion, according towhich the 126 767 restrictions promote interbrand competition by Sylvania actuallyadoptedtheChicagoSchool ation intothedistributionsystem, thereby esented astepforwardcompared to TheSupreme Courtinthesame casewasnot c criteria which that value premise implies.’”) (citing implies.’”) (citing value premise that criteriawhich c to account. Forexample, theCourtcriticized cative efficiency overother values. that the Sherman Act is “directed solely to economic economic to solely Actis“directed Sherman that the decisionmay imply that jective ofantitrustenforcement, orperhaps hasreceived alotofattentioninlegal the decisionforig 770 ky. Despiteacknowledgingthat

, 31 ll businesses. Inthis respect the ruling anditslenientapproach 771

in thedistributionofhis H ARV Thisremark may openup .

J.L. Sylvania noring thepotential

certaingoalsother &

P UB .

, some have P OL 769 ' Schwinn, Y 449, Along Along CEU eTD Collection Strasser, 3.4.1 3.4 that thevaguestandardlaiddownby Although some ofthiscriticism maybeexcessi rule ofreason,itdidno antitrust shouldnot“naivelyembrace thevi behavior bypowerfuldealersopenly policedbymanufacturers.” “toothless legalstandard”whichprovides“abl 776 775 774 773 772 discussing theruleofreasoningeneralterms. exclusive territories. To this their ownwhenitcomes toformulating withmore precision therule of reasonstandard for directly withthelegalityof exclusiveterritories, thelower courtshave beenlargely left on restraint oncompetition.” deciding whetherarestrictivepracticeshould beprohibitedasimposing anunreasonable “[u]nder th[e]rule[ofreason],thefactfinderwe 3.4.1.1 anticompetitive effects of vertical non-price restraints. Decision Model after Sylvania e.g. theand demiseof Section the 1of Sherman Act solutions. topic, possible the written the aon suggesting articleshave been Following ruling, number of Gavil, MarkE. Roszkowski, Pitofsky, Sylvania, Sylvania, , Easterbrook, , Easterbrook, Post-Sylvania developments

Even though The Sylvania ruleofreason supra supra at 664, 80. note Before the Supreme Court Court Supreme the Before note 127, at 37-38. at 37-38. 127, supra note 433 U.S.at 49. note 314, at 834-840; Posner, Posner, at 314, 834-840; note supra note 588; Eugene F. Zelek, Jr., Louis SternW. & Thomas Dunfee, W. Sylvania The sad legacy of GTE Sylvania and its "rule of reason": the dealer termination cases t specifyhowthistest , C 776 ALIFORNIA ALIFORNIA Since envisagedthatexclusiveterrito

end,ofusefulguidancear Sylvania isthelastSupreme Courtcase todate dealing L Sylvania note 285, at 19. Pitosfsky, Pitosfsky, at 19. 285, supra note AW , 22 R

C EVIEW ONN 127 didleadtosome inapplication. problems istobeperformed. ew thatdominantfirms candonoharm.” .

, Vol. 68, No. 1 (Jan., 1980), pp. 13-47, at 46-47; at 46-47; 1 pp. 13-47, No. (Jan., 1980), 68, , Vol. ve, inthefollowingsectionitwillbeshown L.

ank check forcoercion andexclusionary ighs allofthecircumstances ofacasein R EV . 772

129, 134 (1989). Similarly, another authorcalled ita e some Supreme Courtcases ries shouldbejudgedunderthe supra 773 775 Othershavewarnedthat Itsuccinctly stated that note 651, at 34-37. at 651, 34-37. note A RuleofReason See, 774

CEU eTD Collection 780 779 778 777 Leegin reason also. However,before turn of exclusive territories inthewakeof assess the legality of exclusive distribution agre should beapplied.However,they As canbeseen,thesecasesdogiveatleastsome guidanceabouthowtheruleofreason of reasoninthefollowingway: Another helpfuldecisionis considered asaclassic statement oftherulereason: instructive in (1948). U.S.495 334 (1918). U.S.231 246 Id. Id. at 527-28. at 527-28. at 238. ’s contributiontotheruleofreasonforex With regards to thestructureofru the settinginwhichthatfactorisplaced. competitor. Therelativeeffect ofpercen corporation's enlargement ofitsactiviti set ofpercentagefiguresbywhich and othercharacteristics monopolize, theprobabledevelopment oftheindustry,consumer demands, whether theactionspringsfrom bus percentage of businesscontrolled, the dollar volume isinitselfofcompelli In determining whatconstitutes unreasonable restraint, we donotthink the consequences. knowledge ofintentmay helpthecour save anotherwiseobjectionableregul to beattained,areallrele bind, torestrain,isofthei Every agreement concerningtrade, every exist, thereasonforadop effect, actualorprobable.Thehistoryof before and after therestraint wasimposed; the natureof therestraint andits facts peculiartothebusiness towhichthe restraint isapplied; itscondition competition. Todetermine thatquestion thecourt must ordinarilyconsider the promotes competition orwhetheritissuchasmay suppressorevendestroy the restraint imposed issuchas me Board ofTradeCityChicagov.U.S. 778

U.S. v.ColumbiaSteelCo.

of themarket. We donotundertaketoprescribeany ting theparticularremedy, vant facts.Thisisnotb stilldonottellusmuch about r veryessence.Thetruete ing tolower court decisions, itisworthwhile toreflect on Sylvania 128 ng significance; welookrathertothe strength of theremaining competition, thelowercourt decision to measure thereasonableness ofa tage command ofamarketvaries with 780 es bythe purchase of rely regulatesand perhapsthereby clusive territories. le ofreason,theCourt wasprobablymost ements. Forthisreason, inassessing thelaw ation orthereverse;butbecause iness requirements orpurposeto t tointerpretfactsandpredict

therestraint, theevilbelieved to regulation oftrade,restrains.To 779 , where theCourtdescribedrule , where ecause agood intention will the purposeorendsought st oflegalityiswhether 777 Thecaseofferedwhatis howacourtissupposedto theassetsofa s applyingtheruleof CEU eTD Collection the largerlikeli employing therestraint. differential legaltreatment for these two RPM withthatof exclusiveterri similarity betweenverticalpr exclusive territories.Most notably, inthecour maintenance, 786 785 784 783 782 781 would beconductedinthefollowingway. exclusive territories.Consequentl practice, in also beuseful forourdiscussionaboutexclusiveterritories. the Court’sguidanceregarding Miles of RPM.The degradation to regards rule with of the illegality per se deconstructing was Court gradually analyzedare underrule ofreason. restraints theHoweve r, this change did not come abruptly, asthe Supreme overruled of per se illegalityand application the price and nonprice restraints.”). restraints.”). and nonprice price littleeconomic justifica islikewise economic effect.There unlawfulness) appliesto horizontalmarket divisionand horizontal price fixing because both havesimilar ( standard . same legal stimulateretailerservices . The can and competition intrabrand reduce confirms, these restraintsvertical that nonprice impacts have similar those verticalof restraints; price to both one distributor to sell its goods in a given region. Our cases have recognized, and the economics literature to be considered as against Sherman Act Section 1. rule of reason.rule of Khan in This happened altogether. maximum price-fixing of per seillegality liftthe the Court would timeof when potentia anticompetitive the that found theCourt On balance, See at Id. Id. Id. Leegin, Leegin , which held that maximum price fixing should not be per se illegal but should rather be analyzed the under analyzed rather be should be perseillegal but not should fixing maximum price that held , which started started with at 897-98. at 897-98. at 897.

id. id. 898. Although First, thelargernumber ofmanufacturer When layingdownthefactorsforassessingth 783 at 897. at 897. 551 U.S. at 903-04 (“A manufacturer can impose territorial restrictions on distributors and allow only primarily focusedonthreefactors:thenumber ofmanufacturers usingthe thesourceof therestraint, Khan 781 ARCO some partsof theCourt’ , 522 U.S. at 22. at22. , 522 U.S. Leegin hood thatanticompetitiv , where the Court held that vertical maximum price fixing has to be predatory in order 785 was concerned withthe legalityof minimum resale price

Mutatis mutandis, allofthesefactorsco ice andnon-pricerestra

tories. AccordingtotheCourt,due theirresemblance, a y, itissubmitted thatbasedon application of theruleof reasontopricerestraintscould Dr. Miles types of restraints is notjustified. 784 s analysiscouldalsobe ARCO e effectsmay arise. andthemarket power 129 . Consequently, in the wake of wake the in . Consequently, , 495 U.S. at Consequently, itwas 331. amatteronly se of itsanalysistheCourtemphasized the tion for the current differential treatment of treatmentvertical differential of current the for tion s inanindustryuseex l of vertical price restraints is not such to justify tojustify vertical pricerestraintsl of such isnot ints, comparing the impact of minimum ints, comparingtheimpact ofminimum e legalityofminimum RPM,theCourt 786 Ifaterritorial restraint was Leegin indicative for thelaw of ofthemanufacturer uld alsobeappliedto thesaid assessment Leegin clusive territories, 782 Basedonthis, per se all vertical Dr. CEU eTD Collection that hisproductsaredifferentiated. market power, exclusiveterritoriesshoul 792 791 790 789 788 787 plaintiff showsthatthedefendantpossessesma defendant lacksmarket power,thec post-Sylvania casesonthelegality ofexclusiveterr power. threshold, plaintiffchallengingex account lower courtdecisions,thefollowingappro had achancetogivemorestructure 3.4.1.2 the already exertedits influence on in the meantime. Aswillbeshown,bythen years after the Court’s ruling in anticompetitive effects are lesslikely. facilitates downstream collusion;conversely,if imposed atthe initiative of summary judgment for the defendant. the defendant. for judgment summary If amanufactur competition”). effectadverse interbrand on asubstantially to have smallcompetition intrabrand %and “too any 4.2 restraint on between for 2.3 share 1993). Cir. (2d 848, 873 F.Supp. 1982). Cir. (7th 745 742, Ltd., F.2d Importers, 678 Renfield v. seeInc. Liquors, marketpower, Valley of the relevance about discussion entry and the price sensitivity of the market. the of the price sensitivity and entry Posner’s Judge For 1983). Cir. (11th 1568 F.2d 1560, 717 v.ITEK Inc. Corp., Distributors, Products Graphic See, e.g. Graphic Products, Sylvania Id. See id. per selegality of this typeof restraint. at 898. at 898. 790 However, theproblem withtheguidanceprovidedby Faced withalackofclearguidancefrom at 897-98. at 897-98. Before the lower courts courts lower the Before Thiscanbedoneeitherbyshowingthat , JBL Enterprises, Inc.v.Jhirm was decided in 1977 and and in1977 was decided 717 F.2d at 1570. In light of market power, some courts have also considered barriers to barriers alsoconsidered have some marketpower, courts lightof In F.2d at 1570. 717

distributors, there isagreater likelihood thatthe restraint Leegin See, e.g. Sylvania, the development of the law of exclusive territories towards clusive territories has to establish the defendant’s market 791 ack Enterprises, Inc., 698 F.2d 1011, 1017 (9th Cir. 1983) (market (market 1983) Cir. (9th 1017 1011, F.2d Inc., 698 Enterprises, ack in 2007. to theruleofreasonenvisagedbySylvania See, e.g. With regardstothis,itshouldbenotedthatthebulkof 787 ourts generally dismiss theclaim. , Assam Co., Inc. Drug v. Miller Finally,ifbothamanufactur d notbeofseriousantitrustconcern. 789 leaving thelower courtswithout much assistance , State ofN.Y. by Abrams v. Anheuser-Busch, Inc., 811 130 the lackofguidanceby rket power,athree-step procedure ensues. therestraintwasimposed byamanufacturer, er has a small market share, the court usually grants a grants er court a usually the has small share, market the Supreme Court,thelower courtshave ach couldbesaidtohaveemerged. Atthe the defendanthasalarge market shareor itories end at this point – when the itories endatthispoint–whenthe Leegin Brewing Co., Inc., 798 F.2d F.2d 311, 798 Co., Inc., Brewing er andadistributorlack the Supreme Courthad isthat itcame thirty 792 However,ifthe 788

. Takinginto CEU eTD Collection “[m]arket share alone in the in alone beer industry share does “[m]arket 673 F.Supp. 664, 668 (2d Cir. 1987) (with regards to market shares of 8% and 5%, the court found that supplier’s market share was between 8 % and 10 %). where granted (summary Cir.judgment 1987) (8th 1240 1215, 1232, F.2d Services, 823 Eden Mfg.Co.v. Ryko to isentitled and material issue of exists fact genuine accordance with the rules avertical isathreshold power challenging requirement to exclusive territories securing effi penetration; accepted justifications arethe following:excl have offeredanumber ofjustificationsfor it. since theformer completely eliminate intrabrand competition whilethelatteronly reduce anticompetitive potentialofairtightexclusiv which on theeffects 800 799 798 797 796 795 794 793 (based Cir. 1986) 317 (8th leading totheelimination ofinter-dealer territories allowingdistributorsto offer aprocompetitive justification for therestraint. interbrand competition. eliminated.”). iscompletely competition allintrabrand in isfromwhich different a dramatically situation ones Such eliminated wasnot competition intrabrand transshipping, it”); frommerely lessening qualitatively 794

Id. at 755. F.2d , 613 Cowley at475. F.Supp. , 438 Newberry Id. at475. F.Supp. , 438 Newberry Graphic Products, E.g. Graphic Products,

; Cir. 760 Tire Corp., F.Supp. (4th 1980). 750, Co.,483 Inc. Michelin B.RiceTire v. ; Donald Michelin , intra Graphic Products First, theplaintiffhastoshowananticompe If ananticompetitive effect hasbeen established, thedefendant then has achanceto brand competition isrestrained.Insevera 796 , 483 F.Supp.at 757; thedeployment ofexclusiveterritor interbrand competition. However, they also takeinto accounttheextent to 717 F.2d F.2d at 1571 717 F.2d at 1571. 717 governing summary , 717 F.2d at 1574(“complete, 717F.2d elimina on amarket share of 19.1 %,the court fo 793 When itcomes toanticompetitive effects, thecourts havefocused Anheuser-Busch

cient anduninterrupteddelivery; at 1572. at 1572. Anheuser-Busch maintainaproperstockofgoods; judgment, thatitlacksmarket powe not reflect the potential for anticompetitive results”). results”). foranticompetitive reflectthe potential not free-riding withregardstopromotion ofgoods But see But entry of judgment in asamatter in entry judgment itsfavor of law.”); of , 811 F.Supp. at 876. at 876. , F.Supp. 811 131 e territoriesasopposedtonon-airtightones, , although it was quite predictably temporarily reduced. reduced. it temporarily was predictably quite , although the useofexclusiveterritories.Among the , 811 F.Supp. at (“With , F.Supp. 875 811 nonprice restraint, a defendant who establishes, in establishes, restraint, who a nonprice defendant usive territories enabling maximum market Stateof N.Y. by Abrams 795 titive effect, i.e. thatthe restraint harmed ies loweringthecostsofdistribution; tion of intrabrand competition differs competition ofintrabrand tion l cases thecourts have noted thelarger Inthepost- und that “[b]ecauseashowing of market 798 Sylvania thepresenceofexclusive r a fortiori establishes that no 799 the continued presence of v. Anheuser-Busch, Inc., exclusive territories perioddefendants 800 797

CEU eTD Collection would be hard pressed to find a reported instance in effects(inefficienci anticompetitive of evidence sufficient (1991). occurred inpractice. ones. compare whichof theaspects of the agreement prevail–procompetitive oranticompetitive of exclusiveterritories,thecourtperforms a and thedefendant hashad achancetooffer a territories facilitating quality control. 809 808 807 806 805 804 803 802 801 riding, i.e.topreventdistri market. Thedisputeddistributionsystem wasse Section 1.Themanufacturerhad by themanufacturer amountedto manufacturer ofdictatingmachin Distributors, Inc.v.ITEK Corp. challenged exclusive territories: that therehavebeenonlytwopost-Sylvania generally prevail,evenifthedefe and services; share between 11 %and 18 %); where the court performed balancing: defendant’s Cowley market share wasbetweenand% 70 80its %,but restraintswere upheld.For othercases 1982). 1982). Eiberger v. Sony Corp. of America, 459 F.Supp. 1276 (2d Cir. 1978). 1978). Cir. (2d F.Supp. 1276 459 Corp. America, of Sony v. Eiberger 1983). Cir. (11th F.2d 1560 717 1978). Cir. (2d F.Supp. 1276 459 Forexample, in Ginsburg, H. Douglas Graphic Products, Michelin Anheuser-Busch , F.Supp.at876. 811 Michelin 804 See also Finally, if there has been ashowing of mark In However,ithasto benotedthatinthepost- , 483 F.Supp. at 756. at756. , 483 F.Supp. Cir. (6th 1201 F.2d 1190, 686 Merchandise, v.Service Co. Davis-Watkins at758; , 483 F.Supp. Eiberger Gavil, Gavil, 801 exclusive territories encourag Newberry Newberry 717 F.2d F.2d at 1571 717 , note 664, at 72-73 (“For the most part, litigated cases turn on the absence of absence the casesturn on supra the litigated most at (“For part, 664, 72-73 note 809 805 Vertical restraints: de facto legality under the rule of reason of rule the under legality defacto restraints: Vertical theplaintiffwasaterminated di Andevenifthe analysis does get defendant prevailed even if he was a“near-monopolist”. 438 F.Supp. at 475. In Anheuser-Busch butors notofferingpost-salerepa

Michelin 808

Eiberger v.SonyCorp.ofAmerica at 1578. at 1578. es. Thedistributor assertedthat

exclusive territoriesandwas ndant hassignificantmarket power. 12 %ofwhatthecourtcharac 803 (market share%); between and 25 20%

, 811 F.Supp. 848 (1993) (market share 39 %). %). 39 share (market (1993) F.Supp. 848 , 811 which a court actually attempted to ‘balance’ both.”). to ‘balance’ actually attempted which a court 132 procompetitive justification for thedeployment balancing test.Thepurposeofthetestisto balancing ing investment bydistributors; es) or of business justifications (efficiencies). One (efficiencies). justifications of business es) or caseswhereaplaintiff hassuccessfully t up inorder to prevent inter-dealer free- et power andof ananticompetitive effect Sylvania stributor andthedefendantwasa to thebalancingstage,defendants period this bala ir servicesfree-ridingonthe in violationofSherman Act thesales system established terized asanoligopolistic 807 andGraphicProducts , 806

60 Davis-Watkins Actually,itseems

A NTITRUST NTITRUST ncing hasrarely 802 exclusive L.J. (market

67, 76 CEU eTD Collection 811 810 illegal. Inthis light, themain consequenceof distribution arrangement isairtight, thechances manufacturer, especiallyiftheproductisdi condemn exclusiveterritoriesarrangements onl Products IfonedisregardsEiberger only reported casethat resultedinstriki in interbrand competition. allocation of distributorsandenhancedmarket found thatthepossibleprocompetitive sidesoftheagreement (an found theimpositionof exclusiveterritories ille differentiation, andthefactthatdeployedexclus Taking intoaccountthemanufact manufacturer hadasubstantialshareofth which consistedofexclusivete equipment andsupplies.Thedistributorchalle Asmentioned, theothe plaintiff wasaterminated dealer whileth Sylvania justification, finding that the arrangement faile efforts ofthosewhoperformed suchservic plaintiff seems to have prevailed in [

See Graphic Products

Anheuser-Busch . . Taking thisintoaccount,it , 717 F.2d at 1578. 1578. at F.2d , 717 , 811 F.Supp. at 850 (critical of of at 850 (critical , F.Supp. 811 810

Eiberger] only because thecourt erred.”). r plaintiffvictorywasGraphicProducts rritories aswellsomeot , whichonitsfactswas urer’s largemarket share, wouldseem thattheAmerican courtsarereadyto ng down theuseofexcl e market, amounting tobetween70%and75%. 133 Eiberger); Ginsburg, e defendantwasamanufacturer of graphic Sylvania es. However,thecourtdidnotacceptthis penetration)wereoutweighedbyareduction y whensuchapracticeisusedbydominant nged themanufacturer’s distribution system, d tosatisfytherule aregreater thattheagreement willbefound fferentiated. Inaddition,iftheexclusive gal. Thecourtreachedthisoutcome asit seems tobethatfirms withoutmarket ive territorieswere probably wronglydecided, supra her verticalrestraints.The thepresenceofproduct usive territories is note 805, at 72 (“The at72 (“The note 805, of reasonenvisagedby . Here as wellthe optimal territorial airtight, thecourt Graphic 811 the CEU eTD Collection parking, and get them out pretty quickly.’”). cas come with vertical his prospective restraint office to attitude the summedup (“MaxwellBlecher (1993) n.86 616 which couldbeseenasavictoryfortheChicagoSchool. 817 816 815 814 828 (2009). 827, 813 812 exclusive territories. If itispresumed that welfare standardadoptedbythe antitrustpolicycouldhave come tothebalancingstage,itisworthwhile practices tomarket forces. Sylvania can evenbesaidthatverticalnon-price indeed difficult foraplaintifftoprevailinca does reachthebalancing part,itisvery likely that thedefendant willwin. Consequently,itis anticompetitive effect[and]balanceinonly2%ofcases.” the rule of reason, “[c]ourts regards toother verticalnon-price restraints. Accordingtoa territories. power arepracticallyfreefromantitrustliab vertical restraints restraints vertical doctrine verti for complete nonliability tocreating close Hovenkamp, restraints.”); nonprice of vertical regulation restraints.”); Jean Wegman Burns, (“The practicaleffect of [ at this particularat this time.”); A human welfareis this that by pa reduced reason will rarely,ifever, be found Ginsburg, Roszkowski, supra note 773,158. at Gavil, MichaelA.Carrier, See, e.g. E.g. Ginsburg, Ginsburg, Finally, despite thefact thatinapplyingthe This conclusion seems tobevalid notonlyfor exclusive territories but also with supra note664,at 8n.30. couldbecharacterizedasreturningres , Ginsburg, supra 812 supra

note 805, at 67 (“[N]on-monopolists ha (“[N]on-monopolists at 67 805, supra note note 805, at 76. The Rule of Reason: An Empirical Update for the Century the 21st for Update An Empirical Reason: Rule of The Sylvania , 75 NTITRUST NTITRUST note 805, at 68 (“[W]ith few exceptions, defendants win under GTE Sylvania.”). GTE Sylvania.”). under win defendants exceptions, few at (“[W]ith note 805, 68

C 817 AL ] was to bestow a presumption of legality on . on . nonprice vertical oflegality a ] wasto bestow presumption

Vertical restraints, efficiency, and the world the real and efficiency, restraints, Vertical . illegal if a plaintiff or enforcement agency must carry the burden of showing must burden showing agency of enforcement carrythe or ifaplaintiff illegal

L. L dispose of97%caseson

AW AND R tion in this inthis set particular of restriction markets particular the of use rticular EV .

933, 936 (1987) (“[T]hose practices subject only to the rule rule of the to only subject practices (“[T]hose 936 (1987) 933, cal nonprice restraints.”); cal nonprice William F. Baxter, E CONOMICS OF restraints haveeffectivelybecome legal 134 the standardfavoredbySupreme Courtis ses related tovertical non-price restraints. es, ‘we give them acoldcup of coffee, validatetheir supra noteat 29, 486 (“The rulereasonof hascome ility whenitcomes todeployingexclusive tobriefly reflect onthe influence thatthe of the plaintiffs' bar when he said that when dealers dealers when that said he when bar plaintiffs' the of ponsibility forpolicingverticalbusiness P Sylvania ve been effectively freed from antitrust from antitrust freed effectively ve been RODUCT RODUCT 816 813 recent studyontheapplication of D Inotherwords,theoutcome of Whatismore, evenifthecourt ruleofreasonthecourtsrarely ISTRIBUTION the grounds that there isno onjudgingthelegalityof , 62 ,

6 note 1, at 156 156 at , supra1, note

F

G ORDHAM ORDHAM EO The viability of of viability The .

M ASON ASON L.

per se R L. EV

R .

597, 814 EV , 815 . It

CEU eTD Collection number ofmanufacturers of the core of thedispute wasKlor’s allegation th Klor’s, aretailstore inSanFrancisco locatedjust The caseinvolvedadisputebetw it isallegedlyneutralwith beneficial forhim, thetotalwelfarestandardin account thatarationalmanufacturer not beneededthatthearrangement bringsan distributed. Inotherwords,forthelegalityof exclusive territoriesdoesnotlead This wouldmean itw thatforthedefendant proving the illegality of anexclusive territori .. Otherpossiblechalle 3.4.2 820 819 818 prevailing. Thiswouldespecia violation other than averticalnon-price rest restraint. If theimposition of anexclusive terr territories. Nevertheless,plaint virtually impossibleforanantitrustplaintiff 3.4.2.1 Bork’s conceptofconsumer welfare, could becharacterizedasaboycott. illegality. For example, aninterestingquestion 359 U.S. 207 (1959). (1959). U.S.207 359 See supra See supra

As shown in theprevioussection,under As shownin Regarding boycott, the classic case is Boycott Boycott Part 2.4.2. Part 3.1.2. regards tothewayinwhich

home appliancesandtheirdistributors withthepurposeof iffs may otheravenues have nges ofexclusiveterritories lly bethecaseifthatotherrestraintisafforded een Broadway-Hale,achainof toanetloss inwelfare, regardless of howthegainsare wouldwanttodeployexclus 818 whichisactually atotalsurplus standard, 135 raint, the plaintiff may stillhave achance in to successfullychallenge theuseofexclusive anexclusive territories arrangement itwould es arrangement becomes evenmore difficult. actualfactfavorsmanu at Broadway-Hale formed aconspiracy witha Klor's, Inc.v.Broadway-HaleStores, increaseinconsumer Takinginto surplus. ould besufficienttoshowthattheuseof itory couldbecharacterizedasanantitrust next to one of Broadway-Hale’s outlets. At nexttooneofBroadway-Hale’s is whethertheuseofexclusiveterritories Sylvania efficiency aredistributed. ruleofreasonithasbecome of challengingthistype department ofstores,and ive territories facturers, eventhough only ifitis 819 per se then 820

CEU eTD Collection manufacturers. promotion effortsandwasterminated whenBroadway-Hale complained tothe do withfree-riding:asadiscounter,Klor’s against anotherretailer(Klor’s).Hovenkamp has manufacturers wouldconspirewithoneofth question iswhy 823 822 821 free-riding ontheirpromotional this happened following complaints toMonsanto sales efforts.Consequently,Spray-Rite’sdistri the levelofproduct-re them incentivestoinvestinpersonneltraini manufacturer startedassigningar increase sales,Monsantoatonepointdecided products, andSpray-Rite,oneofitsdistributorsinthemarket Service Corp. distributor’s complaint tothemanufacturer. see aboycottwhereanexclusivedistributor character oftheboycott. (i.e. evenwithoutashowingofanticompetitive harm), specificallyemphasizing thecollective boycotting Klor’s.Inessence,theSuprem manufacturers, distributors and a retailer.”). and a dealer agreeing toanexcl 465 U.S. 752 (1984). (1984). U.S.752 465 H Id. OVENKAMP at 212-13 (“This is not a case of a single trader re a is acaseof single trader (“This not at 212-13 In ordertoproperlyundersta Spray-Rite wasadiscountse In thisrespect, consider th , 823

supra 822 Thecaseinvolvedadisput Relatedtothis, animportantquestio note 29,203. at lated servicesprovide 821 usive distributorship [but rather]a wide combination consisting of

eas ofprimary res e Supreme Court’sdecisionin efforts. Followingthetermin ller andsupposedlyMonsanto nd whatactuallyhappenedin e Courtcondemned theconspiracyas d byitsdistributors. e betweenMonsanto,ama 136 ng. Therefore,Monsantowas tryingtoimprove wasactuallyfree-ridi fusing to deal with anothe with deal to fusing to make achangeinitsdistributionpolicy.The bution agreement wasterminated. Itseems that wouldbeterminated basedonanother suggested thatthiscouldhavesomethingto byotherdistributors ponsibility toitsdi n iswhether antitr eir retailers (Broadway-Hale) ation, Spray-Ritedecidedto Monsanto Co.v.Spray-Rite ofherbicides.Inorderto r nor even of amanufacturer was notsatisfiedwithits ng onBroadway-Hale’s Klor’s nufacturer ofchemicalnufacturer stributors andgiving that Spray-Rite was ust lawwouldalso , theunderlying per se illegal CEU eTD Collection 826 825 824 and enables them tohavetheirexclusive territories policed effectively. With regards to gives manufacturers more freedom regardingth effectiveness of policing exclusive territories would greatly suffer. Inthisrespect the manufacturer. whose territorywouldbeaffected has astrongincentivetoviolateotherdistributor exclusive distributors. As hasbeenshown, undercertainconditions anexclusive distributor terminate hisexclusive distributor, evenifthe the manufacturer wereactingindependently. from anotherdealer,aslong proposition thatamanufacturer ha were actingindependently.” that it“tendstoexcludethepossibility complaint tothemanufacturer isnotenoughfor so independently.” manufacturer “has arighttodeal,orrefuse deal,withwhomever itlikes,aslongdoes that suchasituationisnotsufficientfor sufficient forfindingaconspiracywithinthe upon whichthemanufacturer termin Monsanto andsome ofitsdistributors.The bring anantitrust suit,alleging that the termination wasa result of a conspiracy between

See supra Id. Id. at 764. at 761. Related toourdiscussion,following Accordingly, evidencethatadistributor wa The issuebeforetheCourtwaswhetheraco Part 2.3.1.2. 826 824 Ifsuchacomplaint wouldbeseen

825

Takentogetherwith there isapossibility wouldbeverymuch interested s therighttoterminate adeal ates adistributionagreement with anotherdistributoris case eventuallyreachedtheSupreme Court. themanufacturer andnonterminated distributors 137 meaning oftheSherman Act.TheCourtfound establishing an antitrust conspiracy, since a establishing anantitrustconspiracy,sincea termination isaresult of acomplaint byother e waytheyorganizetheirproductdistribution Monsanto amanufacturerha s’ territory,andinthat illegality. Rather,evid mplaint byadistributo s terminated basedonotherdistributor’s thatthecomplaini Klor’s asanantitrustconspiracy,the , Monsanto wouldstandforthe er evenfollowingacomplaint inreportingtheviolationto ng distributor(s)and ence hastobesuch casethedistributor r toamanufacturer s therightto Monsanto

CEU eTD Collection restrictions, after restrictions, as noted, but decide with whom itwill dobusiness. riding distributorwithoutinfringi riding, Inc. 833 832 831 830 829 828 827 since otherwise itwouldmean that: distributor’s complaint. the Sherman Actifamanufacturer terminates between horizontalandverticalag Electronics Corp. horizontal collusion. 3.4.2.2 holding ofMonsanto and apotentialcustomer). manufacturers, whilein with be anticompetitive harm inorder tomake itillegal. In successful challenge ofexclusive territories. Monsanto which was to allocate territories among themselves. The defendants won at the summary stage.). exclusive distribution of beer. Retailers alleged a horizontal conspiracy between distributors the purpose of di or summary judgment Same as (1988). U.S.717 485 also consider todeal, to refusal Related (1998). U.S.128 525 See, e.g. Id. See 828 at 136. Roszkowski, supra Klor’s Thecrux of this case is that

NYNEX wouldstandfortheproposit Connected withtheissueofboyc Related toboycott, exclusiveterritories can Horizontal collusion collusion Horizontal , Package Shop, Inc. v. Anheuser-Busch, Inc., 675 F.Supp. 894 (3d Cir. 1987) (The case concerned Monsanto, ’s practical effect,itsoutcome hasevenmore narrowedthepossibilityfora mainly byemphasizing that 832 Business Electronics rected verdicts.”). Similar to with regardstoamanufacturer’s 831 note 773, at 183-86 (“[A]fter Monsanto, Monsanto, (“[A]fter at183-86 note 773, 833 Inthisrespect, consider BusinessElectronicsCorp.v.Sharp NYNEX Leegin TheCourtconfirmed thatinsuch 829 Relatedtoverticaldistribution

this distinction is not of much relevance. This, however, does not not mean ishowever, does muchrelevance. This, not of this distinction therefusal todeal wasof vert Monsanto ng antitrust laws, inaccordance witheach firm’s freedom to reements andwhetherthereis individual refusaltodealisnot Colgate also with the dividing also dealt 830 ott, anotherrelevantcaseis , 250 U.S. 300. 300. U.S. 250 , Inother words, , Klor’s 827 Business Electronics ion thatanindividualsupp 138

a price-cuttingdistribu involvedahorizontalagreement between also bechallenged asbeing aresultof righttocutoffadistributor. NYNEX, theCourtmade thedistinction most dealers have lost vertical caseson line betweennon-price priceand NYNEX acaseconspiracydoesnotexist restraints andtheissueoffree- ical nature(bet conspiracy inthemeaning of addressedthedividingline per se furtherstrengthenedthe NYNEX Corp. v.Discon, NYNEX Corp. lier cancutoff afree- tor basedonanother illegal– there hasto ween asupplier CEU eTD Collection 838 837 836 835 834 can be different. restraints to be judged by the rule of reason. However, as noted, that priceand non-price restra sales onlyfrom aspecificlocation. were notexclusive,theyboundbyalocati cars, performed distributioninthisareathroughanetworkof Chevrolet cars inthe Los Angelesarea.General Motors (GM), theproducer of Chevrolet classical example ofinter-deal another case worthconsidering is more proper. it wouldseemthattheAmerican lawstandsonth be regarded asahorizontal orasa horizontal agreement.” restraint ishorizontal not because ithashorizont anticompetitive effectsarebyde anticompetitive effects arehorizontal. an agreement hastobetheproduc horizontal as tobeconsidered order in horizontal. Inotherwords,thequestionwaswhether The Courtalsotouchedupontheissueofwhic 384 U.S. 127 (1966). (1966). U.S.127 384 Id Id Id. Business Electronics . . at n.4. 730 that itsrealmotivationwastoterminate aprice cutter. contractually obligatedse that agrees withonedealerto term terminates another dealer pursuant toth a manufacturer thatagreestogiveone

Finally, regardingthedividi , 485 U.S.at 728. 837 ints areto be analyzed in Relatedtothisisthequestionofwhetherdualdistributionshould er free-riding.Thedispute rvices, exposes itself tothehighlyplausibleclaim t ofhorizontalcollusionorif U.S.v.GeneralMotorsCorp. finition horizontaleffects” vertical arrangement. Inthelightof ng linebetweenhorizontal 835 TheCourtcorrectly 139 the content ofthe of rule the content the completely same way, but only that both both them that of way,but only are completely same the inate another forfa at agreement, oreven amanufacturer on clause,meaning thattheycouldperform e propositionthatvertic al effects,but because itistheproduct ofa dealeranexclusiveterritory and h agreements aretobeconsideredas 834 dealers. Althoughthesedealers 836 involved thedistributionof

it isenoughthat andthatconsequently“a reason forthetwo types of 838 and verticalagreements, ilure toprovide Thecaserepresents a concluded that“all Business Electronics al characterizationis some ofits ,

CEU eTD Collection would also be a proper solution, and perhaps even le even perhaps and solution, alsobe a proper would system seem distribution would aselective example, it that For context. this the free-rider problem in solve activity was notcostless investigator washiredtomake shampurchases territories andhencehadastr However, this agreement hadto bepoliced, since thedealers werenot assigned exclusive manufacturer demanding thatsomething dealers dissatisfied, and, organizedindealer authorized dealerforafreerepair underthewarranty.This of was bought.Inotherwords,ifsomebody boughtacar under anobligationtoservice undermined andtheystartedlosingbusiness.More priced. This way thedealers’effortsinpr were then selling those cars to final consumer 842 841 840 839 dealers and GM. Supreme Court.Rather,theCourtfocusedon but onlylocationclauses, government challengedthisasacons seemed tobesuccessful,andsellingdisc exclusive distribution system thed territori useofexclusive the that This does not mean Id. Id. General Motors Id. at 137. at 139-40. at 139-40. In response,GMobligatedallofitsdealers tostopsellingthediscounters. Problems started toarise whencertainde Even thoughthedistributionagreements athanddidnotcontainex , 384 U.S.at 130. 842 Inthisrespect 841 839 theseverityofterritorial restraint wasnotanissuebefore the showsanimportant aspectof

Chevrolet carsunderthewarrant ong incentivetoselldiscount the Courtfoundthat ealers wouldbepolicingeachother. piracy inrestra should bedoneaboutthediscounters. ss restrictive than the use of exclusive territories. territories. ofexclusive use the ss restrictive than 140 es would be the only appropriate solution in order to in order solution bethe only appropriate es would ount houseseventually oviding special services tocustomers were associations, theystarted complaining tothe alers started selling todiscount houses,who s atprices lowerthanwhatwasofficially ofcarsfordiscounters. Thefactthatthis the legality oftheagreement betweenthe precisely,allauthor int oftrade. from adiscounter, “[e]limination, byjointcollaborative exclusive territories –inan y, regardlessofwherethecar coursemade anumber of ers. Inresponse,aprivate ceased. However,the ized GMdealerswere he couldgotoany clusive territories 840 Theseefforts CEU eTD Collection 3.5 distributors). (such astheonein distributors firstdiscussthecomplaint among th the manufacturers). The lawwouldalsocondemn thesituation where the complaining manufacturers (suchastheonein would betheresultofascheme involving likely tofindtheconductillegal.This would However, wheneverin thetermination process 846 845 844 843 possesses substantialmarket power. find itvery difficult to come closetothestatusof distributor followinganotherdistributor’scompla the issuecouldbesummarizedasfollows.A receptive todefendantsinGeneralMotors approach towardsthefree-riderargument, itmay be expectedthattheCourtwouldmore se violationoftheSherman Act. and withamanufacturer inordertoelimin General Motors is interesting because despite the Court’s subs action, of discountersfrom accesstothemarket isa

See supra See See Id. at 145.

Monsanto id. Allocation ofexclusiveterrito As shown,theuseofexclusiveterritoriesth Finally, takingintoaccount at 143. Part 3.4.1. , Business Electronics stillseems tobegoodlaw.Inotherwords,ifdealersactamong other each General Motors prevailunderthe per selegality inAmerican antitrust law.Anantitrust plaintiff will

and Klor’s 844 , i.e.thehorizontalaspectisrelationshipbetween the dealer-termination casesdescribedabove,thelawon NYNEX 846 However,takingintoaccount However,ifaplaintiffisable to demonstrate that a , i.e.thehorizontal aspect ries throughajointv typesofcases. . ate free-riding,thiswouldbecondemned asa Sylvania ruleofreason,evenifthedefendant 141 equent embracement of thefree-riding theory, for example bethecase a complaining distributorandagroupof emselves andthenturntothemanufacturer there issomehorizontal manufacturer has the right toterminate a int, aslonghedoessoindependently. at doesnotinvolvehorizontalaspectshas per se violationoftheAct.” enture is therelationshipbetween thecurrentlyprevailing if arefusaltodeal aspect, the lawis 843 Thiscase per per 845

CEU eTD Collection 849 848 847 because market allocation canbeseenasjust purpose ofwhichisthedivisionmark division. SincetheearlydaysofSherma the horizontalpartofpractice.asitcould problem from thelegalpointofview. vertical. deployment ofexclusiveterritoriesperformed by aspect –the jointventure couldbe seenasanentityseparate from itsmembers, andthe competing atthesame market level.Ontheotherhand,arrangement alsohasavertical On theonehand,ithashorizontalelements, sinceparticipantsinthejointventureare distribution ofacertainproduct.Ascanbeseen, thenatureofthisarrangement isambiguous. which thejointventurewouldgrantitsmember venture. Insuchanarrangeme mixed horizontalandverticaleffectsistheallocation ofexclusiveterr it intooneofthetwogroupsisnotalwaysast be crucial for itslegality. determination onwhetherapracticeshouldbechar level, there isstillachance thatthe lawwouldstrikedown thepractice. conduct isconnectedwithsome or whether theymerely reserve one market for one and another for the other.”). a within split both market do the which parties whether business perof se,“regardless illegal allocation market illegal BRG per se);Palmer Georgia, In of v. division illegal

See See supra See supra Addyston &Steel Co. Pipe U.S., v. U.S. (1 175 211 per se As shown, the verticalaspectofthisarra As shown,the However, ifanagreement containsbothhor Part 3.4.1. Part 3.4.2.2. ). See also Arizona v. Maricopa County Medical Society, 457 U.S. 332, 344 n.15 (1982) (market

nt, agroupofcompetitorswouldform ajointventure, after sort ofhorizontal 848 However,thelawmay beverymuch concernedwith ets have been consideredasillegal c., 498 U.S. 46, 49-50 (1990) (horizontal agreements on on agreements (horizontal (1990) 49-50 U.S. 46, c., 498 142 raightforward task.Onesucharrangementwith be seenasanagreement onhorizontalmarket anotherform ofhoriz n Act,agreements betweencompetitors the ngement most probablywouldnotrepresenta 899) (territorial market division between competitors competitors between division (territorial market 899) the jointventurecould therefore beseenas s exclusive territories withregards tothe acterized asvertical izontal and vertical elements, classifying collusion attheups ontal price-fixing,asit itories through ajoint or ashorizontalcould tream ordownstream 847 per se Therefore,the . 849 Thisis CEU eTD Collection significantly reducesthe possibilityforcartelcheating. What ismore, market divisioncanbeseenasevenmore perniciousthanprice-fixing,asit 852 851 850 implications. Ontheonehand,relationship under the“Sealy”name.Forthisreasonar among themselvesdivided territories inwhichtheyhadanexclusive righttosellmattresses practically complete controloverSealy’sboa Eventually, themanufacturers acquired substan relatively small shareof themarket. Takento scheme wouldbeabletofree-rideonhisefforts. have anincentivetodevelopthebrandinhisareaifheknewthatothermembers ofthe free-rider problem. Intheabsenceofanex mattress manufacturers. Thepurposebehindtheex manufacturing businessandinsteadstartedgran company involvedintheproductio venture whichthengrantsits consider how thelawwouldtreat asituation where agroup ofcompetitors organize ajoint necessarily hasaneffectonthepricecharged foreign commerce is illegal isillegal per se.”). commerce foreign effect depressing, the raising, pegging, of fixing, with purposeand formed Actacombination forthe Sherman Under the is immaterial. for price-fixing combination involved a horizontal agreement. Sylvania 388 U.S. 350 (1967). The case was decided in the the in decided casewas The (1967). U.S.350 388 H See OVENKAMP U.S. v.Socony-Vacuum OilCo., 310 U.S. 150, 223 (1940)(“[T]he machinery employed a by

In this light,theterritorial licenses act There werearound30localmanufacturers inthisscheme, eachofthemhavinga In thisrespect, consider Sealy is good law, since law, is good , supra note 29,153. at Sylvania members exclusive territories.

U.S. v.Sealy,Inc. ’s scope was limited to Sealy’s to restraints, vertical and non-price scope was limited n ofmattresses.However,at Schwinni.e. era,before clusive appointment, amanufacturer wouldnot 143 or stabilizing the price of a commodity in interstate or interstate in the ofacommodity price or stabilizing rd ofdirectorsandexecutivecommittee. by thefirms engaginginthemarket division. between Sealyandthemanufacturerscouldbe gether, theirmarket sharewasaround20%. ually meant that the mattress manufacturers rangement hadbothverticalandhorizontal tially allof Sealy’s stock andestablished ting exclusiveterritorial licenses to local clusive licenseswasprobablytoavoidthe 852 Initially,Sealywasamanufacturing 851 Therefore, itisinteresting to Sylvania onepointitgotoutofthe . However, even following following even . However,

850

CEU eTD Collection combination ofrestraintsexisted,includingprice-fixing. allocation itselfwasunlawful. However, the Courtin territories, themanufacturers alsoagreedonth exclusive territories, even if partiesto mean thatthe free-rider argument cannotbeused 858 857 856 855 854 853 participating chainsownedallofTopco’scommonstock,andtheboarddirectors being around6%.Similar toSealy,Topcowas The market shareoftheparticipating chains ra of 25small andmedium-sized supermarket ch addressed inanotherlandmark case, their impact in the marketpla “necessity for aninquiry ineachparticular case operations. aspects wereprevailing, the grantofexclusivelicensescouldalsobe characterized asvertical.On of free-riding would reduce the in free pr created another theby who ride goodwill member on be classified as hori 405 U.S. 596 (1972). (1972). U.S.596 405 Sealy See Id. Id. Sealy at 353. at 357-58. at 357-58. Posner, , 388 U.S.at 357. rather substance at look (“Ifwe at 352 U.S. , 388 The arrangement inSealy The factsof The Courtstruckthearrangement as 854 supra TheCourtnotedthatwhen itcomes to zontal restraints.”). restraints.”). zontal note 285, at 9-10 (“Without exclusive territories, one member of the group could take a Topco aresomewhat similar tothoseof Sealy 853 centive ofeachmember to promot sincethe manufacturers weredi refusedtogetintoadiscussi

the otherhand,asSealywascont ce, ortheirreasonableness.” Rather, itfoundsufficientthatinthecasebeforea alsoinvolvedprice-fixing–ap U.S. v.TopcoAssociates,Inc. theagreement donotpossessmarket power. interpreted ashorizontal market division. per seillegal. IntheCourt’s view, the horizontal 144 e priceatwhichthemattresses wouldbesold. ains operatingthroughouttheUnitedStates. than than form, must These there debate. is littleroom for nged from 1.5%to16 %,with the average as totheirbusiness or economic justification, omoted the Sealy name in his territory. The territory.The prospect Sealynamehis the in omoted inordertojustifyhorizontalallocationof also some sortofajointventure.The horizontal territorialdivisionthereisno e the Sealy name vigorously.”). 857 855 Sealy on aboutwhether theterritorial Consequently,thiswastobe Inother words,Sealy rectly inchargeofSealy’s rolled by the manufacturers, rolled bythemanufacturers, art from allocatingexclusive 858 . Topcowasanassociation

856

would CEU eTD Collection 862 861 860 859 instead deployedlessrestrictiv the Sherman Actevenifnot explicitly extended the arrangement washorizonta members tocompete withlarge supermarket chai did notacceptTopco’sdefensethatthearrangement necessaryinordertoallowits was the casewasdecided during the restricted was sufficienttofindaviolationoftheSherman Act. competition (i.e.competition withregardstothe productsbearingthe“Topco”label) was presumably inordertoeliminate thefree-riderproblem. words, individualchainsweregrantedexclus members exclusive rights tomarket the “Topco” groceries, thesaleofwhichseemed tobequiteprofitable. resources. Inaddition,themembers oftheasso operated independently,i.e.therewasnopooli association couldgetproducts members hadfullcontroloverTopco’soperations. executive committee wererunby theassociationmembers. Thisway theassociation expenditure.”). more profitable to the chain store because of the combination of low acquisition price and limited promotional chains. Korah, probabl association thatthe grounds iton the criticized A NTITRUST NTITRUST

Id. Id. Topco , U.S. at 405 603. See at 609 n.9. The Court’s decisi at 608. Peter C. CarstensenC. Peter &HarryFirst, In responsetothejudgment, Topcogave The Courtstruckdown thisarrangement, The main purpose oftheassociationwasto S TORIES supra 171,176(EleanorM. Fox & Daniel A.Crane note 619, at 294. at294. note 619, Sealy , findingthathorizontalte coupledwithprice-fixing.

on has received some criticism among commentators. For example, Korah l innatureandtherefore at lowerpricesthanthei e territorialrestraints. Thes Schwinn era,suchanoutcome isnotsurprising.The Court Rambling Through Economic Theory: Topco's Closer Look Closer Topco's Theory: Economic Through Rambling 145 y helped y helped small larger compete supermarkets with to ciation hadcreateda“Topco”privatelabelof ng ofearnings,management, oradvertising ive territories withregards tothe brand, ns atthenationallevel,findinginsteadthat rritorial limitations are brandinparticularterritories.Inother act as a purchasing cooperative, since the act asapurchasingcooperative,sincethe up exclusiveterrito finding thatfinding thefact that intrabrand 862 eds., 2007) (“[T]he house brand [is] usually per se

859 ndividual chains.Eachmember Theassociationwasgrantingits e includedareasof primary illegal. 860 Taking intoaccount that 861 ThiswaytheCourt rial protectionand per seviolationsof , in

CEU eTD Collection Judge Borknotedthat: or anincreaseinprice.Ther always good lawanymore. Forexample, in On theotherhand,some lowercourtshavesuggestedthat Georgia, Inc. territorial allocationisstillconsidered as are prohibited, firms couldstillusesome lessrestrictive territorial restraints. cooperation isnotillegal these lessrestrictive 872 871 870 869 868 867 866 865 864 863 unlawful.” output orreducescompetition horizontal cartelamong competing ma The Court’sdictain the Supreme Court. responsibility andprofitpass-overs. (1985). U.S.284 472 U.S.85 (1984). 468 ( U.S.1(1979) 441 (1986). F.2d 210 792 U.S.46 (1990). 498 U.S.801. 414 CasesP 74,391. Trade 1973-1 669 WL (N.D.Ill.), 1972 Carstensen &First, Leegin, Rothery Storage Taking intoaccountthislineof to theextent that System, Supreme CourtcasessuchasBroadcast restraints are illegal Stationery &PrintingCo.

per seillegal, butonlyif ithasananticompetitive effect suchasadecrease inoutput 551 U.S. at 893 (emphasis added). added). U.S.at (emphasis 551 893 872 TheCourtherecanbeinterpretedas 866 868 , 792 F.2d at, F.2d 226. 792 anapparenthorizontalallocati

BMI supra supra NCAA, 865 restraints, theirdeployment wa ). Basedonthis,itmay beconclude Leegin note 859, at 198. at note 859, 198. Topco and per se 869 per se andNorthernWholesaleSt efore, theCourt’sdecisionin

seemtosupportthis afterall–althoughhorizontallyallocated 870

, theymust beregardedaseffectivelyoverruled[by in orderto increase price ]. 863 Sealy 871 Rothery Storage&VanCo.v.AtlasLines,Inc. Althoughthegovernmentchallengeduseevenof

cases, itseems disputable nufacturers orcompeting retailersthatdecreases per seillegal.Ontheonehand,in standforthepropositi 146 Music, Inc.v.ColumbiaBroadcasting on ofterritorieswasstruckas saying thathorizontalcooperationisnot s approvedbyaDistrictCourt argument. Accordingto Sealy ationers, Inc.v.Pacific d thatthedescribedhorizontal Leegin is,andoughttobe, on thatallhorizontal andTopco donotrepresent to whatextenthorizontal could openupthedoor exclusive territories Palmer v. BRG of Palmer v.BRGof per seillegal. Leegin 864 andby per se , “[a] 867

CEU eTD Collection before, may legally be done again: And therefore they ta S 874 873 rulings unless certaincircumstances about theprincipleof anticipate the possibility of future changes in should thereforebejudged turn, findingin these restraints istobe knowledge abouttheeffectsof example, fouryearsafterthe Courtin Court wasreadytocompletely change itsvi exclusive distributionhaschange 3.6 arrangement involvessome sort antitrust plaintiff toprevail in acaseinvo Therefore, thisisanother example ofhow reduced prices,itcouldbeexpectedthat allocation ofterritoriesthrougha that itwouldnotprohibitsucharrangements asillegal reduction orpriceincrease. towards alessstrictapproach towardshorizont decided, and not to disturb settled points.” B points.” settled to disturb and not decided, Sherman Act. Grimes, supra WIFT The term The isashort version of “ Latin According to Grimes, In essence,theprinciple of ,

Stare decisisinantitrustcases Consequently, iftheSupreme G As shownearlierinthechapter,th ULLIVER ' S T Sylvania RAVELS Schwinn stare decisis note 701,at 145. 232 (2005) (“It is aMaxim among . . Lawyers, that whatever hath been done per seillegal. Similarly, tenyearslaterthe Courtmade anotherU- thattherestraintsdonotsatisfy undertheruleofreason. is the shortest lived Supreme Court Court Supreme shortestlived isthe

ofhorizontalcooperation. vertical non-pricerestraints, d overtime. Attimes thesechangeswerequiteabrupt,asthe stare decisis et non quietamovere”, which means “[t]o stand by things joint ventureactuallyledtoan stare decisis isappropriate. Court decidedto reexamine LACK require the precedent to beoverruled. White Motor ’ S e Supreme Court’sstance towards thelegality of L the Courtwouldupholdsuchanarrangement. AW 147 it isbecoming moreanddifficultforan ke special Care to record means thatacourt willfollow itsprevious lving exclusive territories, evenwherethe ew in the course of only a few years. For ew inthecourseofonlyafewyears. the lawofexclusive terr D ICTIONARY al collusionthatdoesnotresultinoutput 873 acknowledged thatitlackedsufficient Forthisreason,inordertobeable precedent since the enactment ofthe 1443 (8th ed. 2004). per se.Rather, if itwas that the Schwinn foundthattheuseof per sestandard afterall,and Sealy increaseintotaloutputand all the Decisions Decisions formerly all the andTopco,chancesare itories, adiscussion 874 See also Therearetwo J ONATHAN ONATHAN CEU eTD Collection matters it is more important that the applicable rule of law be settled than that it be settled than settled right.”). law settled itbe rule be that of applicable that the important more matters itis include the promotion of values such as efficiency, continuity ofthe law, fairness, and legitimacy. B conform toprecedents but canoverride this binds bound byprecedentsintheareaofantitrust. Supreme Courtappliestheliber latter. Inother words, theaim istoanaly S 881 880 879 878 877 876 875 accordingly.”). most the iniquitous as to justify Authorities produce made against common Justiceandthe general Reasonof and stability. decisis circumstances justifytheCourttodoso. Court cananddoesdepartfrom itsprevious recognized thattheprincipleof Court inseveral occasions emphasized th duty to conform withits ownprecedents. courts toadhere to theprecedents of highercourts, whilehorizontal types of Douglas, Douglas, out element to takethe capricious and confidence, with Lawrence v. Texas, 539 U.S. 558, 587 (2003) (Scalia, J., dissenting). orsoci ‘individual induced ithas not (3) and criticism, foundations have been ‘ero[ded]’ by subsequent decisions, (2) it has been subject to ‘substantial and continuing’ governed by the rule of law’.”); Khan, doctrine of mechanical formula ofadheren PAETH For example, some have praised the principle asit “allows people to be able to enter trade with each other According to JusticeScalia,a precedent isto be over S E.g. E.g. Id. Id. AUL With regards tothis, itis important tocons

judgestofollowprecedents,undertheliberal , Helvering v. Hallock, 309 U.S. 106, 119 (1940) (“ (1940) U.S.106, 119 309 Hallock, v. , Helvering v. 501 U.S. , Payne Tennessee, 808, , principle.Oneofthejustifi

supra S B Stare Decisis stare decisis: verticalandhorizontal.Vertical tare decisishastwoforms: astrictandliberal RENNER is usually the best policy, the doctrine is not an inexorable command.”). command.”). inexorable an is not the doctrine bestpolicy, the stare decisisis usually note 875, at 875, note 881 Forthisreason,whenitwishestooverruleaprecedent,theCourt usuallytries &

H , C AROLD OLUMBIA

2. J. ce to the latest decision.”); latestdecision.”); ce tothe

S PAETH L AW 522at U.S. 20 (“[ al versionoftheprinciple. stare decisis isnotarigidone. , R

S cations isthattheprinciple EVIEW 847 (1991) (“[F]idelity to precedent is fundamental to to ‘a society isfundamental precedent 847 (1991) (“[F]idelity to TARE TARE 880 I , Vol. 49, No. 6 (Jun., 1949), at 736. Other justifications justifications Other736. at 1949), (Jun., No. 6 49, Vol. , 875 NDECISIS NDECISIS e importance ofabidingtoprecedents,

Opinions; and the Judges Judges never fail of the decreeing and Opinions; Thecurrentanalysis ismainly concerned withthe ze theextentto which duty ifthereisastrongreasonforit. 148 etal reliance’ that counsels against overturning.” overturning.” against counsels etal that reliance’ of law and to give stability to a society.” William O. asociety.” to William to give stability lawand of ruled ifthe followi Mankind. These, under the Name ofPrecedents, they reflects] a policy judgment that in that most Stare decisis judgment reflects] apolicy ider justifications for theexistence of the Payne is a principle of policy and not a not and of [S]tarepolicy decisisis a principle 1 (1995). (1995). 1 decisions. However,itisnotclearwhich version judges generallyhavethedutyto , 501 U.S. at 810 (“Although adherence to the the to adherence (“Although , at810 U.S. 501 stare decisis isthe obligation of lower version. While thestrictversion 877 ng conditions are satisfied:“(1)its ng conditions is supposedtoprovidereliance Inotherwords,althoughthe 879 the Supreme Court feels Therefore,theSupreme stare decisis 878 876 isacourt’s ithasalso RENNER TheU.S. stare stare &

CEU eTD Collection cases” andthat in the field of antitrustthan in some other This allshowsthat,ifanything,theprincipleof readiness to reconsider adecisi example, in used asanargument andsometimes for asanargument againstoverruling aprecedent. For precedent was decided.Inthis respect, itis in extent towhichothersu Based onthis,animportant factorindeciding decisis 886 885 884 883 882 intention behindsuchabroadprovisionasth e Sherman Actwasto the spectrum, in been shownhowquicklytheCourtoverruled Rather, hisremarks seemtobeaparadigm ofth mean thatonlyJusticeScalia isinconsistent when itcomes totheapplication of only twodecadesold,andeliminating occasion the same Justicejustifiedthe overruling Court’s policy,andthatthereforerelianceca justified overruling to showthattheprecedenthasnotcause people who relied to their detriment onthe (2009). 2089 S.Ct.2079, 129 Louisiana, v. Montejo Khan, Khan, Dr. Miles Id. at 586. Sylvania, policy isingeneral, itiseven moresowhenitcomes toantitrust law. Connected withreliance, anotherimportantfactoristhe There seem tobetwomain reasonsfor This generalobservationisalsovalidfor 522 U.S.at 20. was decided in 1911 and and in1911 decided was 433 U.S. at 47. With regards to this, Posner supported the Court’s decision, noting that “[t]he only that “[t]he only noting decision, Court’s the supported Posner tothis, at regards 47. U.S. With 433 stare decisis was not barring the decision to be overruled. Posner, Lawrence v.Texas Leegin Schwinn notingthatitselfrepresented anabruptchange inthe bjects havereliedonit. theCourtoverruled

Leegin on rendered“amere 17yearsago”. Justice Scaliaexpressedhis per se in 2007. rule laid down in Schwinn were the plaintiffs in Sylvania-type werethe in laidinSchwinn Sylvania-type rule plaintiffs down it wouldnotupset areas. Inotherwords, d reliance.Forexample, theCourtin nnot beinvokedwithregardstoitsoverruling. 149 White Motor Dr. Miles whether aprecedentisaptforoverrulingthe teresting thatashort time spanis sometimes e Court’sincoherentdea ofaprecedentbynoting that“theopinion is stare decisis the fieldofantitrust.Forexample,ithas this. Firstly,thisisbecauseCongress’ , an almost century-oldprecedent. and Schwinn.Ontheothersideof expectations.” may beevenmore inconsistent surprise regardingtheCourt’s nomatter howtoothless time thathaspassedsincethe supra 883 However,inanother ling withthe issue. note 285,at 5. give courtsabroad 884 886 Thisdoesnot

stare decisis. Sylvania stare 882 885

CEU eTD Collection produced byquitedifferentsortsofagreem particular listofagreements, buttoapar “[t]he term‘restraint of trade’inthe statute, issue beforeus:theeffectof that whateverwas“thestateofthecommonlaw4 891 890 889 888 887 Consider forexample Posnera justify acourtdecisioncansometimes beproblematic, astheiropinion may changeovertime. in otherfieldsoflawandalsowhyit dependent oneconomics explainswhydevelopmen time, togetherwithdevelopments ineconomic circumstances oftheirtime. enables thecourtstodetermine thecontent American economy today.” analyzing whether changes intheeconomic theory mandate inapplying it. been thesubjectofwidescholarlycriticism. policy. of usingeconomic theoryinthecourseofde doctrine isevenmore whenitcomes disputable content that the common law had assigned to the term in 1890”. term to1890”. the in the lawassigned that common had content with along ‘restraint It its dynamic oftrade’ potential.

Sylvania, Sylvania, Business Electronics Id. Sylvania, Id. at 54 n. 21. 21. n. at 54 Therefore the viewseems tobethat the meaning oftheSherman Actevolves over In ordertojustifytheoverrulingof 433 U.S.at 48-49. 433 U.S.at 51. Schwinn’s , 485 U.S. at 731. The Court also noted that “[t]he Sherman Act adopted the term 887 Secondly,antitrustis 889

per se the antitrustlawsuponverticaldi Similarly, according totheCourt in nd thefact thattheCourtin may justify achangeinantitr rulejustifies can bearguedthatth ents invaryingtimes andcircumstances.” Schwinn, invokes the common law itself, and not merely law itself,and common not the the static invokes veloping andimplementing 150 ticular economic consequence,whichmay be liketheterm atcommonlaw,refers nottoa of thelaw,inaccord 891 to antitrust cases. Thisopens upthequestion inherentlyconnectedwitheconomics, and However,relyingonscholarsinorderto per se theory. Thefactthat 00 oreven100yearsagoisirrelevanttothe ts inantitrustareoftenmore dynamic than Id. Sylvania illegality standards,

e strengthofthe emphasized that Sylvania stributional rest ust rules.Forexample,in ance withtheeconomic Business Electronics antitrust lawsareso iscitinghim asan an effective antitrust 888

Sylvania Schwinn stare decisis raints inthe 890 noted This had ,

CEU eTD Collection due tothefactthatitfails toacknowledgethe taken bytheCourtin are tobesubject to exclusive territories. could becharacterizedasneut deserves atrialonthemerits.Co vertical non-price restraints isnotsuitable tobedecidedat thesummarystagebut rather adopt. InWhite Motor has notbeenconsistent.Initially,theSuprem 3.7 Assessment of theCourt,a(dramatic) changeinthelaw and itmay besubjecttochangein the future least from the to justify thisand exclusive territories.IftheS an obstacleiftheSupreme Court the additionally contributes to theincreased volatility of antitrust lawsand additionally dilutes economic theory, andwhatwasarguedinthepast 893 892 Schwinn case for thegovernment. authority throughouttheopinion.

See E.g. stare decisis However, notlongafterthatthe Since itsinception,theAmerican approachto Posner, , Sylvania, Based ontheabove,itcanbeconcludedthatstaredecisis supra stare decisispointofview,therulelaiddownin 433 U.S. at 49 n.13; U.S.at49n.13; 433 principleintheantitrustsphere. note 285, at 2. at2. note 285, stare decisis per se Schwinn couldbecharacterizedaspro theCourtwasonlyable todecidethattheissue of thelegalityof illegality.Compared tothepro upreme Courtdecidedtooverrule

ral, asitneithercondemns no wouldnotrepresentanobstacle Id. mpared tothesuggestedrule wanted tochange itspositionwithregards tothelegalityof at 52 n.18; 892 893 Interestingly, Posnerinitially briefed andargued the Thisshowsthatthere isa Schwinn of exclusive territories Id. . However, taking intoaccount thecurrent set-up 151 Courtdecidedthatvertic at 54 n.21. procompetitive effectsarising outoftheuse e Courtwas notcertain whichapproach to wards thelegalityofexclusivedistribution may later turn outto posed optimalrule,theapproach nouncedly inappropriate.Thisis r exoneratesthedeployment of laid downabove, Sylvania in that respect. Therefore,at Sylvania great amount offluidityin doesnotseem likely. principle would not be principlewouldnotbe al non-price restraints , itwouldfindaway is notcastinstone beincorrect.This this approach CEU eTD Collection situation wherethefirm usingexclusive territori defendant hasaverylarge shareofthemarket. reason isfarfrom easyfrom aplaintiff’spointofview,itisst nevertheless seem tobeastep forw anticompetitive effects arising out of th optimal, be characterizedas exclusive territories.Inotherwords, thecurrent difficult foraplaintifftoprevailinananti to make theassessment moreefficientfr courts werefacedwithuncertain proposed ruleofreasonistobeperformed. tothevaguenessofth Due deficiency of procompetitive andanticompetitive potentialof exclusive territories. However,asignificant be judgedundertheruleofreason, approach identified asoptimal. Byrulingthat the legalityof verticalnon-price restraints isto Therefore, the regards totheextent towhichintrabrand condemns non-airtightaswell competition sufficient for afinding of anantitrust violation. Finally,this approach equally approach solely focuses onintrabrand competition, finding arestriction of this typeof exclusive territories,condemning typeof this However, compared tothe The endresultisthatunlessadefendantpo The standardofanalysisproposedby per selegalityisinappropriate,asitdoe Sylvania Schwinn approachisclearlyinapt de facto isthatitdidnotlaydowninmore detailhowtheassessment underthe

per selegality.Compared withtheapproachidentified as as airtightexclusiveterritor ty in itsapplication andwere Schwinn era,the ard. First, althoughprevailing underthe e deploymentterritories. ofexclusive om theadministrative pointofview. Sylvania 152 Sylvania trust suitwithregardstothedeployment of competition was restrained i.e.eliminated. restraintacrosstheboard.Inaddition, es hasasubstantial market share iswhen the state ofthelawexclusiveterritoriescould And asshowninthetheoretical chapter, the and wasjustifiablyoverruled. openedthedoorforassessingboth ssesses substantial mark hasthe potential tobe closest to the s nottakeintoaccountthepotential Sylvania ies, making nodistinctionwith looking forshortcutsin order ill possible, especially if the anditsaftermath would is concept,thelower et power,itisvery Sylvania ruleof CEU eTD Collection the ruleofreason.This with regardstohorizontalcollusi some sortofhorizontalcollusion,ateitherup concerning theuseofexclusive te that one oftherareavenuesan characterize thetermination ofadistributionag violation. Taking intoaccountase exclusive territoriesnotonlyasa offer some degree ofsimplicity. although thisisnotthemostappositeapproach Sylvania use ofexclusiveterritoriescouldbecharacterizedasmost in thecontextofexclusiveterritoriesandotherwise. of verticalrestraintswhatfollowsisasimilar processwithregardstohorizontalcooperation– Following approach leaves theregulation ofvertical Sylvania could beasignthatafte , ithas become difficult tosuccessfully challengethe imposition of on thelawistiltingawayfrom vertical distributionrestraintbut antitrustplaintiffmay usein rritories isif hemanages to ries ofSupreme Courtdecisions 153 r aneffectiveantitrust reement asaboycott. stream ordownstream level.However,even in allaspects,itsa non-price restraints tothemarket forces; establish that thecaseinvolved pernicious.Inaddition,the per seillegalityandtowards order toprevail in acase alsoassome other antitrust , itisnowverydifficultto dvantage isthatitdoes At the moment itseems deregulation inthearea CEU eTD Collection supra EU competition law. This similarity isnocoincidence, as U.S.antitrust lawgreatly influenced theemergence of of ShermanActSection1,while prohibited theabuseofdominant position.Inawa Article 85oftheTreatydeal 896 895 894 in theTreatyEstablishingEuropeanEconomic Communityof1957(theRome Treaty). the most sourceofEUcompetitionlawhavebeencertainprovisions important initially found 4.1.1 4.1 agreements. that ithashadonthewayinwhichEUtr field. Theanalysisaffordsspecialattentionto the context ofexclusive distribut periods oftime. Inordertoachievethis,the analysis betweentheEUlawofexclusive terr judging thelegalityofthistype and compare itwithwhatthetheoretical chapter identified as themost appropriate rulefor 261 U.N.T.S. 140), which was later used asa basis waslaterused which U.N.T.S. 140), 261 Paris, of Treaty 1951 (the SteelCommunity of Coal and the European establishing the Treaty in provisions law finding an infringement. expressions could have some significant implications, such as the difference between market shares needed for monopolization while the TFEU speaks of abuse of In this respect Gerber describes how some American some American describeshow this respect Gerber In However, an important difference should be noted as well, as the Sherman Act provision refers to U.N.T.S. 298 11. The purpose of thischapter istopresent the note 618, at 337-42. at337-42. note 618, The legalframework The main sources of law The mainsourcesoflaw Since the establishment oftheEuropean Communities(now: theEuropean Union), 896 4

However,aswillbeshown inthischapter, inthe field of exclusive E XCLUSIVE

t withagreements restricting competition, whileArticle86 ofrestraint. Inaddition, th ion andgivesanoverviewofthe the lattercould becompared D ISTRIBUTION IN IN ISTRIBUTION for competition law provisions in the inthe Rome law Treaty. G for competition provisions dominant position. Thedominant difference two the between 154 chapter laysdowntheEU’slegalframework in scholars had an essential role in drafting competition competition in drafting anessentialrole scholars had the SingleMarket imperative andthe impact itories andthatof th EU’s approach towards exclusive territories y, theformer couldbeseenasacounterpart eats the legality of exclusive distribution e chapterperforms acomparative EU withSherman ActSection2.

most important cases inthis L AW e U.S.duringdifferent

ERBER 895 894 ,

CEU eTD Collection 903 902 901 900 899 898 897 Article 102TFEU. approaches thelegality of exclusivedistribution agreements. goal ofmarketintegration, authors whosuggestthatsome changesbroughtby remained practically thesame asintheoriginal TreatyofRome. are nowArticles101and102. the adoptionofTreatyon Artic Accordingly, Articles85and86became Treaty andamong therenumbered provisions we other aspectsofEUcompetitionpolicy. distribution thisinfluencewasnot infringement under 101(1) is lower than for establishing dominance under Article 102. dichotomy). D.G. Goyder, supra to the ofitsintent re of dominant regardless company, is theaction on thefocus under 102 and 6) sufficesforthe infringement; conduct – an ‘exploitative’ competition with blockexemptions; 5)unlikebreach of101, breach102 ofdoes not necessarilyhaveinvolve to restrictionof clauses may bedeclared void by cour by object; 3) 102 provides no sanction of automatic voidne dominance, and such exercise isnotthatimportant for101 cases, especially casesisto 102 in chief difficulty agreement; the 2) distinctions between Articles 101 and 102: 1) for 102 violations there is no need to show that there was an Whish, the firm infringement. for infringement, the isresponsible incase dominant itisonly that while of Article 102 all) Article 101, (or both of agreement infringes c the itcomesto adifference when isalso there Finally, by “internalmarket”. renamed the Treaty ofRome tothe Treatyestablis policy to the to internal market.”).policy competition subordinates explicitly 27 Protocol notorious the market, and internal areto the references only the Treaty]:the [of objectives the listof in competition to the reference of disappearance at367 (“[T]he 376, overlap, the standards of their application somewhat di policy law and the of EUcompetition objectives about debate comprehensive The only change seems to be regarding terminology, as the expression “common market” has been replaced Unless noted otherwise,this paper usesthenumbering. TFEU the TFEU). or Treaty (The Lisbon C115/47 OJ [2008] OJ [1997] C 340/1. Prior to that, the Treaty on European Union (the Maastricht Treaty, OJ [1992] C 191/1) E.g. See infra See Laura Parret, Laura , note 37, at 674. supra at674. 37, note Maschinenbau If entered into bya dominantfirm, anexcl The TreatyofAmsterdam Part 4.6. Shouldn't we know what we are protecting? Yeswe should! Aplea for a solid and 903 at 248; However,thistypeofagreement Consten-Grundig instances certain in and 102 101 Articles at 339. Although note 1o1, at 324-25. In addition, the market share needed for finding an 901

whichmay beof significance for thewayinwhichEUlaw 899 ts of Member States; 4) there is no such thing as 102(3), the same goes Despitethesechanges, thecontent ofthesaidprovisions has 897 Functioning oftheEuropeanUnion assignificantitmay havebeenwithregards tosome amended andrenumberedcertainpartsoftheRome the parties to the agreement will have committed an an committed agreement to the willhave the parties hing the European Community (the EC Treaty). accurately define the relevant markets to whichthe strict competition (whereas for 101 there is effect/object iseffect/object 101 there for (whereas strict competition 155 ffer. Accordingto D.G. Go onsequences of infringing these two provisions – if an if an – provisions two these infringing of onsequences les 81and82respectively.Finally,following ss of the prohibited conduct, however the offending theTFEUcouldbeseenasreinforcing usive distributionagreement may infringe re those dealingwithcompetition law. is generallychallengedunderArticle 902

when restriction of competition is competition of restriction when , E URO 900 yder, there are six main Nevertheless,thereare .

C.J. 898 See infra thetwoprovisions

2010, 6(2), pp.339- Part 4.3.2.2.1. CEU eTD Collection Jones, (1959). 520-21 516, U.S. 358 Kosuga, v. Kelly (1915); 174-75 165, U.S. Co., 236 Refining agreement infringingArticle 101,andnot competition law.TheECJhasclarified that thevoidness relates only tothepart of the refers tothe agreement asawholeoronly 908 907 P 906 905 904 set upasadefensebythirdparties. benefit fromtheexemption of101(3)hasnoeffect automatic nullitymeans thatanagreement 101(1) areautomatically void. States. collusion, 2)whichrestrainscompetition, 3) alleging aninfringement ofAr restriction or distortion of competitionwithin the internal market.” Therefore, a person affect tradebetweenMemberStatesandwhichhaveastheirobjectoreffecttheprevention, undertakings, decisionsbyassociationsofunde 101 consistsofthreeparagraphs.Thefirstparagraphprohibits“all 101 oftheTreaty the contract,courtallowed other cl of fromrest the severable restrictions illegal territorial the finding (upon 1973) F.Supp. 32, 41 Cir. (6th 362 Inc., severable from theagreement itself.Fo are not Article 101(1) partsthat infringe the when asa tothe agreement only whole apply would nullity the prohibition. by Act. the infring Shermanitself does Actifthe obligation not agreements. Asaresult, a party isnot released from an Maschinenbau Ulm GmbH(M.B.U.) (including exclusive distribution agreements), seeCase 56-65 2003). 2003). RIVATE RIVATE D.G. agreement those ofthe affected to parts only applies 101(2) by the prescribed that nullity held has Court The notcontain Sherman Act does the hand, other the On K For the proposition that Article 101(1) applies not only to horizontal but also to vertical agreements ORAH A New Dawn for Private Competition Law Remedies in Europe? Reflections from the US fromthe Reflections Europe? in Remedies Law A NewCompetition for Private Dawn 905

G The secondparagraphproclaim E OYDER NFORCEMENT OF NFORCEMENT

&

O’S , ULLIVAN

supra at 101, 138. note Maschinenbau 904 andforthisreasonpapermainly focusesonthisprovision.Article ,

supra EC

A note 41, at 57. note41, NTITRUST NTITRUST at 250. In other words, the Court has adopted a severability approach – the the – approach aseverability Court hasadopted the Inother atwords, 250.

[1966] ECR 235, at 248, and Consten-Grundig at and ECR 235, 248, [1966] 906 aimswith regards totheagreement). r U.S. lawsee American Indus. Fasten ticle 101(1)hastopr Asforthisissue, itmay be 908 L

AW 95, 101-02 (Claus-Dieter Ehlermann & Isabela Atanasiu eds., Atanasiu &Isabela Ehlermann (Claus-Dieter 101-02 95, s thatagreements ordecisionsdescribedinArticle 156 infringing Article101(1)andwhichdoesnot obligation arising out of an agreement in violation of the violation in agreement arising of an out obligation and whichmay affecttradebetweenMember necessarily tothe any provision with regards to the voidness of illegal voidness to the with regards provision any to its part whichis not in accordance with rtakings andconcertedpracticeswhichmay See asbetweenthepartie Société Technique Minière (L.T.M.) v D.R. Wilder Mfg. Co. v. Corn Products Products v. Co. Corn Mfg. D.R. Wilder ove thatthereis:1)some form of disputable whetherthevoidness disputable er Corp.er v.FlushingEnterprises, entire agreement. at 339. at339. agreements between s toit,norcanitbe See also , in E Clifford A. FFECTIVE FFECTIVE 907 This CEU eTD Collection do sotoanappreciableextent.This exclusive distribution agreement may affecttrad question istheapplicability of EUcompetition la chapter. regulations. Consequently,Articl provision, eitherindividually Exclusive distributionagreements canoftenbe Article 101(1) to agreements, 912 911 910 909 distribution agreement contains law evenif theparties arecoming from thesame Member State. activity. from differentMember States,asthisseems to States. the waysinwhichanexclusivedistribution Member States.”). Member States’ implies thatthere must be an impact on contained in Articles 81 and 82 of the Treaty, OJ [2004] C 101/81, paras. 44-57. products in question.” part of the asubstantial respect of in competition eliminating of the possibility undertakings such (b) afford objectives; (a) impose on the undertakings concerned restrictions which are not indispensable to the attainment ofthese progress, whileallowing consumers fairthe sharea of resulting benefit,and which does not: which contributes to improving the production or distribution of goods or to promoting technical or economic – any concerted practice or category of concerted practices, – any decision or category of decisions by associations of undertakings, “– any agreementorcategory of Fonderies JOT concept effect trade the on on Notice - Guidelines seeCommission appreciability, of assessment Foran may be that 101(1) notes paragraph Third See See Case 63/75 Case63/75 Effect on Trade Concept, para. 21 (“The requirement With regards totheEUenforcement inthe Finally, thethirdparagraphoffe At theoutset, this would bethe case if thesupplier and the exclusive distributor come 911 However,anexclusivedistributionmay [1976] ECR 111. ECR111. [1976] SA Fonderies Roubaix Wattrelos v Société nou agreements between undertakings,

or throughgroupexemption la decisions andpractices that satisfycertainconditions. a prohibitionofparalleltrade, e 101(3)willbepaidadditiona declaredinapplicable inthe case of: section mainly focuses ontheformer, rs the possibility of exemption from theapplication of 157 cross-border economic activity involving at leasttwo involving economic activity cross-border beaclearexampleofcross-bordereconomic agreement may affecttrade betweenMember e betweenMember Statesandwhetheritcan nefit from theexemption laid downinthis w. Basically,themain issuesarewhetheran thatthere must bean effect on trade ‘between field ofexclusivedist invoke theapplication velle des Fonderies A. RouxFonderies A. des andSociété des velle id downinblockexemption it isinherentlycapableof l attentionfurtherinthis 912 First,ifanexclusive ribution, athreshold of EUcompetition 910 i.e.itoutlines 909

CEU eTD Collection EU. EU andanexclusivedistributor 919 918 917 916 915 914 913 secondary legislationofrelevanceforthela the relevant case-law.Inaddition, asEUcompetitionlaw is characterizedby anumber of this reason,anassessment oftheEUlawexcl not sayexactlyhowthelegality 101 offersmoreguidancethanSherman ActS EU. volume ofthecontractedproductwasnot ofsales only iftherewasanappreciablepri EU. concludes a reciprocal exclusive distribution agreement withacompetitor from outsidethe one ofthetwocontexts.Onhand,this between MemberStatesevenifitinvolvesth if itisnot airtight, andeven if it affecting tradebetweenMember States. usage, haveconnection no with acceptance by the other parties ofsupp them therebydisadvan placing atacompetitive parties, co dissimilar apply (d) markets sources share or supply; of (c) investment; or development, technical markets, production, control limitor (b) conditions; trading other a Japanese and a German supplier). The paragraph states that itisprohib statesthat paragraph The Id. Javico See See See See 918 916 915 , para. 26. Effect on Trade Concept, para. 108. 85/618/EEC Effect on Trade Concept, para. 16. id. Ontheotherhand,thiswoul However,suchanagreement wouldbedeemed asbeingcapable ofaffectingtrade What ismore, anexclusive distribution agreement may becapableofaffecting trade By listingsome examples ofpracticeswhich areconsidered asprohibited, , para. 24 , paras. 89-92. Siemens/Fanuc the subject ofsuch contracts.” OJ [1985] L 376/29 (a reciprocal exclusive distribution agreement between between agreement exclusive distribution (a reciprocal L376/29 OJ [1985]

lementary obligations whic from athird country, if the agr covers onlypartofaMember State. ited to “(a) orindirectlyited to directly of exclusivedistributionagreements istobeappraised.For d bepossibleinasituation ce difference betweenthetwomarkets 913 Inaddition,anagreement ma 158 tage; (e) make the conclusion of contracts subject to to of subject contracts conclusion tage; (e)make the ection 1.Nevertheless,theprovisionstilldoes ird countries.Thiscoul w ofexclusivedistribution,thesearealso usive distributionalsore would bethecaseifa nditions to equivalent transactions with other trading trading withother transactions to equivalent nditions negligible intherelevantmarket insidethe h, by their nature or according to commercial fix purchase or selling prices or any prices or selling or purchase fix eement prohibited resale to the involving asupp 914

d generallyhappenin y alsohavethiseffect supplier fromtheEU quires ananalysisof 917 lier fromthe andif the 919 Article CEU eTD Collection 923 922 921 920 described asatotalsurplusstandard. as shownabove,theChicagounderstandingof“c not beconfusedwith“consumer welfare”in adopted anetconsumer welfarestandard no CommissionorCourtdecisionexplicitlysayi consumers isemphasized inotherplacesaswell. exempted onlyifconsumers receiveafair priority. To thisend,Article distributed isofrelevance.Moreprecise standard, in EUcompetition lawthe manner inwh aims apartfrom themaximization ofefficiency. addition,EUcompetitionprevailing intheU.S.In lawalso strivestoaccomplish some other gainsaretobe understanding ofhowefficiency enforcement. Chicago-style econom 4.1.2 legislation, areflectionon thegoalsof EUcompetitionlawisnecessary. addressed inthischapter.However,ordertoproperlyunderstandtherelevantcase-lawand provided that it is to consumers' advantage and does not form an obstacle to competition”). to competition”). form and does not obstacle an itadvantage consumers' that isto provided the the ultimate economic and interests and of consumers, intermediatedevelopment technical progress of and “the account takeinto should Commission the assessing aconcentration (when 2(1)(b) L24/1, Art. [2004] of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation), OJ consumer welfareand ofensuring an efficientallocati asameans the market on enhancing competition of istoprotect of Article [101] (“The para. 13 objective agreements to .to the therestrict competition on market on detriment consumers.”;101(3), of Guidelines M See supra See See supra OTTA As opposedtotheU.S. antitrustlaw,wh It hasbeenshownabovethat EU VerticalGuidelines, EU para.(“The 7 objective ofAr Goals ofenforcement ,

supra Part 2.4.2. Part 3.1.2. 920 note 190, note ThesituationinEurope differs in at

ic efficien at 19-20.

101(3)TFEUspecificallysti cy, arguablyconsideringitas the Americanantitrustpolicyat 923

asthe basisofitscompetition policy. ly, thegainsreceivedbyconsumers aregiven on of resources.”); Council Regulation (EC) No 139/2004 159 the wayChicagoscholarsunderstandterm –

share oftheimprovement. Theinterestof ich hasarguablyadoptedthetotalsurplus distributeddoesnotseem tomatch theone 921 ticle 101 is to ensure that undertakings do not use not use do that undertakings ensure isto ticle 101 onsumer welfare”couldbemore correctly ng this, it would seem that the EU has ng this,itwouldseemthattheEUhas Consequently,althoughtherehavebeen ich the gainsfrom efficiencies aretobe least two respects. First, theEuropean pulates thataconductwillbe theonlygoal thecenterofitsfocusputs 922 Thisshould of antitrust CEU eTD Collection 927 926 925 924 the latter. firm andtheissueofmarket integration, EU and efficiencymay conflict. with regards tothe implementation of exclusiv integration issuchthat itoften overrides so goals of the EUandtherebyalso of EUcompetition law. integration of theMemberStates’ markets into exclusive distribution is thesignificance that the Sherman Act. to beinterpretedwithhavingotherpartsoftheTreatyinmind, part of awiderdocument. Thismeans thatth unlike theSherman Act,which is astandalone not only efficiency but alsoso another differencebetween EUandU.S.antitrustpoliciesis thattheformer aims toachieve have been successfully abolished”. EU Vertical Guidelines, para. 7. [c]ompaniesshould allowed not be to re-establish privat enhances “[m]arket that Guidelines integration note consumers”. benefit of Gu the for the Community throughout that “thecreation and preservation of has also been emphasized by the Commission. For example, in its Guidelines on 101(3) the Commission notes & vCommission GmbH KG Co. Großmärkte Case similarmarket”. adomestic26-76 tothose of conditions market asingle achieving of observance of the basic requirements and the attainment of the ensure necessary to ofcompetition degree saythe that is to competition, market the workable on of occasion the Court noted that “[t]he Article [102], as well as to the syst aswellto the Article [102], para. 22 (“[When applying Article 102 TFEU] one has to go back to the spirit, general scheme and wording of necessarily consistent w consistent necessarily W SeeM Initsdecisions theECJ has repeatedlyemphasized the Case6-72 Apart from adifferentunderstandingabouthow With regards tothe values HISH OTTA ,

supra 927 Europemballage Corporation and Continental Can Company Inc. v Commission This hashadagreatinfluenceonthe ,

note 190, at 23 (“[P]romotion of market integration is a political objective which is not is not which is objective a political ofmarket integration supra (“[P]romotion note at 23 190, note 37, at 23. note37, ith economic welfare.”). 926 em and objectives of theemand objectivesof [TFEU].”).

requirement …thatcompetition shall not When there isaconflictbetwee Whenthere an open single market promotes an me other goals. Themain reason for thisdistinction is that, protected bytheTFEU, ofmost [1977] ECR 1875, para. 20. The importance of the Single Market competition in the European Union [and consequently] competition law has shown a tendency to favor competitionlawhasshownatendencytofavor 160 me otherobjectives.In e competition lawprovisions inthe TFEUhave e barriers between Member Stateswhere Statebarriers the Treatyaffordstothesinglemarket. The e distributionagreements, market integration importance of the single ma ofthesingle importance a singleEuropeanmarket isone ofthemain statute, EUcompetition law provisions are the objectives ofthe Treaty, idelines on 101(3), para. 13. Similarly, EU Vertical Vertical EU Similarly, 13. para. 101(3), on idelines legal treatment of exclusive distribution efficiencygainsaretobedistributed, efficient allocation of resources 925 n theinterestsofanindividual 924 be distorted implies theexistence Theimportance ofmarket whichisnotthecase with relevance for thelawof certain cases,including rket. Forexample, in one in particular the creation Metro SB- [1973] ECR 215, CEU eTD Collection Philips-Osram 94/322/EC competition law. connected withtheinfluence thattheordo other objectives.BasedontherelevantpartsofTFEU, 935 934 933 932 931 930 929 928 more lenient,approachto menti is firms medium small andmedium enterprises. for thediscussionaboutexclusiv seems topromote environmental the single European market. agreements inEUlaw,sincethistype ofagr Vertical Guidelines, para. 11. 11. para. Vertical Guidelines, under Article [101](1) of the [TFEU] (de minimis), OJ [2001] C 368/13 ( activities.”). and policies high level of employment shall betaken into consideration in the formulation and implementation of Union efficiency, protection of rivalryanda undertakings the Union, throughout undertakings of development the to and initiative Member and the Statessh Union exist, the industry 36. para. L20/14, [1993] 93/49/EEC market integration. further tocreateand jobs wassupposed agreement the that [1985] ECR 2545, para. 42. At least in one case the Commission granted exemption based which reference may behad pursuant to Article [101](3)”. Case 42/84 another casethe Court noted that “the provision of employ Case26-76 [101(3)]”. therefore] comes within the especi of production, theconditions “improves general one casethe Court exempted anagreement foritsfavora of implementation and formulation the in consideration based on Article 101(3) TFEU: 2000/475/EC look at consumerat look welfare, notat Some peculiarities of EU competition law – the insistence that consumers a arisein consumers get fair share that of insistence law the – EUcompetition of Some peculiarities Union's ofthe necessary forthe competitiveness that theconditions to the TFEU,inensuring According K of “[t]he objective statesthat TFEUexplicitly The Some examples of environemental considerations See See See infra ORAH Finally, EUcompetition lawtendsto emphasize Commission Notice on agreements of minor importance which do not appreciably appreciably restrictcompetition not do importance which agreements of on Notice minor Commission a of objective (“The 147(2) TFEU, Art. environment); of the protection (regarding TFEU, Arts. 191-193 Apart fromprotectingthesingl ,

Exxon/Shell supra Part 4.6. .”TFEU, Art. 173(1) (emphasisadded). OJ [1994] L 378/37 (lowering waste emission). waste (lowering L378/37 OJ [1994] note 619, at 619, 293. note 935 Metro SB-Großmärkte GmbH& Co.KGv Commission Forexample, inone of itsguidelines the Commissionexplicitly identifies OJ[1994]L 144/20 (loweringconsumption energyof and waste emission); 94/986/EC oned intheTFEUitself. framework of the objectives to which reference may behad pursuant to Article exclusive distributionagreemen the interests of small businessmen). 928 Compare with Compare

932 preferential treatment for SMEs, seem to have their roots in the teaching teaching in the their roots have treatment forSMEs,seemto preferential 930 e distributionistheEU’sfocu Thisgoalisrankedhigh,sincetheimportance and ofsmall andemployment policies. CECED e market, EU competition la

Leegin ould aim at “encouraging an environment favourable to a high level of employment shall be taken into into aofemployment be taken level shall high being taken into account wh eement could beseenas OJ[2000]L 187/47 (loweringenergy consumption); 161 ally when market conditions are unfavourable, [and [and areunfavourable, market conditions ally when Union policies andactivities” policies Union ble impact on employment, finding that the agreement , 551 U.S. at 906 (enforcement of antitrust laws should lawsshould of , U.S.atantitrust (enforcement 551 906 liberal ideas hadinthe formation ofEU 933 ment comes within the framework of the objectives to ofthe framework to the comesobjectives ment within Inaddition,theCommission hasaspecial, the importance of rivalry, whichcanbe ts inthecontextofSMEs. Remia BVand othersvCommission particularly small andmedium-sized De minimis 929 931 s onpromoting theinterestsof EUcompetition policyalso However,ofmore relevance [1977] ECR 1875, para. para. 43. In ECR 1875, [1977] w isalsofocusedonsome en exempting agreements a meansoffragmenting notice), para. 3; EU . TFEU,Art. 147(2). In Ford Volkswagen inter alia inter on the fact 934

OJ CEU eTD Collection (C-519/06 P) [2009] ECR I-09291, para. 63 (emphasis added). added). (emphasis 63 para. I-09291, ECR [2009] P) (C-519/06 Communities European the of vCommission (Aseprofar) farmacéuticos de productos españoles exportadores Companies (EAEPC) vCo GlaxoSmithKline Services Unlimited Unlimited Services GlaxoSmithKline 940 939 938 937 936 id the expressed extent into Treaty law the provisions competition of inclusion Gerber, ordoliberalism. with founding in the German leading representatives the since law, ideas the influenced EUcompetition significantly earlydevelopmentof the of Freiburg School. Ordoliberal distribution agreement. significance whenassessingthepossibility of agreement toinitiateasuitag enforcement aspects,especially concerning the competitors, whichisincontrast totheprevailing viewinthe U.S. here explicitly states that oneoftheaims proposition thatconsumers are a prerequisiteforthefindingofaninfringement This passage is important for at least tworeason a recent decisiontheCourt foundthat: rivalry with asanaim ofEUcompetition law. Commission of the European Communities Communities European of the Commission purchasing agreements, OJ [1983] L 173/5, recital 18 (refering to reseller’s commercial freedom). of application the on June1983 22 of No 1984/83 (EEC) (emphasis process.”) added). competitive the protect Article[101]isto of In including economic the innovation. other efficiency, dynamic the in words, of efficiencies aimshape ultimate the fact that recognises of Article 81(3) lastcondition The agreements. restrictive from result could which efficiency gains pro-competitive over priority potentially given Act] illuminates congressional concern with the protection of competition, not competitors.”). competitors.”). not theofcompetition, with congressional concern protection Act] illuminates Joined casesC-501/06 P, C-513/06 P, C-515/06 P and C-519/06 P, See infra See infra with Compare See Guidelines on 101(3), 101(3), on Guidelines

Related toourdiscussion,th competition interms necessary thatfinalconsumers bedepr for afinding thatanagreement has ananti-competitive object, itisnot structure ofthemarket and,insodo to protect not only like other competition rules laiddownin Part 4.3.2.2.2. Part 5.2.2.3.3. Brown Shoe Co. v. U.S., 370 U.S. 294, 320 (1962) (“[T]he legislative history [of the Clayton eas of ordoliberalism. eas of ordoliberalism. mmission of the Eu mmission of 940 supra note 618, at 263. Further, the Germans were major supporters of the para. 105 (“Ultimately (“Ultimately para. 105 Therefore,althoughEUcompetition the interestsofcompetitors of supplyorprice. (C-513/06 P) ainst theothercontractparty. at the centerofEUcompetiti (C-501/06 P) Id. ropean Communities at 264. is couldbeofrelevancewithregardstosome and European Association of Euro Pharmaceutical Pharmaceutical of Euro Association European and the protection of rivalry 162 ing, competition assuch.Consequently, 936 of Rome, and that way Articles 85 and 86 to a 86 great and 85 that way Articles of Rome, and of Article 101 istoprotect theinterests of 937 and Commission of the European Communities v Communities Commission the and European of Article 85(3) of the Treaty to categories of exclusive ofexclusive Article 85(3) categories theof Treatyto of the European Communities were closely associated associated were closely Communities European of the ofArticle101,thepa TheECJseems tobealongthesame line.In theTreaty,Article[101TFEU]aims rivalry s. First, by noting that ived of theadvantagesofeffective right ofapartytoan Article 101(3)exemption foranexclusive

between undertakingsisessential an driver of (C-515/06 P) (C-515/06 orofconsumers, butalsothe GlaxoSmithKline Services Unlimited v Unlimited Services GlaxoSmithKline on policy.Inaddition,theCourt See also 939 law doesseem toaffordmore Additionally, itmay beof and the competitive process is process competitive the and 938 and Asociación de de Asociación and Commission Regulation

ssage casts doubt on the ssage castsdoubtonthe exclusivedistribution consumer harm isnot

CEU eTD Collection criteria forexemption laiddownin101(3). Nevertheless, inpractice agreements restrictin 944 943 942 941 but theagreement’s procompetitive effectsco by itsobject,itonlymeans thatthereisnon that havethe restriction of competition astheirobject. that EUcompetition law offers the possibility 101(1). per seruleinU.S.law,sinceboth situatio effect. competition astheirobject from agreements thathavearestraint of competition astheir agreements. Namely, EUlawmakes adistinction competition lawalso recognizes competition law.Similarly tothe agreements, another importanti 4.1.3 is notcompletely clear. attention tointerests of consumers than U.S.antit ECRII-3141, para. 136. Nederlandse Spoorwegen (NS) and Société nationale des chemins de fer français (SNCF) vCommission (UK) Ltd, formerly European Passenger Services Ltd (EPS distortioncompetition.”). of the concrete effectsofan agreement once itappears that provided that all the conditions laid down in laid down conditions allthe that provided market,exempted, be ofitseffects agiven cannot on extent the whatever which, exist can practice competitive Joined casesT-374/94, T-375/94, T-384/94 and T-388/94 See E.g. Consten-Grundig Guidelines on 101(3), para. 46. 46. para. 101(3), on Guidelines , Case T-17/93 , CaseT-17/93 941 On theonehand,restrict Before proceedingtothecasesdealingwith Forms ofanalysis However,animportantdifference between at 342 (“For the purpose of applying Article [101](1), there is no need to take account of to takeaccount there is need no [101](1), Article applying of purpose the at (“For 342 Matra Hachette SA v Commission Hachette Matra

ssue toconsider aretheforms of analysisexisting inEU two typesofanalysis ofth ion ofcompetition byobjectca per se–ruleofreasondichotomyintheU.S.,EU Article [101](3) of the Treaty are satisfied.”). 944 163 eed foreconomicanalysisunderArticle101(1), it has as its object the prevention, restriction restriction or ithasasits prevention, the object [1994] ECR II-595, para. 85 (“[I]n principle, no anti- no principle, (“[I]n 85 para. ECRII-595, [1994] Anexclusivedistributionagreement coupled g competition bytheir object rarely meet the uld stillbeclaimed underArticle101(3). ns apracticeautomatically infringes Article of exemption evenwith regards topractices ), Union internationale des chemins defer(UIC), chemins NV des internationale ), Union rust law,the extenttowhichthisisthecase between agreements that have arestraint of European Night Services Ltd (ENS), Eurostar theAmerican andEuropeanconceptis 942 thelegalityofexclusivedistribution If anagreement restricts competition e legalityofrestrictive n becompared withthe [1998] 943

CEU eTD Collection European rule of reason-crossing the sea of doubt the need for in need a EEC reason rule the of antitrust

4.2.1 4.2 948 947 A 946 945 would regulateEUcompetitionlawinmore deta law treatsexclusive distribution agreements. the trendsset at this period have had agreat influence on thewaymodern EUcompetition reason itisimportanttoconsider distribution, oneneedstotakeintoaccountthe context inwhichtheyweredecided.Forthis exclusive distribution agreements asre discussion, itisimportant tonotethatEUco could becompared withtheruleofreason inAmerican law. Although therearesignificantdiffe object couldbefoundtoinfringe law byitsobject. with aprohibitionofparallelimports isgene Arts. 85 and and 86.” 85 Arts. or di regulations appropriate any adopt Parliament, European this Treaty the Council shall, acting unanimously on a proposal from the Commission and after consulting the inliterature. much discussed Sufrin & Richard P. Whish, Whish, P. Richard & Sufrin Georgios I.Zekos, [101] and the rule of reason Case C-279/87 Case C-279/87 of passive sales a hardcore restriction). generally considered as restricting competition by their object). object). their by competition asrestricting considered generally RBITRATION (1) thre theRomeof 87 Treaty,“[w]ithin Article original the to According The extent to which the EU law has adopted (or should See See Case 56/65 Case56/65 Consten-Grundig The earlycases In ordertobeableproperlycom The context On theotherhand,anagreement thatdoesnot The drafters oftheRomeTreatyhad inmi , Volume,, 25 Issue 1(2008), pp.1-29; Valentine Korah, Tipp-Ex GmbH & GmbH Tipp-Ex KGv Co. Commission Société Technique Minière (L.T.M.) Antitrust/Competition Arbitration in EU versus inEUversus U.S. Law Arbitration Antitrust/Competition 945

; Case GmbHvCommission 19/77 Schallplatten MillerInternational Article [101] and the rule of reason of rule and the Article [101] , 21 C , 21 See, e.g., OMMON OMMON

R See also some of thelegislati ENE Article 101(1)ifithasaneff M rences betweenthetwo,ina way thistypeofanalysis J ARKET ARKET , 3 OLIET straining competition by theireffect.

Guidelines on 101(3), paras. 20-23 (hardcore restrictions restrictions (hardcore 20-23 paras. on 101(3), Guidelines N W , E.C.L.R. 2002, 23(8), 392-399; Ernst Steindorff, ErnstSteindorff, , E.C.L.R.392-399; 2002, 23(8), , T . L

J. AW 164 HE

I v Maschinenbau Ulm GmbH (M.B.U.) rally considered asinfringing EUcompetition mpetition lawgenerally NT [1990] ECR I-261; Vertical BER, Art. 4(b) (prohibition R R p adopt) the American-style rule of reason has been ’ ULE OF ULE EVIEW il thanthepertinent articles of theTreaty. rehend theearlyEUcasesonexclusive L rectives to give effect to the principles set out in nd theneedforadoptinglegislationwhich L.

& , 7Y on relevantatthattime, especiallysince 639 (1984).

have arestrictionofcompetition asits B R US EASON IN IN EASON EARBOOK OF EARBOOK OF The rise and fall of provisional validity - validity of provisional fall The rise and . 320 (1981); Pietro Manzini, , J ect ofrestrictingcompetition. e years of theentry into force of A OURNAL OF OURNAL NTITRUST NTITRUST 946 E UROPEAN UROPEAN With regards toour considers non-airtight L I 947 NTERNATIONAL NTERNATIONAL AW

[1966] ECR 235. [1978]ECR 131; L (1967); Brenda AW 1 (1987); (1987); 1 The Article 948

CEU eTD Collection 35,000 agreements. M No. 7 (May, 1967), pp. 1594-1600, at 1598. at 1598. 1594-1600, pp. 1967), (May, No. 7 and conservative interpretations of ECcompetition law, Perhaps the Councilbelievedthatsuch asolution 957 956 C 955 954 953 952 951 950 949 style ruleofreasonintoEUco in practice,astheCommission soonbecam those earlydaysoftheCommunity.However,th a large extentprevented theconcurrent juri extended therangeofdecisionsfallingunderCommission’s ex 101(1), onlytheCommission couldgr Article 101(1). the righttograntnegativecl the solepowertogranttheseexemptions. had tobenotifiedtheCommission. envisaged thatallagreements forwhichthepa than fourdecades The firstpieceoflegislationtoth Decision of the European Court of Justice on Common Market Antitrust Law Antitrust Market onCommon Court Justice of European the Decision of Mkt. Rep. 8046 (Ct. of Justice of the European Communities, July July 13, 1966) Communities, the European Justiceof Mkt. Rep. (Ct.of 8046 Consten& Grundig-Verkaufs-GmbH v. Commission of the European Economic Community, 2 CCH Comm. to 102. apply does not exemptions of asthe possibility discussion, relevance for the current detailed discussion about the Regulation, see inArticles[101] laid down on competition the rules of 13/204. OMPARATIVE OMPARATIVE Onlyoneyearfollowing Note, ErnstSteindorff & Klaus Hopt, Regulation 17/62, Art. 4(1). I.e. priortothe adoption of CouncilRegulation (EC) No 1/2003 ofDecember 16 2002implementationthe on Articles theTreaty, and 86 of 85 OJ implementing [1962] No First Regulation 17: Regulation EECCouncil: See See id. Id. , Art. 9(1). Regulation 17/62, Art. 9(3).Member States were also One ofthesuggestedsolutionsforthispr Although theauthoritiesofMember States werecompetenttoapplyArticle International Law. Treaties. Application of Antitrust Law under the Treaty of Rome. Etablissements Etablissements Rome. of Treaty the under Law Antitrust of Application Treaties. Law. International , Art. 2. , Art. L AW 953 , Vol. 15, No. 4 (1966 - 1967), pp. 811-822, at 821. 821. at 811-822, pp. 1967), - (1966 4 No. 15, Vol. ,

950 ONTI represented the basis of antitrust enforcementinthe EU. Theregulation ,

the adoption of Regulation 17/62Commithe adoptionof the supra noteat 45, 397. EuropeanEconomic Community-The Grundig-Consten Case, aLandmark earance foragreementswhichinitsopiniondidnotfallunder

mpetition law.Thiswouldhavemeant thattheweighingofpro at purposewasCouncilRegulation17/62, infra 951 SubjecttoreviewbytheECJ,Commission had 952 Part 5.2.1. ant Article101(3)exemptions. e flooded bynotificationsfor exemption.e flooded Inaddition,theRegulationgaveCommission 165 and [102] of the Treaty, OJ [2003] L 1/1. Fora Treaty,OJ L1/1. ofthe moreand [2003] [102] sdiction ofnationalco rties wantedtoseekArticle101(3)exemption oblem wastheintroductionofanAmerican- is solutionhadalsocausedcertainproblems was necessaryinorder toinsure consistent authorized to apply Article 102, but this is this not of Article 102, but toapply authorized 956 whichwasespeciallyimportant in ssion had receivedover had notificationsof ssion , H , T ARVARD ARVARD HE clusive jurisdictionandto A urts andauthorities. MERICAN L AW 949 954 R which for more whichfor Thissolution J EVIEW OURNAL OF 957 , Vol. 80,

955

CEU eTD Collection 961 960 959 958 legality ofexclusive Supreme Courtdecided territories starteddevelo concentrations. integration, theSherman Actwasfocusedmo when theU.S.market wasalreadyintegrat could beseenashampering thisprocess.Ontheotherhand,American antitrustlawemerged competition lawaffords tomarket integration, andthe imposition of exclusive territories developed relativelylate.Themain reasonfor U.S., where,compared tosome otherfields before anyotheraspect as early1964.Actually,itcouldbesaidth 4.2.2 time. the earlycasesneedtobeconsid inefficiencies. and theCommissionwouldgetinvolvedonlyif 101(3) to101(1).Insuchaca assessment about theagreement’s impact on determining whetherthe agreement infringes 101(1). and anticompetitive aspects of an agreement française 1SA(TF1) CarlH. Fulda, K M See ORAH ONTI Case T-112/99 CaseT-112/99 The Comm theCommission Cases before ,

& supra

O’S note 45, at 30. note45, 959 ULLIVAN Antitrust in the European Community Economic in theEuropean Antitrust 961 However,sincetheCommissionand v Commission [2001] ECR II-2459, para. 68. ECRII-2459, [2001] Commission v Despite these differences, itisinteresting that the lawof exclusive Métropole télévision (M6), Suez-Lyonnaise des eaux, France Télécom and Télévision ission haddiscussedanddecided ission territories came in1964. ,

supra of EUcompetition law. ping atapproximately thesame time White Motor note 41, at 59. note41,

se partiescouldimplement an ered inthe light of thenotification system inforce atthat in1963,whilethefirstCommission decisionsonthe 166 960 at thelawofexclusivedistributionemerged competition wouldhavebeenmoved from re onabusesofeconomic powerbylarge ed; consequently,rath of antitrust, thelawof vertical restraints this discrepancy isthe importance thatEU would take place already atthe stageof Thisisin contrast withthesituationin theimplemented agreement resultsin 958 cases concerningexclusive dist , 41 Hadthis system beenintroduced, the

ECJ hadnotadoptedthisapproach, T EX onbothsidesoftheAtlantic: .

agreement withoutnotifyingit L.

R EV .

391, 393-94 (1963). (1963). 393-94 391, er thanon market ribution CEU eTD Collection Blondel (refusing toexempt anexclusive distribu 967 966 965 964 963 962 trade betweenMember States.Althoughitmay be Commission’s toughstancetoward should beheld. it merely concludedthatasummary decisionwas Motor the Commission seems havegonedeeperin to White Motor early EUcasescould beseenasbeing inlinewith theAmeri towards exclusive territories, as can besaidtohavesurviveduntilthepresentday. parallel trade). Thesecasesareimportant beca trade); Hummel-Isbecque on thegroundsthateffectof Grosfillex-Fillistorf note 955,at 814-15. 66/5/EEC 66/5/EEC 65/426/EEC 65/366/EEC 64/566/EEC 64/233/EEC For a summary of the early Commission case-law on exclusive distribution, see Steindorff & Hopt, did notsaythatverticalrest Maison JallatteS.A. Some of the firstCommissiondeci The secondprinciplethatcanbeinferredfr First, right from thestartCommission 965 (exempting an exclusivedistributionag OJ [1966] OJ S.A. Jallatte 3/37.Maison alsorefusedtocondemn vertic Hummel-Isbecque D.R.U.-Blondel Grundig-Consten Grosfillex-Fillistorf 966 963 (exemptinganexclusivedistributi (grantinganegative clearance to OJ [1065] 131/2194. 967 OJ[1964] 161/2545. OJ [1965] 156/2581. OJ [1964] 58/915.

(exempting anexclusive distri it didnotconsider them illegal raints shouldnotbejudgedunderperseillegality. Rather, s exclusivedistributionagr agreement was outsideoftheEC); tion agreement prohibiti al territorialrestraintsas 167 to thesubstancethanSupreme Court. sions onexclusivedistribution use they established certain principles which not appropriateandthatatrialonthemerits om theearlyCommission decisionsisthe has hadarelativelybalancedapproach disputable howjustif reement notprohibitingparalleltrade); on agreement notprohibitingparallel an exclusive distribution agreement bution agreementnotprohibiting can approachofthetime, since eements prohibitingparallel ng paralleltrade); per se per per se . In thisrespect the Grundig-Consten iable thisapproach illegal. However, 962 included: supra D.R.U.– White 964

CEU eTD Collection 972 971 970 969 968 101(2) TFEUmeans thatthewholeagreement 17/62. Secondly,theFrenchcourt other Member Statesandhasnotbeennotified totheCommission pursuanttoRegulation legality ofanexclusivedistributionagreemen Court made areferencetotheECJ. infringed Article101 TFEU.Inaccordance suit, L.T.M.appealed to the ParisCourt of Ap contract before theTribunal de CommercedelaSeine. After the Seine court dismissed the company claimed weredefective.Consequentl Maschinenbau’s productsinFrance. products inothercountriesandMaschine between thepartiesdidnotprohibitparallel was itsexclusivedealer for the territory of was a1965rulingin 4.2.3.1 4.2.3 similar approachhasalsobeenadoptedbytheECJ. is, EC. Article177 Then Thearefacts based on: Steindorff &Hopt, supra Case56/65 968 Maschinenbau See infra theCommission haskeptpursuin

The first ECJ decision dealingwith thelega The ParisCourtbasicallyaskedECJtwoquestions. At onepointMaschinenbaudeliveredsix ECJ cases Maschinenbau wasaproducerofindustrial Maschinenbau Maschinenbau Part 4.6. Société TechniqueMinière(L.T.M.) at 247: Maschinenbau.

969 asked iftheexpression“auto Thefactsofthecase canbesummarized asfollows. g iteversince.Aswillbeshowninthenextsection,a v Maschinenbau Ulm (M.B.U.) GmbH Ulm vMaschinenbau note 955, at 815-16. at815-16. note 955, withwhatis nowArticle267 TFEU, 168 France.Theexclusive distribution agreement imports –L.T.M.couldsellMaschinenbau’s t thatdoesnotprohibitparallelimports from peals, arguing thatthedistribution agreement y, L.T.M.suedMaschinenbauforbreachof nbau’s German wholesalerscouldsell containing aclauseprohibitedbyArticle mechanization from Germany, andL.T.M. bulldozers toL.T.M., whichtheFrench lity ofexclusive distribution agreements 972 First,itinquiredaboutthe matically void” [1966] ECR 235. 971 inArticle the Paris 970

CEU eTD Collection occur intheabsenceofagreement. competition oneshouldconsidercompetition withintheactualcontext inwhichitwould economic approach.The Courtnotedthatinassessingwhetheranagreement restricts describing howthelegalityofexclusivedistributions istobeassessed,theCourthintedan circumstances, withaspecial emphasis on Rather, theiranticompetitive potentialhasto 979 978 977 976 975 974 973 to that – exclusive distribution agreements arenot illegal contain aprohibitionof protecting the exclusivedealership shouldalso exclusive territoriesisnecessary agreements. agreement andwhethertheagreement isofisolatednature or is partofaseries quantity oftheproductscoveredbyagreement, factual situation ortotheseverity of the agreements are alsonot notified doesnotautomatically alone. 101(1) isvoid,orwhetheritpossibleforthe with with

But see Id Id Id Id. Id Id. Maschinenbau . . . . at 250. at 248. According totheCourt,factorsbeconsid Therefore, theCourtconfirmed whatthe At theoutset,ECJfoundth J OLIET 976 TheCourtespeciallymentioned thatofrelevanceiswhethertheimposition of note 946, at 173 (arguing that the early the that , supra at (arguing 946, 173 note as they did not undertake the market an parallelimports. per selegal,astheymay infringeArticle101(1)duetoaparticular

infringeArticle101(1). forpenetratinganewmarket. 975 at anexclusivedistribution 978

possible prohibition

clauses protecting theexclusive dealership. 169 be assessedtakingintoaccountthesurrounding be taken into account, especially whetherthey nullity tobelimited totheprohibitedclause Commission decisionshadestablishedprior alysis later prescribed the by Court). alysis laterprescribed ered inthisrespect include the natureand themarket positionof Commission decisionswe 973 However,theCourtnotedthatsuch per se,northeyarelegal of parallelimports. 977 Theseverity of theclauses agreement thathasnotbeen re notin accordance thepartiesto per se. 974 In 979

CEU eTD Collection 982 981 P 980 those chargedforGrundigproductsinGerma sales inFrance.Thiswasdespitethefactthat was rathertheresultofparallelimport from othermarkets. way itwaseasierfortheparties sold inFranceweretohavethemark “GINT” under thetrademark (whichstandsforGrundigInternational), GINT Member States.Theterritorial imposed anairtightexclusive territoryi Consten’s areaofresponsibil France. Similarly, Grundigprohibiteditsotherdi repair serviceforGrundigproducts. Consten alsoundertooktoadvert agreed nottosellcompeting productsofother distributor ofcerta with theFrench firm Consten.According tothe agreement, Constenwastobethe exclusive summarized asfollows. most importantECJdecisionregardingexclusiv Although 4.2.3.2 Judicial Harmonization of National Law and Treaty Law in the Common Market ENNSYLVANIA ENNSYLVANIA Grundig had similar arrangements with distributors in The products included radios, television sets, tape recording, and similar equipment. The facts are based on: Note,

In 1957,theGerman firm Grundigenteredin As aresultofthisarrangement, Constenmanaged tosignificantlyincrease Grundig’s According tothecontract,Constenagreed Consten-Grundig Consten-Grundig L AW Maschinenbau R EVIEW in Grundigproducts 980 , Vol. 115, No. 6 (Apr., 1967), pp. 855-889; Steindorff & Hopt, Hopt, & Steindorff 855-889; pp. 1967), (Apr., 6 No. 115, Vol. ,

note 956; Lawrence F. Ebb, F.Ebb, supra Lawrence 956; note ity, i.e.insideofFrance.

protectionwasstrengthened wasthefirst, to observeifaproductwasintendedfortheFrenchmarketor ise GrundigproductsinFrance 981 nvolving aprohibitionofparalleltradebetween fortheterritory ofFran 170 Consten-Grundig isgenerallyconsideredasthe ny. However,problems startedin1961,when France as wellas with its wholesalers in Germany. priceschargedbyConstenwerehigherthan togetherwiththe“Grundig”trademark. This manufacturers (anexclusive dealing clause). e distribution. Thefactsofthecasecanbe stributors toselltheir productsinsideof nottosellGrundigproductsoutsideof 982 to anexclusivedi Therefore,thedistribution agreement The Grundig-ConstenRevisited: Case by anagreement aboutselling and maintain awarrantyand , U ce. Inaddition,Consten NIVERSITY OF NIVERSITY as allGrundigproducts stribution agreement note 955. 955. supra note CEU eTD Collection 985 984 983 words, theCourtignoredpossiblepositive effects thattheintroduction of anewbrandwould limited itsanalysis tothe effect thatthearrangement hadonintrabrand competition. Inother Article 101(1), declaring that thewholedist annulment oftheCommission’sdecision.Apart Grundig wasvoidinitsentirety. France. TheCommission alsofoundthatthe Grundig andConstencannotpreventthirdpart Article 101(1),thatconditions forexemption laid the Commission foundthattheexclusiveagre between Consten and Grundigwas indeed its proceedings. Article 101TFEU.Pendingdeci Commission allegingthattheagreementbetween appealed to theParisCourtofAppeals.U.N. acts of unfair competition. against U.N.E.F. beforetheCommerce Courtof then sellingthoseproductsinFranceforapricelowerthanConsten’s. certain Frenchfirms started competition. Note, Note, competition. a duty to refrain from invading that territory, and a violation of this duty represented an act of unfair 64/566/EEC time,knowin law to the French of anyone According Consten-Grundig In assessingthelegalityofarrang Acting uponU.N.E.F.’scomplaint, theCommission foundthattheagreement One suchfirm wasU.N.E.F.Followingth Grundig-Consten 985 supra at 344. theCourtdismissed theappeal. note 956, at 1594. at 956, 1594. note 983 OJ[1964] 161/2545. buying Grundigproductsfrom dealerslocatedinGermanyand Followingthecourt’sdecisionin ribution agreement wasvoidandnotonlythepartsviolating sion bytheCommission,ParisCourtofAppealsstayed Consten andGrundigthenappeal in violation ofEU competition rules. 171 ement betweenGrundigandConsten,theCourt ement betweenGrundigandConstenviolated distribution agreement betweenConstenand E.F. alsomade afilingwiththeEuropean the Seine,allegingthatU.N.E.F.engagedin g of the existence of an exclusive territory territory was under exclusive ofan existence the g of GrundigandConstenviolatedwhatisnow ies from importing Grundig productsinto ies fromimportingGrundig downin101(3)werenot fulfilled,andthat from findingthattheCommission erredin is development, Constenbroughtasuit favorofConsten,U.N.E.F. ed totheECJ,seeking 984 Inshort, CEU eTD Collection 990 989 988 987 986 example, theyarguedthatintheabsenceof the prohibitionofairtightexclusiveterritories wouldhave several those aspectsinto account when efficiency-enhancing aspects oftheir agreemen exemption tothearrangement athand.Inth that issufficient for ittobe U.S. styleruleofreasonanalysis could saveitfrom theprohibitionofthisprovision. the Common Marketinfringes101(1),andnopossiblefavorableeffectsoftheagreement competition. avoid theprohibitionofArtic the intrabrand one,itdoesnotmean thatanag According totheCourt, although interbrand co contracts on interbrand competition. applicable, theCommissionshouldhaveconsider competition willbediminished. product differentiation–themo interbrand competition atall.Inthisrespect questioned whetherthe allegedprocompetitive effects of exclusive territories improve have oninterbrand competition intheFrench market. makes”. makes”. K Id. Id. Id. Consten-Grundig ORAH at 343. competiti refers tointerbrand Court at The 342. Id. The applicants in The Courtalsoupheldthepartof &

O’S 989 ULLIVAN Consequently,theCourt heldthat an agreement thatdistorts competition in at 343. ,

supra Consten-Grundig suggestedthat,priorto prohibited,evenif note 41, at 61. note41,

987 decidingnottogranta101(3) inthelightof101(1)–ifan le 101(1)merely becauseit re productdifferentiationthereis,themore theupstream

988 However,theCourt rejectedsuchanapproach. on as “competition between similar between of products as “competition different on 172 it hascertainefficiency-enhancing sides. reement restricting intrabrand competition will the Courtemphasizedthe negativeeffects of is respecttheapplicantsemphasized some Commission’s decision t, notingthattheCommission didnottake mpetition is generally more noticeablethan airtight exclusive territories the exclusive ed theeconomic effect 990 Inotherwords,theCourtrejected the 986 Whatismore, the ECJ even agreement distortscompetition exemption. Theyargued that might increaseinterbrand declaringArticle101(1) negative effects.For not togrant101(3) s ofthedisputed CEU eTD Collection efforts. applicants, concluding that thepresence of intrabrand competition actually stimulates dealers’ conclusion wouldseem tobevalideventoday. Although alotoftime haspass would bediscouragedduetofree-ridingbyparallelimporters. and that in theabsence of absolute territoria 999 998 997 996 995 994 993 992 991 taking intoaccountthatthedistributionag products inFrance. account theriskandinvestment thatConste of economic integrationthanonthepromo led some authorstonotethat might besuchastofrustratethemost distributor whichmight tendtore single market. InthisrespecttheCourtnoted all thesearguments andupheld manufacturer’s reputationwouldsuffer; provision ofguaranteeandafter- distributor wouldnotbeinapositi K Note, Consten-Grundig Id. Id. Id. Id. Id. Id. ORAH at 340. at 348-49. at 349. at 348. 998 As mentioned, the Courtexplicitly rejected Perhaps themost important aspect ofth supra ,

Thispartofthedecisionhasbeencritici supra note 956, at 1600. at 956, 1600. note note 619, at 619, 76. note at 343. 999 Accordingtothisargument, Conste Consten-Grundig

theCommission’s reasoning. sales servicewould beendange store thenational divisions intradebetweenmember states ed sincetheECJrenderedConsten-Grundig,a similar on toengageinadvanceplanning; fundamental objectivesoftheCommunity.” 992 thatenteringanew market wouldbehindered; n undertookwhenagreeingtopromote Grundig 173 reement withGrundigwasconcludedin1957 l protection the exclusive distributor’s efforts focused EU antitrust law more on the problem focusedEUantitrustlawmoreontheproblem tion ofeconomic competition ingeneral. that“[a]nagreement betweenproducer and e decisionistheCourt’semphasison zed onthegroundsthatit the free-rider argume free-rider the n’s sunkcostswereespeciallyrisky 995 994

However,theCourtrejected red and thatasa result the 991 thattheappropriate nt proposedbythe didnottakeinto 996 Thishas 993 997

CEU eTD Collection 1004 B 1003 1002 1001 1000 interbrand competition. Bothdecisions held that connects thesetwocasesistheirapproach to territories are first glance,thereisnotmuchsi interbrand competition. competition, On theotherhand,bynotcondemning ana infringement of101(1),refusing ECJ foundthattheeliminationofintrabrandco failed toadequately analyze the relevant interbrand competition. Commission’s analysisofthearrangement be Grundig, explicitly turned theCourt’s attention to more interesting considering thefact interesting tocompare thesetwocases. considered asahero. commentators havenotedthattheCourt’sfi uncertainty withregards toobtainingimport licenses. was supposedtoinvestinthepromotion ofGrundigproductseventhoughtherewas while tradequotasinsidetheEC market integration.”). integration.”). market because his sales fosterthe free movement ofthe bran promotional or servicing efforts of the dealeron fromexporting one rise tofreerides give may Parallelimports indeed rationale. imports OUND OF OUND Ebb, Fora comparison between Gyselen, Id. Id. at 60. As Apart from supra at858. note 980, P OWER supra Consten-Grundig White Motor per seillegal, while 48-50 (1997). note 240, at 649 (“The free rider rationale . . . is conceptually antithetical to the the parallel to antithetical .isconceptually at (“The free rationale 240, 649 note rider White Motor 1002

White Motor White couldbe seen asatleast implic wasdecidedonlythreeyearsafter one local dealer. Inthe

, milarity between thetwocases - to considerpossibleadvancem wereabolishedonlyin1961. Consten-Grundig Consten-Grundig waslessfar-reaching. Nevertheless, what and Consten-Grundig and 1003 that KarlRoemer, AdvocateGeneralin Theconnectionbetweenthetwodecisionsiseven d within the common market andthus contribute to 174 wards therelationshipbetweenintrabrandand tween GrundigandConstenwasflawed,asit thefact that intrabra nding ineffectmeans thatafree-rider is Commission’s eyes, however, the free rider is a hero mpetition can in itself be sufficient for an mpetition caninitselfbesufficientforan could also becompared withSchwinn.At rrangement thatelim White Motor , see G 1001 itly recognizing theimportance of UILIANO UILIANO With regards to this, some ent ofinterbrandcompetition. 1000 Schwinn heldthat exclusive 1004 . Roemer arguedthatthe White Motor Thismeans that Consten A However,asnoted,the nd competition has been MATO ,

A inated intrabrand NTITRUST AND THE THE AND NTITRUST , itcouldbe Consten- CEU eTD Collection agreement infringesSherman 1. ActSection American lawdoesnotrecognizethepossibility Supreme Courtin an arrangementtobeexempted at101(3)st infringement of101(1),theECJ’sdecisionin stage. Therefore, despite finding thatrestri Article 101(3)–bothproandanticompetitive aspect legal consequencesoftheirfindings.Asmen brings tointerbrandcompetition. sufficient for aviolation of antitrust laws,rega of intrabrand competition: both cases foundthat Therefore, restricted issufficienttofindaviolation,regardlessofpossibl a territorial protection totheexclusive distributor either legalorillegal;ontheotherhand,exclus afforded some sortofarulereason, andbased onthecircumstances ofthecase they canbe and ECJ’s reluctancetooverrule itsowndecisions. law, explicitlymentioned intheTreaty. Onthe reasons. Ontheonehand,thiswouldbedueto when thesetwocasesweredecided,thebasicelements have remained the same. per se Consten-Grundig wasthefollowing:non-airtightexcl Based ontheabove,itcanbeconclude Nevertheless, animportant di This stabilityofthelawexclusivedi prohibition.Althoughsome elements of this Schwinn and Schwinn hadasaresult Consten-Grundig adoptedthesame approach fference betweenSchwinnand age. Ontheotherhand,asimilar findingbythe 175 per seprohibitionofexclusiveterritories,since Consten-Grundig ction ofintrabrandcomp tioned, inthe U.S.there isnosuchthingas the singlemarket objectiveofEUcompetition ive distributionagreements affordingabsolute Even thoughtheEUlegal orderdoesnothave d thatthecombined effectof stribution couldbeexplainedbymainly two are subject towhatcould becharacterized as other hand,thiscouldbe connectedwiththe rdless of possible gains that the restriction of exemption onceithasbeenfoundthatan the restrictionofintrabrandcompetition is s ofanagreement arejudgedatthesame approach have changed since the time approachhavechangedsincethetime usive distributionagreementsare e procompetitive justifications. still left a possibilityfor such are the the Consten-Grundig are towardsthe etition leads to an Maschinenbau restriction

CEU eTD Collection implications for EC competition law for ECcompetition implications up to Fallibility: Precedent and the Court of the Justice and Precedent to up Fallibility: 4.3.1 4.3 the U.S. significant andsuddenchangesinth legality of exclusive distribution agreements intheEU– EU competition lawhasnothad combined effect ofthesetwoconsiderationshas beenarelativestableapproachtowardsthe 1008 1007 1006 1005 only exclusivedealing,Regulation block exemptionin1967,containedRegulation67/67. was abolished. lose ontheir importance evenwhenthenotifi pursuant toRegulation17/62.Howeve enable theCommission toeaseth types of agreements. Atthetime oftheadoption, themain goalof this regulation wasto 19/65, the Commission. Thelegalbasisfortheseexem approach towardsexclusivedist bound toitspreviousdecisionthanitis a formal system ofprecedentasthe U.S.does, applies to the General Court, even where its decisions have been upheld by the ECJ. by the upheld have been itsdecisions where to the General Court,even applies its previous decisions but in practice it does not often depart from them.”). According to Amull, the same Treaty tocertain categories of exclusiv categories ofagreements and concer Regulation No 67/67/EEC of the Commission of 22 March 1967 on the application of Article 85 (3) of the Regulation No 19/65/EEC of 2 March of the Council on application of Article 85 (3) of the Treaty to certain Jones, Alison See supra Developments afterConsten-Grundig Developments 1007 Following The significanceofblockexemptions With regardstoexclusivedistributionag whichempowers theCommission toissu Part 3.6. Completion of the revolution in antitrust doctrine on restricted distribution: Leegin and its and Leegin restricted distribution: on doctrine in antitrust revolution of the Completion Maschinenbau andConsten-Grundig

, 53 A , 53 ted practices, OJ [1965]36/533. e dealing agreementse dealing ribution agreements havebeen e congestionarisingoutofala NTITRUST NTITRUST 67/67 alsocoveredwhatthispaperconsidersas exclusive e wayittreatsexclusiveterritori r, itshouldbenotedthat , 30 CMLR, 30 B the casewithU.S.Supreme Court. 176 ULL cation system establis . 903, 956 (2008). (2008). 956 903, . 1005 , OJ [1967] 57/849. 57/849. , OJ [1967] reements, theCommission issueditsfirst ptions iscontainedinCouncilRegulation EV theECJwouldseem tobeevenmore e group101(3)exemptionsforcertain 247, 248 (1993) (“[The ECJ] is not bound by 1008 , perhaps Althoughinits titleitmentioned groupexemptions grantedby See also the groupexemptions didnot rge numberofnotifications themain trait of EU es ashasbeen hed byRegulation17/62 Id. Anthony Amull, Anthony at 262. at thecasein Owning 1006 The CEU eTD Collection exemption toabsolute territorialprotection. 1013 1012 1011 1010 1009 economic Thiswasthefirst considerations. in assessing thelegality of anexclusivedistribution agreement itdidnot takeinto account morefact thatitwas detailed regulation didnotbringmany changesintothe law ofexclusivedistribution,apartfrom the month beforetheSupreme CourtdecidedSchwinn,i.e.itwasvalidthroughoutthe parties. With regards to the comparison with prescribed by theBER, exclusive distributionagreement. Aslongasan economic considerations, themost important be exclusive distributorsfo distribution agreements, i.e.arrangements wh distributorship. exemption regulationdealingsolelyw exemptions. Ofmost relevanceforourdiscu agreements containingaprohi EU approachhadacomparable of theU.S.–while era. DuringthatperiodtheEUlawofexclusive [1988] L 359/46. L359/46. [1988] November 1988applicationthe on ofArticle 85 (3) of of exclusive purchasing agreements, OJ [1983] L 173/5 and Commission Regulation (EEC) No 4087/88 of 30 to categories Treaty of the [101](3) of Article application the on 1983 June 22 of 1984/83 (EEC) No Regulation Treaty tocategories of exclusive distribution agreemen Commission Regulation (EEC) No 1983/83 of 22 June 1983 on the application of Article [101](3) of the the of [101](3) Article of application the on 1983 June 22 of 1983/83 No (EEC) Regulation Commission See See id. See id. Id. , Art. 1(1). D.G. The main shortcoming of thisblockexemp In 1983theCommission startedreplacingRegulation67/67 , Art. 3(a). 3(a). , Art. , Art. 3(b).

G OYDER 1009 , supra Theregulationfollowed Schwinn note 101, at 170. at note 101, 170. r differentterritories. 1012 itwouldbeexempted regardless condemnedtheuseofexclusive territories acro

bition ofparalleltrade. than Regulation67/67.Itwasalso approachonlywithregard ith exclusivedistributionagreements. block exemption followingtheSupreme Court’s 1010 ssion, thatyeartheCommissionadoptedablock 177 1011 theTreaty tocategoriesof franchise agreements, OJ ts, OJ [1983] L 173/1. The other two were Commission the U.S.,blockexemption wasadoptedone ere manufacturersere would Consten-Grundig Italsodidnotexempt

agreement would satisfytheeightelements distribution wasactuallylessstrict thanthat ing themarket powerofthepartiesto tion was that it did not take into account tion wasthatitdidnottakeintoaccount ofthemarket positionofthe inthatitdidnotafford s toexclusiv formalistic inthesensethat with anewsetofblock appoint eachotheras reciprocalexclusive ss theboard, e distribution 1013 Thenew Schwinn

CEU eTD Collection do –introducethe the findingsofeconomic theory. thereby making animportant steptowards aligni first timementioned market sharesneededfo including thosepertainingtoexclusive distribution.Inaddition,theblockexemption forthe preceding blockexemptions, Regulation 2790/1999appliedtoallvertical agreements, marked theCommission’s newapproachtowardsve This regulationbroughtsignificantchangescompar 1019 1018 1017 1016 1015 1014 criticism, anewblockexemption waseagerlyanticipated. economic impactratherthan and insteadproposedthatdistributionagreemen and thereforeshouldbeabolished. criticized the notification system, notingthat it broadly, condemning agreements even with on severalgrounds.First,hearguedthatth and well-reasonedcriticismcame this didnothappen,tothedi towards amore economic and lessformalistic ap decision in Treaty to categories of categories vertical Treaty to Commission Regulation (EC) No 2790/1999 of 22 December 1999 on the application of Article 81(3) of the BarryE. Hawk, See id. Id. Id. Id. at 986. at 984. at 974. It canbe saidthatthe1999 regulationacco In general,thethreeregulationswerewide The nextblockexemption came in1999,theform ofRegulation2790/1999. , Art. 3. , Art. Sylvania System Failure: vertical restraints and EC competition law ECcompetition and restraints vertical Failure: System , anditmight havebeenexpectedth Sylvania-style analysis into EUcompetition law.However, the system agreements and concerted pr actices, OJ [1999] L 336/21. sappointment of on thebasisof

fromProfessorBarryHawk. 1016 Inaddition,hecriticizedtheCommission’s formalism theirform. littleornoanticompetitive effects. e Commissionwasapplyi 178 many observers. r finding aninfringement proach towardsverticalrestraints.However, mostly serves toincreasetransaction costs, ng theEUlawofexclusive territorieswith ts shouldbejudgedonthebasisoftheir ly criticized. Perhaps mplished whattheprevious onefailedto ed tothepreviousblockexemptions and rtical restraints. Tostart with,unlikethe 1017 at theregulationwouldmake amove Takingintoaccount this and other 1014 Heattackedtheregulations , CML

ng Article101(1)too ofArticle101(1), R EV the most persuasive . 32: 973-989 (1995). (1995). . 32: 973-989 1015 Healso 1019 1018

CEU eTD Collection (2004) (discussing the legally binding force of force the legallybinding (discussing (2004) 1023 1022 1021 1020 arrangement illegal, itis likelythat theagreem efforts remains withtheCommission. enforcement intheEUisstillatanearlystag essential role theCommissionhasin theenforcem reasonable expectationsthattheCommission willactinacertainway. compatible withtheprinciple of equaltreatment.” which theadministration may notdepartinan administration isalwaysboundtoobserve,they that althoughtheCommission’s guidelines“may notberegardedasrulesoflaw whichthe national courts, Inthisrespectitisinterestingtore issued bytheCommission. Althoughtheseguidelin to deliver. could beseenasaroadmap forastru restraints aswellaneconomic rationalebehi less formal manner thantheregulation,providi Commission issued itsGuidelines on Vertical Restraints. This ismainly thankstothefact thatto established bythe regulation wasmuchmo somesort ofguidelinesin and exclusive purchasing agreements, OJ [1984] C 101/2. 1984/83 of 22 June 1983 on the application of Article 85 (3) of the Treaty to categories of exclusive distribution force. in Case C-397/03 P, para 91. Jones, Commission Notice -Guidelineson Vertical Restraints, OJ[2000]C 291/1. TheCommission alsoissued See infra See The importance oftheCommission’s guide note 1006, at 958. supra at 1006, 958. note Commission notice concerning Commission Regulations (EEC) No 1983/83 and (EEC) No Part 5.2. 1021 theyare stillof great 1984, but those were more formalistic, in See generally

L 1023 ctured ruleofreason,something which guidelines and other soft law in the EU). INDA practical significance. Firs Therefore,iftheCommission doesnotconsideran S gether withtheblockexemption regulationthe ENDEN 179 re structuredthantheoneofferedby flect uponthelegalsignificanceofguidelines e ofdevelopment–thecruxenforcement individual casewithout nd certainlegalrules.Inaway,theguidelines ent willnot bechallenged atall.Finally, the , ng explanationsaboutthelawofvertical ent of EUcompetition law.Privateantitrust neverthelessform rulesofpracticefrom

S OFT es are not legally binding on the ECJ or es arenotlegallybindingontheECJor 1022 lines is further strengthened by the lines isfurtherstrengthenedbythe L accordance withthe block exemptions then AW IN 1020 Therefore,theguidelinescreate Thisdocument wasdraftedina E UROPEAN UROPEAN t, theECJ hasemphasized giving reasonsthatare C OMMUNITY Sylvania L AW Sylvania 235-90 failed . CEU eTD Collection Distribution: PerSe Legality Distribution: 26. 1028 1027 1026 1025 1024 lists thetypesofagreements whichareexcluded types ofverticalagreements,th general rule. Inother words,instead ofspecifical per se vertical agreements. including exclusiveterritories, Restraints from 2010. Regulation shouldbereadinconjunctionwith Article 101(3)andtoco types ofverticalagreementsth contained inCommission Regulation330/2010. 4.3.2.1 4.3.2 the Guidelines couldassist in Commission hasarighttow vertical restraints vertical legal orVerticalBER). Regulation (Vertical Exemption 102/1 Block Functioning of the European Union to categories of vertical agreements and concerted practices, OJ[2010]L See It is interesting to consider this toconsider light in provision Itisinteresting Vertical BER,Art. 2(1). Guidelines on Vertical Restraints, OJ [2010]C130/1. Commission Commission Regulation 330/2010of 20 April2010 th on Regulation 1/2003, Art. 29(2). 29(2). Art. 1/2003, Regulation See Regulation 1/2003, Art. 29(1); Art. Vertical BER,Recita 29(1); 1/2003, Regulation legal inEUlaw

The Regulationadoptedtheapproachofpres The currentblockexemptionthatapplies Block exemption2010 The application of the block exemption exemption block the of application The per se 1027 1026 1028 However,thisdoesnotmean that , T . See

llectively exempt them from thea HE -further inthetext Regula The Next Step in the Antitrust Treatment of of Restricted theTreatment in Richard A.Posner, Antitrust NextStep The ithdraw thebenefitofexemption from BER, theVertical U predicting whenthiscouldhappen.

NIVERSITY OF OF NIVERSITY at generallysatisfytheconditi e VerticalBERfirstexempts allvertical agreements andthen as itproclaims thatArticle C HICAGO of Posner’s expectationthat the tendency is to make 180 1025 theCommission’s GuidelinesonVertical ly givingthebenefitofexemption tocertain from theexemption. Thisisinaccordance l 13. Exemption can also be withdrawn by an NCA. L e application of Article 101(3) of the Treaty on the the Treatyon the of Article 101(3) of e application Thepurposeoftheregulationistodefine AW to exclusivedistribution agreements is R umed legalityofverticalrestraints, EVIEW tion enumerates exceptionstothis pplication ofArticle101(1).The the useofexclusiveterritoriesis 101(1) TFEUdoesnotapplyto , Vol. 48, No. 1 (Winter, 1981), pp. 6- pp. 1981), No.1(Winter, 48, , Vol. ons forexemptionlaiddownin 1024 and CEU eTD Collection integration. EU para. Vertical Guidelines, 100. integration. ofintrabrand to creation marketof the reduction competition, obstacles interbrand competition, of reduction capital market capital 107. imperfections. EU para. Vertical Guidelines, entering new markets, solving the hold-up problem, achieving economies of scale in distribution, remedying Union Waterson, anticompetitive effects. distribution agreements enteredintobyfirms that anticompetitive effects. buyer’s market shareisalsoofrelevance, 1035 1034 1033 1032 1031 1030 1029 Member States.However, from thisitdoesnot follow that absolute territorial protection isto the Commission’s hostileapproachtowardsagre sales. does notapplytoexclusivedistributionagre completely exempt anagreement from EUcompetitionlaw’sreach. if theagreement containsahardcore restriction. condemn evenanagreement enteredintobetwee of therelevantmarket. exempts agreements only wherethesupplier’sandbuyer’smarket sharesdonotexceed30% entered intobyfirms havingasubstantialsh with theCommission’sviewthatvertical prohibition of active and passive sales. of and passive active prohibition Thise seems to be the caseeven though Vertical BER,Art. 4(b)(i). Vertical BER,Art. 3(1). effects the of restraints negative As vertical possible the Guidelines effectsof restraints positive As vertical possible See supra See , 1 1034 Secrieru,

This approachisproper,takingintoaccount Most notably,theexemptiondoesnotappl Of most relevanceforourdiscussion,the J OURNAL OF Thisgenerally in linewith Buyer Power and Its Impact on Competition in the Food Retail Distribution Sector of the European the European of Sector inRetail the Distribution Food Competition on and Its Impact Power Buyer Part 2.3.1.4. supra note 30, at 814; M I NDUSTRY 1031 1030 1033 Compared tothepreviousBER

, Nevertheless,itshouldbenoted

C OMPETITION AND AND OMPETITION

ONTI Consten-Grundig Consten-Grundig ,

supra duetotherisingim restraints can have bothprocompetitive T note 45, at 372; P. Dobson, R. Clarke, S. Davies & M. 181 RADE Guidelines list the following: raising barriers to entry, entry, barriersto raising listthe following: Guidelines Therefore, thelackof ements thatcontainaprohibitionofactive are ofthemarket. Namely, the Regulation n partiesthatlacksignificantmarket power, 247 (2001). (2001). 247 ements thatprohibitparallel trade between lackmarket powercan does not recognizethe distinction betweenthe exemption provided y toexclusivedistribution agreements thatithasbeenshownexclusive 1035 inter alia inter andrepresentsthecontinuationof from1999, thenoveltyisthat portance ofbuyerpower. thatEUcompetition lawmay list solving the free-rider listsolving problem, marketpowerdoesnot by theVerticalBER rarely ifevercause 1029 1032 and

CEU eTD Collection 1042 1041 1040 1039 1038 1037 1036 consists of thefollowing steps. Attheoutset, it 4.3.2.2.1 4.3.2.2 the burdenofproofthatagreement doesnotsatisfytheconditionsforexemption. effects incompatible withArticle101(3). exemption inallothercaseswhereitfindsthatanexclusive distribution agreement has effects willcanceleachotherout. the more widespread the useofexclusive territ of themarket iscoveredbyex inapplicable. BasedontheVerticalBER,th effects inthe market. exclusive dealing arrangement thehigher the po indefinite orexceedsfive years. distribution agreement thatcontains anexclus regards tothe partsofthe agreement considered agreement is eligible for exemption. Insuch specific obligationscontainedin exempt evenairtight exclusiveterritories. be regardedasillegal EU Vertical Guidelines, para. 77. 77. para. EUVerticalGuidelines, VerticalBER,Art. 5(1)(a). See See supra See See supra See infra Regulation 1/2003, Art. 29(1); Art. Vertical BER,Recital13. 29(1); 1/2003, Regulation Vertical BER,Art. 6.

Further, therearesituationswherethe The assess Finally, undercertainconditionstheComm Assessment when the block exemption does not apply apply not does exemption block the when Assessment Article 101(1)analysis Part 4.4. Part 2.3.2.6. Part 2.2.5. ment of thelegalityof an 1038 per se–therearecertain instancesinwhichEUcompetition lawmay

clusive distributionagreements. 1037 an exclusive distribution agreement, while the rest of the Thisreflecttheviewthat 1040 Additionally,theCommissionmay withdrawthe 1041 1036 e Commissioncoulddosowhere more than50% Inthecaseofwithdrawal, theCommission bears

182 casesthe exemptionis isnecessary toestablish the market shares of ive dealingclausethedurationofwhichis as illegal.Anexample ories, the morelikely exclusive distribution exemption doesnotapplyonlytocertain ssibility that there willbeanticompetitive ission may declare theblockexemption mayission declare 1039 the longerdurationof Thisreflects theview that withdrawnonlywith would beanexclusive it isthatthe positive agreement generally 1042

CEU eTD Collection 1047 1046 1045 1044 1043 market shareneededforestablishing thatafi establishing dominance in infringement underArticle101(1) the Commission, thedegreeofmarket powerthatisgenerallyneededforestablishingan what degreeofmarketpowerleadstoapossibleinfringement ofArticle101(1).Accordingto even iftheconditionsfor group possess sufficientmarket power,anexclusive necessary toassessifitfallswithinArticle101(1). distribution agreements shouldnotbecondemned. words, evenfirms withsubstantial market the scopeofArticle101(1)orfailto distribution agreement exceedingthe market sh contains hardcore restrictions of competition, thresholds, thatdoesnot mean thattheagreement willunavoidably be illegal. Unlessit will generally beexempted. set bytheVertical BER,nordo the supplieranddistributor. Community competition law, OJ [1997] C 372/5. market are determined. the 30% threshold are either caught by Article 101(3) of the Treaty. the of Article 101(3) EU Vertical Guidelines, para. 97. 97. para. EUVerticalGuidelines, EUVerticalGuide Id. Id. Id. , para. 110(c). According to the Vertical BER, there is Vertical BER,there to the , para. 110(c). According , para. 96. further go not we will point this At para. 110(a). , If anagreement doesnotsatisfythecond lines, para. 110(b). 110(b). para. lines, See Commission notice on the definition of the for the purposes of Vertical BER, Recital 9. Vertical BER, Recital 9. 1044 the lightofArticle102.

However,evenifthemarket sharesdoexceed theprescribed 1043 es theagreement containahard Article 101(1) of the Treaty or that or Treaty the of 101(1) Article exemption arenotmet. Inthisrespectitmay bedisputable Iftherelevant market shares donotexceed thethresholds is lowerthanthedegreeofmarket powerrequiredfor satisfytheconditions rmpossesses adominant po 183 distribution agreement may falloutside101(1) power cantrytoshow into the issue of how relevant product and geographic and geographic product thehowrelevant issue into of thereisno presumption thatanexclusive are thresholdsetbythe BERwillfallwithin no presumption thatver 1046 itions forblockexem 1047 Ifthesupplieranddistributordonot Thisopensupthequestionof ofArticle101(3). they fail to satisfy the conditions of conditions failto satisfy the they core restriction,theagreement tical agreements exceeding sition inthe market. that their exclusive ption, itisthen 1045 Inother CEU eTD Collection very large shares arein themselves, and save inex importance of the market shares may vary from onemarket to another the view may legitimately betaken that share isbelow40%. 1054 1053 1052 1051 1050 1049 1048 Vertical BERandthereissuffici market powerforaninfringement ofArticle101(1). between 30%and40representsagrayzone,i.e.itisnotclearwhethertheresufficient the situation wherepartiestoanexclusive di account, dominance isnotlikely sufficient fordominance inECJ presumed thatitisdominant. proof ofdominance. considered. Basedonthis,very differentiated. marketparticularly thedynamics ofthe factors aretakenintoaccount. to afinalconclusionaswh emphasized that market shareis not theonly relevant factor–theCom dominant undertaking,thispe virtue of that share in a position ofstrength.”). aposition in ofthat share virtue itfor some …isby holds time and An position. undertaking has share a which large market dominant very (Guidance on 102), para. 14. Article [102] of the [TFEU] to abusive exclusionary conduct by dominant undertakings, OJ [2009] C 45/7 Case T-219/99 Case C-62/86 applying in priorities enforcement the Commission's on —Guidance Commission from the Communication See Id. Id. Id. , para. 13. , para 15. , para. 14. Case 85/76 Case85/76 According totheCommission, dominance is With respect todominance, the relevant ECJandGCcase-lawshould also be If anexclusive distribution agreement exce 1051 AKZO Chemie BV vCommission British Airways vCommissionBritish Airways plc Hoffmann-La Roche & Co.AGv Commission

1052 1048 Ifafirmhasmorethan50%oftherelevantmarket,itisgenerally Ifcompetitors arenot able toe

1053 ether ornotacaseshouldbepur rcentage canbeevenlower. large market shares aregenerally considered asasufficient ent market powerforaninfri if thefirm’s marketsharedoe and GCcase-lawhasbeen39.7%. Finally,itshouldbenotedthatthelowest market share 1050 Thesefactorsincludere ceptional circumstances,eviden [1991] ECR 3359, para. 60. para. ECR 3359, [1991] [2003] ECR 5917. ECR5917. [2003] 184 andtheextenttowhichproductsare stribution agreement haveamarket shareof eds themarket sharethreshold setbythe notlikelyiftheundertaking's market [1979] ECR 461, para. 41 (“[A]lthough the the 41(“[A]lthough ECR 461, para. [1979] ffectively constraintheconductofa ngement ofArticle101(1),the s notexceed40%.Therefore, 1049 sued beforealltherelevant levant marketconditions, However,itshould be ce of theexistence of a 1054 mission willnot come Takingallthis into CEU eTD Collection market, the leveloftrade,andthenatureproduct. market position ofthebuyerscontract of theagreement, the marketposition of thepar According totheCommission,some ofthefactors 1061 1060 1059 1058 1057 1056 1055 one producercutsthewholesale pr important competing productsinthesame territory. substantially restricted if ad dealership. Inthisrespect theGuidelines Theguidelinesalsoaddress the situation exclusive distributor in agiventerritory, market positionisrather similar, therisk of horizontal collusion increases. will notalways bethecase.If thenumber of competitors becomes rathersmall andtheir intrabrand competition isoutweighed bysufficient interbrand competition. be considered.Ingeneral,thepresenceof of intrabrand competition is. limited. exclusive distributionagreement canonlybe elaborated withregards toex next stepistoestablishwhethertheagreement hastheeff 97. para. EUVerticalGuidelines, Id. Id. Id. Id. Id. Id. 154. , para. 153. , para. 111. , para. According totheGuidelines, loss of intrabrandcompetition arising outof an 1057 Inthisrespect,thestronge 1058 clusive distributionagreements.

ealer isgranted the exclusiveri Themarket position ofthesupplier’s competitors should also ice foritsbrand,theexclusive r thepositionofsupplier, 185 strong competitors means thatareductionin commonly referredtoas multiple exclusive note that interbrand competition may be products, entrybarriers,thematurity ofthe ties, the market position of competitors, the where differentsupplie problematic if interbrand competition is relevant forthisassessment arethenature 1061 Thisisbecauseinsuch asituationif 1056 ect ofrestrictingcompetition.. Thesefactors arethenfurther ght todistributetwoormore retailer willnotbeeagerto themore serioustheloss rs appoint thesame 1060 1059

However, this However, 1055

CEU eTD Collection lower prices to consumers. lower prices allfinal to the detriment of consumers areenhanced, unless the comb limitintrabrand to supplier forthe chances Consequently, the exclusive distributors, which are prevented from buying from other distributors in the system. discriminationparticular. in price may which market facilitate and partitioning competition intra-brand risks reduced of competition possible single branding),aninterbrandrestraint. Sinceexclusive distribution restrictsin suppliers generallyarisesonlywhenthearrangeme 1067 1066 1065 1064 1063 1062 one dealerinacertain area.Theoldguidelinesfromtheyear2000allowedforthis context ofselectivedistributionasuppliermay Apartfrom thecombination withexclusive dealing, exclusiveterritories couldalsobe combined withselectivedistribution.Inthis in thecase of multiple exclusive dealership. possesses buyingandmarket power. foreclosure ofotherdistribu even ifitdoesnotcontainanexclusived the exclusive distributor tofocus distribution andsinglebrandingmay bepro-competitive,asit territories or incase of acumulative effect. when thesinglebrandingisappliedtoadense network ofexclusivedistributorswithsmall combined with single branding, exclusivedistri sales made withotherbrands. transmit this pricecutto thefinalconsumer, sincethatwouldreducetheexclusiveretailer’s According to the tothe Guidelines According

Id. Id. Id. Id. Id. Id. 156. , para. the Guidelines other On the hand, 161. , para. 155. , para. Nevertheless, anexclusivedistributionag , the combination of exclusive distributio exclusive of combination , the Id. , para. 162.This is because exclusive so 1062 Id.

tors may becomeanissuewh

its effortsontheparticularbrand. consider exclusive sourcing as more 1066 Thisisespecially if the ex 1063 1067 186 However,theGuidelines notethat even if 1064 ealing clause. According totheGuidelines,

bution could haveanticompetitive effectsonly respect itmaybedisputablewhetherinthe competition by applying dissimilar conditions sale of conditions dissimilar applying by competition make acommitment thathewillsupplyonly trabrand competition, foreclosure ofother Otherwise,thecombination ofexclusive ination allows the creation of creation allowsthe ination reement mayotherdistributors foreclose nt iscombinedwithexclusive dealing (i.e. n with exclusive sourcing increases the urcing eliminates possiblearbitrage by can increasetheincentive for ere an exclusive distributor pernicious than single branding. clusive territory is large, or 1065

efficienciesleadingto Id.

CEU eTD Collection anticompetitive risksarehigheratthewholesalelevel. where differentsuppliersappoint However, this is notalways thecase. Inthepresence of multiple exclusive dealerships(i.e. 1074 1073 1072 1071 1070 1069 1068 efficiencies inth this factorcouldbeof relevanceatthene assessment of thepossibleanti-competitive effects of exclusive distribution. market. are generallyamore seriousprobleminama is important inthesense thatareduction in the natureofproductthatissubjecttoex the retailthan atthewholesalelevel, espe Guidelines, anticompetitive potentialismore pronouncedregardingexclusivedistributionat distribution dependingontheleveloftrade system according tohis needs. previous ones,whichcanbecriticizedaspr restriction. this possibility,making acombination ofexcl inside theselectivedistributionsystem. possibility, undertheconditionthat activeand territories is not restricted). 162 (a combination of exclusive distribution and selective distribution exempted if active selling in other 159. para. EUVerticalGuidelines, 57. para. EUVerticalGuidelines, on Vertical Restraints, ( OJ [2000]C291/1 Guidelines Id. Id. Id. See , para. 163. , para. 158. , para. 160. , para. Mario Velez, Finally, theGuidelines alsoaddress therele The Guidelinesalsopoint outthe differen 1073 1069 Ontheotherhand,natureofproduc Therefore, inthisrespect thenewVertical Guidelinesare stricter than the e lightof101(3). Recent developments in selectivedistribution in developments Recent

1070 thesame exclusivedistributo

1068 However,thenewVerticalGuidelines exclude intrabrandcompetition andpricediscrimination 187 eventing asupplierfrom cially iftheexclusive territoriesarelarge. clusive distribution.Thema xt stage,i.e. foranassessment ofpossible ture market thaninadynamic andgrowing passive sellingwasnotprohibitedanywhere Old Vertical Guidelines Old Vertical at whichitis imposed. According tothe usive and selective distribution ahardcore ce inanticompetitive potentialofexclusive vance of thematurity of the market and 1072 , E.C.L.R. 2011, 32(5), 242-247, at 244. at244. 242-247, 32(5), , E.C.L.R.2011, t isnotparticularlyrelevantforthe

r inagiventerritory)possible ), para. 53. tailoring adistribution turity ofthemarket See also id. 1074 However, , para. , para. 1071

CEU eTD Collection order for101(3)toapply. distribution agreements. Ingeneral, thereareth parts of the Vertical Guidelines,whichconcer application ofthisprovisionin 1080 1079 1078 1077 1076 1075 total surplusstandard,whichwouldonlyc if itleadstoanincrease intotalsurplus. discussion aboutexclusiveterrito relevant factorscaused bythe agreement.” “the efficiency gains must fully off-set the lik judge evenafterconsumption judge beforeconsumption (so-calledexperience strongest fornewproducts,complex products, exclusive distribution agreements, the VerticalGuid especially importantaretheCo conditions for groupexemptioncan exemption laiddowninArticle101(3). under 101(1),itisthennecessary toassessifitsatisfiestheconditionsforindividual 4.3.2.2.2 124. para. EUVerticalGuidelines, C101/97. OJ [2004] Treaty, the of [101](3) Article of the application on Guidelines Commission See supra Id. Id. Id. , para. 126. , para. 164. , para. , para. 110(d). First, efficienciesarising outoftheagreement needtobeestablished. Second, consumers needtoreceiveafairshareoftheimprovement, inthesensethat If anagreem Article 101(3)analysis Part 2.3.2.6. ent exceedsthe30%thresholdset bytheVerticalBERanddoesfall

(so-called credenceproducts). general.Inaddition,alsoto mmission’s Guidelineson101(3), ries, sincethispracticecanso stillbenefitfrom anindivi 1075 1080 Therefore,evenagreemen Asarguedabove,theAmerican lawhasadopteda 188 1079 ely negativeimpact on and productswhosequalitiesaredifficult to n more directly the ex onsider whether anex Thiscondition is ve products) orwhosequalitiesaredifficultto ree conditionsthatneed elines note thatthecaseforefficienciesis 1078 be consideredaretherelevant dual exemption.Inthisrespect metimes consumers harm even

1076 ts thatdonotsatisfy the prices, outputandother whichpertaintothe emption ofexclusive ry importantforthe clusive distribution tobesatisfiedin 1077 Regarding Regarding CEU eTD Collection 1083 1082 1081 manufacturer may itsdistributorsfrom legallyrestrain engagi agreements willnotbecondemned.Forexampl as relatively 4.4.1 4.4 completely eliminate competition intherelevant market. efficiencies, therestrictionofco distribution agreement leadstosignificantefficien competitive pressures onthemarket isneeded. possibility of eliminating competition, ananalysisof theagreement’s effect ontheremaining contained ahardcorerestrictionor the partiestotheagreemen will besuch thatanindividual exemption exclusive territories will most often beeither complaint ismost likelytobedismissed priorthat. distribution agreement anAmerican courtwill limited practical significance. Ontheonehand, inassessing thelegality of an exclusive European approachtoexclusiv distributed. agreement leadstonetgainsandwouldnotbeconcernedwithhowtheseare EU Vertical Guidelines, para. 127. 127. para. EUVerticalGuidelines, See supra See supra Exceptions totheprohibitionof Exceptions This couldbeseenasanimportant principaldistinctionbetweentheAmerican and Although theEU’sapproachtowardsairtightexclusive territories Active sales Finally, inorderto establishthatthe 1081 Part 3.4.1. Part 3.1.2. strict,thereare

certain situations whereevenairtight exclusive distribution e distribution.Nevertheless,it mpetition arising outof theagreement mustnotbesuch asto absolute territorialprotection 189 will not beprobable (e.g., if the agreement exempted onthebasisofVerticalBERor agreement doesnot afford the partiesthe 1083 cies andconsumers getafairshareofthese rarely get to the balancing stage, asthe 1082 e, ifotherconditions aresatisfied, a In other words, even if an exclusive Ontheotherhand,inEUuseof t hadsubstantialmarket power. ng inactive salesoutside their wouldseem thatithasonly can becharacterized CEU eTD Collection between partieshaving anextremely small shar 1089 D 1088 1087 1086 1085 1084 Vervaecke the EU competition lawmay allowevenabsoluteterr 4.4.2.1 4.4.2 certainty, especially takingintothe si guidelines may issome respectsseem arbitr regarded as activeand passive the VerticalGuidelines theCommission explicitly passive sales.Inthis the factthatitisnotalwayseasytodelineate exclusive territories, italso entails certain prac takes intoconsideration the adequate forsolvingthefree-riderproblem, notingthattheprohibition of free-riding. free-rider problem, itdoes seem tobesufficien assigned territory. volume so as not to volume as merely to so be not minimis, the de to by tie.”). competitors isforeclosed controlling consideration issimply whether a totalamount ofthe part sales asubstantial represented actually market shares might become relevant if it were alleged that anapparently small dollar-volume ofbusiness Amerincan law. ICTIONARY Case 5/69 “ of short The Monti, Vertical BER,Art. 4(b)(i). See See, e.g. de minimis EU VerticalGuidelines, paras. EU 51-54.

Although thisexceptionconsiderablysoft If partiesto anexclusive Lack ofappreciableeffect On competition competition On supra note 630,at 1067. , . , supra note 874,464. at 1089 General Motors General Franz Völk v S.P.R.L. Ets J. Vervaecke See Thecaseinvolved anairtightexclusiv 1085 de minimis 1088 Fortner Enterprises, Inc. v. U.S. Steel Corp Consequently,some commentators ha 1084 principle, established bytheECJinFranzVölkvS.P.R.L.EtsJ. respect especiallyambiguous istheuseofInternet.Forthisreasonin While the prohibition of activesalescannot completely eliminate the non curat lex”, i.e. “[t]he law does not concern itself with trifles”. B trifles”. with itself concern not law does i.e. lex”, “[t]he noncurat (discussed in Part 3.4.2.2 above). advantages aswell theri

sales intheInternet context. distribution agreement havean insignificant marketshare, gnificance oftheCo for which competitors were bidding. But normally the were competitors bidding. for which [1969] ECR 295. A similar doctrine also exists in 190 betweenwhatconstitutesactiveasopposedto tical problems.Thesema t for tackling some of themost blatant forms ary, they doofferacer of business, substantial enoughinterms of dollar- e ofthemarket (both itorial protection. Thisisinaccordance with dealswith theissueofwhatpracticesare ens theCommission’s approachtowards ., 394 U.S. 495, 501 (1969) (“An analysis of of analysis (“An (1969) 495, 501 ., 394 U.S. sks ofterritorialprotection. e distribution agreemententered into mmission’s views. ve characterized this approach as 1087 Althoughsome ofthese the supplier’s andthe of onlypassivesales inly haveto dowith tain level of legal LACK 1086 ’

S L AW CEU eTD Collection 1096 1095 1094 1093 1092 1091 1090 would otherwisefallunder 101(1)willnotdoso notice. market issufficientforbeingable 0.1 %and3issomesortofagrayarea,wh substantial absolute turnover figures. and 4percentmay beappreciable, Diffusion française and others vCommission sales islarge inabsoluteterms. found thatamarket shareofbetween5%and6 as clear. restrictions. share fallsoutsideArticle101( Therefore, inthelightof infringes EU competition law,theCourtfoundthat: distributor’s market share wasfarlessthan Article 81(1) of the Treaty establishing the European Community (de minimis), OJ [2001] C 368/13. GmbH vCommission Schallplatten International (even airtight exclusive distribution agreements may benefit from the Commission minorNotice agreementsof on importance Commission Joined cases 100 to 103/80 “if a share strong,Case that market is such rateimportant”. 19/77 not at any noted Court The Id. Id., See also Völk , para. 86. paras. 82-87. 82-87. paras. 1096 , paras. 5-7. Apart fromECJcase-law,alsoof relevanceistheCommission’s For example, in protection, may, havingregard Thus anexclusive [distribution] agreement, evenwithabsolute territorial which thepersonsconcernedhaveonth insignificant effectonthemarkets, taking into accountthe weakposition An agreement fallsoutsidetheprohibition . escapetheprohibitionla AccordingtotheNotice,agreements Case 1-71 Case 1-71 1091 However,thesituation withsmall butst Société anonyme Cadillon v Firma Höss, Maschinenbau KG vFirmaHöss,Maschinenbau Cadillon anonyme Société Miller International Schallplatten GmbHvCommission Völk [1983] ECR 1825. ECR 1825. vCommission [1983] others and française SA Musique Diffusion itseems thatanagreement betweenpartieshavingsuchasmall

1092 1) altogether,regardlessof to appreciablyaffectcompetition. 1094 Alongthesame line,theCourt’sdecisionin id down inArticle[101](1). 1095 especially in thepresenceofafragmentedmarket and totheweakpositionof Therefore,basedonECJcase-law, theareabetween [1978] ECR 131, para. 10. 191 1 %).Discussing whethersuchanagreement 1093 e market of theproductinquestion. ere itisnotclearwhethertheshareof couldmean thateven amarket shareof 3 which do not appreciably restrict competition under restrictcompetition appreciably not do which in Article[101]whenithasonlyan between non-competing undertakingsthat is appreciable,especia if themarketshareofpartiesto ill notnegligible market shares isnot de minimis thepersonsconcerned 1090 the severityofdistribution

exemption). [1971] ECR 351, 9 ECR351, para. [1971] lly ifthevolume of Miller SA Musique de minimis , theCourt

CEU eTD Collection medium enterprises if such enterprises have a dominant position in a substantial part of the internal market. part oftheinternal asubstantial in position have adominant enterprises if medium enterprises such Member Statesandrestricting competition. enterprises areconsidered to berarely cap 101(1) respective markets, theiragreement onexclus agreement. Therefore,ifboththemanufacturer anddistributor market levels, thesaid exemption alsoapplie 1103 1102 1101 1100 1099 1098 1097 distribution agreement qualifyassmall andme medium enterprises. opportunity totakeastandonth prohibition ofpassivesales. ECJ’s, asitcompletely excludesthe possibil restriction ofactivesales.Consequently,th sales. is airtightexclusivedistribu exemption isnotapplicable. not containahardcorerestricti agreement does notexceed15%. 15 %). than th lower issignificantly if the share parties’ market have interpreted the Commission’s notice as meaning the Commission will not pursue hardcore restrictions only capable of appreciably capable of EU Vertical Guidelines, 11 para. EUVerticalGuidelines, However, there have been suggestions that this does not necessarily have to be the case. For example, some Incase of cumulative for De minimis Id. Id. Id. 1100 , para. 11(b). , para. 11. 7(b). , para. See 1098 However, theCommission’s Finally, theCommission laysdown a Asshown,theECJin Jones, anditwillnot beevennecessary toappl notice, para. notice, 3(“[A]greements note 1006, at 957-58. at 957-58. supra 1006, note affecting trade between Member States.”). 1102 eclosure effect, this threshold is reduced to 5 %. Thisexemption applieseven tohardcore restrict 1099 1101 tion, i.e.distributionwhichinvolvesarestrictionofpassive

. However, the Commission may initiate proceedings against small and against proceedings may . initiate Commission However, the on. Incaseanagreement doescontainahardcorerestraint,the Oneofthesituations whichthe Noticeconsiders ashardcore is pointandclarifythelaw. Inanycase,perhaps inthefuture theECJwillhave an Völk 1097 de minimis Sinceasupplieranddistri between small andmedium-sized did notlimit the 192 e Commission’s standpointiscontrarytothe e one prescribed in the notice (i.e. considerably less than lessthan (i.e.considerably the notice in e prescribed one ity of exemption foragreementsity ofexemption containinga able ofappreciablya exemption applies only iftheagreement does 1103 s totheparties toanexclusive distribution de minimis ive territorieswillnotfallunderArticle y theexemption from theVertical BER. dium enterprises,theiragreementwould Therefore,ifparties toanexclusive de minimisexemptiononlytoa exemption regardingsmall and Id. holdlessthan15%ofthe , para. 8. 8. , para. undertakings . are rarely butor operate atdifferent ffecting trade between ions, sincesuch Id.

CEU eTD Collection supra that casean agreement wasexempted since the expo 1107 1106 1105 1104 Vertical Guidelines: exclusive distributionagreement 4.4.3 favorable approach toit,anddoesnotcons airtight exclusivedistributi may infringe the said provision if theybyeffect restrict competition. that suchexportbansarenotcontrary agreements contained aclauseprohibiting re-ex products inUkraineandSlovenia(atthetime Sloveniawasnotamember oftheEU).The SA, for example happenedin would bethesituation trade betweenMember States.Inthecontextof 4.4.2.2 parties haveadominant position. generally notbecaughtby Asimilar approachhas been adopted by th CaseC-306/96 Id. Id. 1104 Part 4.2.2. Part 4.2.2. , para. 22. , para. 21. acasedecided bythe ECJ.

An agreement may alsofall outside Article investments generallyfalloutsidethescopeofArticle101 into suchaterritory.whicharenecessary forthedistributortorecoupthose new market arenecessary,restrictions Where substantialinvestments bythedist If entrantNew The caseconcernedanexclusivedistribu On inter-state trade trade inter-state On imposed byanewentrant into themark Javico International and JavicoJavicoAG Internationaland where theagreement involvessome Javico InternationalandAG Article 101(1) even withregards on agreement involvesnon-EUc

conferring absoluteterritoria to Article101(1)by e Commission in one inone itsfirst of e decisions, Commission ider itaviolation of competition byobject. rt bana non-Member concernedState. Switzerland, 193 v Yves Saint Laurent Parfums SA Laurent v Yves Saint of passivesalesbyotherdistributors port totheEU.Inits ributor tostartupand/ordevelopthe et, theCommission may notpursueevenan tion agreement involvingthesaleofYSL exclusivedistribution,ofmost relevance 101(1)ifitdoesnotappreciablyaffect their verynature, non-Member States.This iswhat to hardcore restraints, unless the v Yves Saint Laurent Parfums vYvesSaintLaurentParfums ountries, EUlawhasamore l protection.Accordingtothe (1) duringthefirst decision, the ECJruled 1106 [1998] ECR I-1983. Grosfillex-Fillistorf. 1105 Therefore,ifan althoughthey 1107 See

In In CEU eTD Collection by the GC. Case T-77/92 Consten-Grundig However, itshouldalsobe 1114 1113 1112 1111 1110 1109 1108 its productsthroughownnetworkandth exclusive distributionsy exclude thepossibilitythatsuchcon beoutsideofthescopeArticle101, subsidiaries wasfoundto distributor forGermany. prohibition ofparallelimports containedin came undertheCommission’s scrutiny.Conse exclusive distributors.Due toth States itperformed distributio Pen’s distributionpractices.ParkerPen hada in-house. performs distribution Article 101doesnotapplytoco 4.4.4 exclusive territoriesareespecially justif applies onlyfortheperiodofuptotwoyears, Although itislimited tothesi Case C-73/95 P 92/426/EEC 61. para. EUVerticalGuidelines, Id Consten-Grundig See See supra . See also Monti, territory. two yearsthatthedistributor

Also worthconsideringinthisrespectisthelineofcases An i Dealing throughasubsidiary Part 2.3.1.3. mportant exceptiontotheprohibitionof supra

Consten-Grundig at 340. Viho/Parker Pen Viho/Parker 1108 Viho Europe BV vCommission 1110 note 630, at 1068. at1068. note 630, at 340.

andisyettobeconfirmedECJ. bythe Parker PenLtdvCommission Parker stem. Nintendoalsohadamixed sy 1112 OJ [1992] L 233/27. The fine imposed by the Commission was later reduced Ontheotherhand,relati

taken intoaccountthatthis tuation wheresuchrestriction 1111 n throughitsownsubsidiaries,wh e airtightcharacterofexclusiv Inthisrespect, consider the lineof casesrelatedtoParker nduct inside afirm, i.e.toasituation whereasupplier duct may neverthelessfallunderArticle102. issellingthecontract [1996] ECR I-5457, para. 17. ied whenusedbyfirms enteringamarket. 194 [1994] ECR II-549. ECR II-549. [1994] mixed distributionsystem –incertainMember distribution agreements withitsexclusive rough independentdistributors.Boththe theexceptionisimportant sinceairtight quently, ParkerPenwasfinedforthe airtightexclusive territories isthat exceptioneffectivelyoverrules goods orservicesinthat stem ofdistribution,distributing onship betweenParkerandits is indispensableandalthoughit e territories granted,the system 1113 ile inothersitappointed althoughtheECJdidnot regarding Nintendo’s 1114

1109

CEU eTD Collection FilmsSA and others ECR II-975. object, althoughitcanviolat territory of aMember Stateisnotto berega rights which expireonce thevarietyceasesto Nevertheless, thisexceptionseems tobequitenarrow,duethefragilityofplantbreeders’ 1121 1120 1119 1118 1117 1116 1115 can hardlybeextendedbeyondtheirspecialsectors. two exceptionsshouldnotbeoverestimated –it rights indevelopingaplantvari protection, takingintoaccountsi Jacquery vLaHesbignonneSC territorial exclusivity can fall outside Article 101(1). Forexample, in 4.4.5 appoint adistributorturnedoutto Nintendo usedtoperformdistributioninthe an exclusive distributor forthemarketofGr restriction of paralleltrade. came theCommission’s scrutiny,whichim under into otherMember States.However,onlythe subsidiaries andtheindependentdistributor restrict the movement of basic seed”). GC to 119 million euros. Case T-13/03 J. Case262/81 K Case27/87 2003/675/EC Id. See infra

ORAH G , paras. 10-11. 10-11. , paras. OYDER In anothercasetheCourtfound Som Specific sectors & Part 5.3.2.

O’S e ECJ decisionssuggestth ECJ e ,

SPRL Louis Erauw-Jacquery v La Hesbignonne SC supra Coditel SA, Compagnie générale pour la diffusion de la télévision, and others v Ciné-Vog vCiné-Vog la télévision, de and others ladiffusion pour générale SA,Compagnie Coditel Nintendo ULLIVAN [1982] ECR 3381, para. 15. 15. para. ECR3381, [1982] See also note at72. note 123, OJ [2003] L 255/33 (imposing a fine of almost 150 million euros). Reduced by the ,

supra 1999/6/EC Sicasov 1115 note 41, at 82. note41, e thelawasitseffect.

Inaddition,itshouldbeempha ety aswelltheneedforcarefulhandlingofbasicseed.. 1117 gnificant sunkcostsincurredby Nintendo Co., Ltd and Nintendo of Europe vCommission GmbH Europe of Co., Ltd Nintendo and Nintendo beanexpensivedecisionindeed. theECJclearedaclauseconferringabsolute territorial that grantinganexclusiveright OJ [1999] L 4/27, para. 53 (“[a] breeder has the right to at relatedtocertainspecificsectorsevenairtight s werebarredfromexportingNintendoproducts rded asaviolationofEUcompetitionlaw byits 195 bedistinct, uniform, stableanduseful. eat Britain,forwhichitwassoheavilyfined, market in-house. Therefore,thedecisionto arrangements withindependentdistributors seems thattheywerecarefullyqualifiedand posed aheftyfineuponNintendoforthe 1121 1120

Inanycase,theimportance ofthese [1988] ECR 1919. ECR 1919. [1988] sized thatpriortoappointing the holderofplantbreeders’ 1116

toexhibitafilm inthe SPRL LouisErauw- 1119 [2009]

1118

CEU eTD Collection to certain customers duetosafety orhealthreasons. objectively necessaryto ensure 1125 1124 1123 1122 basis allthefunctionsof would befoundtoafull-functionjointventure, cooperation couldbeseenasafull-functionjoin vertical agreements. mixed nature,itwouldinvokeEUcompetition rulesbothregardinghorizontaland legality ofanarrangement astheonefoundin and vertical effects. Inotherwords,theque which EUcompetition lawwouldassess thelegality escape condemnation. Takingthisinto account,itc is nottreatedasharshly–unde a horizontalallocationofterritories. 4.5 due tohealthandsafetyconsiderations. per seillegal –onesuch instance Schwinn era,therewerecertainin could bedrawnwithAmerican law.Asshowninthepreviouschapter,evenduring 4.4.6 60. para. EUVerticalGuidelines, See supra See See With regardstothehorizontal aspects, the Sa Horizontal cooperationa TFEU, Art. 101(1)(c). 101(1)(c). Art. TFEU, 1970). Cir. 932 (3d Co.v. Corp., F.2d 425 Wella Tripoli Finally, Health andsafety considerations me asU.S.law,EUcompetition lawha Part 3.5. airtightexclusive te an autonomous economic entity,therulesonmergers would

compliance with apublicban r certainconditionsevenabso stances whenexclusiveterrito nd exclusiveterritories for precisely whereexclusiv 1124 rritories may beexempted wheresuch arestriction is 1123 Ontheotherhand,avertical

stion ishowEUcompetition lawwouldjudge the 196 Topco s apronouncedlynegative approach towards i.e.ajointventureperforming onalasting t venture.Thisisimportant becauseifit first stepwouldbetoassesswhetherthe ould beinteresting toconsiderthewayin of anarrangement withmixed horizontal 1122 . 1125 Regardingthisexception,aparallel Assuchform ofcooperationis on sellingdangeroussubstances lute territorialprotectionmay e arrangement was necessary ries werenotcondemnedas allocationofterritories CEU eTD Collection Treaty to categories of agreements, decisions and concerted practices , OJ [1971] L 285/46. distribute thoseproducts. are thosewhere thepartiesdonotindependently in operation respect. 1132 1131 1130 1129 1128 1127 1126 the averagesharebeingaround6%,andthatw the market share of participants in the joint venture in were operatingthemarket sharewouldneedto in theselling, distribution orpromotion of theirsubstitute products. commercialization agreements, i.e.agreements parties does notexceed20%onany relevant market. a horizontal specialization agreement will beexem exempted certaintypesofhorizontalagr regards totherulesonhorizontalcooperation. venture inthissense.Conseque finances. performed by firms operatingonthesame market apply. 11/1, para. 225. Functioning of the European Union to horizontal co-ope to be active on the same geographicmarket.”). agreements presupposes that the partie CouncilRegulation (EEC)2821/71the of20D No of [2010] L 335/43 (Horizontal BER), para. 2(1). The legal basis for this block exemption was established by the Treaty on the Functioning of the European Union to concentrationsof between undertakings, OJ [2008]C 95/1 (Jurisdictional Notice), para. 93. Communication from the Commission – Guidelines on the applicability of Article 101 Article Treaty the of 101 the on the applicability on – Guidelines fromCommission the Communication Horizontal BER, Art. 3. Commission Regulation (EU) No 1218/2010 of 14 December 2010 on the application of Article 101(3) of Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control Id. Id. See , Art. 2(3)(b). 2(3)(b). , Art. , para. 94. Merger Regulation, Art. 3(4). 1126 Similarly to thesituation withvertical Based onthis,inordertobeexempted, ineach oftheareaswhereTopcomembers 1128 Inordertobeafull-function jointvent Basedonthefactsof 1127 , recital 8 (“The nature of unilateral and reciprocal specialisation specialisation id. , and nature reciprocal See also recital 8 unilateral (“The of Thismeans thatithastope 1131 Morebroadly, these agreements

s are active on the same product market. Itis market. necessaryfortheparties not thesameproduct on s areactive ntly, thenextstepwouldbetoassess the arrangement with Topco eements withregards tospecialization. , Topcowouldnotqualifyasa full-function joint ecember 1971onapplication 197 certain categories of specialisationagreements, OJ agreements, theCommission hascollectively ration agreements (Horizontal Guidelines), OJ [2011] C OJ [2011] agreementsGuidelines), ration (Horizontal that involve cooperationbetweencompetitors be lessthan20%.Takingintoaccountthat ithout thiscooperationtheywouldnothave sellthespecializati ure, acooperationneed andhaveitsownmanagement, staff,and pted if thecombined market share of the 1130 Topco rform functionsthatarenormally Amongtheexemptedagreements arewhatthe Commission calls wasbetween1.5%and16%, 1132 of Article85 (3) of the on productsbutjointly

s tobeautonomous 1129 Ingeneral, CEU eTD Collection undertakings, has a totalannualtu itsconnected together with member the association, of individual if no and goods of are retailers members 1137 1136 1135 1134 1133 probably bestruckbasedontheEU’sstrictap arrangement wascondemnedforbeingpredomin differ from thoseputforwardbytheU.S.Supr Takingallthisintoaccount,itwouldseem that the same asintheU.S.,i.e.itwouldbe exempted individually,basedonArticle101(3). here aswelltherewouldbeatleast atheore probably notbeexempted, asthispracti Vertical BER. Topco anditsmembers aswellbetweenTopc members ofTopcowouldbelessthanacert Iftheagreement wouldsatisfythecondi then needto beassessed withregards toitsverticalaspects. individually exempted agreement would notsatisfytheconditionsforblockexemption, itcould stillbe object the allocationofmarkets orcustomers. that theblockexemption wouldnot Topco wouldsatisfytheconditionsforhorizontalexemption. However,itisimportant tonote been abletocompete withthebigger market players, association of undertakings and itsme and of undertakings association example, because of thecosts involved.”). individually or with a more limited number of parties than are effectively taking part in the co-operation, for toallo necessary if itisobjectively concerns competition Vertical BER,Art. 4(b). Horizontal BER, Art. 4(c). See See See Vertical BER,para. 2(2) (“The exem VerticalGuidelines, EUpara. 30. rise give agreement to to likely isnormally para. not (“Acommercialisation Guidelines, 237 Horizontal 1136 Inthis respect itis im under Article101(3)TFEU. See also rnover exceeding EUR 50 million.”).

mbers, or between such an associatio Horizontal Guidelines, Horizontalpara. 236. applyifitwouldbefoundthat the agreement had asits ption . . . shall apply to . to vertical . shallapply ption portant that absolute territo ce isblacklistedby theVerticalBER. condemned. However,thereasonsforthiswould 198 proach toabsolutete tical chance that theagreement wouldstillbe 1134 w one party to enter a market it could not w enteramarket party to itcould have one not entered ain amount, theverticalagreements between o anditssupplierswouldbeexempted bythe eme Court.UnliketheU.S.,wheresuchan tions forthehorizontalexemption, itwould Finally,itis worthnoting thatevenif the antly horizontal,in 1133 Topco’s outcome intheEUwouldbe itislikely thattheagreement in 1135 n and its suppliers, only if all only itssuppliers, its n and agreements entered intobetween an Iftheannualturnoverof rritorial protection. rial protectionwouldmost the EUitwouldmost 1137 However, CEU eTD Collection EU, inthe sense thatAmerican Some authorshavearguedthatin on adoptingsolutionsfrom th as illegal claim thattheallocati before anAmerican courtapartywouldrefertotheEUHorizontalBER insupportofthe 1142 1141 1140 1139 1138 form of intrabrandrestraint witheffects larg impact that solutions from theU.S.thanitiscase “laboratory” referredtobyJusticeBrandeis. the U.S.mayconsideradopting.Inotherword significant influence from theU.S.,perhaps there are solutions in EUcompetition law that development earlieranddespite being laboratoriesofdemocracy. laboratories, can beagoodguidanceforAmericanjudges–hetalksofthelawsothercountriesas other countries. American legal theory. Forexam laboratory; and try novel social and economic experiments without risk to the rest of the country.”). happy incidents of the federal system that asingle cour many significant respects the laws of most other countries differ from our law.). laws American rest the of the th law conformto of should RichardPosner, See supra See Id. E.g. at 42. NewStateCo. Ice v.Liebmann, 285 U.S. 262,311 (1932) (Brandeis, J.,dissenting) (“Itisonethe of , Roper v. Simmons, 543 U.S. 551, 624 (2005) (Scalia, J., dissenting) (“[T]he . . premise . that At theoutset,ithastobetakenintoaccount With regardstothis,itmay be interesting to On theotherhand,EUcompetition lawseem per se Part 2.2.4. 1140 Leegin . making aparallelwiththefamous stat 1139 No Thanks, We Already Have Our OwnThanks,NoAlready HaveOur Laws We However,evenheadmits that sometimes solutions from othercountries hadonthewayinwhichEUcompetition lawtreats minimum RPM,a on ofexclusiveterritoriesthrougha

e lawsofothernations. courts nowallow arguments that a practice previously seen as thefactthatEUcompe 1141 Leegin ple, Posnerhas argued againstdirectlyadopting lawsof Therefore,althoughAmerican theSupreme CourtalignedU.S.lawwiththatofthe 199 ageous statemay, ifitscitizenschoose, serve as a ely similar tothoseof exclusiveterritories. other wayaround.Inthis eworld . ought to berejected out of hand [since]in s, theU.S.may useEUexperiencesasa thatAmerican judgesarenotalwayskeen consider the situationwhereinadispute , 2004-AUG ement byJusticeBrandeisaboutstates 1138 s tobemore preparedtoadoptthe Similar sentiments are present in joint ventureshouldnotbetreated tition law has developed under tition lawhasdevelopedunder

L EGAL antitrustlawstartedits A respect, considerthe FF .

40 (2004). (2004). 40 1142

CEU eTD Collection practice is such thatcanrarelybe exempted. guidelines didnotdevotemuch attentionto way toassessthisiscompare thenewVer argued thatEUlawisfollowingAmerican de analysis intheU.S. restricting competition byits object is stillve prevail. Therefore,thesituation where EUco words, ifapracticeisjudged American law inlargenumber of 1148 1147 1146 1145 1144 1143 RPM toagreatextent followsthe Supreme Court’sreasoning in Guidelines abouttheanticompetitive concerns when thispractice could beconsidered asprocompetitive. (adopted after law treats this type of restraint asahardcore restriction. the useofresalepricemaintenance, exemption willbe granted.Eventhough thereha exemption even withregards tothe mostpernic least tworeasons. per seillegal is actually procompetitive. RPMwith regardstheto distribution of newspapers). of minimum RPM); RPM); minimum of procompetitive potential ofminimum potential RPM). procompetitive EUVerticalGuide W Compare See See E.g. HISH Old Vertical OldGuidelines, para. 111. Vertical BER,Art. 4(a). , Case 243/83 Secondly, whenitcomes totherulesconcer First, althoughtheoretically ,

supra EU Vertical Guidelines, para. 224 para. Guidelines, EUVertical note 37, at 118-19. at 118-19. 37, note Leegin compare SA Binon & CievSAAgence et messageries dela presse lines, paras.223-25. ) haveaseparatesectiononmini EU Vertical Guidelines, para. 225 225 para. Guidelines, EUVertical

by theruleofreas casespracticallyborders with EUlaw does notprecludearguments forArticle101(3) 1144 thatwillgenerally notbe the case,as EU competition with 1143 However,thisargument

Leegin 200 tical Guidelineswiththosefrom 2000.Theold velopments thantheotherwayaround.Agood 1146 mpetition lawconsidersacertainpracticeas minimum RPM,astheyconsideredthatthe and procompetitive justifications ofminimum ious restraints,itdoesnotmean thatsuchan ry much different from therule of reason ve beeninstances wheretheCourtexempted , 551 U.S. at 892-93 (the anticompetitive concerns concerns (the anticompetitive U.S.at892-93 , 551 Conversely,thenewVerticalGuidelines on, chancesarethat ning minimum RPM,itcouldratherbe with 1145

mum RPM,includingexamplesof Leegin 1147 Additionally,theru Inaddition,theanalysisin , 551 U.S.at 890-91 (the [1985] ECR 2015 (exempting (exempting ECR2015 [1985] Leegin. per selegality.Inother seems problematic for at 1148 the defendantwill Thisshowsthat le ofreasonin CEU eTD Collection violation by its object even if it was not implemented). if implemented). it was even not by itsobject violation Commission customers a better guarantee than those of member states where the manufacturer has his distribution network; ); however, a distributor may provide his v SA DK Investment and others supplier restricts the guarantee to customers of his exclusive distributor (Case 31/85 export (Case 30/78 (2002/758/EC vCommission Ltd International which had been exported to other member states through parallel channels (Case T-43/92 176/95 undertakes to refer to the manufacturer all enquiries with repackaging ofthe product (90/645/EEC amount toprohibitionofexports. What ismore, notonlyexplicit from or from theefficiency, the of preventingtheflow price indifferentMember States.Asshown,airtight excusiveterritoriesareaneffectiveway territories seems tobemostlydirected at 1151 1150 1149 to prevent arbitrage. However, itisquestiona absolute territorialprotection,EUlawisine prohibiting paralleltrade betweenMember Stat Paralleltradeandpricediscrimination 4.6 taking over. although theremay bepartsofEUcompetition EU lawismuchmore preparedtoadoptAm Article 102 problem. Gifford & Kudrle, Article 102 Gifford problem. & Kudrle, 5951. Both cases were brought under Article 102. In general, price discrimination in EU law is generally an BV vCommission geographical price discrimination, see: Case 27/76 condemned under Article 101(1)(d) and 102 (c) TFEU. For some ofthe most important EU cases about itissufficien this reason For ofthis thesis. scope the ( trade parallel 551/03 PGeneral Motors BV v Commission These practicesinclude:excluding See supra See

Accinauto SA vCommission Consten-Grundig As showninthediscussionabout [1984]ECR 883). Part 2.3.2.8. An exhaustive analysis about price discrimination in EU competition law is beyond lawisbeyond in EUcompetition discrimination price about analysis exhaustive An Part 2.3.2.8. Consten-Grundig Mercedes-Benz OJ [2002] L 257/1); charging higher prices when there goods are intended for [1978] ECR 207; Case C-333/94 P Distillers Company Limited vCommission Distillers Company . Seealso goodsfromtheweakertostrongermarket. [1985] ECR 3933) (i.e., customers should be able to invoke the guarantee in all in guarantee the invoke to able be should (i.e.,customers ECR 3933) [1985] [1994] ECR II-441); sending circulars to distributors prohibiting export to ECR circulars prohibiting sending distributors [1994] II-441); ); curbing sales to buyers in other member Case T-66/92 [1999] ECR II-1635); a manufacturer’s practice of buying back his products products his back of buying practice amanufacturer’s ECRII-1635); [1999]

market integratio export sales from thesystem of bans areprohibited,butalsoot note 505, at 1273. at 1273. 505, supra note Bayer Dental feredmanufacturerthe by (Case 86/82 1150 [2006]ECR I-3173);the trademarks useof in orderto hinder TheEU’stoughstancetowardsairtightexclusive Herlitz AG v Commission United Brands Company and United Brands Continentaal Continentaal Brands United and Company Brands United preventing manufacturers fromchargingdifferent t to note that in EU law price discrimination could be Tetra Pak International SA v Commission [1996]v SA International ECRTetra Pak I- 201 Consten-Grundig, the ECJ considersaclause OJ [1990] L 351/46); an ag an L351/46); [1990] OJ ffect aiming atimpeding ble whethersuch anappr regards to the salesterritory(CaseT- contract regards outside es as arestriction of competition by object. erican solutionsthan law whichU.S.antitrust lawcouldconsider n perspective. [1980] ECR 2229); a guarantee scheme where a bonuses granted todealers(Case C- states by preventingresale afterthe [1994] ECR 531 (an export ban a ban export (an ECR 531 [1994] her practices that effectively Hasselblad (GB)Hasselblad v Limited reement by which the dealer theotherwayaround, ETA Fabriquesd'Ébauches manufacturers’ ability oach issound,either Dunlop Slazenger 1151 Byprohibiting 1149

CEU eTD Collection being servedatall. increase intotalwelfare, if charging auniform necessarily havetobe discrimination, inthetheoreticalchapteritha M 1159 1158 1157 1156 1155 1154 1153 1152 casewithout th price thanitwouldbethe exclusive territorieswould mean that thec income inGermany issignificantlyhigherth behind theprohibitionof parallelimports. served atall. be abletobearthenewprice,resultwouldthatBulgarianmarket wouldnotbe served inthe absenceofpricediscrimination. prices. the pricethey paywouldincrease, whileGe charged inthenamed countries. would havetochargeauniformpriceforboth profits bychargingalowerpriceinBulgaria andahigherpriceinGermany. arbitrage byprohibitingparalleltrade,themanufacturer would beabletomaximizehis States,Germany Bulgaria. products intwoEUMember and ODERN ODERN

See See id. See id. See id. See id. See id. See See supra W. Bishop, Bishop, W. M 1156 First, even if thepricedifferential be On theotherhand,iflawprohibitedairtightexclusiveterritori Apart from efficiency,thequestionof L OTTA at 496. at 495. AW Thissituation may enhancetotalwelfare, Part 2.3.2.8. R , 1158

EVIEW Portugal). and example Germany the of supra(using note at 495-96 190, Suchanoutcome hardlycontributesto Price Discrimination under Article 86: Political Economy in the European Court European the in Article86: Economy under Political Price Discrimination , Vol. 44, No. 3 (May, 1981), pp. 282-295, at 282. at 282. 282-295, pp. 44, (May,No. , Vol. 1981), 3 1152 Asanexample onecouldtakeamanufacturerwhoismarketing his welfare-reducing: under certaincond

1155 Asaresult, Bulgarian cons onsumers inBulgariaw e prohibition,whiletheconsumers inGermany 202 1157 fairnesscouldberaisedaswell. markets, somewhere inbetweenthetwoprices pricewould resultinthe weakermarketnot rman consumers wouldbenefitfrom lower an inBulgaria. Theprohibition of airtight However,iftheBulgarianmarketnot would s beenshownthatthispracticedoesnot tween Member States qualifiesasprice butonlyifbothmarkets continuetobe market integrati 1153 itions itcouldactuallybringan If itwerepossible toprevent umers wouldbeworseoffas ould bepayingahigher es, themanufacturer on, theallegedgoal 1154

1159 , T Personal HE CEU eTD Collection Paul”). than amore flexibleapproachwouldhave. towards export bansmay haveactually brought lesscompetition andless market integration 1167 1166 1165 1164 1163 1162 1161 1160 Commission may startproceedingsev investment. example, suchanapproachcouldeffec to make evenlesseconomic sense when market power. discrimination couldbeprofitableonlyfora Finally,thetoughstancetowardsairtight problematic withregards tosmaller firms. Asshowninthetheoretical chapter, price be anoptimal solutionotherwise. does notseem asasoundsolution,itcouldfa may decidetoverticallyintegr detriment ofboththe competitive process andmarketintegration. success willnotmaterialize wi limiting parallel trade,firms may consumers tothewealthierones. having airtightexclusiveterrito would bepayingless.Inotherwords,preven M Id. See See supra See supra Id. Id. See ONTI at 495. M T Due tothese andrelatedissues,some co IROLE OTTA ,

supra Part 2.3.2.8. Part 4.4.4; infra 1167 , ,

supra note 28, at 139 (by charging a uniform price note 190, at 497-98. 497-98. at supra 190, note 1165 note 45, at 41. note45, Thisisespecially thecase if the Inthisrespectastrictapproachtowards restrictionsof parallel trade seems Part 5.3.2. Part

ate andtherebyavoidtheapplicationof101(1).However,this 1160 ries couldbeseenastransf 1164 th anunprotected distributor. decide nottoexportatall,

en againstsuchenterprises. applied tofirmslackingmarket power. 1161 203 tively preventsmaller firms from boosting manufacturer whopossess ting arbitragebyexcludingthepossibilityof Asaresultofanoutrightcondemnation of firms donotqualifyasSMEs,althoughthe vor verticalintegrationevenifitwouldnot mmentators haveopined exclusive territoriesseemsespecially the supplier effectively“robs Peter to pay erring income fromthepoorer if theyfear thatcommercial 1162 1163 In addition,the factthatthe Thiswould betothe Inthealternative, afirm es certaindegree of that ahard stance 1166 For CEU eTD Collection oscillations oftheAmerican law over time, it has inthe main remainedth the exclusiveterritoriesareairtight.Althoughsome elements ofthisapproachhavevaried hand, italsorecognized restraint isnotinherentlyharmfulandhence exclusive territories. Right from thestart EUco 1168 Therefore, neithertheAmerican nor theEuro the startmakesaneconomic analysisofex more, itdid nottake into accounttheimportan agreement, includingthe issueof whether itcont economic butonformal mani considerations, and condemnedthem insome otherinstances time hadaclearerposition,asitexempted excl shaping anantitrustpolicyrega acknowledged thatitdidnotknow neutral withregard both sidesoftheAtlantic,itcan approach thatwasmore optimal. was closertothedesirableruleforexclusive 4.7 they willgenerallyfinditmore diffi law favorsverticalintegrationcouldbeespeciallyharmful withregards tosmall firms, as

See In theearly1960s,whenlawofvertical Com Assessment

infra pared totheU.S.,EUhashadamore Part 5.3.2. s totheproposedrule.Asshown,th the potentialharmful effectsofex

rding theserestraints. Onthe besaidthatboththeAmerican of verticalterritorial restrain cult tointegrate than larger firms. much aboutverticalnon-price 204 should notbeprohibited territories whileatother times itwastheEU’s e same. Takinginto account the significant ce ofinterbrand competition, whichright from mpetition law has recognized thatthis type of . However,thisappr pean approachoftheearly yearscouldbe usive distributionagreements insome cases ains aprohibition of parallel trade. What is clusive territories practically impossible. territorial restraints festations of an exclusive distribution festations ofanexclusive stableapproach towards thelegality of e U.S.Supreme Courtofthattime clusive distribution,especiallyif ts, duringsome periodstheU.S. other hand, the EU law of the other hand,theEUlawof lawand that of the EUwere restraints andfellshortof 1168 oach wasnotbasedon outright. Ontheother started developingon

CEU eTD Collection a greaterextentreflects economic it isarguably efficient. In thisrespect the prohibition ofparalleltrade: on exclusive territories. Thebestexample fo approach can besaidtohavebothnegative andpositive sides. to benoted thatEUcompetition lawadopted bringing itcloserto it tookthe EUmore thantwodecadestoreform of thetime remained trappedinitsformalistic requirements forexemptions. Asshownabove, path ofapplyingeconomic analysistothelegalit appropriate thanits Consequently, itseems thatin appraisal oftherestraint atissue, atl during the the U.S.verticalterritorial regards toabsoluteterritorialprotection,EUla restraints weredeemed as approach weredifferentinthetwojurisdictions similar approachtowardsthesignificanceofintr was more appropriate.Although boththeU.S.Su laws werenot. compared withtheproposed rule, as therule On theonehand,EUfailedtocompletely The SupremeCourt’sdecisionin On theotherhand,during Schwinn eratheEuropeanapproach didnotgetmuch closertoaneconomic American counterpart. Sylvania per se restraints werecondemnedacros andthedesirable rule onexclusive territories. However,itneeds it wasshownthatEUlawmay thatperiodtheEUlawofex illegal, in the EU thatwas notthecase. As shown,even with considerationsexpressed in Schwinn eraitcould besaidthattheEuropeanapproach east itdidnot follow theextreme waytakenby Sylvania turnedthingsaround–whiletheU.S.took Sylvania 205 isbasedoneconomic considerations and these w offeredapossibilityofexemption, whilein abrand competition, the consequences of this abrand competition,theconsequencesofthis Sylvania y ofverticalnon-pricerestraints,theEUlaw r this isthestrict approach towards the preme Courtand theECJofthattime hada . While intheU.S. allverticalterritorial incorporate economic anal approachseems more appropriate,asitto itsapproachtowards verticalrestraints, ’s legacyinaparticularway. This condemn thisconductevenwhen s theboard.Therefore,although the proposedruleforexclusive clusive distribution wasmore ysis intoitsrules Schwinn. CEU eTD Collection distribution agreements isnotapposite distribution. Ontheotherhand,wayEUlaw distribution agreements isappropriateandco has ananticompetitive potential. the conductvirtually vertical territorialrestraints EU hassucceededinsomething that theU.S.hasfailedtodo–itmanaged tosubject which factorstotakeintoaccount structure towhatotherwise wouldbeachaotic U.S. TheCommission’s Guidelines onVertical it has avoided the pitfalls that the lack of ast line witheconomic considerations. approach towardsthere regards to situations inwhichitpursues airti territories. Therefore,although Based onthe above,itissubmitted thatthe EU On theotherhand,approachthatEU per se striction ofparalleltradeshould legal,therebyrecognizingthatthe to aneconomics-driven analysis the Commission hasbeencreati when judgingthelegalityofa , anddeservestobereconsidered. 206 ght exclusive territories, ructured rule ofreasonanalysisbroughtinthe situation,wheretheen mes closeto thedesired ruleonexclusive has takensince1999deserv Restraints areanexcellent wayofgiving handles thelegalityofairtightexclusive approachtowards non-airtightexclusive be reexamined andbroughtmore in withoutgoingasfarmaking use ofexclusiveterritoriesalso restraint. Inotherwords, the ng certainexceptionswith forcer wouldnotknow it issubmitted thatits es praiseinthat CEU eTD Collection 1169 the Sherman Actdoesnotdistingu penalties aswell incarceration. infringement ofantitrustlawshasoccurred. its roleislimited toinitiating criminal andci for antitrust.TheDoJcannotitselfimposepenal The Division ispartoftheexecutive branchan Themost importantbody for thepublic enforcement of federal antitrust lawisthe Antitrust Divisionof the U.S.Department of Ju 5.1.1.1 5.1.1 5.1 chapter discussesthesoci enforcement andthewayinwhichtheyaffect EU hasasimilar approach, the chapterexplores to whichithasbeeninfluencedbypoliticsand To thisend,thechapterfirsta and howtheyhaveinfluencedthedevelopment of Stat 1279, Section 6, 18 U.S.C. § 3571(d). 18 6, §3571(d). U.S.C. Section Stat 1279, 101 Actof 1987, Improvements CriminalFine process.” sentencing the prolong or complicate unduly would greateroftwice the gross or twicethe afinegain of imposition loss, this unless subsection gross under offense results in pecuniary loss to a person other than the defendant, the defendant may be fined not more than Sherman to Act. AmericanAccording la American criminalallowsthe inaddition, the toassess law than alaid court the down even fine one greater not exceeding 10 years, or by both said punishments, in the discretion of the court.” 15 U.S.C. §§ 1-2. In “by fine not exceeding $100,000,000 if According to the Sherman Act, every person that violates Section 1 or Section 2 of the Act is to be punished The main aim of this chapteristoanalyze Enforcement intheU.S.

Antitrust violations are acriminal offense Public enforcement The Department of Justice Justice of Department The 5

E XCLUSIVE thesignificanceoftrebledama al costofantitrustenforcement in D

ddresses publicantitrustenforcemen ISTRIBUTION AND AND ISTRIBUTION focusing ontherelevantasp a corporation, or, if any other pers w, “[i]fany person derives pecuniary gain fromoffense,the the if or 1169 ish between thetypesof antit When providing for the possibility of criminal liability, 207 ideology. With regardstoprivateenforcement, the relevant antitrust enforcement mechanisms vil actionsin instanceswhereitbelievesan d isheadedbytheassistant attorney general the lawof exclusive territories. Finally, the ties uponviolatorsofan stice (hereinafter: the DoJortheDivision). thesubstantive lawof exclusive territories. A in theU.S.,entailingserious pecuniary NTITRUST NTITRUST ges remedy. Thepartdealingwiththe thefieldofexclusivedistribution. on, $1,000,000, or by imprisonmentor by on, $1,000,000, ects ofpublicandprivate E rust violations.Thismeans t intheU.S.andextent NFORCEMENT titrust laws.Rather,

CEU eTD Collection Sheep: The Economics of Marginal Deterrence important witness willhave been elim the no greater, and risk of apprehen willbe punishment victim. to her The kill not mugger littleincentive the has by death, murderare and punishable mugging If both pp. 345-366. 345-366. pp. the greaterrisk ofapprehension andconviction.”). prison and murder by death, the mugger must makemore a difficult trade-off of the much higher penalty against off ifitcan force violators to minimize unpl because peoplefindpunishment example, in court Apartfrom acriminal action,theDoJcan pernicious practices. individuals wouldhavenoincentivetoabstai vertically imposedexclusiveterritoriesas enforcement andmarginal deterrence. to criminally pursue allantitrust violations,that pernicious practicesseems reasonable.Inaddi prosecute alltypesof antitrust violations, and inthislight itsorientation onthe most Division didnotcriminally more, evenduringtheperiodwhenitwasac 1175 1174 1173 1172 1171 1170 Division criminally pursuesonlythemost action against thealleged offender. that ingeneraleventheuseof offenses assessed under the rule of reason). claims within the exclusive jurisdiction ofthe courts). federal exclusive jurisdiction the claims within government’s point of view that was an instance of (http://www.justice.gov/atr/public/divisi III-20 3.4.2.2. Sherman Act Section 4,15 U.S.C. §4. Motors General In U.S. Department ofJustice, DivisionAntitrust Manual(F See See See 1174 Marresev.American Academy of HerbertHovenkamp, 3 U.S.373, 229 U.S., v. Nash Such anapproachisunderstandable.Fi andaskthecourttopreventrest White Motor , the DoJ pursued the distribution arrang Antitrust's protectedclasses andSchwinntheDivisionaskedcompetent courts toissuea pursue theallegedoffenders.

exclusive territories couldresu easant, and some kindsmore unpleasan 76-78 (1913) (criminal liability under liability (criminal (1913) 76-78 inated. Onthe other hand,ifmugging the social costs of their violations, Orthopaedic Surgeons, 470 U.S.37 470 Surgeons, Orthopaedic 1170 1173 onmanual/atrdivman.pdf, accessed May accessed 17 2011). onmanual/atrdivman.pdf, , T However,thisdoesnothappeninpractice–the Basically,thiswouldmean thatifthelawpunished HE See also horizontal blatantcasesofhorizontalcollusion. J 208 OURNAL OF OURNAL sion and conviction fact will in an be lower because sion conviction and severely asitpunishedhorizontalcollusion, tion, eveniftheDoJwa wouldnotbeinaccordancewiththegoalsof , 88 n from enteringintothe latter,much more tively challenging exclusive territories, the David &Sjostrom, Friedman David William rst, theDoJdoesnothavemeans to rain anallegedantitrustviolation. ourth Edition, Last Updated December 2008),at

M collusion among distributors. ement criminally. However, from the also bringacivilcl ICH L EGAL EGAL . 1172

L.

R

EV S lt intheDoJbringingacriminal and violationsequally arenot costly. TUDIES the for Sherman Acteven possible . is punishable bysix months in

t than others. Society will be better 1, 3(1989) (“Deterrence works 3, 379 (f 379 (1985) 3, , Vol. 22, No. 2 (Jun.,Vol.1993), 22,No.2 , s technicallyequipped aim beforeafederal See supra ederal antitrust antitrust ederal 1171 Hanged for a for Hanged What is What Part 1175 For CEU eTD Collection 1182 1181 1180 1179 1178 1177 1176 territories, asithasbroughtsome ofthemost would beinterestedinenteringaconsentdecree. having topaytrebledamages, thepartiesag facie party. prima facie judgment renderedinacivilor criminal proceedingbrought bytheDoJisconsidered as DoJ. Thisismainly duetothefact thatthese territories, especially intheperiodbefore our discussion,therehavebeenanumber ofco public interest. based onthesettlement, thecourthastodetermin the DoJand thealleged violator of antitrust laws. but aresettledbetweentheparties. damages are notlikelyinthec cost ofsuit. antitrust violation,thefederal from usingsuchpractices.Inaddition,ifitwa restraining order to the manufact Clayton Section Act 5(a), 15 U.S.C. §16(a). Clayton Act Section 5(e)(1), 15 U.S.C. § 16(e)(1). Clayton Section Act 5,15 U.S.C. §16. D Clayton Section Act 4(a), 15 U.S.C. §15a. See supra See infra OUGLAS caseagainstthedefendantinacivildamage 1182 The Divisionhashadanimportant historic In general,defendantsareus With regards tocivil actionsfiled by theDoJ, most casesdonoreach thetrial stage Inotherwords,privatelitigantscanusethejudgment inordertoestablisha Part 5.1.2.2.3. Part 3.2.1. B evidenceinanysubsequentactionbroughtagainstthedefendantbyanother 1176 RODER 1180 However,inthelightofdirect Uponthisdetermination, thesettlement becomes binding.Ofrelevancefor ,

U.S.

A NTITRUST NTITRUST

ontext of exclusiveterritories. government cansuetheinfringe urers imposing exclusiveterritori L AW AND 1178 ually veryinterested inre Thisisdonebyconsentdecreesenteredintobetween White Motor E NFORCEMENT 209 decrees areexempted fromtherulethatafinal ainst whom theDoJhasstartedproceedings s a purchaser of goods inconnectionwiththe apurchaserofgoods s important casesinthe nsent degreesregarding e thattheentryofsuch s suit.Takingintoaccounttheprospectof 1179 al rolein shapingthelawofexclusive purchaserrule,government suitsfor . 188 (2010). 1181 Beforeenteringaconsentjudgment

1177

aching asettlement withthe r fortrebledamages andthe es inorder toprevent them field. Mostnotably,it ajudgment is inthe the useofexclusive prima CEU eTD Collection regulation: the changing nature of antitrust enforcement of antitrust nature the changing regulation: 1188 1187 1186 1185 1184 1183 restrictions exclusive distribution agreements. issued in1985. horizontal impacts-shouldtheybeinhibited.” effects. Onlywhereverticalarrangements facilitaterestricted outputandraisedprices- possible adverse competitive consequences ofver then headoftheDivision:“[T]hereisnosuch administration of thattime isprobablybest captured by thisstatement byWilliam Baxter, Division practicallystoppedch than theRepublicanones. administrations headedbytheDemocraticPart by theincumbent administration. Inthis in theDoJduring the Republicanadmini challenging exclusive territories.Thiscanbeto Schwinn. However,inthepost- initiated theactions againstmanufacturers imposing exclusive territories in significant anticompetitive effect.”). anticompetitive significant production or distribution that tend to create efficiencies.”); some form involve and threat anticompetitive little represent the courts treat government guidelines ofarestraint,signal the views sending legality on DoJ enforcement since 1980 has a lot to to do with alot has since 1980 enforcement these forms of vertical restraints and do tothem.”). forms do restraintsthese not and apply vertical of of legality the tocast on doubt are intended these not efficiency, Guidelines enhance to potential significant and prof clauses location responsibility, DoJ the of significance legal The (1985). FR 50 6263-03 to: T According See id. See See See DoJVertical6265 (“ Guidelines at Posner, A. Richard H As partoftheexecutive, theDoJissubjectto viewsonantitrustenforcement held In thislightoneshouldalsoconsidertheVe ERBERT at 6266 (“[Non-airtight vertical restraints, su atvertical (“[Non-airtight 6266 as basically H 1186 OVENKAMP IROLE Theguidelines hadalenient approach ,

supra A statistical study of antitrust enforcement of antitrust study A statistical per selegal, ,

T note 28, at 185. at 185. 28, note 1184 HE

Agoodexample isReagan’spresidency,duringwhichthe A assome sort of sourcelaw. NTITRUST NTITRUST allenging verticalrest Sylvania periodtheDivisionhasnotbeenmuch activein it passover arrangements] pose negligible anticompetitive risks and have and have risks anticompetitive negligible pose arrangements] it passover [V]ertical restraints that only affect intrabrand competition generally competition affectintrabrand only that [V]ertical restraints a string of Republicanpresidencies). 1187 1188 Thedocument regardednon-airtightterritorial strations inthe1980sandlateron. E expressing some degree NTERPRISE NTERPRISE 210 1185 ch asselective distribution, areas of primary , 77O when the DoJ can be expected to take action. Further, Further, action. totake expected canbe DoJ the when respect atendencycoul y seem tobeformore vigorous enforcement thingasavertical'problem' .Theonly a large partattributedto theviewsprevalent

tical arrangements inhere Id. of economic integration betweendifferent of levels integration economic of Vertical Guidelines is twofold. istwofold. First, they express Vertical Guidelines 60 R at 6269 (“Vertical restraints rarely have a rtical RestraintsGuid

. (2005) (the contraction of public antitrust antitrust of public contraction (the (2005)

L. raints. Theapproach prevalentin the

R See EV , 13 , 13 J.L. . 1383, 1407 (1998). (1998). 1407 . 1383, Spencer W.Waller, to whatthis paperconsider as

&

of concernonlyregarding E CON . 365, 411-13 (1970). (1970). 411-13 365, . d benoticedthat elines thattheDoJ 1183 intheir horizontal White Motor Prosecution by

and and CEU eTD Collection (http://www.justice.gov/atr/public/speec influence theperson’sviewsre enforcement practices. so fartherehavebeennoclearsignsthat 1196 1195 1194 1193 1192 1191 1190 1189 from issuingthenewsetofhorizontalmerger might beexpectedthatantitrust enforcemen minimal attentionbytheDivision. period ofRepublicansintheWhite House,meani restraint. territories –evenunderaDemocrat, theDoJwa in anynoticeablechange intheDivision’s Division withdrewtheDoJVertic of theGuidelines, the DoJhad notchallenged any form of vertical restraints for five years prior to the issuance towards verticalrestraints. is more likelythattheir aim wasto actually ch the DoJ’spositiontowards the effectofairtightexclusiveterritories. Bush administration than it was the case during Clinton). Clinton). it caseduring was the than administration Bush as relatively conservative on antitrust matters). antitrust on conservative as relatively 2010 (http://ftc.gov/os/ 22-SUM U.S. Department ofJustice and the Federal Trade Comm Division Antitrust of the head then Bingaman, Anne by 10 August were1993 on withdrawn Guidelines The See See Id. See Id. See at 6263-64. John D.Harkrider, H Guidelin Vertical NAAG id.

Based ontheabove,itcanbeconcludedth At thebeginningofClintonadminist A OVENKAMP

1194 NTITRUST NTITRUST FollowingClinton,theperiodbetwee , 43, 47 (2008) (showing that the DoJ was less active in challenging transactions during the the during the transactions that (showing DoJ challenging was less in 47 (2008) active 43, 1192

note 1183, at 60 (although Bill Clinton was a Democrat, he could be characterized becharacterized could was aDemocrat, he BillClinton supra at 60 (although 1183, note 2010/08/100819hmg.pdf, nordiditstartdoingsoafter Antitrust enforcement during the Bush Administration - an econometric estimation econometric - an Administration Bush the during enforcement Antitrust 1191 es, BackgroundStatement. non-price restraintsinasimple andclearfashion.

Thisisviewespeciallyconvincing takingintoaccountthat garding antitrust enforcement. In thisrespectthe Chicago hes/0867.htm, accessed 17 May 2011). al Guidelines as toolenient. 1195 Finally,withtheelection accessedMay 2011). 17 1189 Thedeclaredgoalofthe t wouldbecomemore vigorous.However,apart 211 guidelinesin2010(togetherwiththeFTC), enforcement policywith regardstoexclusive there willbeasignificantchangeinDoJ’s ange thelawtowardsamorelenientapproach ission, Horizontal Merger s notveryactiveinpursuingthistypeof the Guidelines wereissued. ration, thenewlyappointedheadof n 2000and2008wasmarkedbyanother ng that vertical restraints were afforded at one’spolitical 1193 However,thisdidnotresult of BarackObama in2008it Guidelines wastostate Guidelines of 19 August August 19 of Guidelines views considerably 1190 However,it 1196 ,

CEU eTD Collection economic and political theory on the law the of on restraints). theory vertical economicpolitical and relying onjudgments renderedinsuchactionsas is more, intheabsenceofDoJactionsprivate the plaintiff’sprobabilityofsucce 1201 1200 1199 M 1198 1197 the FTCisanindependentre Federal TradeCommission(FTC).UnliketheDo 5.1.1.2 account themanner inwhichthec DoJ privateplaintiffshavetobepreparedfinancethesuitsthemselves. Andtakinginto reason canbeaveryexpensivewayofenforcement, Sylvania is mainly connected withthecostsarising out of antitrustlitigationandthefact thatfollowing an important impact ontheoveralllevelofenfor extent determined byideology. them wereappointedbyRonaldReagan, which (Bork, PosnerandEasterbrook)Suprem school canbesaidtohavebecome influentia School approachtoverticalre substantially uponthe preferences of st antitrust the by to conferred the (“[O]wing discretion advice and consent of the Senate. FTC Act Section 1, 15 U.S.C. § 41. Not more than three of the Commissioners particular economic views affect antitrust litig economic affectantitrust views particular experi her tastes,training and largelyupon will hinge ARCO The FTC consists of five commissioners, appointed by M See supra See See ONTI H W. E.Kovacic,

C Be thatasitmay, thelackofDoJefforts The othermain bodyforthepublicenforcem OVENKAMP OLINO exclusive territoriesarejudged according totheruleofreason. Sincetheruleof The Federal Trade Commission Commission Trade Federal The ,

supra Part 3.4.1. ,

V note 45, at 77. note45, ERTICAL ERTICAL ,

note 1183, at 105 (a rule of reason one of one of reason rule (a at 105 1183, supra note The Influence of Economics on Antitrust Law Antitrust on of Economics The Influence A GREEMENTS AND AND GREEMENTS

gulatory bodycreatedbyCongress. individualjudges. A jurist's recep 1198 straints canbeconnectedwith theRepublicanideology: ss inchallengingexclusiveterritoriesisnot

ourts havebeenapplyingthe ation by his choice of judicial nominees.”). nominees.”). ofjudicial choice his by ation C OMPETITION OMPETITION ence. Thus, a president can determine how economics and and economics candetermine how apresident ence. Thus, 212 e CourtJustices(ScaliaandThomas). l aspro-Chicagoscholar atutes, litigation closecases outcomes in will depend litigation atutes, thePresident of the United States, by and with the prima facie plaintiffs are left without thepossibility of cement regarding this type of restraint. This in challengingexclusiveterritorieshashad shows thatantitrustdo J, whichbelongstotheexecutivebranch, L AW 1199 35-46 (2010) (discussing the influence of of theinfluence (discussing (2010) 35-46 ent ofAmericanantitrustlawisthe , 30 E , 30 intheabsenceofanactionby the the most costly procedures in antitrust). antitrust). in the most procedures costly tivity tospecific economic arguments evidenceintheirownsuits. CONOMIC CONOMIC Sylvania 1201 s became federaljudges Thewayinwhich the I NQUIRY ctrine istoalarge See also ruleofreason, thatgreat.What 294, 296 (1992) (1992) 296 294, S ANDRA 1197 Allof 1200

CEU eTD Collection F.T.C. 415 (1998). F.T.C. 415 (1998). In re (1991); WL 639922 1991 Companyofthe Southwest, Bottling Co., 112F.T.C. (1989); 191 Coors re the within comeunfa likewise Sherman Act. 1212 1211 1210 1209 1208 1207 1206 1205 1204 1203 1202 comecan from same party. the political the DoJ the useofexclusive territories. interpreted Section5of theFTCAct Act. with thatoftheDoJ.Technical the final word inassessing the legality are subjecttojudicial well as file suits for preliminary injunctions. violations oftheFTCAct. the DoJ, FTChasthe powerto FTC enforcesantitrust lawssomewhat differsfrom theenforcement bytheDoJ. unfair or deceptive acts or practiacts unfair ordeceptive 5(c), 15 U.S.C.§ 45(c). B injury from occu anirreparable trialto prevent during B conduct.” of course Commissioners’ relatively long mandate – they –they mandate long relatively Commissioners’ LACK Beltone Electronics Corp., 100 F.T.C. 68 (1982); F.T.C. 100 68 (1982); Corp., Electronics Beltone 15 USC § 45(a)(1) (declaring unlawful all “[u]nfair methods of competition in or affecting commerce, and H A party seeking review should do so within sixty days from whenthe order was issued. FTC Act Section or before issued injunction is“atemporary injunction Preliminary §53(b). 15 U.S.C 13(b), FTC Section Act §45(l). 15 U.S.C 5(l), FTCSection Act 15 §45(b). U.S.C 5(b), FTC Section Act Cease-and-desist-order is “acourt's or agency's order prohibiting a person from continuing a particular See, e.g. See e.g. See See The Coca-Cola Bottling Company of the of Company Bottling Coca-Cola The 1208 OVENKAMP ’ FTC v. Cement Institute Cement FTCv. B S The FTCstartedchallenging exclusive territori The FTC’sauthorityover theenforcement of However,in practicethe FTChassuch power aswell, sincethe Supreme Court has L RODER 1211 AW , , In re In In re In andhascontinueddoingsoeveninthepost- D , 1210 ICTIONARY ,

note 1178, at 192-94 (providing an overview of FTC enforcement procedures). procedures). FTC enforcement of an overview supra (providing at192-94 note 1178,

Snap-On Tools, 59 F.T.C. 1035 (1961). (1961). F.T.C.1035 59 Tools, Snap-On supra The Coca-Cola Co., 91 F.T.C. 517 (1978); (1978); F.T.C.517 Co., 91 Coca-Cola The Ofmost relevanceforourdiscussion, LACK note 29,592. at ’ review byfederalcourts. , supra note 874,800. at S L ir trade practice prohibitions practiceprohibitions ir trade AW 1204 , ces inoraffecting commerce.”). 333 U.S. 683, 694 (1948) (“[A]ll conduct violative of the Sherman Act may D In re In Itcanalso seekcivil penalt ICTIONARY ly speaking,onlytheDoJhasauthoritytoenforceSherman the Coca Cola Co., 1990 WL 606319 (1990); (1990); 606319 WL Co., 1990 Cola the Coca Id. issueceaseanddesistorders Another tool for ensuring the 1209 of anexclusiveterritoriesarrangement. Southwest, 118 F. 118 Southwest, , supra are electedforthe te asencompassing allconduc In re In rring before the courthas achance to decide the case.” 213 note 874, at 237. at note 874, 237. 1206 Lenox, Inc., 1988 WL 1025446 (1988); (1988); 1025446 WL 1988 Inc., Lenox, 1207 Finally,itshouldbenotedthatFTCorders of the Trade Commission Act.”). Commission Trade the of Therefore,inthiscasealsothecourthas In re In re American antitrust lawlargely overlaps T.C. 452 (1994); (1994); T.C. 452 Brunswick Corp., 94 F.T.C. 1174 (1979); 94 F.T.C. (1979); Corp., 1174 Brunswick es atapproximately thesame time as the FTCalsohaspowertochallenge The Coca-Cola Co., 117 F.T.C. 795 (1994); Coca-ColaCo., F.T.C. (1994); The 117 795 rm of seven years. ies forviolationsofitsorders independence of the FTC is the of FTCisthe the independence Sylvania 1203 In re In t thatcouldfallunderthe for what itconsiders as period. In re Toys R Us, Inc., 126 R 126 Toys Us, Inc., Id.

The Coca-Cola 1212 In re However, 1202 Adolph Unlike 1205 as In

CEU eTD Collection citizens oftheirstate. described as aspecifictypeofclassactions that This roleismost conspicuouswhenitcomes to comes todetermining the legalityof exclusive territories. exclusive territories–regardlessoftheFTC’sst Perhaps themain reasonfor thisisthelenient state attorneys generalalsoplayarolein 1221 1220 1219 1218 1217 1216 1215 1214 1213 exclusive distributionarrangements. been instances wherestate attorneygeneralshaveusedtheirpowers brought, ingeneralandthecontextofexclusiveterritories. if thecourt finds that the statebrought the suitin badfaith. treasury. could eitherdistribute damage aswellthecost sustained ofsuit. 5.1.1.3 notcon would seemthattodaytheFTCdoes although theFTCisgenerallyse modest role in challenging purely vertical arrang than the DoJ). administrations showing that during both administrati antitrust enforcement at the Federal Trade Trade Commission the at Federal enforcement antitrust 1998. E Clayton Section Act 4c(d)(2),U.S.C. 15 §15c(d)(2). Clayton Section Act 4e,15 U.S.C. §15e. Clayton Section Act 4c(a)(2),15 U.S.C. §15c(a)(2). Clayton Section Act 4c(a)(1),15 U.S.C. §15c(a)(1). in territories was brought ofexclusive the imposition regarding FTCaction Itseemslastreported the that See, e.g. See, e.g. See LHAUGE LHAUGE See In re See In Harkrider,

Apart from havingauthoritywhenitcomes to 1218 State Attorneys General General Attorneys State , State of N.Y. by Abrams v. Anheuser-Busch, Inc., 811 F.Supp. 848 (1993). (1993). 848 F.Supp. 811 Inc., Anheuser-Busch, N.Y. Abramsv. , Stateof by (1990). U.S.271 Co.,495 Stores American v. , California & Ontheotherhand,aprevailingdefendant Toys R Us, Inc., 126 F.T.C. 415 (1998).

G ERADIN supra note 1195, at 47 (a study regarding public enforcement during the Clinton and Bush , 1216

supra note 227,at 9. the relief in amanner itfinds suitab Ifsuccessful,thestatecan obtainmo

en ashavingstricterenforcement policiesthantheDoJ, 1221

ements that lack significant horizontal effect). horizontal significant ements lack that the enforcement of thefederal antitrust laws. ons the FTC was more likely to challenge a transaction atransaction challenge to likely the FTCwasmore ons 214 , 72U. cern itself much withexclusiveterritories. See also 1217 approach that the courts have shown towards approach thatthecourtshaveshowntowards stateattorneygenerals ance, thecourtshavelastword whenit Oncethecourtgrantsmonetaryrelief, it parens patriae

C HI Robert Pitofsky, theenforcementof may obtainareasonableattorney's fee, .

L.

R 1219 EV le or deposit itwiththestate’s . 209, 213 (2005) (praising the FTC’s the (praising (2005) 213 209, .

netary relief threefold the total Parens patriae 1220 suits. Thesesuitscouldbe Nevertheless,therehave Past, present, and future of of future and present, Past, bringonbehalfofthe in order to challenge state antitrust laws, suitsarerarely 1213 1215 1214 it

CEU eTD Collection (http://www.naag.org/assets/fil 792 private antitrust cases inU.S. district casesfiled the filed co urts, as to by antitrust 49 DoJ). opposed 792 private 5.1.2 active approach towardsexclusive territories. though theimpactofthisdocument islimited, the Guidelines adoptedbytheNAAGin1995. than theDoJdoes.Thisconclusioncanbemade NAAG considersexclusive territoriesandverticalrestraintsingeneralasmore pernicious general, Association ofAttorneysGeneral(NAAG). This 1225 1224 1223 1222 recourse toprivateantitrustlitigation istheprospect ofreceivingtreble damages the government bymore than16to1. enforcement. Accordingtorecentstatistics, 5.1.2.1 products forwhichservicingorprod ride phenomenon ismuchdisputedamong theori the useof free-riderargument inthecontext towards verticalrestraints. Forexample,the treble damages is certainly more tempting that an injunctive relief. injunctive thatan tempting more treble is certainly damages against threatened loss or damage by a violation of the antitrust laws.” 15 U.S.C. § 26. However, the prospect of injunctive relief have sue for and … to be entitled shall person, association “[a]ny 16, firm,or corporation, (http://econgroup.com/peg_new In addition to damages, private plaintiffs can also as also can plaintiffs to private damages, addition In 3.2B. Section Guidelines, NAAG Vertical of Attorneys Association General, National See Princeton Economics Group, Inc. website

Private enforcement With regardstostateattorneygenerals, itisalsoimportant mention theNational Compared to the withdrawn DoJguidelines, thisdocument is moreaggressive One of themain characteristics of American antitrust is ahighlevel of private inter alia Exclusive territories and treble damages damages treble and territories Exclusive intheareaofantitrust.Relatedtoour es/pdf/at-vrest_guidelines.p s_view.asp?newid=40&latest=true, accesse

uct enhancement ishighlyunlikely.” 1224 Vertical Restraints Guidelines of 1995 of 1995 Guidelines Vertical Restraints Themost important reasonbehindsowidespread 1222 private antitrustsuits 215 guidelines expresscertainreservationstowards

k for injunctive relief. According to Clayton Act Section Act k to Section for injunctive relief. According Clayton bytakingintoaccounttheVerticalRestraint df, accessed17 May 2011). of verticalrestraints, body coordinatesthework views oftheNAAGhintapotentiallymore sts, especiallywith discussion,itisinterestingthatthe d 17 May2011) (in 2009 there were outnumber thosebroughtby noting that“[t]he free- 1223 regardtocertain ofstateattorneys Therefore,even 1225 andthe CEU eTD Collection remedies revisited defendants could benefit from this provision only if the suit was frivolous. provision abouttherecovery of thecost of suitallowsonly Arbitration International pursuing this type of type restraint. this pursuing private suitsis in the even greaterwithregard lack interest of territories,takingaccount into DoJ’s s to exclusive potential antitrust infringers. 1232 1231 1230 1229 1228 1227 1226 may giveprivate plaintiffs perverseincentives for litigation especially pronouncedinthecont existence of trebledamagesisalsoconnected state is sharingtheburden ofantitrust enfo violations. Bygivinganincenti seen in apositive light,as a way of facili only to compensate the victims of antit enforcement suits couldbeusedasprimafacie fueling private antitrustsuitsistheoneaccord cost ofsuit. out of an antitrust injury arereduced injury antitrust of an out damages reveals anintent to punish past, and to deter future, unlawful conduct.”). as ‘private attorneys general.’”). prospect of a recovery in three times the amount of their damages, Congress encouraged these persons to serve laws.”). antitrust the ofenforcing high purpose as wellthe private parties treble-damage andinjunc Cases Compared, Initiated Independently and Follow-on Thomas E.Kauper & Edward A. Snyder, cases. antitrust %of private 5.9 suits only %and follow-up 94.1 cases constituted initiated independently 1983 and For example, 1978 suits. between and follow-up independent the between ratio analyzing be drawnby could seems itsimpact This belimited. conclusion to litigation, in increase antitrust private litigation. the of outcome This would happen because with the prospect of treble damages a party’s incentives to avoid losses arising See See See See See See Texas Industries, Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 639 (1981) (“The very idea of treble (1978). 314 308, U.S. 434 India, of v. Government Inc. Pfizer, U.S.25 Cal., 405 of Co. Oil Standard v. Hawaii 395 v. Research, Inc., Corp. Hazeltine Radio Zenith 5 (a),15 U.S. Clayton Act Section 15 U.S.C.(a). §15 the In U.S.the generalruleis The purposebehindtheawardof The first setof problemshastodowiththefact thattheexistence of treble damages 1226 1228 Althoughnotassignificanttheaward , 4 bycreating “privateattorneysgeneral”.

O R .

, ASA Bulletin, Volume 25 Issue 4 (2007), pp. 704-716, at 707. Note, however, that the the that Note, however, at707. pp. 704-716, Issue 4 (2007), Volume 25 , Bulletin, ASA

L. See

R Charles Price & YvesStans, CharlesPrice& EV .

147, 153 (2005). 1231

. William Breit & Kenneth G. Elzinga, . & Kenneth William Breit ve forprivateactionsagainst Ontheonehand,provisio tive remedies was not merely to provide private relief, but was to serve serve wasto relief,but private provide merelyto remedieswasnot tive ext ofexclusiveterritories. evidenceinsubsequentprivatelitigation. Private Antitrust Enforcement: Enforcement: Antitrust Efficiency of Private the into An Inquiry C. § 16(a). Although this provision probably contributes to some to contributes probably provision this Although 16(a). C. § rust violations for their injuries, treble damages istoencourage privateantitrust 216 1, 262 (1972) (“By offering potential litigants the the litigants (“By potential offering (1972) 262 1, tating detection andsuppression of antitrust 74 G 74 ing towhich priorconvictions ingovernment rcement withprivate parties. However,the that each party bears itsow withcertainproblems, Using Costs as aCase Management Tool in successfulplaintiffs to recover; successful U.S. 100, 130-31 (1969) (“[T]he purpose of giving giving of purpose (“[T]he (1969) 130-31 U.S. 100, EO .

L.

of trebledamages, anotherprovision J. 1163, 1176 (1986). The significance of of significance The (1986). 1176 J. 1163, 1229 Inotherwords,thegoalisnot See alleged antitrustoffenders,the Antitrust Enforcement and Enforcement Antitrust n oftrebledamages couldbe 1232 Edward Cavanagh, andleadtolarger-than- n costs, regardless of the some ofwhichare 1230 1227 butalsotodeter

Antitrust Antitrust CEU eTD Collection v. v. Law OfficesofCurtisV.Trinko, contract breach into an an an breachinto contract give an incentive to an individual to intentionally suffer damages in order to collect the treble amount. treble the collect to in order damages suffer to intentionally toanindividual incentive an give pp. 329-356, (Oct., 1974), 1237 1236 1235 1234 1233 , J Case for Treble Damages Uneasy Efficiency: The Economic restraint. assumption thatthethreefoldamount ofdama American courtsmay becalib would bepunishedmore severelythanthea would findthearrangementillegal, wake ofSylvania deserve tobepunishedbytrebledamages. Perhap distribution arrangement wereto easy tomeasure inaparticularcasewhichof type ofrestrainthasbothprocompetitive and social costsaremore ambiguous. of attorney’s fees,theenforcerswillattempt properly assessedbythecourt. more likely itisthattheenforcement willaim ataconducttheeffectsofwhichcouldnotbe probability ofsuccesswouldotherwisebemarginal. fees may litigationincaseswher encourage optimal number ofprivateantitrustsuits. about the overexpansion of antirust laws). ofantirust overexpansion the about tendencies in the antitrust system inthe antitrust tendencies Lessons from the Roberts Court Odudu, Okeoghene actions. antitrust tobring claimants private authors have noticed a general tendency in the Roberts Court decisions towards making itmore difficult for of law's condemnation ofantitrust the breadth belimiting to H See Id. Id. See, e.g. OVENKAMP at 654. at 655. Stephen Calkins, Calkins, Stephen Exclusive territoriesseemtobethiskind 1237 , P

OSNER ,

supra American courtshave beensolenient towards exclusive territories –if they ,

note 80, at 35 (criticizing a surge in private antitrust actions and expressing concern concern expressing and actions antitrust private suprain at asurge 80, 35 (criticizing note note 29, at 603. Consequently, plaintiffs will try to turn every claimed business tort or or tort claimed business turnevery will tryto plaintiffs note 29, Consequently, at 603. Summary judgment, motions to dismiss, and other examples of equilibrating equilibrating of examples other todismiss, and motions Summary judgment, titrust violation as well. titrust violation at 335. The possibility ofreceiving more than theactual amount of damages may also , 53 A , 53 , 74 G , 74 LLP, 540 U.S. 398, 412 (2004) (priva (2004) 412 U.S.398, LLP, 540 1235 NTITRUST rating theirapproach toexcl EO 1236 beonbalanceanticompetitive, itisdoubtful Inthe presence of adamages multiplier and theprovision . theawardoftreble damages

L.J. 1065, 1094 (1986) (“The treble damages remedy currently seems currently remedy damages treble (“The (1986) 1094 L.J. 1065,

B ULL Id. 1233 at604. . 873, 874 (2008). 874 (2008). . 873, 217 Theprospectoftreble e theamount ofrecoverydiscountedbythe to reachincreasinglymarginal activity whose lleged offensedeserves.Inotherwords,the anticompetitive aspects,anditisnotalways thetwoprevails. Andevenifan exclusive certain vertical restraints.”). Related to this, to some Related certainverticalrestraints.”). of marginal conduct.Asshownabove,this of marginal s thisisoneofthemain reasonswhyinthe ges isoverlyexcessive OURNAL OF OURNAL OF Developing private enforcement in the EU: 1234 Themoreenforcement thereis,the See, e.g. te antitrust enforcement not desirable desirable not enforcement te antitrust L usive territoriesbasedonthe AW AND would mean thattheviolator , Verizon Communications Inc. damages andattorney’s E CONOMICS forthistypeof , Vol. 17, No. 2 that itwould Id.

CEU eTD Collection U.S. 1, 25-27 (1991) (Scalia, J., concurring) (giving an historical overview of the institute of punitive damages). damages). the punitive of institute (Scalia, of overview J., concurring) an (1991) historical U.S. (giving 25-27 1, an antitrust conspiracy has to satisfy in order to pass the summary stage). summarystage). the topass hastosatisfyin order conspiracy antitrust an Bell Corp. results”); Atlantic U.S.544 Twombly,v. 550 (2004). (2004). small. they areappropriate for situations wherethe justified foranotherreason.Oneoftheprincipal justificationsformu 1242 1241 1240 1239 1238 the permissible from theimpe and different nonexpert juries. In light of the nuanced nature of the evidentiary evaluations necessary to separate in doze the Nation lawsuits throughout maybring plaintiffs Securities(USA CreditSuisse industries); regulated in actions. other commonlawcountries,notmany jurisd purpose ofpunishinganddete possible implications invites adiscussionaboutpunitivedamages, thei awarding trebledamages onthe grounds that territories, but in general. More precisely, a viewed fromthisperspective. violations arisingoutofexclusiv contained. offense was group –therethevictim i.e.poten law, suchascartels. OF percent. Peter G. Bryant & E. Woodrow Eckard, Eckard, &E. Bryant Woodrow Peter G. percent. E B H See See Id. CONOMICS AND AND CONOMICS LACK OVENKAMP at 667. A study has shown that the probability of det theof that probability shown at has 667. A study 1238 John Y. Gotanda, Y. John H The awardoftrebledamages incasescon Punitive damages aredamages awardedin Another setofproblems 1242 OVENKAMP ’ Thismeans that trebledamages seem suitab S According totheEnglishHighCourt,onlyEUMember recognizing According States L AW ,

supra D S ICTIONARY ,

TATISTICS supra noteat 29, 667. note 29,667. at 1239 Punitive damages: a comparative analysis acomparative damages: Punitive of thisrelationship. 1240 However,exclusivedistributionagreements donotbelongtothis rmissible, itwillprove difficultforthosema , supra , Vol. 73, No. 3 (Aug., 1991), pp. 531-536, at 535. at 535. 531-536, pp. 1991), (Aug., 3 No. 73, Vol. , Consequently,singledamages tobemore appropriatefor seem rring blameworthy conduct. note 874, at 418-19. at418-19. note 874, relates not only totreble damages inthecontext of exclusive tial plaintiffisusua e territories and theaftermath of Price Fixing: The Probability of Getting Caught Getting of Probability Price Fixing: The 218 foreign courtmay refuse ) LLC v. Billing, 551 U.S. 264, 281 (2007) (“antitrust (“antitrust (2007) U.S.264, 281 551 Billing, ) LLCv. chances that thedefendantwillbe caughtare (2007) (toughening the standard which an allegation of ictions recognizepunitivedamages incivil these damages areofpunitive nature.This ns ofdifferent courts with differentnonexpert judges ection of a price-fixing cart a price-fixing of ection See also r relationshipwithtrebledamages, andthe cerning exclusiveterritoriesdoes notseem lly apartytotheag addition toactual damages, withthe le onlyforsecretviolationsofantitrust Pacific Mut. Life Ins. Co. v. Haslip, 499 , 42 C , 42 1241 ny different courts to reach consistent OLUM Apartfrom theU.S.and some .

J.

Sylvania T RANSNAT to enforceajudgment ltiple damages is that el is between 13 and 17 17 and 13 is between el reement inwhich the should also be shouldalsobe ' L L. 391, 396-98 L. 391, 396-98 , T HE R EVIEW EVIEW

CEU eTD Collection money judgments inGermany judgments money violating a defendant’s constitutional rights. I Ju US of Switzerland in Enforcement and Recognition 1247 1246 L. 1245 1244 1243 set. Onthe other hand, one of thebiggest proble important aspect. Onthe onehand, thedamage multiplier in treble damages is bydefinition are necessarilypunitive.alsodifferinatleastone However,thesetwotypesofdamages punitive damages wouldalsoapply totreble damages. account, itcouldbedebatablewhetherthear punishment ordeterrence–thelatter beyond thiscompensation. to compensation fordamage arisingoutofato decision grantingsuchdamages. in accordance with the German public policy and refusedtoenforceanAmerican court approach takenbyGermany. foreign decisionsawardingthem. Member States considersuchdamages contrary punitive damages areEngland and Wales, Cyprus, and Ireland. & Sherer at 1336. For a discussion a Germany.” Wegen in to enforceable asa be rule, be held cannot, material non-material injury and for damages for toanaward amount inaddition inconsiderable damages a of not punitive lumpsum awarding judgment U.S. Judgment Awarding Punitive Damages James Sherer, Zivilsachen [BGHZ] in Bundesgerichtshofes 118 1992, American Money-Judgments in Germany - The 1 American Money-Judgmentsin Germany- NTERNATIONAL NTERNATIONAL

729 (1992). (1992). 729 Hay, Sherer, & Wegen [Germany] CaseIX ZR 149/91, Bundesgerichtshof [BGH] [Federal Court of Justice, Civil Division] Jun. 4, the EU. the isalso outside This case somejurisdictions with [England] Devenish Nutrition Ltd v Sanofi-Aventis SA, 19 October 2007, [2008] E.C.C. 4, para. 33. In asense,byawardingmore thanthesing In adecision from1992,thehighestGerman courtruledthat punitive damages arenot supra Germany: Federal Court of Justice Decision note 1245, at 746. 1245, note B USSINESS USSINESS note 1245, at 1322. In Germany, claims for punitive damages could even be seen as seen be even supra could damages at In Germany, punitive 1322. claims for note 1245, L AWYER , 23 1246

B ERKELEY ERKELEY

bout this case, see alsoPeter Hay, Therole ofdamages in German lawiscompensation and not 272 (1994) (discussing Switzerland). the in situation 1245 1244 Thecourtemphasized that Ge , 32 I.L.M. 1320 (1993). According According (1993). , I.L.M.1320 32 See belong totherealm ofcriminal law. J. Inthisrespect especially worthconsidering is the

I Wolfgang Wurmnest, NT 992 Decision of the German Supreme Court ' L L. dgments Containing an Award of Punitive Damages Punitive Award of an Containing dgments 219

175, 177(2005). 312. English translation available in: Gerhard Wegen & ms withpunitive damages, atleast intheU.S. guments againstrecogn to theirpublicpolicy Concerning The Recognition and Enforcement of rt, andthataplainti le amountofdamages, alltrebledamages See, e.g. The RecognitionThe and Enforcementof Recognition and enforcement of U.S. of U.S. and enforcement Recognition , Nicolas C. Ulmer &MartinBernet, to the German court,“[a] US rman lawentitles plaintiffs 1243 What is more, some some more, is What ff cannotbeenriched and refusetoenforce izing theawardof 1247 Takingthisinto , 40

A M .

J.

C OMP , 22 .

CEU eTD Collection (leaving to the arbitrators the decision about stat towhether the about the arbitrators (leaving decision circuit intheU.S.hasheld 1254 1253 1252 1251 1250 1249 1248 also totrebledamages Inthis States haveexhibitedalessantagonistic approach topunitive damages, andtherebyarguably same incountriessuchasItaly Member States.With regards to this, theoutc the German courtwouldalsorefusetoenforcethe awardoftrebledamages. encourage individualstoactas since theSupreme Court oftheUnitedStatesha on punishment. would beactingasa“private publicprosecutor”andinfringetheGerman state’smonopoly plaintiff entitledto was anamount exceeding damages as beingpunitiveinnature.Intherele situation inGermanywouldseem system, isprecisely thefact C A punitive. considered Cassazione, 19 Jan 2007, no 1183, Judy Parrott v Fimez SpA.] that refused to enforce an award of damages serve as ‘private attorneys general.’”). the prospect of arecovery in three times the amount of their damages, Congress encouraged these persons to statutory treble damages.”). to extend not does damages” “punitive awarding against agreement the arbitration in parties' prohibition violated dueprocess). may damages compensatory and punitive ratio between asingle-digit exceeds (an award that (2003) 408 St aspunitive); be regarded could damages punitive when OLUM It seems that the result would be the same in Italy. Komninos mentions a recent Italian decision [Corte di at 1322. 1320 I.L.M. 32 See See with Compare See But see John Y. Gotanda, Gotanda, Y. John LuciaOstoni, Investment Partners, L.P. v. Glamour Shots Licensing, Inc., 298 F.3d 314, 317 (5th Cir. 2002) (“the .

J. A hostileapproachtowards punitivedamages isalso presentinsome otherEU Based ontheGerman court’sreasoning,itse

T BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996)(laying down factors for ascertaining ascertaining for factors down U.S.559 v. (1996)(laying 517 Inc. Gore, America, North BMW of RANSNAT Hawaii v. Standard Standard OilCo. Hawaiiv. Cal., of 405 U.S. 25 1250 ' L Italian rejection of punitive damages in a U.S. judgment Thisreasoningisveryinterestingfrom SSIMAKIS SSIMAKIS L. 507, 517 (2007). Charting developments concerning pu See also P thattrebledamages shouldnotbeconsideredaspunitive.

they aregenerallyopen-ended. K

OMNINOS PacifiCare Health Systems, Inc. v. Book, 538 U.S. 401, 406-07 (2003) (2003) 406-07 Book, 401, U.S. 538 v. Systems,Inc. Health PacifiCare private attorney generals. 1253 respectitisimpor to bedifferent,atleasttaking and France. ,

EC

P RIVATE RIVATE 220 ome reachedinGermany wouldseem tobethe utory treble damges should be considered as punitive). as punitive). considered be treble should damges utory ate Farm Mut. Auto. Ins. Co. U.S. Ins. Campbell,ate Farmv. 538 Auto. Mut. the damage suffered,itwouldmean thathe 1254 s praisedsuch damages exactlybecausethey vant part,theGerman courtnotedthatifa A NTITRUST NTITRUST Ontheotherhand,some otherMember nitive damages:it tant tonotethatincountriessuchas ems thatitwould also 1, 262 (1972) (“By offering potential litigants litigants potential 262 (1972) 1, (“By offering 1251 theperspective of treble damages, 1248 E Based onthis,itwouldseemthat Based NFORCEMENT Connectedtothis,atleast one into accountthecaseathand. , 24

J.L. the tide changing?

212 n.442 (2008). &

C OM 1252 considertreble .

245, 245 (2005). , 45 1249 The CEU eTD Collection exclusive territoriesandingeneral,maybe Clayton Actareexactlyofthattype.Therefore, 1258 1257 1256 1255 to showthatbutfortheviolat distribution arrangement andthehisinjury. territories, theplaintiff needsto establish aca distribution, inordertocollectdamages aris link betweenanunlawfulconducta of certainelements. Thefirstsuchelement isca 5.1.2.2.1 5.1.2.2 damages based ondamages multipliers, has astatuteaimed preciselyatpreventingth American concept of punitive damagesoriginates judgment treble awarding damages, althoughthis consider England(i.e.theUK).Mo be possiblewithregardsto judgment awardingpunitive damages was notrefu Greece given.”). a sum assessed ascompensation for the loss or damage sustained by the person in whose favour the judgment is for multiple damages means ajudgment foran amount arri E Gotanda, See See LHAUGE LHAUGE [UK] Protection of Trading Interests Act of 1980, section 5(3) (refusing enforcement for “a judgment K

1255 In ordertop Related totherelationshipbe OMNINOS The elements of damages actions actions damages of elements The andSpain Causation note 1254, at 521. 521. at 1254, supra note &

G ERADIN ,

supra revail inaprivaterevail antitrust suit, , note

1256 supra note 227,at 9. 1252, at 212 n.443. at212 n.443. 1252, therehavebeeninstances wherethe enforcement ofaforeign statutory trebledamages.

ion theprobabilityorextentof re precisely,Englishcourtsw nd hisinjuryissufficiently tween punitiveandtr 1257 coupled withsignifican 1258 andtreble antitrust da 221 usal linkbetweentheallegedillegal exclusive Forestablishingcausat e enforcement offoreignjudgments granting ing out of the defendant’suseofexclusive ing outofthe the awardoftreble dama ved at by doubling, treblin usation, i.e.plaintiff country isconsideredastheplacewhere sed. Consequently,asimilar outcome may from. Thisis duetothefact that England aplaintiff needstoestablishtheexistence eble damages, itis itsinjurywouldhavebeen ould refuse to enforceaU.S. refuseto ould direct. Appliedtoexclusive t enforcement problems. mages prescribed bythe needs toshowthatthe g orotherwisemultiplying ion, theplaintiffneeds ges, inthecontextof interestingto CEU eTD Collection plaintiffs canhavestandinginantitrustsuits. namely wholesalers and retailers. Forthisreason animportant issue is whichcategories of harm toconsumers. Ontheother,itcanalso number ofsubjects.Ontheonehand, through 5.1.2.2.3 harm tothecompetitive process. occurred –whatmatters isnot whether competitors wereharmed, butwhetherthere wasa competitors. However,thisisnotsufficient for establishing that an antitrust violation has improve efficiencyandstrengthenhismark a successful antitrust suit. Theuse ofexclus plaintiff sufferedlosses dueto from the 5.1.2.2.2 1263 1262 1261 1260 1259 procompetitive, evenif itcausedthe plaintiff tosuffer damages. means isthata plaintiffcannotrecoverforan injury isatypeof injury theanti the injury suffered wasactuallyanantitrust inju necessarily havetobemorethan50% respons significantly lower. illuminates congressional concern with the protection of competition, not competitors.”). competitors.”). not competition, of protection the with concern congressional illuminates Bowl-O-M Pueblo Corp. Brunswick v. See Id. Id. Id. at 9. at 10. at 9-10. Brown Shoe Co. v. U.S., 370 U.S. 294, 320 (1962) (“[T]he legislative history [of the Clayton Act] The deployment ofexclusiveterritories In thecontext of exclusive territories, this Once causationhasbeen established, theplaintiff needstoshow thattheinjuryflowed anticompetitive Standing Antitrust injury 1259 Relatedtothisitshouldbe effectsoftheviolation.

the defendant’s use ofexclusive trust lawswere intended toprevent. at, Inc.,at, (1977). 429U.S. 477,489 222 injury arisingoutofa ible fortheprobability or extentofinjury. ive territoriescanenable amanufacturerto et position,whichinturnwouldhurthis et harm otherpartsof ry. According totheSupreme Court,antitrust 1261 can potentiallyinflictdamages uponalarge higher thancompetitive element means thatthemere factthatthe Inotherwords,heneedstoestablishthat noted thatthevi 1263 territories is not sufficient for sufficient not is territories

conduct whichisactually 1262 the distribu What thisactually prices itcancause olation doesnot tion chain, 1260

CEU eTD Collection adopted statutes allowing indirect pu U.S. 199 (1990) (confirming that states can adopt (1985). In the context of exclusive te exclusive of context the In (1985). seek therecoveryoflostprofitsarisingouttermin exclusive territoriesclaiming thistypeofovercharge, not dealingdirectlywith the injury occurs ina state that allows suits damages, andonlytakenthattheydirectlydealt withthemanufacturer ofan intheform distributors sufferharm Therefore, ifamanufacturer imposes exclusiv and thusavoidedanyeconomic damage; standing tosueforthefullamount oftheoverc a distributorwhodirectlydealtwiththema 1269 1268 1267 1266 1265 1264 was terminated because hedidnotwanttoco exclusive territoriesaresuitsby disgruntleddistributors. law doesnot preempt stateantitrustlaws absorbed theoverchargeandactuallysufferedeconomic harm; directly withthemanufacturer, andconsumers) potential forum shopping. Crane, consumers. Lawrence J. White, percent were dealers or distributors, and less than 20 percent represented what we could characterize as between initiated suits inantitrust plaintiffs private Part 3.4.1.2 above. According to astudy that did not concentrate solely on exclusive territories, one third of other elements of a damages action. difficulties satisfying the could have competitors in to sue while due purchase cannot indirect rule, generally See for example H 101 (1989). 93, 490 U.S. America Corp., ARC v. California Illinois Brick Co. v.Illinois, 431 U.S. 720, 735 (1977). (1968). Corp., 481 392 U.S. Machinery Shoe v. Shoe,Inc. United Hanover E.g. OVENKAMP , Package Shop, Inc. v. Anheuser-Busch, Inc., 1984 U.S. Dist. LEXIS 24942 (1984). (1984). 24942 LEXIS Dist. U.S. 1984 Inc., Anheuser-Busch, v. Inc. Shop, Package , Although therehavebeencaseswherethe The lawontheissue canbesummarized asfo ,

supra Eiberger note 29,687. at , Michelin the manufacturermay beabletorecoveraswell. The Georgetown Study of Private Antitrust Litigation Antitrust Private The Studyof Georgetown supra

rchasers tosue, which rritories the most likely plaintiffs ar most plaintiffs rritories the likely note 575, at note 575, 14. , Davis-Watkins, 1264 Illinois Brick Illinois 1973 and 1983 were defendants’ competitors, around 30 30 around competitors, were 1983 defendants’ and 1973 by indirectpurchasers,c indirectpurchasers (i.e overcharge, onlythedistributorscouldrecover 223 mply withanillegalterritorialrestraint nufacturer imposing excl JBL Enterprises that allowsuits byindirect purchasers. e territories andas aresultconsumers and harge, evenifhehadpassedtheovercharge as aresult brings the problem of complexityand do nothavestandingtosueevenifthey plaintiff hassoughtdamages arisingout repealer statutes).repealer Anumberhave ofstates See also llows: adirectpurch ation ofthedistributorship. Aplaintiff willoften allege thathe 1267 e terminated distributors: consumers consumers distributors: e terminated Kansas v. UtiliCorp United, Inc., 497 497 Inc., United, v. UtiliCorp Kansas , and thebulkofcasesinvolving 1265 Graphic Products Graphic however,federalantitrust onsumers anddistributors . distributorsnotdealing , 54A . Ontheotherhand,if usive territories) has aser (i.e.generally NTITRUST NTITRUST , describedin 1269 L.J. 59, 62 62 L.J. 59, 1268

and 1266

CEU eTD Collection i.e. defenses. method oflitigationwherethereisalargeclass kind ofsituation theclassacti litigation arecommon toanyclas individual firms, whichmeans that one ormore class representatives areformally joined aspartiesinthe case. suffer harm couldtrytorecove 1275 1274 1273 1272 1271 M H C 1270 evidence shows theextent ofthe damages as “while thedamages may notbedetermined bymerespeculationorguess, as itisfor establishing that th the amount ofdamages hesuffered.Thestandardof 5.1.2.2.4 context. exclusive territories,thereha or tort. antitrust violations canpotential seem tobeparticularly suitablefor antitr discussion about classactions, see F generally: about discussion oftheir resi behalf actions on parens patriae still bring class actions cannot be certified inaccordancewithRule damage and the measure of proof necessary to enable the jury to fix the amount.”). some sustained measure the of had the fact between petitioner proof necessary toestablish that distinction LASS LASS ENSLER OLLER B E H R See See, e.g. LHAUGE LHAUGE RODER ICHARD OVENKAMP A Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555, 562 (1931) (“[T]here is a clear isaclear (“[T]here Co., U.S. 562 Paper (1931) 282 Parchment 555, ParchmentPaterson Co. v. Story 1271 , CTION IN CTION Since exclusive territories couldcauseharm Apart from establishing causation and standing, the plaintiff alsoneeds toascertain

, 1274 C

N LASS ,Package Shop, Inc. v.Anheuser-Busch, Inc., 1984 U.S. Dist.LEXIS 24942(1984). Inaddition, antitrust seeks to protect co ICHOLAS ICHOLAS , The amountofdamages

note 1178, at 200. 200. at 1178, supra note

D. &

1273 G F A ,

REER C supra ERADIN CTION OMMON OMMON Althoughclassactionsarenotcomm M. & note 1183, at 59. note 1183,

P D

, W ACE

supra note 227,at 23. ILEMMAS ILEMMAS L ENDY AW ,

B ONNIE ONNIE L C EGAL EGAL e injury hasoccurred atall.

OLLINS OLLINS - on wascreatedfor inthefirst r throughaclassactionsuit.Classactionsareinwhich

ve beeninstanceswherethey P ly havemany morevictims than URSUING URSUING D S s ofpersonsinthatmarket. OMBEY YSTEMS anumber ofissuesthatneedtoberesolvedinantitrust P ERDUE REER -M P : UBLIC

A OORE ,

& C

C ust recovery,forthefollowingreasons.First, dents. Clayton Act Section 4c, 15 U.S.C. § 15c. For a For 15c. U.S.C.§ 15 4c, Section Act Clayton dents. 224

IVIL IVIL P OMPARATIVE ERDUE G , 23 of the Federal RulesofCivil Procedure, states can

amatter ofjustandreasonableinference, E OALS FOR P LIZABETH LIZABETH plaintiffsordefendants withsimilar claims ROCEDURE mpetition inthemarket as awholeand not at 808-34. proof withregardstoth to awiderangeofsubjects,thosethat 1275 P P RIVATE RIVATE G on incasesinvolvingtheuseof ERSPECTIVE 808 (2001). Even incases where private IDDENS AccordingtotheSupreme Court, See also 1272 place – toprovidean efficient havebeenbroughtinthis G anordinarycontractbreach Itseems this is exactly the , AIN

J ENNIFER ENNIFER (2004); D (2004); R (2000). (2000). ACHEL ACHEL itwillbeenoughif G M ROSS 1270 EBORAH is notasstrict ULHERON Suchactions &

E R. RIK

,

T HE CEU eTD Collection M. 33, 12 (1806) (“[H]e who comes here for relief, must draw his justice from pure fountains.”). fountains.”). pure from justice his draw must relief, for here comes who (“[H]e (1806) 12 33, M. exclusive territories. Inthepost- court gottothestageof 1284 1283 1282 1281 1280 1279 1278 1277 1276 two premises: thatcourtsshouldnotengage damages resulting from thewrongdoing. according towhichaplaintiff whohaspa were unenforceable. Animportant issue regarding illegal exclusiv which such agreements remain enforceable. At 5.1.2.3 amount. termination. the plaintiff’sbusinesswithvaluethat the valueofhisbusinessasagoingconcern. termination. actual salesandtheanticipated arising out of thedealership termination. may recovertwo typesofdamages. First,he would havebeeninhadtheanticompetitiveconductnotoccurred. damages is thattheplaintiff although theresultbe B H H Eiberger Eiberger Eiberger Eiberger Eiberger Id. LACK OVENKAMP OVENKAMP at 563.

In pari delicto and enforceability enforceability and delicto pari In ’ S , 459 F.Supp. at 1288-89; at1288-89; , 459 F.Supp. at1288; , 459 F.Supp. at1286. , 459 F.Supp. at1285; , 459 F.Supp. and L 1282 1280 AW , , . Products Graphic

supra supra Oncethecourtestablishes thesetwotypesofdamages, itthentrebles the Inaddition,theplaintiff D ICTIONARY Sylvania note 29,623. at note 29,680. at 1283 1278 onlyapproximate.” Thisrulewasbased onthe Basedonthesetwocasesitwouldse assessingtheamount ofantitrustdamages connectedwiththeuseof , supra periodthereseemtohavebeenonlytwo reportedcaseswherethe Graphic Products Graphic Products

should beputinaposition,notw note 874, at 806. at806. note 874, Graphic Products profitfrom whichwoul sales distributor may recoverinth 1279 1284 Inthisrespect the court compares the profit from The , 717 F.2dat 1579. , 717 F.2dat 1579. 1276 225 1281 inmediating disputesamong wrongdoersand rticipated inawrongdoingmay notrecover the business would have had without the thebusinesswouldhavehadwithout See also , 717 F.2d at 1579-82. at 1579-82. F.2d , 717 may recoverthelossofprofitsonlostsales Thebasicprinciple ofawardingantitrust Herethecourtcompar common law,contracts inrestraint oftrade in pari delicto e distribution agreements istheextentto in paridelicto Austin's Adm'x v. Winston's Ex'x, 1 Hen. & defenseseems tobebasedon em thataplaintiffdistributor d haveoccurredwithoutthe 1277 ithstanding trebling,thatit (inequalfau

e amount ofreductionin es theactualvalueof lt) principle, CEU eTD Collection benefits. fixed by the defendant. At the same time, each deal door totheapplicationof restraints uponhisde antitrust suitbydealersagainstamanufacturer 1290 1289 1288 1287 1286 1285 the exclusive distribution agreement inwh exclusive distributorwouldnot not berecognized inantitrustactions. inappropriate. common-law barrierstoreliefwhereaprivat the effectivenessofantitrustenforcement. injured partiesmerely inanillegalarrangement becausethey participated wouldundermine precludes them fromthis.In illegal agreement canclaim anti restraints weredeemed as important tonote thatth Perma LifeMufflers,Inc. cases itisnotthatstrictly applied.In thisre illegality. that denying judicialrelieftoanadmitted wrongdoerisaneffectivemeans ofdeterring Plaintiff dealers had to purchase allmufflers andex (1968). U.S.134 392 Id. Id. Life Perma See at 140. at 138. at 138. Bateman Eichler, Hill Richards, Inc. Inc. Bateman Eichler, Hill Richards, Nevertheless, ithastobenotedthatthe Although the One oftheissuesbeforeSupreme Court 1285 , 392 U.S. at 139. U.S.at139. , 392

1289 BasedonthistheCourtconcluded thatthe in paridelicto alers, includingexclusiveterritories. e casewasbroughtinthe per seillegal. v. InternationalPartsCorp

addressing theissue,Courtnotedthatdenyingrecoveryto be precludedfrom suingforan in paridelicto trust damages orwhetherthe principle has survived untilthe present day, inantitrust v. Berner, 472 U.S. 299, 306 (1985). (1985). 306 U.S. 299, 472 v. Berner, 1290 Relatedtoourdiscussion, 1288 ich thedistributorhi er wasgiventerritorialprotection and obtained other 226 spect, considertheSupreme Court’sdecisionin TheCourtalsoemphasized thatinvokingbroad haust systems from the defendant and to sellatprices and systems fromdefendant haust the principle.Accordingto . Themanufacturer imposed severalvertical e suitservesimportant publicpurposesis Supreme Courtdidnotcompletely closethe Schwinn era,i.e.during thetime whensuch was whetherdealersthatarepartiestoan . 1286 The case involved a private aprivate Thecaseinvolved 1287 mself participated. in paridelicto titrust damages arisingoutof Asfor thecontext, itis in pari delicto this wouldmean thatan Perma Life,before doctrineshould principle CEU eTD Collection party’s right to damages the DeclaratoryJudgment Actapartycouldgetju likely tograntstanding toanexclusivedealer Applied toourdiscussionaboutexclusivedistribution,itseems thatthecourtwouldbemore 1294 1293 1292 1291 a fullandequalparticipantinthecontract mutatis mutandistoantitrust claims. federal securitiesrather of thesecuritieslawsandprotection second, thepreclusionofsuitwoul bears atleastsubstantiallyequa Court, theactioncouldbebarrediffirst,as barring aprivateantitrust acti pari delicto decisive. he isgenerallytheonewhoseinvolvement in the deployment ofexclusiveterritoriesis was substantial. It wouldalsomean thatthesu exclusive distributor coul involvement intheillegalcontra granting relieftoaparty considered with most casesassuming thatif National TruckLeasing Ass'n,830F.2d 716 (7thCir. 1987). Monti, See, e.g., Bateman Eichler Id . In thelightofabove,toda The SupremeCourtlater further clarified note 1292, at 288. 288. at 1292, supra note Sullivan v. National Football League, 34 F.3d F.3d 1091 League, 34 v. Football National Sullivan principle. In , 472 U.S. at , 472 U.S. 310-11. , E.L. thanantitrustclaims

R d stillbedeniedrelief EV Bateman .

2002, 27(3), 282-302, at 288 “In most casesonly the first limb hasbeen on basedtheplaintiff’sown an illegalagreement, the court should look atthe levelof l responsibilityfortheviolati See also d notsignificantlyinterferew ct bythepartyseekingredress. 1293 , theCourtestablished twocumulative conditions for the first is satisfied, so is the second.”). isthe second.”). so the first issatisfied, y thecourtislikelytoanal

GiorgioMonti, or whetherthecontractwasimposed uponhim. investing public. 227 a directresultofhisow , ithasbeensuggested than toamanufacturer. In anycase,based on pplier willrarely beableto seekrecovery, as if hisinvolvement intheillegal agreement the conditions for the dicial declarationthat (1st Cir. 1994); General Leaseways, Inc. v. v. Leaseways, Inc. General Cir. 1994); (1st Anti competitive agreements: the innocent the innocent agreements: competitive Anti 1292 ons heseekstoredress,and culpability. Accordingtothe yze whethertheplaintiffwas ith theeffectiveenforcement Althoughthecaseinvolved 1291 n actions, the plaintiff that thetestapplies application ofthe Basedonthis,an acontractviolates 1294 in

CEU eTD Collection 537 (2000). Perhaps the most notable ch to establish aninfringement, Commission hasconsiderableenforcement powers,asitdoesnotneedtogocourtinorder impose fines. 1301 1300 1299 1298 1297 1296 1295 Court andtheEuropeanofJustice. courts oftheMember Statesarebecoming increasingly important aswell. accordance withRegulation1/2003 theNational enforcement. Thekeybodyinthisrespec 5.2.1.1 5.2.1 Enforcementinthe EU 5.2 the contract. antitrust lawsandistherefor Modernisation of EC Antitrust Policy: A Legal and Cultural Revolution Cultural and Policy: A Legal ECAntitrust of Modernisation C.-D. Ehlermann, example seefor 1/2003, Regulation about a For discussion chapter. previous enforcement ofEUcompetitionRegulati law.TheregulationreplacedCouncil is often referred to asthe Moderni shall be reviewable assuch.”). and decree or ajudgment of final effect and the force have shall declaration such Any sought. be could is or the rights and other legal relations of any interested party seeking such declaration, whether or not further relief may declare pleading, appropriate ofan the filing States,upon . the United of any itscourt jurisdiction within also directly apply Articles 101 and 102. 102. and Articles 101 apply also directly decentralization of EUantitrustenfo required. being authority competent the by decision 101(3), with no prior under for exemption agreementconditions the satisfies whether assessment own of tomake their supposed are now system. Parties the that previous under existed procedure exemption and ofnotification is abolition the change important Arts. 6.Another 5, 1/2003, Regulation 101(3), which now can be applied not just by the Commission but also by the NCAs and by national courts. document This 1/2003. the EU isCouncil Regulation in enforcement public regulating basic document The See See id. See Id. See See , Art. 8. 8. , Art. W Regulation 1/2003, Art. 7. actual controversy acase of (“In 2201 U.S.C. 1934, 28 Act of §§ 2201-2202, Judgment Declaratory id.

In contrastwiththeU.S.,inEU Public enforcement HISH , Art. 9. , Art. , Art. 23. 23. , Art. The European Commission Commission European The 1295 ,

supra 1300

However, the Commission is However,theCommission note 37, at 285-89 (discussing the judicial review of the Commission’s acts). acts). the Commission’s of review judicial the (discussing at 285-89 37, note zation Regulation, as it brought significant changes into the system into of changes significant asit brought Regulation, zation 1297 e unenforceable, regardlessofit

See rcement –apart from theCommission, the NCAs and nationalcourts can orderinterim measures, Regulation 1/2003, Art. 1(2). Finally, the regulation brought significant significant brought Finally, regulation Art. 1(2). the 1/2003, Regulation ange compared tothe previous system See Regulation 1/2003,Art. 5. 1301

228 t istheEuropean stillsubjecttojudici Competition Authorities(NCAs)andthe leading rolebelongstopublicantitrust 1298 , 37 C , 37 negotiatecommitments, s involvement inimplementing OMMON on 17/62, discussed brieflyinthe isthedirect effect of Article Commission, althoughin Commission, al reviewbytheGeneral M ARKET ARKET L The The AW R 1296 EVIEW 1299 The and See

CEU eTD Collection the imposition of exclusive territories. exclusive of imposition the asthey certainty, legal parties with private provides system a inextent This great 2010. to modified and in 1999 system established exemption Further, exclusive distribution cases brought by the Commission seem to have dropped off due to the block The cooperationbetweentheCommissionandth NCAs. crux of theEUantitrust enforcement isshifti in more detailabove. the lawofexclusivedistributionareitsblock Additionally adding tothe importance thatthe distribution agreements sincethe 1305 1304 1303 1302 Union, Regulation1/2003reservesfortheComm in theareaof exclusiveterritories. variety ofreasonstheCommission’s roleisstil agreements fallingunderEUcompetition lawma onsuchconductinanumber ofoccasions. the MemberStates,imposingfines has beenveryactiveincondemning whatitregard 158 by theNCAs.158 by http According to: 96/478/EC 10,000); 95/477/EC and ECU 40,000); 94/987/EC 39,614,000); 2003/675/EC 2003/675/EC 39,614,000); 2002/190/EC million); EUR71.825 of fine (a L257/1 [2002] 2001/711/EC OJ [1997] 47/11fine (a ofECU 100,000); 98/273/EC of ECU 5,000,000 and ECU 150,000); 92/426/EEC 78/163/EEC fine of ECU 75,000); 92/261/EEC 87/409/EEC imposed); 82/367/EEC For example, in 2010 there were 169 cases brought inside the ECN, out which 11 by the Commission and See, e.g. E.g. See supra , 76/915/EEC , 76/915/EEC 1304 Since theadoptionofRegulation1/2003,age The Commissionhashadanimportantro First, inordertoensureuniform applic BASF Lacke+FarbenAG, andAccinauto SA , Regulation 1/2003, Art. 11. Art. 1/2003, , Regulation Forthisreasonanincreasein NCAactivity The Distillers Company Limited, Conditions of Sale PriceTerms and of Sale Conditions Limited, The Distillers Company Sandoz Part 4.2.2. Volkswagen OJ [1987] L 222/28 (a fine of ECU 800,000); 88/172/EEC 88/172/EEC 800,000); ECU of fine (a L 222/28 [1987] OJ ADALAT Miller International Schallplatten GmbH Schallplatten Miller International Hasselblad OJ [2001] L 262/14 (a fine of EUR 30.96 million); 2002/758/EC 2002/758/EC million); 30.96 EUR of fine (a L 262/14 [2001] OJ Nintendo OJ [1996] L 201/1 fine (a ofmillion); ECU 3 97/123/EC Tretorn and others arenow aware of Newitt/Dunlop Slazenger International and Others and International Slazenger Newitt/Dunlop OJ [1982] L 161/18 (fines of ECU 560,000, ECU 165,000 and ECU 10,000);

OJ [2003] L 255/33 (a fine of EUR 149.128 million). ://ec.europa.eu/competition/ecn/statis start ofwhatisnowtheEU. OJ [1994] L 378/45 (fines of ECU 600,000 and ECU 10,000); Viho/Parker Pen the circumstances in which the Commission will challenge will challenge the Commission circumstancesthe inwhich VW 229 ng awayfrom theCommission and towardsthe exemption regulationsa OJ [1995] L 272/16 (fines of ECU 2,700,000 ECU and 2,700,000 ECU of (fines L 272/16 OJ[1995] Commission hasplayedinthedevelopment of l essentialwhen itcomes toenforcing thelaw OJ [1998] L 124/60 (a fine of ECU 102 million); million); 102 ECU of fine (a L 124/60 [1998] OJ ation ofEUcompeti e NCAsismainly implemented throughthe ission theroleofsupervisingNCAs. JCB s asrestrictionsof y alsobeexpected.Nevertheless,fora OJ[1976]L 357/40 (afine ofUA 70,000); whenitcomes toexclusive distribution OJ[2002] L 69/1 (afine ofEUR le inprosecuting illegal exclusive neral trendcouldbenoticedthatthe OJ [1992] L 233/27 (fines of ECU 700,000 1302 tics.html (accessedMay 17, 2011). Inaddition,theCommission Konica OJ[1988]L78/34 (a OJ[1978]L50/16 (no fine tion lawthroughoutthe nd guidelines,described OJ [1992] L 131/32 (fines parallel tradebetween Novalliance/Systemform Mercedes-Benz OJ 1303 1305

CEU eTD Collection other authorities, the evidence required to prove the infringement.). tothe prove required evidence the authorities, other effectively bring to an endthe entire within originates isimplemented or to itsterritory, from within isable authority itsterritory; competition the 2) aremet: the 1) conditions cumulative 1309 1308 1307 1306 potential conflictinfavoroftheformer, pr law andthenationalcompetition lawoftheMe between the two,animportant issue wouldbe competition lawandundercompetition lawof aMember State.Ifthere isadivergence agreement is implemented, i.e.theco Authorities, thiswill Based ontheCommission’s Noticeoncooperationwithin theNetworkofCompetition disputable whichNCAshouldtakeaction,ifmo capable ofaffectingtrad agreements, severalthresholdissues needtobe for anNCAtobeable toexercisesome of order interim measures, acceptcommitments, aswellimposefines. totheenforcement totheNCAswhenitcomes Regulation1/2003grantswidepowers of EUcompetition law.TheNC 5.2.1.2 that exclusiveterritoriesc prepared toimpose heftyfinesfortheprohibitionofparallelimports, sendingaclearsignal distribution casesforwhichitisparticularlyinte seven NCAs.Additionally,theCommissionstilltendstogetdirectly European Competition Network(ECN),consis 101/43, para. 8(an authority can be considered tobe Member States). between trade parallel system prohibiting distribution Regulation 1/2003, Art. 5. See See supra See, e.g. Commission Notice on cooperation within the Network of Competition Authorities, OJ [2004] C OJ Authorities, [2004] the within Competition of Network cooperation on Notice Commission

In some casesanexclusivedistributionag National competition authorities authorities competition National , 2003/675/EC , 2003/675/EC Part 4.1.1. generallybethecompetition au Nintendo e betweenMember States. oupled withthistypeofrestraintwillnotbetolerated.

OJ [2003] L255/33 (a fine of EUR 149.128 million for anexclusive infringement 3) the authority can gather, possibly with the assistance of assistance the can authority gather, with possibly the infringement 3) agreement has substantial directactual orforeseeable effects on As may require thataninfringement bebroughttoanend, untry oftheexcl well placed to deal with a to dealwith well placed 230 thesepowersregardingexclusivedistribution therelationship between theEUcompetition ting of theEuropeanCommissionandtwenty resolved. Beforealltheagreement hastobe oclaiming thattheapplication of national mber State.Regulation1/2003resolves this rested. Inthisrespect ithasshownthatis 1308 re thanoneMember Stateisconcerned. usive distributor. If thiscondition issatisfied, itcould be reement couldfallbothunderEU thority ofthec case if the following three 1309 1307 involved inexclusive

However,inorder ountry wherethe 1306

CEU eTD Collection the EU competition rules (Regulation 1/2003, Art. 15(1)). 15(1)). Art. 1/2003, (Regulation rules competition EU the to related on questions itsopinion or itspossession in transmitinformation them to to Commission the may ask 4)in law(Art.15(3)); pr EU competition of application tothe observations submit initiative, written their own law theof EUcompetition on (Art deciding application fo to courts have national 2) (Art.16); initiated has it avoid adopting decisions which would States’ national courts. th isto ensure of purpose which the several provisions EU Memberof application StatesArticles81 the in apply Articles101and102TFEU. 1313 L 1312 1311 1310 court, itisimportantto consider whetherthe dispute arisingoutofanexcl great significance inthe context of exclusiv have theduty toaddress EUcompetition lawissues onitsown motion. Thisquestion isof dispute between thepartiesto agreement. court may beinthesituation toapply EUcomp challenge thedecisioncondemnin could happeninthelightofjudicialrevi they willgenerally beinthepositiontoexercise 5.2.1.3 exclusive distribu of bothEUlawandtheaMember State, competition law. competition lawingeneralmay notleadtothe EC Competition Rules: ACommunity Rules: Perspective EC Competition AW Regulation 1/2003, Art. 3(2). See id. See Id. 185, 187 (Claus-Dieter EhlermannIsabela & Atanasiu,eds. 2003). , Art. 6. 6. , Art. Francis G. Jacobs & Thomas Deisenhofer, Thomas Jacobs & Francis G.

Apart from theCommissionandNCAs, Related tothis,animportant issue is whethe

National courts courts National See also 1310 tion thanthosefoundatEUlevel. Commission Notice on the co-operation between the Commission and the courts of the courts the and the Commission between theco-operation on Notice Commission Inter alia Inter Therefore,ifanexclusivedistri , the Regulation provides the following safeguards: 1) national courts courts must national 1) safeguards: following the provides , the Regulation

usive distributionagreement e conflict witha decision contemplated g thedistributionagreement. 1311 Whenitcomes to exclusive distribution agreements, , in Procedural Aspects of the Effective Private Enforcement of and 82 EC (2004/C 101/04). Regulation 1/2003 contains contains 1/2003 Regulation 101/04). 82 EC (2004/C and E rward to the Commission a copy of any written judgment written judgment of acopy any Commission rward the to ew ofanNCAdecision,whereapartycould 1313 231 at EU competition law is applied consistently by Member by consistently lawisapplied at EUcompetition national courtsofMember thenational States to related FFECTIVE FFECTIVE . 15(2)); 3) the NCAs and the Commission can, acting on acting can, . 15(2)); Commission the NCAs3) the and oceedings involving EU competition law national courts courts lawnational EUcompetition involving oceedings e distributionagreements. Forexample, ifa prohibition ofaconductthat is legalunder EU court could(orevenbeobligedto)raiseEU

etition lawinacivil thisauthority intwo contexts.First,this r inthissituation thenationalcourtwould thelattercannothavestricterrulesfor bution agreement invokestheapplication P RIVATE national courtsalso E nds upbeforeaMemberState NFORCEMENT OF OF NFORCEMENT by theCommission in proceedings 1312 Inaddition,anational action arisingoutofa have thepowerto EC

A NTITRUST NTITRUST CEU eTD Collection 1317 1316 1315 1314 situations: wherethedomestic procedural lawhassucharequirement withregardstobinding court would beobliged toraise EUcompetition lawissues onitsown motion intwo national lawofprocedureprecludes be thatanationalcourtdoeshave of aCommunitylawrule”. unsettled thecircumstances inwhichajudicial conclusion may bethat“thecombined effectof Interestingly enough,bothcasesweredecide national courtsdohavesuchduty: On theotherhand,Court’s decisionin is somewhat ambiguous. competition lawissues even if the parties dono national courtsdonothavethedutytoroot Stichting Pensioenfonds voor Fysiotherapeuten 22. para. ECR I-4705, [1995] P CaseC-312/93 Joined casesC-430/93 and C-431/93 See infra HILLIP HILLIP However, basedonsomelaterECJdecisions, latter provision hasnotbeen invokedby domestic law iscompatible witha provisionofCommunitylawwhenthe its jurisdiction,from consideringofitsownmotionwhetherameasure of proceedings, istoprevent thenational c effect, inprocedural circumstances su Community lawprecludesapplicationof On theonehand,Court’swordingin claim. which theparty withan interest inapplicationofthoseprovisionsbaseshis parties themselvesandrelyingonfacts assigned tothem bygoingbeyondtheam examination of thatissuewouldoblig an issueconcerning the breachof Community lawdoesnotrequirenational L Part 6.3.2.2 (discussing the ex officio duty from the perspective of arbitration). ANDOLT 1314 Peterbroeck, Van Campenhout Peterbroeck, Van

,

M ODERNISED ODERNISED 1316

EC

C Jeroen van Schijndel and Johannes Nicolaas Cornelis van Veen v the dutytoapplyEUcompetition law OMPETITION it from acting inthat direction. & CieSCSv Belgian State Peterbroeck out EU lawviolationsontheirownmotion: 232 L provisions ofCommunitylawwhere AW IN d onthesameday.Basedthis,only ch asthose inquestion in the main and circumstances other thanthose on passivityrulecanju t dosothemselves. ECJcase-law onthetopic the litigant withinacertainperiod. e them toabandonthepassiverole ourt, seised ofamatter fallingwithin adomestic proce Van Schijndel Van Schijndel courts toraiseoftheirownmotion bit ofthedisputedefinedby I NTERNATIONAL NTERNATIONAL the correctinterpretation wouldseem to couldbeinterpretedassayingthatthe couldbereadassayingthat [1995] ECR I-4599, para. 21. ECRI-4599, [1995] andPeterbroeckis toleave A RBITRATION 1317 dural rulewhose stify thenon-application Therefore,anational ex officio 197 (2006). , unlessthe 1315

CEU eTD Collection act of their own motion against companies infringing EU competition law). EUcompetition infringing companies against motion own their act of 1322 1321 1320 1319 1318 With regardstoexclusivedistribution agreements, plaintiffs willgenerally allegea violation defense istoinvokenullityoftheagreement a a complainant seekingtoenforce anallegedly illegal agreement. Euro-defense isasituationwheredefendantinvokes lawasashieldagainst EUcompetition Oneway ofconsideringtheconnectionbe and privateenforcement intheEUisthroughth 5.2.2.1 5.2.2 Private enforcement way totheCommission’s decision. distribution agreement thathasalreadybeen principle doesnotapplythe the Commission from actinginth importantly, intheRegulation itself there does Modernization, whichprecededtheRegulati issue, theCommission doesseemtohave been declaredlawfulbyanationalcourt. challenge the legality of anexclusive distribution agreement if theagreement hadalready respect. domestic rules, orwhere thereisnosuch always intervene to prohibit [an] agreem [an] toprohibit always intervene can “the Commission decision court’s anational (upon 102(2) para. 1999, April 28 99/027, No Programme dispute between the parties themselves, which has been decided once and for all by the national court.”). E EC the and86 of Articles 85 Treaty, Commission implementing the rules of modernisation on paper White W See See LHAUGE LHAUGE HISH Regulation 1/2003, Art. 16(1). The same applies to the NCAs. to same applies The Art. 16(1). 1/2003, Regulation M

Regarding theroleofnationalcourts,itis 1318 ONTI Euro-defense and euro-offense euro-offense and Euro-defense ,

supra

& ,

supra G note 37, at 299. at 299. 37, note ERADIN note 45, at 438. at note 45, 438. ,

supra note 227,at 50. Contra

other wayaround–anationalc ent, subject only to only subject ent, E is direction.However,itneed 1321 LHAUGE

1319 & 233

G decideduponbytheCommission hastogive on, didrecognize suchapossibility. AlthoughRegulation1/2003issilentonthe notseem tobeanythingwhichwouldprevent ERADIN requirement butalsonoprohibitioninthis nd therebyavoidobligationsarisingoutofit. such power.Firstly,theWhite Paperon the principle of alsonot clear whethertheCommissioncan e prism ofeuro-defenseandeurooffense. tween exclusive distribution agreements note 227, at 50 (national courts cannot cannot courts , supra at (national 227, 50 note Id. , Art. 16(2). 16(2). Art. , res judicata ourt facedwithanexclusive s tobeemphasized thatthe 1322 Thepurposeofthe that applies to the tothe applies that 1320 More CEU eTD Collection exemption laid down in Article 101(3) inTFEU. Article 101(3) laiddown exemption therefore moresocially desirable. Euro-offense seems tocontributemoretheenforcement effortsthaneuro-defense, andis would turntocourtinordergetadeclar could bealsoconsideredasaeuro-offense.Thiswouldforexample thecase.if be aparty maywhere invokingvoidness delineation shouldnotbetakentoostrictly.There situations seems tobemost oftenanalyzed withregards relief ortheawardofdamages. the plaintiffmay alsoallegethat 1328 1327 1326 1325 1324 1323 that asitmay, bothnullityandprivatedamages actionsdeserveadditionalattention. towards facilitating private damages actions. agreements euro-offenseis notaswidespread Article 102 theallegation willbethat th defendant had forced himtoenterintoan and Article102.Inthecontextof of Article101(1)TFEU. system). an injunction which would order acar manufacturer to include the dealer in the manufacturer’s distribution supra who fail to secure acontract with amanufacturer who is distributing goods through a restrictive network. Monti, for toabide failing by some isterminated contract antic 1) settings: from the of customersfollowing who pay K E E to coun expected can be casethedefendant this In See But see, e.g. LHAUGE LHAUGE LHAUGE OMNINOS note 1292, at 282. note 1292,

K Euro-defense is generallyconnectedwith On theotherhand,euro-offenseissitu OMNINOS & & ,

, CaseT-24/90

supra G G ERADIN ERADIN ,

note 1252, at 3. at supra 1252, note note 1252, at 3. 3. at 1252, note , ,

supra note 227,at 50. supra note 227,atAccording 50. to Monti, th 1323 Automec Srl v Commission Automec Srl However,ifthedefendanthasa

1324 the agreement infringesArticle102. Article101(1)theplaintiff w Hereaswelltheplaintiff 1326 See However, in the context of exclusive distribution distribution ofexclusive context inthe However, K e plaintiffhasviolated hisdominant position. OMNINOS atory judgment thattheagreement isvoid. 1327 a higher price for goods; 2) from distributors whose 2) fromdistributors forgoods; price a higher ter-plead that the agreement satisfies the conditions for for conditions satisfiesthe the agreement that ter-plead 234 ti-competitive agreement, whilewithregards to ompetitive restriction; 3) by some would-be distributors 3) distributors somewould-be by restriction; ompetitive as euro-defense, in spiteof Commissionefforts to privateactionsfordamages. However,this

[1992] ECR II-2223, para. 13 (a car dealer asking for theissueofnullity ,

supra note 1252, at 2. supra note1252, ation whereaclaimant seeksinjunctive e Euro-offense generally arisesinone dominant positioninthemarket, may invoke bothArticle101(1) ill generallyallegethatthe , whileeuro-offense 1328 Be 1325

CEU eTD Collection effect). the can have, contract i.e.the has alleffects that null retroactive to nullity applies (the nullity paras. 25-27 Case third parties); 48-72 set against be up cannot i.e. isabsolute, toin Article 101(2) referred (the nullity down in Article 101(3)); Case 22-71 Case22-71 inArticle 101(3)); down agr if the only applies (Voidness 10 para. 309, ECR of theagreement); Case 10-69 ifth asa the only agreement to whole and Article 101(1) W private partiesneverthelessrelyonth voidness, theECJhashadse straightforward. AsArticle101(2)leavesopen 101(1) istobeautomaticallyvoid. 1334 1333 1332 1331 1330 1329 agreement, foranyorders anddeliveries made onthebasis oftheagreement, aswellthe has alsoestablished that issuessuch astheconsequencesof thenullityfor otherpartsof the Themain isthatitprecl effectof101(2) based onthe illegal agreement. strengthening theapplic unless thisisexpresslyprohibite Schijndel judges donotlookfavorablyatattemptstor obligations may relyonthispr 5.2.2.2 Courage Ltd v Bernard Crehan and Bernard Crehan v Courage Ltd and Others Case C-126/97 Eco Swiss China Time Ltd v Benetton International NV [1999] ECR I-3055; Case C-453/99 Schillgallis Irmgard main is as our focus on Article 101. violating Article 102 are also to be considered void. Th ORLD K Monti, W Article 102 providessanction no ofvoidness. For this reasonitcould be disputable whetheragreements See See OMNINOS HISH AlessandroGio, Di Maschinenbau

C Article 101(2)TFEUprovide OMPETITION Nullity Nullity , standsforthepropositionthatnationa supra

supra ,

supra note 1292, at 282. at282. 1292, note note 37, at 311. at 311. 37, note [1986] 353; Case C-234/89 note 1252, at 154-55. 154-55. at 1252, note 32, no. 2 (2009): 199-220, at 202 (citing at (citing 202 199-220, no.2(2009): 32, at 250 (automatic nullity generally applies only to the to only parts ofthe applies agreement violating generally at 250 (automatic nullity Contract and Restitution Law and the Private Enforcement of EC Competition Law ECCompetition of Enforcement Private the Law and Restitution Contract and ation ofArticle101(2). S.A.Portelange v S.A. SmithCorona Marchant International andothers veral opportunities

See, e.g. ovision, whichishoweuro-defen Béguelin Import Co. v S.A.G.L. Import Export 1333 d by domestic procedurallaw,thedecisioncanbeseenas However,someothereffects , Case 161/84 is typeofdefenserelativelyoften. 1329 s that anyagreement or Stergios Delimitis v Henninger Bräu Bräu AG Stergios Delimitis vHenninger Apartywishingtoescapefromitscontractual SA Brasserie de Haecht vWilkin-Janssen eement does not satisfy the conditions for exemption laid laid for exemption conditions eement satisfythe does not 235 un awayfrom one’sco the null agreement has no effect between the parties and partiesand the agreement effect null has no between the is issue is not of primary importance for our discussion, discussion, our for importance is of primary is issue not 1332 e infringing provisions are not severable from the rest to clarifythelawonissue. Pronuptia de Paris GmbH v Pronuptia de Paris de Pronuptia v GmbH Paris de Pronuptia udes allclaims forperformance ordamages many issuesrelatedtotheconsequencesof l courtshavetoraisethenullity

Van Schijndel se istypicallyused.Although ). decision infringingArticle of thisprovisionarenotas [2001] ECR I-6297. I-6297. ECR [2001] [1971] ECR 949, ECR949, para. [1971] 29 ntractual obligations, 1331 [1991] ECR I-935; Inaddition,if [1973] ECR 77, [1973] 1334 TheCourt ex officio [1969] Van 1330 .

CEU eTD Collection [1983] ECR 4173, para. 12. 12. para. ECR 4173, [1983] 1342 1341 1340 1339 1338 1337 1336 1335 from differentMember States,adistribution ag administration islocated. of thecountrywheredistribu relationship. an exclusive distribution agreement canchoosethelawthatwillgoverntheircontractual contracts isRegulation593/2008(Rome I). way inwhichanationalcourtwoulddecideon beyond thescopeofthisdissertation.However,wh principle. enrichment. its obligationsundertheagreem restitution arisesoutof restitution, forwhichnoproofofdamage restitution. Insome legalsystems apartfrom or States. For example, national lawscoulddifferre law. resulting financialobligations,aretobedetermined bythenationalcourtaccordingtoitsown applicable to contractual obligations (Rome I), OJ [2008] L 177/6. satisfied. law, while Greek and Fr Spanish and German, English, Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law to allow do not thosethat if the Komninos restitution According K Di Gio, Case319/82 Id. Id. See id. 1335 OMNINOS , Art. 19(1). 19(1). , Art. , Art. 4(1)(f). As aresult,theconsequences ofvoidnesscanto alargedegreedifferacrossMember At EUlevel,themain instrument for resolv

Id. , Art. 3(1). 1338 note 1332, at 201. 201. at supra 1332, note at 155 n.86. 1337 1340 , Goingfurther intothedifferences in

supra Société de Vente deCiments et Bétons de l'Est SA vKerpen & Kerpen GmbH und Co. KG Some national lawsallow it,whilesome donot,basedonthe Intheabsence ofparties’ choice, the note 1252, at 155. 155. at 1252, note unjustenrichment –apartyto 1342 Thissolutionseems reasonable–ifthecontractpartiescome

ent may claim restitutioncorre tor hashishabitualresidence, s, fault,andcausallinkisrequired. 1339 236 ench law allow restitution if certain conditions are conditions ifcertain restitution lawallow ench the applicablesystem ofcontractlaw. InaccordancewiththeRegulation, partiesto reement wouldgenerallyhavemore in effects in additiontodamages garding thewayinwhichtheyregulate ing conflict of lawsissues inthearea of Member contract States lawswouldbe at couldbeinterestingtoaddressisthe agreement istobe a voidagreement whohasperformed in pari delicto in pari sponding totheotherparty’s 1341 principle appliesinclude i.e.wherehiscentral parties canalsoseek governed bythelaw 1336 in paridelicto Theright to

CEU eTD Collection I-6297. I-6297. 39. court must safeguard.”). between individuals, these articles creat prohibitions of Articles [101(1)] and [102] tend by their very nature to produce direct effects in relations 1344 1343 invoked euro-defense,contendingthattheexclus court against Mr.Crehan for failing topayfor thebeer deliveredbyCourage. Mr. Crehan arrangement. Problems arosein1993,whenC their beerexclusively from Courage.Inot entered intoanagreement whichprovidedthat a newcompany(InntrepreneurEstates).Subse certain numberofpubs(GrandMetr number ofpubsthroughoutthe decades later,with when itcomes toprivatedamages actionsun of EUcompetitionlaw. party. TheECJ alreadyin1974re to anillegalexclusive distribution agreement consequences flowfrom theinfringement. For Theonlysanction for violatingEUcompe is voidness of theillegal agreement. Consequently, itcould bedisputable what other 5.2.2.3.1.1 5.2.2.3.1 5.2.2.3 from. the countrywheredistributo Case C-453/99 CaseC-453/99 Case127-73

Courage wasabreweryholding19%oftheUK Private damages actions actions damages Private ECJ case-law Courage Belgische Radio en Televisie v SVSABAMNVFonior BelgischeRadioen Televisie and Courage Ltd v Bernard Crehan and Bernard Crehan v Courage Ltd vCourage and Others Crehan Bernard and Ltd Crehan Courage v Bernard Courage. See also 1343 Case C-282/95 CaseC-282/95 P However,thecase that isusually considered asthe watershed 1344

country. In1990Courageanda Thefactsofthecase canbesummarized as follows. r islocatedthanintheone e direct rights in respect of the individuals concerned which the national cognized thatindividualshave opolitan) agreedtomerge thei Guérin automobiles vCommission automobiles Guérin 237 could claim damages from her words, thiswas example, oneissuewouldbewhetheraparty allInntrepreneurEstatestenantshadtobuy der EUcompetitionlaw came almostthree ourage broughtanactio quently, CourageandInntrepreneurEstates ive arrangement with tition lawexpresslymentioned intheTFEU market insalesofbeerandowninga from whichthesupplieriscoming [1974] ECR 51, para. 16 (“As the nother companyalsoowninga actionablerightsonthebasis r pubsandtransferthem to [1997] ECR 1503, para. para. ECR 1503, [1997] an exclusivedealing Courage wascontrary theothercontracting n beforeanEnglish [2001] ECR [2001] CEU eTD Collection 1348 1347 1346 1345 “significant responsibility” forthedistortion of respected. right toclaim provide damages, of EUcompetitionlaw. that theexistence oftheright damages sufferedduetoacompetition lawinfringement. effectiveness ofArticle101wouldbejeopardizedwithouttheri such abroadscopeofpotential restrict ordistortcompetition with Inessence,theECJfoundthat“anyindividual canrelyonabreach ofArticle[101(1)] of theTreatybeforeanational court evenwherehe taken into consideration inassessing themerits of suchclaim for damages. Further, if EUlawdoesallowthispossibility, that provisionbeforeanationalcourttoobtai ECJ, inquiringwhetherapartyto Mr. Crehanhisclaim fordamage question infringed Article101TFEU,theEnglish agreement toclaim damages from the other pa offense. to Article101.Inaddition,Couragecounter-cla

Id. Id. Id. Id. , paras. 28-29. 28-29. , paras. , para. 27. , para. 26. , para. 24. Nevertheless, theCourtrecognizedthatMe English law that wasapplied inthe litigat 1348 Mostnotably,thenationallawmay 1347

to claimdamages cansignificantlystrengthen theenforcement plaintiffs bythe interests of deterrence, notingthatthefull d thattheprinciplesofequi acontractinfringingArticle s. Consequently,theEnglishcourtmade areferencetothe in themeaning ofthatprovision.” 238 competition theright to obtain damages from the Englishcourtaskedwhat factorsmustbe imed fordamages, thereby alsousingeuro- rty. This means thateven hadthe leasein n relieffrom theothercontractingparty. court wouldnothavebeenabletoallow ion didnotallow aparty toanillegal is aparty to acontract that isliableto mber Statescanestablishlimits tothis deny apartywhoisfoundtobear 1346 The Courtfurtheremphasized 101canrelyonthebreach of valence andeffectivenessare ght ofanyindividualtoclaim 1345 TheECJjustified CEU eTD Collection “significant responsibility”,whichcan 1353 1352 1351 1350 1349 damages beforeanItaliancourt,seekingtoob established bytheItaliancompetition author insurance relating toaccidents caused bymotor ve companies theresultofwhichwereincreased companies. Thebasis for theclaim wasanillegal agreement betweenthe insurance competition law.Thecaseinvolved damages act In 5.2.2.3.1.2 restrictive approachth extent”. to negotiate theterms of th position thantheotherparty,suchasseriouslytocompromise oreveneliminate hisfreedom court shoulddetermine whetherthepartyclaiming was“inamarkedly damages weaker bargaining powerandconductofth economic andlegalcontextinwhich thepartiesfindthemselves, andtherespective responsibility fortheviolation,nationalcour principle. the othercontractingparty responsibility is ‘substantial.’”). is‘substantial.’”). responsibility ‘substantially equal’ whereas the Court of Justice would deny damages only when the plaintiff's degree of Life Perma 298/04) v Assitalia SpA vAssitalia 298/04) Antonio Cannito v Fondiaria Sai SpA (C-296/04) and Nicolò Tricarico (C-297/04) and Pasqualina Murgolo (C- Joined casesC-295/04 toC-298/04 See Id. Id. Id. , para. 33. , para. 32. , para. 31. M According tothe ECJ,whendetermin 1351 ONTI ] the right to damages is denied respon is todamages when denied ] theright Manfredi Basedonthis,compared to Manfredi , supra note 45, at 288 ( at 288 45, note , [2006] ECR I-6619. ECRI-6619. [2006] 1353 an theSupreme Court. the ECJ further clarifiedcertain theECJfurther 1349

e contractandhis capacity toavoidthelossor reduce its . Therefore,thenextquestionis “ An immediate difference [between VincenzoManfredi v Lloyd Adriatico Assicurazioni(C-295/04), SpA e twopartiestothecontract Perma Life be relatedtothediscussionabout 1352 239 sibility between the two contracting is theparties twocontracting between sibility tain from theinsurance companies damages in ity. Plaintiffswereindividualswhosought

t shouldtakeintoaccount factorssuchasthe ions brought against threeItalianinsurance premiums forcompulsory civilliability hicles. The illegality of thisagreement was itwouldseem that ing whetheraparty aspects ofdamages claims underEU Perma Life 1350 what istobeconsidered as Inaddition,thenational the ECJ adoptedaless and Courage bears significant in paridelicto ] is that [in [in ] isthat

CEU eTD Collection 1358 1357 1356 1355 1354 antitrust damages from theot would mean thatboththes damages, of potential plaintiffs inprivatedamagesactions.If determination tonationallaws. when itcomes totheamount ofdamages, but profit ( able toseekcompensation notonlyfor actualloss( founded onEUrules. founded onEUcompetition rules,itshouldalso possible toawardexemplary or punitive dama effectiveness areobserved. determining theextentofdamages, provide causal relationshipistobedetermined. details about howthisright tocompensationwillbeexercised, including thewayinwhich TFEU].” relationship betweenthatharm andanagreem “ proceedings, theItaliancourtreferre the amount oftheincreaseincostpr

any individual

Id. Id. Id. Id. Id. , para. 100. , para. , para. 99. , para. 92. , para. 64. ,para. 61 (emphasisadded). lucrum cessans The Courtfurtherfound thatitisfor domestic legalsystems tosetthecriteria for In thewakeof In itsdecision, theECJfirstaddressed the 1354 Manfredi TheCourtfurther notedthat itisfor canclaim compensation fortheharm extendsthisrighttothirdparties. 1357 Courage ) plusinterest. Asfortheprincipleofeffectiven 1356 her contractingparty.Ina

upplier andtheexclusive dist Theprinciple ofequivalence andManfredi, d several questiontotheECJ. 1358 1355 Therefore, theCourtseems tohavesetthefloor

240 emiums theypaid.Duringthecourseof ent orpracticeprohibitedunderArticle[101 EU competitionlawrecognizesawidescope d thattheprinciplesofequivalenceand be possibletoawardsuchdamages inactions ges indomestic actions similar to actions it didnotplaceanyceiling–leftthis issue ofcausality. AccordingtotheCourt, damnum emergens Courage domestic legal systems tolaydownthe ddition, theCourt’srulingin Applied toexclusivedistribution,this sufferedwherethere isacausal ess, theinjuredindividualmustbe allowsco-contractorstosuefor ributor couldpotentially seek would requirethatifitwas ) but alsofor the lossof Manfredi

CEU eTD Collection Member States combined). actions the number private (estimating damages of 2011) by indirect purchasers there.”). potential plaintiffstocollectin procedure donothavediscoveryinthewayitex This couldmainly bythefollowing beexplained damages. of EUcompetition law,inmost casesnational Manfredi 1365 1364 1363 1362 1361 1360 1359 follow theevent. cost allocation betweenthe parties inlitigation. is exactly the existence of trebledamages. 5.2.2.3.2 Commission. regards toprivatedamages actions.Especiallyactive in thisrespect has beentheEuropean it may, the Court’srulingin the amount ofdamages sufferedcouldbe sustained duetoanillegal exclusive distri could mean that competitors andconsumers canalsoseekdamages fortheinjurythey (http://ec.europa.eu/competition/antitrust/actionsdamages/ (the Ashurst Study), at 1 in rule the (although the incentives and increase for litigation behaviour of unlawful the fruits his will retain wrongdoer that the likelihood the might reduce rule treble damages contemplate their losses being sufficient to make proceedings against the brewers worthwhile. In the US the would drinkers the most even hardened that seemshowever, at255 (“It unlikely, 246-256, 23(5), 2002, E See See supra See id. See See See LHAUGE LHAUGE Price & Stans, Price& E rules (2004) ECcompetition of case of claims infringement in of for thedamages conditions on Study Daniel Beard& Alison Jones, Another reasonbehindthelowlevelofpriv Compared to the U.S.,privatedamagesacti LHAUGE LHAUGE

does notpreclude national lawsfrom awardingmultiple damages for infringements 1362 The Commission’sstandpoint Part 5.1.2.1. & Andasshownabove,oneofthemain driv

G & ERADIN

G 1365 ERADIN supra Applied strictly, this principlewouldmean that ,

supra note 227,at 43. note 1226, at 706. at706. 1226, note ,

supra

Courag note at43. note 227, Co-contractors, damages and Article speaks and the81: ECJfinally damages Co-contractors, formation abouttheinfringement. e startedatrendofincreased interestatEUlevelwith 1363 a substantialobstacleinthisrespect. bution agreement, althoughprovingcausationand 241

courts donothavethepowertograntmultiple based on EU competition law at only around 60 in all 60in around lawat only EUcompetition based on 1364 comparative_report_clea reasons. First,theEuropean systems ofcivil ists inthe U.S.,making itmore difficult for Themost commonruleintheEUiscosts ons inEuropeseem tobequiterare. ate enforcement couldbethe system of ers ofprivateenforcement intheU.S. Illinois Brick n_en.pdf, accessed 17 May 1361 generally precludes claims the party thatfinally Further,although 1359 Bethatas , E.C.L.R. 1360

CEU eTD Collection 1374 1373 1372 1371 1370 1369 1368 1367 1366 discovery from theAmerican system), actions and opt-in collective actions), regarding theintroductionofsomesortcl interesting suggestionsdid.Forexample, introduce doubledamages didnotfinditsway White PaperonDamages Actionsfor horizontal collusion. some boldproposalsforreform, includingthepossi strengthening antitrust enforcement. injured partiestogetcompensation for theirinjury, aswell haveadeterrent effect, thereby alia presented the GreenPaperonDamages Actions forBreachofEUAntitrustRules. direction offacilitating private damages actions.Forexample,in2005theCommission system ofantitrustenforcement, andfollowing costs, itmay bediscouragedfrom filingasuitinthefirstplace. parties. partially winsitscase,thensome systems allowforthecoststobeapportionedbetween of legalrepresentation. wins its case isentitled torecover all the costs arising outof thelitigation, including the costs White Paper on Damages Actions for Breach of the EC antitrust rules, COM (2008) 165, 2.4.2008. GreenPaper breach – Damages the of for actions Id. Id. Id. See Id. Id. Id. , theGreen Paperemphasized thatfacilitating damages claims willmake iteasierfor the at 9. at 4. at 3. This seems to be the case in Germany and Austria. Green Paper on Damages Actions at 7. 1367 Following thecommentsonGreenPaper,in2008Commission draftedthe The Commission hasperceivedthissituationasanobstacletowardsamoreefficient Consequently,ifapartyfacesthepossibility 1370 1366

Differentvariationsof

1369 1373 1372 Breach oftheEUantitrustrules. IntheGreenPaperCo andtherulesoncostallocation. disclosure ofevidence (inasense comparable to EC antitrust EC COM rules, antitrust (2005) 672, 19.12.2005. 242 the White Paperlaiddown certainproposals Courage Id. ass actions(more preci thisrule exist. For example,if a party only at 707. bility ofdoubledamages insome casesof into theWhite Paper,butsomeother ofhaving to payfortheotherparty’s hasundertakenseveralstepsinthe mmission alsointroduced 1371 1374 sely, representative Theproposalto

1368

Inter CEU eTD Collection 2011). 2011). 2011). consultation oncollectiveredress. the opinionofinterestedparties.Inthis However, beforetheadoptionofCommunica have a 1380 1379 1378 1377 1376 1375 above. that theCommissionshouldnowbe competition law. necessity ofprovidingthepossibilitycollectiveredress withregards Commissioners for Justice, Competition andCo rules, laying downprinciplesthat willguide any possiblefuture initiative inthisarea. Asstatedon thewebsiteofDirect Commission planstoadopta with regardstosome enforcement important issues. comes todecisions bytheNCAs.Consequently,theproposalisaimed at are boundbytheCommission’sdecisions, antitrust plaintiff’sposition. seems tobeaimed atencouraging follow-on actions to the decisions bythe competition authority States arealreadybound bythefi Regulation 1/2003, Art. 16(1). this toisth Monti, According See See See Id. at 6. http://ec.europa.eu/tr http://ec.europa.eu/competition/c http://ec.europa.eu/competition/antitrust/actions The White Paper alsoproposedtheruleth res judicata 1380 effect withregards tonational courts. Thepublicconsultation wasopenuntilthe endof April,whichmeans ansparency/regdoc/rep/2/2010/EN/2-201 e case withtheUKand Germany. M As mentioned, Regulation1/2003

Communication onprivateenforcement oftheEUcompetition 1379 onsultations/2011_collec ndings ofacompetitionauthority, intheprocessofdraftin Thiswasprecededbyajointstatement made bytheEU 1377 respect,inFebruary2011itlaunchedapublic 243 butthereisnocorrespondingguaranteewhenit orate General forCompetition, during 2011 the damages/index.html (accessed 17 May 2011) from thecourt’s Member State. Theproposal nsumer Policy,inwhich theyemphasized the tion, theCommission d at decisionsbytheNCAswithinECN , asthiswouldsignifi tive_redress/index_en.ht 0-1192-EN-1-0. ONTI 1375 g theCommunicationmentioned ,

supra Courts in some EU Member provides thatnationalcourts note 45,435. at 1376 Pdf (accessed 17 May butthisappliesonly to violationsofEU ecided tofirsthear cantly facilitate the ml (accessedml 17May filling in the gaps filling inthegaps 1378

CEU eTD Collection of exclusive territories). illegal conduct). light to atobringing toright distributors contribute giving damages does extent clear towhat itisnot this reason for and Further, adistributorwhowishestoturn competition lawin order to escape abad bargain. carefully calculatethebenefits party willnormally wanttomake anantitrust enter anexclusivedistributionagreement unle against granting distributors theright tosue.Fi 1388 1387 1386 1385 1384 1383 1382 1381 happen, asthepurposeofexclusiveterritoriesis exclusive distribution agreement willseekdamages onlyif itsuffers losses;thisisunlikelyto which distributorsuits should nothavetherighttoclai belongs topartiesanillegal subjective righttoclaim damages underEUcomp the issue ofsubjectiverights. agreements. 101. seeking damagesmay asubjectiverightwh have 5.2.2.3.3 national courts must safeguard”).

See Id. See See See Courage Id. Id. 1381 at 301. at 426. Monti, M id. Courage, On theonehand,itcouldbearguedthatapa The righttoseekdamages canbejustifiedontwoseparategrounds.First,theperson Inaddition,allowingprivatedamages ac ONTI at 287-88. at 287-88. Distributors’ andsuppliers’righttodamages , paras. 26-27. , paras. 26-27. 1382 , supra

supra para. 23 (Articles 101(1) and 102 “create rights for the individuals concerned which the AlthoughtheECJinCourage note 1292, at 287-88. 287-88. at 1292, note note 45, at 429(distr note 45, See also supra Part 5.1.2.1 (discussing the appropriatness of treble damages for the use contribute todeterrence,

1384 exclusive distributionagreement. they wouldreceive;consequentl m thistypeofdamages. Apart Consequently,thequestionco ibution agreements are generally not 244 focusedondeterrence, ss thisisinaccordance withits interests. courtwhencontractua claim whenitsuffers aloss becauseitdidnot rst, inacompetitivemarket aperson willnot toenhancethedistri ich fallsundertheprotectiveambit ofArticle etition law;especially,whethersucharight 1385 rty toanexclusive tions couldleadtodeterringunlawful severalreasonshavebeenproposed 1387 Second,apersonthatentersan y, thepartycouldbeusingEU from questioningtheextentto uld bewhichpartieshavea concealed inthe way cartels are, butor’s profitmargin. 1383 distribution agreement l relations deteriorate italsotouchedupon 1386 1388 A

CEU eTD Collection 1393 1392 1391 1390 1389 questionable inconnectionwith internal market couldbe sufficient to justify the rule. market considerations, thepossibility thata to resume supplies. and ifheissubsequentlyterminated hecan could encourage thedistributor toviolateth distributor tobring tolightthe illegal agreement. law:thepr of EUcompetition helpful for antitrust enforcement. proof ofdamages. Consequently,theredoseem to injury hisclaim wouldfailanyway,sinceone of theelementseverydamages actionis that thelaw barsthemfromseekingdamages a generally willnotsufferanydamage anyway. these arguments isthatdistributorsshouldnot as thiscoulddriveout of businessthedistributor’s competitors. opposite, thedistributoris agreements is market foreclosureand dist him alsotherighttoclaimdamages isunnecessary. already has asufficientincentiveinthepossibili Monti, M Id. Id. See id ONTI at 429-30. The argument concludesthatthemain pot The righttoseekdamages againstthe In thisrespect, consider anairtightexcl However, the factthatdist . , See also note 1292, at 287. 287. at 1292, supra note

supra note 45, at 428. at 428. 45, note Part 5.1.2.3 (discussing the 1393 Takingintoaccounttheattentionthat rather likelytobenefitfromthe

ospect ofbeingawardedantitru the Commission’s policyonfines. ributors donotnormally suffe in pari pari delicto in ributors donotseemtobeaffectedbyit. seek damages as wellas 245 e export banhoping thathewillnotbecaught, usive distributionagreem rule willassist inestablishing afunctional beallowedtoclaim ltogether. Ifadistributordidnotsufferany 1392 ty ofdeclaringthecont becaseswheredistributoractionscould 1389 principle). other contracting party could also be other contractingpartycouldalsobe In thissituation the prospect of damages ential harm arisingoutofdistribution

manufacturer’s foreclosureefforts, st damages couldencouragethe theEUaffordstointernal r anydamage does notjustify 1391 In thisrespectithasbeen amandatoryinjunction Therefore, thecrux of damages because they ract voidandgiving ent incontravention 1390 Onthe CEU eTD Collection individual”. even asupplierasksfordamages, aswithregard antitrust damages from a exclusive distribution agreement inthefirstplace. both severefinesandprivatedamagessuitsc situation where asupplier thatestablishes an necessarily anticompetitive andoftenbringsi exclusive distributionagreements. Asshown, actions couldleadtoover-deterrence. Thisc which wouldallowboththepossibilityof(hef enforcement agenciesgenerallydonothaveth context, thewidespread privateenforcement the currentsystem offines inEUcompetition Commission orNCAs. broader issueoftherelations hand allowapersontoclaim damages andonth 1395 1394 power, i.e.theonebearing “significantrespon In anexclusive distribution agreement, asupplie rare, situationswhereitwould agreement. also beentitled toavoid afinefrom damages againsttheothercontractingpartyshould argued thatundertakingswhocanseek

Manfredi See id. Finally, itcouldbeinterestingtoaddress insistenceThe Commission’s onencouraging privatedamages actions also means that at 292-93. at 292-93. , para. 24. 1394 1395 Otherwise,anoddsituationwouldar However,ifsituationswhereadistri distributor. FollowingManfredi

hip betweentheawardofdamages andfinesimposed bythe be justifiable tograntdamages to a supplier seem evenrarer. the Commission forhavingenteredintothat 246 exclusive distribution system potentiallyfaces ould especiallybeproblematic withregards to law shouldbereconsidered.IntheAmerican e powertoimposefines.However,asystem ould leadhimtoabstainfrom enteringinto of antitrustlawsseems appropriate,since s therighttoclaim itrefersto“any damages ty) finesandofextensiveprivatedamages gnificant efficiencies. Forthisreason the e otherimposeafineonit.Thisopensup r isgenerallythesidewithmore bargaining the issueofwhetherasuppliermay recover sibility” for thedistortion of competition. exclusive distribution agreements arenot butor wouldhaveajustifiableclaimare ise; competition lawwouldontheone , thereisnoformal obstaclethat CEU eTD Collection their ownthevenueforsolvingdispute (Brussels I). TheRegulationrespects partyauto 1399 1398 1397 1396 supplier’s competitor who wasforeclosed bythe imposition of exclusive territory, itwould the distributor’sMemberState.Onot a suitby an exclusive distributor against asupplier, the competent court would probably be where theanticompetitive effectsoftheterritorial damages arisingoutan illegal exclusive distribution agreement, thiswouldbetheplace sued inanotherMember Statewheretheharmful eventoccurredormay occur. to theRegulation,inmatters re disputes potentiallyarisingoutoftheagreement. distribution agreement may choosedecidewhichc competency fordecidingsuchactions antitrust damages arisingoutof 5.2.2.3.4.1 5.2.2.3.4 Courage potentially makingthesidethatbears“s him especially takinginto Courage. Consequently, hegenerallywill Regulation (nonewhich of relevantare for ourdiscussion). (Brussels matters, I). OJL12/1 commercial and [2001] civil in ofjudgments enforcement RegulationCouncil (EC)No44/2 Id. Id. Courage, , Art. 5(3). of instances by limited is autonomy , Art. This 23. Another importantquestioniswhichcourt In theabsence ofpartychoice,thepertin . 1396 Conflict of laws issues para Jurisdiction Nevertheless,thesupplier’srighttosu . 31. account thepossibilitythat

001 of 22 December 2000 on juri 22 December2000 on 001 of lating totortapersondomicile an exclusive distribution agreement. AtEUleveltheissueof nothavetherighttoclaim damages inaccordance with is regulatedbyCouncilRegulation44/2001 her hand,ifanaction 247 ignificant responsibility” exclusive jurisdiction laid down in Art. 22 of the the of 22 in Art. down laid jurisdiction exclusive ent rules of theRegu nomy, asitallowstheparties tochoose on restraint occurred. Forexample, incaseof ourt willbecompetent 1398 would becompetent tohearaclaim for e shouldnotbedisregardedcompletely, . Therefore,partiestoanexclusive distributor may possessbuyerpower, sdiction andthe recognition and d in a Member State may be d inaMemberStatemay be would bebroughtbya lation apply.According inaccordancewith for theresolutionof 1399 Relatedto 1397

CEU eTD Collection 1404 1403 1402 1401 1400 amongst thosedirectlyandsubstantiallya establish jurisdictionin situation the plaintiff suesinthecourtof th have achoiceregardingthelawunderwhichto distribution agreement affectsthe likely to be affected. arising outofrestrictio generally cansubmit non-contractualoblig the partiescertainauto relevant instrument atEUlevelisRegulation 864/2007 (Rome II). distribution agreement. When itcomes todetermin Oncetheproper jurisdiction has been established, anadditional problem iswhich national lawwouldbeapplicab 5.2.2.3.4.2 anticompetitive harm. in thatcasethecompetent court wouldbeoftheplacewhereconsumers suffered that consumers couldalsoseekdamagesarisin Finally, since according to seem thattheactioncouldbebroughtbeforeth statutory seat, central administration, or 14(3). willof pa the the conditions certain under addition, chosen, the choice of the parties may beoverridden by imperative norms of that other country. Id., Art. 14(2). In relevant to the event giving rise to damages arelocated in a country other than the country whose law has been applicable to non-contractual obligations (Rome II) ,OJ [2007] L 199/40. Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law Id. Id. Id. See supra , Art. 6(3)(b); for the purposes of the Regulation, a company is domiciled at the place where it has its ithas where place atthe isdomiciled acompany Regulation, the for the, Art. of 6(3)(b); purposes , Art. 6(3)(a). limitedmay this in be However, , Art.autonomy 14(1). In theabsenceofparties’choice, thelawapplicable to non-contractual obligations Part 5.2.2.3.1.2. Applicable law 1403 ns ofcompetition isthelawof nomy. Inotherwords,itrecognize that Member State,aslongthemarket inthatMember Stateis If therestriction of competitio Manfredi

le tothe damages action between parties toan exclusive principal place of business [Art. 60(1)]. market inmore thanone Member State,the plaintiffcould anyonecanseekdamages, ffected bytherestrictionofcompetition. rties may be overridden by provisions EUlaw. of provisions rties mayby be overridden ations tothelawoftheirchoice. 248 g outoftheexclusivedistributionagreement; e domicile ofthedefendant,hecouldalso e courtsofthecompetitor’s MemberState. certaincircumstances. Firs ing applicablelawinthearea of torts,the bring hissuitfordamages. Ifinsucha country wherethema n arising outof anexclusive s thatpartiestoanagreement 1400 1401 itcouldbeimaginable Theregulationgives t, if elements all the 1402

rket isor 1404

Id.

, Art. CEU eTD Collection Sherman andwasaddressedabove. Act, damages. awardsoftrebledamages onthe Thisisbasicallytheproblemofenforcing based States are prepared to enforce foreign judgments orarbitral awards granting multiple distribution agreements inseveralrespects.The 5.2.2.3.4.3 domiciled, ifothercond alternative, hecouldbasehisclaim onthe where themarket isor is likely tobe affected bytheimposition of exclusiveterritories. Inthe choice. Ontheonehand, he could bring thesu law willgenerallybethatlaw. agreement containsachoiceof antitrust damages arisingoutof 1407 1406 1405 Brussels I,ajudgment giveninaMember Stat existence, the nature and theassessm II specificallyprovidesthat one shouldparticularlytakeinto some donotcanlead to certain problems related toprivate damages actions.In this respect judgment from anotherMember Stategranting multipledamages. third issue, addressed inthis section, iswhether aMember State may refuse to enforce a Following the Member Statesmay grantmultiple damages for violationsof EUcompetition law. Rome II, Art. 15(c). See supra See supra The issueof multiple damages intheEU Therefore, therearethreepossibilitiesfo The situation wheresome Member States allow theaward of multiple damages and Manfredi Part 5.2.2.3.1.2. Part 5.1.2.1. Multiple damages itclearthat Member Stat itions weresatisfied. the law applicabletonon-cont

In theabsence ofsuchaprovi an illegal exclusive distribution agreement. First, incasethe accounttherelevantrulesof law withregardstonon-contr ent ofdamage ortheremedy claimed. 1405 Thesecondissueiswhet 249 law ofthecountrywh es canawardsuchdamages. it inaccordance with th e istoberecognizedin theotherMember first aspectistheextent towhichMember r bringingaprivatesuitwithregardsto couldbeof relevance for exclusive ractual obligationsgovernsthe Rome IIandBrusselsI.Rome sion, theplain actual obligations her thenationallaws of ere thedefendantis e lawofthecountry 1407 1406 tiff mayhavea Accordingto Finally,the , applicable CEU eTD Collection 29(7), 430-436, at 434. at434. 430-436, 29(7), on Damages Commission's WhitePaper Romethe element - the and II Regulation international non-compensatory exemplary orpunitive damages. The recitalfurther specificallyprovides thatthis mandates thatajudgment cannotbereviewedastoitssubstance. the judgment onthemerits; thatwoulddirectly judgment awardingpunitive damages. Thisdoesnot law, iftheapplicationwould becontrary courts of the Member Statescan in exceptional 1415 1414 1413 1412 1411 1410 1409 1408 of exclusive distribution the awardof punitiv Ascanbeseen,thepossibilityof awardingmultiple damages for violationsof EU competition lawiscoupled withanumber of en judgment awardingpunitive damages wouldnotbeenforced. judgment contrarytoitspublicpolicy. concerning punitive damages thecourtwould simp recognition issought. recognition wouldbemanifestly to beappliedbythecourtseizedofaction. that if theapplicable law allowsapossibility judgment bereviewedastoitssubstance. States without the requirement M. Danov, M.Danov, Rome II, recital 32. I, Brussels 33(1). Art. See Id. Id. Id. Id. 34(1). , Art. 36. , Art. Brussels I, Art. 36. As aresult,basedonBrusselsIMember According toBrusselsI,anationalcourtma Awarding exemplary (or punitive) antitrust damages in EC competition cases with an an with cases in EC damages competition punitive) antitrust (or exemplary Awarding 1410 ArecitalinRome II

ofanyspecialprocedure; contrary tothepublic 1415 to thecourt’s public policyand mandatory law. 1409 However,theoutcome wouldbethesame –the 250 of awardingpunitive damages thensuchlawis Byreadingtheseprovisionsonemay conclude 1411 However, thisdoesnothavetobethecase. e damages wouldbe even more problematic. forcement problems. However,inthe context circumstances refuse toapplytheapplicable alsorefers tothispo contravenetheBru alsoapplies tothepos 1413 mean thatthe courtwouldbereviewing Statecourtmay refusetorecognizea y refusetorecognizeajudgment ifthe ly refuse torecognize thepart of the

policyoftheMember Stateinwhich 1408 undernocircumstances maythe ssels Iprovisionwhich ssibility, noting thatthe 1414 sibility ofawarding Rather,in cases , E.C.L.R. 2008, , E.C.L.R.2008, 1412

CEU eTD Collection increased welfareiscondemned iscalleda“falsenegative”. 1419 1418 1417 1416 system wouldnotmake mistakes ofeither positive”. with negativewelfareeffects enforcement mistakes. related tothisinterplaybetween substan come toincorrect conclusions about thedifferences in the substantive laws. Oneof theissues enforcem possible toproperlyunderstandthesubstantiv 5.3.1 Socialcostofenforcement 5.3 inappropriately harshsanctionforapract presence offinesbypublicenforcement agencieseven singledamagesbean could have intheU.S., actions intheEUcouldbeseenashavingsame effectas theaw Therefore, inthepresence ofCommission and having topay multiple damages ontopof thefine couldbe regarded as overly excessive. anything, insuchasituationtheCommission finetheundertakings,andprospectof could even whenitcomes toairtight of punitivedamages for theirdeployment would Taking intoaccounttheprocompetitive potential and the Law and ‘Common Nature Law’ Antitrust of Crane, See id. See See supra Christiansen &Kerber, There aretwo main typesofenforcement erro Studying procedureisofessen Enforcement errors

supra ent mechanisms. 1418 Part 5.1.2.1. Ontheotherhand,anenforcement mist note 575,at 1. 1416 evenif thedamages werenotmultipleinnature.This isbecauseinthe supra note 634,225. at 1417 See also Without takinginto accountth

exclusive territories impeding tr is wronglyallowedandusuallyreferredtoasa“false William F.Baxter, ce evenifone’sfocusisonsubstantivelaw–itnot , 60T ice such asexclusive territories. EX 251 tive andproceduralla the twotypes. However,as this doesnot seem .

L. NCA fines,theimpact ofprivatedamages

that exclusiveterritories possess,the award e ruleswithoutconsideringtherelevant not beappropriate. This would be the case R SeparationPowers, of ProsecutorialDiscretion, EV rs. Thefirsttypeoccurswhen aconduct .

ake whereabehavior 661 (1982). ade betweenMember States.If e proceduralrulesone could 1419 Ideally, anenforcement w istheproblem of ard oftrebledamages thatwouldhave CEU eTD Collection 1421 1420 strengthening of private enforcement isnot followed byareconsideration ofsomewhat strict over-enforcement isthetrendtowardsencouraging private antitrust enforcement. If the theory, especiallyifthefirm deployingthe quasi- respect. Asdiscussed in thetheo ordoliberal influenceandthesinglemarket impera flexible initstreatment of exclusiveterritori characterized asover-enforcement. Although Conversely,theEUapproachtowards latter as thelesser of twoevils. exclusive territorieswouldexc in thepost- justified, theimposition oftrebledamages would territories –althoughtherearesituationsinwhichis thecondemnationofexclusive effects ofwhichareambiguous. Thiswouldalsos all antitrustviolations,judgesmay berelu exclusive territories.Duetothefactthat law prescribes theawardoftrebledamages for narrowly. remedies is tooaggressive, by atendencyintheoppositedirectionproceduralrules. considered aslessharmful. to bepossibleinpractice,an Crane, H OVENKAMP per se A tendencytowardsonetypeoferrorinsubstantiverulescould supra 1421 Sylvania illegalitytreatment doesnot Itseems thisiswhathashappenedwiththewayin whichAmerican lawtreats note 575,at 3. ,

supra supra periodmay bereasoningthatthecost note 1183, note

at 76. interesting issuewould bewhich

judges couldrespondbydefining eed thecostsofunder-enforcemen retical chapter, affordingeven seem tobejustifiedfrom ctant tocondemnapracticetheanticompetitive 252 restraint lacksmarket power.Anothersignof EU competition lawnow seems tobemore es than itused tobe the caseearlier,the eem to be the case with the use of exclusive eem casewiththeuseofexclusive tobethe seem excessive.Inother words,the courts exclusive distributioncouldbemore tive stillplayanim s ofover-enforcement intheareaof 1420 of thetwo mistakes shouldbe airtight exclusive territoriesa Forexample, ifasystemof t, effectively optingforthe t, effectively theviewpointofeconomic substantive violationstoo portant role in this be counterbalanced CEU eTD Collection negative wouldbelessharmful–monopo 1428 1427 1426 1425 1424 1423 1422 the condemnationofantitrustlaws.Thissitua distribution agreements isifa 5.3.2 tendency towards false positives seem tobegrounded onother considerations. the areaofexclusivedistributionU.S. consistency initsdecisions, evenintheabsenceof as itmight beperceivedatfirstglance. of positives. decisis false negatives areself-correcting while false positivesarenot. aggravates thecostofinitialmistake. be lostdefinitely. based systemacourtmakesmistake bycondemn than EUlaw doesisthe doctrine of are viewsthat oneofthereasonswhy U.S.enforcement leansmore towardsfalsenegatives more pronounced. substantive rulesgoverningexclusivedistri Easterbrook, Easterbrook, Frank stare decisis See supra See supra See Id. Id.

See also Cooper, Froeb, O’Brien & Vita, inEU lawisone of thereasons that tiltEUenforcement inthedirection of false Some authorsopposethistothesituation Perhaps them Inefficient verticalintegration With regardstothereasonsbehinddifferent 1426 Part 4.2.3.2. Part 3.6. However,itisarguablewh Cooper, Froeb, O’Brien &Vita, O’Brien Cooper, Froeb, note 1422, at 2-3. 2-3. supraat 1422, note in theU.S. isquiteflexible anddoes 1422 The limits of limits of antitrust The Basedonstaredecisis ost significantcost of enforcement antitrust inthe areaofexclusive

manufacturer decidestovertica supra note 498,at 661. stare decisis , 63 T , 63 supra at 498, 661. note 1427 ether such explanation isco lies aregenerallyself-destructive. EX 1423 otherfirms mayrelyonthecondemnation, which Ontheotherhand, . 253

L. tendency towardsfalsenegativesandEUthe Ontheotherhand,in bution, over-enforcement couldbecomeeven tion seems tohavebeenarecurringincidence

R EV . AccordingtoEasterbrook,inaprecedent- in theEU,arguingth . 1, 2 (1984). ing anefficientpractice,thebenefitsmay tendencies in thetwojurisdictions, there notseem tobeasbindingonthecourts stare decisis 1425 lly integrate inorder toavoid

doctrine. ECJ hasstrived towards rrect. First, the principle such a situation afalse at theabsenceof 1424 1428 Consequently, Therefore,in stare CEU eTD Collection Monopolization George L. Priest &Jonathan Lewinsohn, 1433 1432 1431 1430 1429 distribution. in by Schwinnwouldevenhigherth reasons, itcouldbereasonabletopresume thatasaresultoftheintegration thepricecharged fact thattheintegrationwasforcedbylegal its distributionprocessthanitwasabletodoby vertically integratedintodist prohibition ofexclusiv could besomehow seenasharming consumer type of competition wascompletely eliminate situation where intrabrand competition waslimited wasreplaced bya situation where this Schwinn eitherwentoutofbusinessor outcome. Former Schwinndistributorscertainly requirement promulgated bytheCourt. profitable to it centers. areas itacquiredsome ofitsexistingdistribu Schwinn, the bicycle manufacturerdeci on bothsidesoftheAtlantic.Forexample, as However, this salvation was only short-lived, asin short-lived, was only this salvation However, firm astronger itssmaller from of lessefficientout driving business competitor. and prevented basically K Grimes, this, also consider to Related Otherwise he would not have employ Grimes, Consten-Grundig, GrundigacquiredConstenandthere by verticallyintegratedinto ORAH There havealsobeensimilar casesinth It isalsodoubtfulthattheCourt’sdecision inanywaybenefitedconsumers –a 1429 & supra supra ThiswaySchwinnreplacedabusine

O’S 1433 , in A 1430 note 701, at 701, 160. note at 701, 160. note ULLIVAN Asaresultoftheacquisition,Grundig NTITRUST NTITRUST withcompletevertical ,

supra e territories certainly did not S TORIES Aspen Skiing note 41, at 62. note41, ribution, Schwinnwasabletoes

229, 255 (Eleanor M. Fox & Daniel A. Crane eds., 2007). eds., 2007). M. Fox & Crane Daniel A. (Eleanor 255 229, an withouttheintegration. ed the practiceinthe first place. Aspen Skiing: Product Differentiation and Thwarting Free Riding as Free Riding as Thwarting and Differentiation Product Skiing: Aspen , discussed in Part 3.1.2 above. The Court’s decision in this in this case decision Court’s 3.1.2 above. The in Part , discussed starteddealingwithotherbrands. 1431 ded toverticallyintegrate the end thestronger firm acquired the smaller rival. integration, merely inorde Itis difficult tosee w 254 considerations andnotmade duetoeconomic tors, whileinotheritopenednewdistribution e EU.Forexample, followingthe ECJ’sruling d. Additionally, evenif Schwinn’spractices aresult oftheSuprem using exclusiveterritorie did not – those thatwerenotacquiredby didnot–those s byraisingthepriceofitsbicycles, ss practicewhichwasobviouslymore make thisharmgoaway.Onceit was abletocompletely sealoffthe tablish eventightercontrolover ho benefitedfrom suchan into distribution:insome r tosatisfytheformal e Court’sdecisionin e 1432 s. What ismore,the

See

CEU eTD Collection requiring manufacturers to choose second-best options to achieve sound business objectives.”). by creatinglegal distinctionsthat operate astraps fo to dealingwithindependentcontractors. law prohibits certain types of vertical restraints would notmake economic sense.From amanufact Otherwise, thelatterwouldhaveanincentiveto large market shares. integration isnotequallyadvant 1439 1438 1437 1436 1435 1434 happened in manufacturerallowed toamanufacturer shouldalsobe imposing distributionsrestraints. small firms, asarguably isthecase intheEU. ones. Thisisevenmore problematic ifoneof lead toinefficient verticalintegration,but less profitable than having characterized asflawed. occurrence ofthispheno minimized thecostofinefficientvertical integrate into distribution. be theonlyone–followingth French market without infringing EUcompetiti M See supra See supra See id See See ONTI Cady, Leegin, Related tothis,itcould beargued thatwhatever isallowed toan integrated A systeminwhichverticalintegrationis the wayofavoidingantitrustrulescouldbe . at 36-37. ,

supra Part 2.1.2.1.1. Part 2.4.2. supra 551 U.S. at 903-04 (“In sum, it is a flawed antitru aflawed sum,itis (“In at 903-04 551 U.S. Schwinn –inordertoexercisecontrol note 45, at 41. note45, note 136, at 37. 1437 Inotherwords, strictrules on exclusive distribu 1435 menon are still present. Accordingtosome studies,vertical See alsosupra distribution performed byoutsiderepresentatives. 1434

e Commission’sfinding,ParkerPen UnliketheU.S.,where effectof ageous toall firms –itismoreprofitable for companies with Part 4.4.4. 1439 r the unwary-more than the the than r the unwary-more may inaddition favorlargerfirms oversmaller Inturn, thiscan create asituation thatactually integration, intheEUreasonsbehind 255 the goalsof antitrustenforcement istoprotect on law.Thecase ofGrundigdoesnot seem to can beconsidered asatransactioncost related verticallyintegrate ev urer’s pointofview,asituationwherethe st doctrine that serves the interestsoflawyers-st the that serves doctrine over thedistribut integration into interestsconsumers-by of also decidedtovertically en if theintegration Sylvania tion may notonly ion processthe 1436 distributionis Inaddition, basically 1438

CEU eTD Collection 1441 1440 stricter approach towards vertical territorial restraints. leaning inthatdirection, theredonot seem to and hisfollowers.AsthecurrentSupreme Court has beensweeping,toalargeex exclusive territoriesandvertical analysis shows thesignificance of politicsand ideology with the development of thelawof exclusive territori anticompetitive goals.Consequently,from th through thistypeofintegrati procompetitive sidesof integration with less cost. However,theotherside of thecoinisthat that thelatter is lower, an exclusive distribut opposed tothecostofenteringanexclusivedi it; the interest ofsociety,evenifthearrangement effects. Therearecertainsitu only guarantee that the imposition of exclusive territories willnothaveanticompetitive can diverge from thatof society; interest ofcompetition. manufacturer hadtovertically 5.4 legality approach towards exclusive dist 1441

See id. See supra By explainingtherelev thisisespecially the case if theparties possess market power. Assessment Another consideration is the difference in th On theotherhand,oneshouldalsotakeintoaccountthatinterestsofanindividual

Part 2.3.2.1. ant enforcementant mechan ations wherethe impositionof ex

on amanufacturer may alsomo restraintsingeneral.The integrate, which isanoutcome thatcanhardlybe inthe 1440 tent thankstothepolitical consequently,amanufacturer ribution doesnotseemjustifiedeither. ion agreement enablesamanufacturer toachieve 256 beanysigns thatthetide willturn towardsa e perspective ofenforcement costs,a stribution agreement. Asitcanbepresumed es anditscurrentstate. AsfortheU.S., could alsobe characterizedasideologically is beneficial for thepartiesthat enterinto isms, thischapter has shed more lighton e costneededforverticalintegrationas influence oftheChicagoSchool support from PresidentReagan clusive territoriescouldharm re effectivelyachievesome regards totheapproach to ’s rationalitycannotbe the per se

CEU eTD Collection territories. has todowiththeconstancy oftheCommi shifts in theSupreme Courtand societyas awh pronounced fluctuationsexhibitedintheAmeri parallel tradesincethe startoftheEuropean Communities.Consequently, the more territories can becompared with the stance that theEUhas hadtowards therestrictions of influence that ideology playedin thedeve approach that theCommission hashadtowards thistypeof restraint. With regards to this,the enforcement intheareaofexclusive distribu enforcement intheEU.Asenforcement in minimizes thesocialcostinform ofinefficientverticalintegration. can besaidtohaveatleastoneobviousad based ontheanalysispresentedinthischapter,approachtakenbyAmerican courts and theawardoftrebledamages tosome limited courts treatexclusive territoriescould come onl for the latter. Related to this,itwould seem thatapossible change in thewayAmerican deployment ofexclusiveterritoriesoroverlyexon would beeasiertojustify. approach thatpost- use ofexclusiveterritories w causing antitrust harm, theaward of exclusive territories.Takinginto influence that the existence oftreble dama

By comparing itwith the U.S.,thechapter has Another important implication withregardsto Sylvania courtshavetakenwithregardstoverticalnon-pricerestraints ould notseem Viewed appropriate. Faced withthechoicebetween excessively deterring the account thatthistypeofre treble damages for antitrustviolations arising out of the ges hashadonthedevelopment ofthelaw 257 ssion’s toughstancetoward lopment oftheU.S.approachtoexclusive vantage compared tothelawofEU:it tion canbeexplainedby ole, whilethe EU’srelativelystable approach the EUispredominantly more pernicious antitr y if thesystem of reme can lawbeconnectedwithideological erating them,thecourtsseem tohaveopted also shownthedifferentnatureofantitrust the antitrust enforcement intheU.S.is the straint hasalimited potentialfor inthislight, the lenient ust violations.Finally, public,thevigorof dies isreconsidered arelativelystable s airtightexclusive CEU eTD Collection stance withregardstoairti aspects) andaggravatesome ofitsshortcomings (most notably,anoverly interventionist rule ofreasonandrecognitionth offset some positivesides of theEU lawof ex problem of inefficient integrati result, thiscouldgiveanadditionalincentive tofirms tovertically integrate, aggravating the NCAs butalsosuitsfromtheothercontracting using exclusive territoriescouldfacenotonly same time thesystem ofimposing finesremains EU, mostly fueledbytheCommission.Ifprivate conspicuous withregardstothisistheprocess with regards tothe system asawhole. In Anotherinferenceoftheanalysis solutions from onesystem cannotbetransplant ght exclusiveterritories). on. Therefore,certain trendsintheareaof enforcement could at exclusive territorieshave bothpro-andanticompetitive 258 significant fines from theCommission andthe party, competitors, andevenconsumers. Asa of facilitatingprivate ed intoanotherwithou clusive territories(such asawell-structured in tact,asituationmay arisewherethefirms the context ofexclusive territories, most damages actions areencouragedbutatthe relevant enforcement mechanisms isthat damages actions inthe t seriousimplications CEU eTD Collection Case No. 7319 of 1992, 24a Y 24a 1992, of 7319 No. Case Y 8362, 22 Y 22 8362, A 1443 R 1442 agreements may bedecidedbyanarbitraltribunal. distribution agreements andarbitrationiswh disputes. Consequently,thefirstsetofissues cannot bereferredtoarbitrati autonomy isnotabsolute–certain contractual natureofarbitr disputes thatareto beresolved by thearbi parties tothearbitrationagreement, andge decide onthese antitrust issues laws. Related tothis, itmay bearguablewhether legal issues. arbitration as wellasthat of exclusive distribu agreement anarbitraltribunal. endupbefore commercial disputes, settlement. Sincearbitrationcanbeseenas important inseveralaspects,es 6.1 (Yugoslavia), Award of 1967 in Case No. 1455, 3Y Case in No. 1455, of 1967 Award (Yugoslavia), 1990 in Case No. 5946, 16 Y 16 5946, Case No. in 1990 ESOL EARBK RB MichaelF.Hoellering, See, e.g. ' N 11 (2000); Distributor (Japan) v. Manufacturer (Sweden), Interim Award in Case No. 7337 of 1996, 24a 24a of 1996, inCaseNo. 7337 Award Interim (Sweden), Manufacturer v. (Japan) Distributor (2000); 11 . As shown,exclusivedistributionagreements Identifying themainproblems

J. 12, 12 (1994). (1994). 12 12, J. . The relationship between exclusive dist

C EARBK OMM , Agent (Spain) v. Principal (Denmark), Final award in case no. 8817 of 1997, 25 Y of 1997, 8817 caseno. in award Final (Denmark), Principal v. (Spain) , Agent .

A .

C RB OMM 6 ' N

149 (1999); Distributor (UK) v. Manufacturer (US), Final Award of 1995 in Case No. CaseNo. in Final 1995 Award of (US), v.Manufacturer (UK) Distributor (1999); 149 . 1442 E

A Managing international commercial arbitration: the institution's role the institution's arbitration: commercial international Managing XCLUSIVE RB EARBK it is not rare that EARBK ' N 164 (1997); Manufacturer (France) v. Distributor (Ireland), Partial Award in ation andtheprincipleofpa .

C .

pecially consideringtherising C on. This isalsosometimes th OMM arising outofthe agreement. Ar OMM typesofdisputesthatarein D .

A .

ISTRIBUTION AND AND ISTRIBUTION A RB RB ' N ' N 97(1991); Claimant (Germany) v. Respondent EARBK 141 (1999); Seller (France) v. Buyer (US), Final Award of an exclusive distribution distribution exclusive disputes arisingoutofan 259 arising outoftherelatio the preferred method of resolving international the preferredmethod ofresolving nerally theyaretheonesdecidingabout 1443 tion agreements, thissituationopensupseveral tral tribunal. Thisis inaccordance withthe ether antitrust issues . Takingintoaccountthespecificnatureof

C an arbitral tribunal wo OMM ribution agreements may invoketheapplicationofantitrust .

A RB A ' N RBITRATION 215 (1978). rty autonomy.However,this significance ofarbitraldispute tertwined withpublicinterest e casewithantitrust-related bitration isacreature of the nship betweenexclusive arising outofthese uld haveauthorityto and arbitrationis

EARBK ,

49-JUN .

C OMM

D ISP . .

CEU eTD Collection examination isofdirectrelevance for ourdi aspects of theconnectionbetween antitrust i agreement. Inanswering thesequestions thean into accountantitrus reflects ontheissueofmandatory lawandtheexte can review thearbitrators’deci agreement. If theanswer isinthe positive, the Basedonthis,thepurposeofthischapter isthreefold. First,ita whether arbitratorscoulddecide law chosenbytheparties. consider applying even thelawapplicable toverticalterritorial restraints thatisoutside the law, arbitratorsdecidinga be seenasconstituting part of thislaw. Conse lawand question oftheapplicationmandatory Relatedtothis isthequestion of whetherin account antitrustlawsevenofthose more intrusive withregards toantitrust-related issues thanitis commonly. to theimportance thatsome jurisdictions afford extent courtscanreview thedecision of thearbi enforcement aswellthesettingasideofarbi decision. Thesupervisio dispute settlement, theyalsoreservesome rights Further,evenifarbitratorsdohaveauthor not endthere.Althoughmoststates t lawsevenofthos n iscommonly exercisedthrough dispute involvinganexclusiv sion withregards toitsantitrus on antitrustissuesarisingout haveapro-arbitrationattitude jurisdictions that e jurisdictionsnotse 260 quently, if antitrustrules are partof mandatory scussion aboutexclusive next problem istheextent towhichthecourts trators’. Aswillbe shown inthischapter, due alysis willinevitably deal withsome general tral awards.Therefore, with regards tothecontrol of thearbitrators’ totheirantitrust laws,thiscontrolmay be ity todecideonthes ssues and arbitration. Nevertheless, this the extenttowhichantitrustlegislation can nt towhicharbitrator certaincases arbitrat areoutsidethe lected bythe the procedureofrecognitionand e distributionagreement may t aspects.Finally,thechapter ofanexclusive distribution andencouragethistypeof e issues,thestorydoes lex causae s aresupposedtotake to agreaterorlesser ddresses theissueof parties tothearbitral ors should takeinto distribution, asthe . Thisisthe CEU eTD Collection 1448 1447 1446 1445 1444 ratione personae between subjective and objectivearbitrability. arbitrability). whether adisputefalls underthescopeof thearbitrationagreement (contractual are not(substantive arbitrability). hand, itisusedtodelineatebetweendisputesth example, intheUnitedStates of exclusivedistributionagreements claims cannotbedecidedbythearbitraltribunal. Inotherwords,antitrustissuesarisingout only partiestothearbitrationagreement. Co enforcement ofcompetition rules isinpublic also anareawherepotentially a bankruptcy, isoneoftheareaswherepublic public adjudicationbegins. 6.2.1.1 6.2.1 6.2 agreement. conclusions itreaches generally apply to theis ARBITRATION Arbitrability Carbonneau, 194. supraat 1444, note Thomas Carbonneau, T Id. Id. IBOR at 210. Arbitrability ofantitrustissues

The conceptof arbitrabilityestablishes thepoint atwhichpartyautonomy endsand The Europeanconceptisabitdifferent. Forexample, law distinguishes French There isnouniform aboutwhatth definition General considerations V The concept of arbitrability arbitrability of concept The ÁRADY , 2 –

A TRANSNATIONAL PERSPECTIVE PERSPECTIVE ATRANSNATIONAL T 1447 UL , .

J ) relatestodeficiencies in J. OHN

I NT Cartesian Logic and Frontier Politics: French and American Concepts of of Concepts American and French Politics: Frontier and Logic Cartesian J. ' L

B & ARCELO ARCELO

C OMP 1444

. Antitrust law,alongsecuritiesintellectual property,and theterm “arbitrability”has

L. III conflict betweenpublicandgenera

193, 194(1994).

1446 & may notalwaysbearbitrable.

A Inaddition,theterm isalsousedinordertodescribe RTHUR 233 contractual capacity ofthe parties,such aswhere

(2009). (2009). T. 261

V interest hasbeentraditionallystrong. ON nsequently, insome legalsystems antitrust 1448 sues arising outofanexclusive distribution at arereferabletoarb terest, whilethearbitrators’ decision binds M Subjectivearbitrabili EHREN e term “arbitrability” ,

I NTERNATIONAL COMMERCIAL COMMERCIAL NTERNATIONAL a broadermeaning. Ontheone l interestcouldoccur–the itration andthosethat exactly means. For ty (orarbitrability 1445 It is CEU eTD Collection (New YorkConvention orNYC). arbitrability. objective of settlement byarbitrationof under the law of that country.”) (emphasis added). AND ed., 1999). 1999). ed., 1456 1455 1454 1453 1452 1451 1450 1449 the arbitraltribunalisleft arbitrable. institutions alsoavoiddete “capable ofsettlement byarbitration”. arbitration.” York Convention are silent on theissue, regulating arbitrability Determining whetherantitrustdisputesca straightforward task.Themost important international instruments inthefield ofarbitration 6.2.1.2 delineate whether acertain arbitrability. arbitrability isrough dispute. ratione materiae)may prohibit arbitrationbyther one ofthepartiesisapublicentity. International Arbitration Rules of the American Rules ofthe Arbitration Arb International 36(1)(b)(i). 34(2)(b)(i), that finds issought enforcement and where recognition arb enforcementofan and (“Recognition them .concerning asubject matter any allor di arbitration tosubmit to parties undertake U.N.T.S.38 330 Awards of1958, Foreign Arbitral of and Enforcement Recognition the on Convention to This corresponds generally the American concept Carbonneau, 210 supraat 1444, note Bernard Hanotiau, See, e.g. See See Id. A

WARDS UNCITRAL Model Law on International Commercial International UNCITRALLawon Model NYC, Art.II(1) (“EachContr

1450 Arbitrability in international instruments instruments international in Arbitrability , International Chamber of Commerce Rules ofCommerce Rules of Chamber , International 1456 Despitethese differences, thedistin :

1454 1451 40 Asaresult,thedetermina

Y TheUNCITRALModelLawisalongthesa Inthis chapter theterm “arbitrability” isused initsordinary meaning –to EARS OF 1453 The Law Applicable to Arbitrability Law Applicable The mentions disputes“concerningas ly comparable totheonebetw A PPLICATION OF THE THE OF PPLICATION tonationallegalsystems. typeofdisputescan

rmining withmoreprecisionwhatkindsofdisputeare capable ofsettlement by arbitration acting Stateshallrecognize anagr itral award may . . . be refused if the competent authority in the country the country in may itral award if competent authority . the be refused 1449 tion aboutthetypesofdisput Conversely,objectivearbitr N 1455 EW itration Association of2009 Association itration fferences whichhave arisenor which may arisebetween 262 Thearbitration rulesof themain arbitral Y . . .[t]he subject matter of the difference is not matter isnot the subject of difference . .[t]he only ingeneral terms. Forexample, theNew of substantive arbitrability and the French concept of concept the French and arbitrability substantive of ORK ORK be settledbyarbitration. , in Arbitration of of 1998 Arbitration C I ction betweensubjectiveandobjective Arbitration of 1985 (as amended in 2006), Arts. Arts. 2006), in amended (as 1985 of Arbitration MPROVING THE THE MPROVING ONVENTION n bereferredtoar ubject matter capable of settlement by eason of thesubject matter ofthe een substantive and contractual een substantiveandcontractual eement in writing under which the which under writing in eement me line,alsorefe 146, 147 (Albert Jan van den Berg .”) (emphasisadded); E (ICC Rules), Art. (ICC Rules), 1; (AAA Rules), Art. 1. 1. Art. Rules), (AAA FFICIENCY OF FFICIENCY es thatcanbedecidedby ability (orarbitrability 1452 bitration isnota

rring todisputes A RBITRATION id., id., Art. V(2) capable CEU eTD Collection solution but totheonethat represents thelowest common denominator. participants the outcome isnecessarilyacompromise, whichoften leadsnot tothebest what itsqualitywouldbe.Eachtime whenne in thefirstplace. solutionweretobefound,itisquestionable Additionally,even ifauniform considered asover-reaching anddiscouragesome countriesfrom accedingtotheConvention be referred toarbitration. Anattemptto form understanding ofwhatconstitute 1460 1459 1458 I 1457 to specifythegroupwhichantitrustissues free dispositionofthepartiesandthosethatarenot. different approach.Therethedist settlement byarbitration”. The term “issuesreferable toarbitration” is with more precision than theNYCwhetherantitr instead mentioningissues“referabletoarbitration”. terms. Forexample, theU.S.FederalArbitrationAct generally providemore guidancethantheNYC, 6.2.1.3 is notin default inpro stay forthe the applicant terms the agreement, with the providing accordance of in had has been arbitration such arbitration which such suit ispending, upon being satisfied that anyissue States upon more specifically). arbitrability regulated NTERNATIONAL NTERNATIONAL V Federal Arbitrationof Act 1925, 9USC §§ 1-14(FAA). See But see ÁRADY FAA Section 3, 9 U.S.C. § 3 (“If any suit or proceeding be brought in any of the courts of the United the United of the courts in of any be brought proceeding suit or any 3, FAA § Section 3 9 (“If U.S.C.

The Europeanstatutesalsoregulate arbitrability ingeneral Another relevantsourceoflawarena The approachtakenbytheNYCseems sensible.Eachcountryhasitsown Arbitrability in national legislation legislation national in Arbitrability J. Patrick Ovington, Ovington, J.Patrick under such an agreement, shall on application of application shall on agreement, an such under ,

B ARCELO A RBITRATION referable to arbitration ceeding with such arbitration.”) (emphasis added). &

V ON ON , Vol. 2 No. 2 (1985), pp. 53-60, at 59 (arguing that the Convention should have have should the Convention that at59 (arguing 53-60, pp. , Vol. 2 No. 2 (1985), M Arbitration AConflict Law: Policies and Antitrust U.S. of Arbitration EHREN

s apublicinterest,andconsequentlyofwhichdisputescan , inction is usually made between

note 1445, at 233. 233. at 1445, supra note under an agreement in writing for such arbitration, the court in the court arbitration, such for in agreement writing an under theissue involved in su wouldbelong.Forexample, underFrenchlawa 263 equallyvagueas“subjectmatter capable of ulate a uniform rulein thisrespect may be gotiations involvesuch tional arbitrationst one of the parties stay the trial of the action until actionuntil the trialof partiesstaythe ofthe one theyalsoregulatearbitrabilityinbroad ust disputescanbese 1459 1460 1458 As can be seen, the FAA does not say Ascanbeseen,theFAAdoesnot However,thesesystems alsotendnot doesnot usetheterm “arbitrability”, ch suit or proceeding is claims thatare withinthe terms, buthaveaslightly atutes. Althoughthey 1457 alargenumberof ttled byarbitration.

, J OURNAL OF OURNAL referable to CEU eTD Collection I 1465 1464 1463 1462 1461 institutions, andnationalstatut arbitration agreement, andfor thisr agreement. Thisisin accordancewiththe pr that the arbitrators’ decision willbe bindi would clearlynothavejurisdictiontodecide law responsibility, suchaspenaltiesimposed bycompetition authorities,thearbitraltribunal infringement, suchastheissueofdamages. If anantitrustviolation law disputes. Thefirst one is that arbitrators between theparties.” explicitly providing that“arbitrators may ruleon disputes is Sweden.TheSwedis considerations. possibility ofprecludingarbi However, thisformulation shouldnotbere claims, since basically allclaims agreement”. that “[a]nyclaim involvinganeconomic intere law declaresasinarbitrable person canrefertoarbitrationallrightsofwhich Agreement under the Swedish 1999 Arbitration Act and the German 1998 Arbitration Act Arbitration 1998 the German Act and Arbitration 1999 Swedish the under Agreement NTERNATIONAL [Swedish] Arbitration of Act 1999, Sect. 1,para.(according 3 to: Klaus PeterBerger, Sect. 1030(1). 1998, Law of [German]Arbitration [Swiss]Private International LawActof1987,177. Art. [Italian] Code of Civil Procedure of 1990, Art. 806. 2059. 1804, Art. of CodeCivil [French] As canbeseen,bytakingintoaccountth An important exception totheseindeterminat German law,following theSwiss approach, 1464 , Vol. 17 No. 4 (2001), pp. 389-400). 389-400). pp. (2001), 4 No. 17 Vol. , Atfirstglance this approach might seem toencompass almostallconceivable 1465 TheActtherefore setstwo limitations disputesthatcannotbeth

es, itgenerallycannotbedeterm h Arbitration Actissomewhat more concrete on theissue, canbeconstruedasbeingre trability of certain claims basedon public interest eason theformulation seems appropriate. ng only between theparties tothearbitration 264 can decide only oncivil la on it.Secondly, theSwed ad toobroadly,since inciple that an awardbinds only partiestothe thecivil laweffects of competition lawsas it can dispose freely. st canbethesubjectofanarbitration 1463 e NYC,therulesofmain arbitral e subjectofacompromise. e clausesabout arbitr seems to go abitfurther,declaring toarbitrability of competition lated toaneconomic interest. ined whetherantitrustissues it doesnotexcludethe would also bear public would alsobearpublic ish actisunequivocal w aspectsofantitrust 1461 , A The Arbitration The Arbitration ability ofantitrust Similarly, Italian RBITRATION 1462

CEU eTD Collection not an easy oneand. . . the answer to itmay depend u arbitrability.”). arbitrability.”). lawon can find between isthe applicable arbitrators,which question the publicistsregarding courts and thatone denominator common there is that bethe disagreementonly seems to conclusion the (“Agreement on recognition andenforcement procedures. the dispute ordeclinejurisdic the dispute orsend the partiestoarbitration; proceedings canbedividedintothreestages: stage of arbitration proceeding at whichtheissue of arbitrability arises. Ingeneral, arbitral importantly, determination onthelaw applicable However, thisdoesnotmean thatgeneralprin 1467 1466 court shouldreferthepartiesto of anarbitrationagreement.A which lawthecourtistoapply arbitration or thetribunal will applies to the issue of arbitrability could be cruc Anantitrust disputemay bearbitrableac arbitrable accordingtothelaw 6.2.1.4 according to whicharbitrabilityisdetermined. needs tobeaddressed.However,beforethatitisalsouseful toreflecton theissue of thelaw reason, inorder tomake this determination the relevant U.S. andEUcase-law on the issue arising outofanexclusivedi transnational perspective transnational John J. Barceló III, See Karl-Heinz Bockstiegel, Karl-HeinzBockstiegel,

As for Stage 1,itisimportant to note th There isnosingleanswer to Law applicable to arbitrability arbitrability to applicable Law See also Who decides the arbitrators' jurisdiction? Separability and competence-competence in in competence-competence and Separability jurisdiction? the arbitrators' Who decides Hanotiau, Hanotiau, ,

36

V AND Public Policy and Arbitrability and Policy Public note 1449, at 153 (“[T]he issue of which law governs arbitrability is arbitrability lawgoverns supra ofwhich issue at 153 (“[T]he 1449, note .

refer thedisputeto acourt. ccording totheConvention,whenseizedofsuch anaction,the J. stribution agreement may beset of another.Forthisreasonthedetermination aboutwhichlaw tion; and3)courtreviewof

to arbitrabilitywhenseized of arbitration, unlessitfindsthat the agreementisnulland void, T RANSNAT thequestionaboutwhichlaw 1467 ' L L.

fore which itis raised.”). which fore be court or tribunal the pon 265

1115, 1118 (2003). (2003). 1118 1115, 2) determination byarbitr 1) litigationoverwhethe ciples onthematter cannotbediscerned.Most ial astowhether adis to arbitrabilitywouldseem todependonthe cording tothelawof at theNYCdoesnotre , in 3 ICCA 3 anaction despitetheexistence

C an awardinsettingasideor ONGRESS SERIES ONGRESS tled byarbitra to applyarbitrability. pute willberesolvedby r thecourtshouldhear onecountryandnot ators whether to hear ators whethertohear gulate the issue of of issue the gulate 177, 184 (1986) tion. Forthis 1466

CEU eTD Collection seat of the arbitration.”). arbitration.”). the seat of should adispute the of arbitrability a matter principle, of Distributorship Agreements in Belgium: Lex Fori (and Lex Contractus)?, J of the NYC as meaning that the court should apply lexco Interdica addressed tocourts,anddoesnot of thecountrywheretheirawardismost likel may runtheriskofseeingtheirawardbeingsetaside. Therefore, if theyassess arbitrabili according to the before them.Accordingtooneapproach,ar law according towhicharbitraltribunalsaresupposed assess 1471 P 1470 A 1469 1468 settlement byarbitrationunderthelaw[of an awardaside isif“the courtfinds that:the arbitrability, itdoes so impliedly.According to Although theModelLawdoesnotexpresslypr can beexpectedtoassess arbi accordance withthelaw governing thevalidityof thearbitration agreemen generally applythe the lawthat istobeapplied tothe validity inoperative orincapableofbeingperformed. [w]hether a dispute is capable of being referred to arbitration”). Clause RACTICE OF RBITRATION UNCITRAL Model Law, Art. 34(2)(b). Piero Bernardini, II(3). Art. NYC, See , 9ICCA A The situation withStage 2ismore complex. Thereare numerous solutionsas tothe In thelightofNYC,itseems thatarbi (October 15, 2004), where the court overturned a lo overturned court the where 15, 2004), (October LAN I , Vol. 22 No. 5 (2005), pp. 427-434, at 430 (discussing a Belgian Supreme Court case Court Supreme Belgian a (discussing at 430 427-434, pp. (2005), 5 No. 22 Vol. , NTERNATIONAL NTERNATIONAL R EDFERN

C ONGRESS SERIES SERIES ONGRESS lex arbitri. Arbitration Clauses:Achieving Effectiveness ,

lex fori.Andfollowingtheviewthatarb M ARTIN ARTIN C OMMERCIAL 1470 H 197, UNTER trability inaccordance withthe

Thisapproachseems tobein

200 bindarbitratorsdirectly.Ne , ty according to alawother thanthe lex arbitri

N

(1999). (1999). A IGEL RBITRATION B LACKABY LACKABY See also 266 1468 the countrywhereawardwasmade]”. subject-matter ofthedispute isnotcapableof of thearbitration agreement,thecourt will theModelLaw, oneofthegroundsfor setting not be decided by direct application of the law of the law the of of application bedecided by direct not ntractus to the validity of the arbitration agreement.). agreement.). arbitration the of validity tothe ntractus bitrators shouldalwaysresolvethisissue 81 (2004) (“[L]ex arbitri is likely to extend to … to extend islikely to arbitri (“[L]ex (2004) 81 Althoughthisprovision trators shouldalsotakeintoaccountthelaw y tobeenforced.True,ArticleV(2)(a)is HermanVerbist, wer court’s decision which interpreted Article II(3) interpreted wer court’s which decision & ovide whichlawshoul

But see But C ONSTANTINE ONSTANTINE in the Law Applicable to the Arbitration to the Arbitration the Law Applicable in Hanotiau, Hanotiau, accordance withtheModel Law. lex fori. OURNAL OF OURNAL itrability should vertheless, taki Arbitrability of Exclusive Exclusive of Arbitrability P ARTASIDES arbitrability ofdisputes supra 1469 I

NTERNATIONAL NTERNATIONAL note 1449, note t, courtsatStage1 is silentregarding ,

d beappliedto L ng intoaccount AW AND AND AW be assessedin , arbitrators at 157 (“As Colvi v. 1471

CEU eTD Collection I contract donothavetobethesame. This implies thatthelaw applicable tothearbitration agreement andthelawapplicableto C C 1476 1475 1474 1473 1472 contract shall betreated asan agreement i recognized. AccordingtotheModelLaw,“anarbitrationclausewhichforms partofa the arbitrationclause from ot regulated by thesame lawthatapplies tothecontract as awhole ( remarks canbemade. Mostnotably,thearbitra agreement. arbitrability inaccordance withthelawappli RegardingStage2,anotherapproach which lawtogiveprimacy. would haveadifferentapproach arbitrability wouldhave Additionally, anawardcanbeen arbitrators canknowinadvancewhichc provisions oftheConvention.Theproblem withth their generaldutytorenderanenforceableaward, agreement; (4) the proper law of thesubstantive contr ( tribunal arbitral (2) concluded; lawthe seatof the of the (1999) (identifying ninepossiblesolu 32.2. common andfundamental pr (9) an a-national ordenationalized ap enforced; (8) a combination of laws which may becontemplated under any one of the foregoing seven solutions; clause; (7) the lawofth anarbitration absent jurisdiction causae MPROVING THE THE MPROVING ONVENTION OMMERCIAL UNCITRAL Model Law, Art. 16(1). See See See See ); (5) the law of the parties, or of one of them; (6)the law of the country whose courts would have J Marc Blessing, V , e.g. ULIAN ARADY , ICC Rules, Art. 35; London Court of Internati Court of London 35; Art. ICC Rules, , 1473 217, 219 (Albert Jan van den Berg ed., 1999). A D.M. RBITRATION E , Althoughitisfarfrom clear

FFICIENCY OF B ARCELO ARCELO

L EW The Law Applicable to the Arbitration Clause ,

L & 107-08 (2003); Antonias Dimolitsa, (2003); Antonias 107-08 OUKAS inciples of law.). inciples of to beassessed inaccordance with al

V A ON RBITRATION AND AND RBITRATION M

A. her provisionsoftheagreemen proach, according to thewhich arbitrationclause tions: (1)thelaw of the place where EHREN

M to arbitrability,thearbitraltr ISTELIS forced inmore thanonec 1476 ,

supra note

&

A S ndependent oftheotherterms ofthecontract”. TEFAN TEFAN WARDS act in which the arbitration clause is embedded ( is embedded clause arbitration the act in which 267 whichlawwouldthatbe,

ountry theirawardisgoingtobeenforced. e country where the be arbitral awardismostto likely tion agreement doesnotn 1445, lex arbitri onal Arbitration Rules of 1998 (LCIA Rules), Art. (LCIA 1998 Rules of Arbitration onal M. :

cable to thevalidityofarbitration 40 suggests thatarbitratorsshouldassess

at 277-81. at 277-81. K

Y is approachthat RÖLL Separability andKompetenz-Kompetenz EARS OF 1472 ); law (3) the proper of arbitration the , 9 ICCA Congress series 168, 168-69 series168, 168-69 Congress , 9ICCA , arbitratorscannot disregard the

C l of thoselaws.Andif those laws OMPARATIVE ountry, whichwouldimplythat the arbitration agreement has been A ibunal wouldhavetochoose t seems tobenowcommonly PPLICATION OF THE THE OF PPLICATION lex causae I should be governedby NTERNATIONAL NTERNATIONAL ecessarily havetobe it isnotclearhow 1474 ). Separability of some general N EW Y lex ORK ( in 1475

CEU eTD Collection should alsogovernthevalidity contained in an arbitration clause in acontract 1481 1480 1479 1478 1477 system. Themost wellknowncaserepresentingthisviewwas to beleftfordecidingaprivatetribunaland shouldhence belimited to thestatejudicial arbitration. Therationalewasthatantitrustenforcement istooin constant. Initially,theAmerican courtsdidnotallow ShermanActclaims tobereferred to 6.2.2.1 6.2.2 aside court. arbitrability willbeasse Therefore, itseems accepted thatat widely same solution,bothregardingrefusingenforcement the awardwillapply the Finally,the situation withregardsto asse seems more straightforward.Accordingtothe should bedetermined inaccordance with compromis distributorship contract.Onthe agreement the arbitration agreement willgenerally the situation withexclusivedistribution agreem recognition and enforcement is being sought].”). settleme of matter capable isnot the subject of difference Art. 34 (2)(b)(i). (2)(b)(i). 34 Art. Art. 36(1)(b)(i). NYC, Art. V(2)(a) (“Recognition and enforcement of an arbitral award may also be refused if . .[t]he R Id. EDFERN at 130.

However, incertaincases thesetwolawscan coincide.Ifthearbitrationagreement is The American approach towardsthe arbitrab Arbitrability ofantitr The American Safety doctrine doctrine Safety American The , andthepartiesaresilent ontheissue,

H UNTER ,

B LACKABY LACKABY ssed inaccordance with the lex fori &

ust issuesintheU.S. P of thearbitrationclause. ARTASIDES other hand,ifthearbitrationagreement isintheformofa totheissueof arbitrability. lex arbitri. ,

supra 268 , thelawapplicableto nt by arbitration under the under law arbitration [the country by of nt where note NYC, thecourtdealing withenforcement of theenforcement andsettingasidephase ssing arbitrabilityat Stage 3(courtreview) ents, sincewithregards tothis typeof

1478 1470, at 129-30. the validityof thearbitration agreement be contained inanarbitral clause inthe 1480 ility of antitrust disputeshasnotbeen lex fori

1477 andsettingaside Itseems thiswouldgenerallybe oftheenforcement i.e. setting 1479 tertwined withpublicinterest American SafetyEquipment The Model Law offers the TheModelLawoffers the contractasawhole 1481 ofanaward. CEU eTD Collection arbitral clausetheycontaindoesnot agreements outofwhichantitr general interest suchas antitrust.Thiswasmainly justified byfour arguments. First, be decideduponbyarbitratorsis 1489 1488 1487 1486 1485 1484 1483 1482 international context.Securities regulations aresi Co. pro-arbitration tendencycontinue significant becauseitemphasizedthe importan Co. signs ofthistrendwastheSupreme Courtdecisionin interest. cannot beexpectedthatthey lack. antitrust lawsareverycomplex, andtheirapplication requires skillswhich arbitrators usually leaving themoutofthejudiciarymight actions for treble damages playan important Corp. v.J.P.Maguire&Co. unanimously followed by all circuits. international waters exclusively on our terms, governed by our laws, and resolved in by terms,governed our laws,and our resolved our courts.”). on waters exclusively international laws and in our courts”and consequently “[w]ecan notwithstanding solemn contracts, we insist on a parochial concept that all disputes must be resolved under our 417 U.S. 506 (1974). (1974). U.S.506 417 U.S.1(1972). 407 case,itseems have been to Court aSupreme this was not Although 1968). Cir. (2d F.2d 821 391 Id. Id Id. Id. Id. 1487 , 1489 1485 . at 14. at 828. at 827. at 828. Althoughthecasedidnotdirectlyconcernth However, overtime thecourts’ sentiment gr The doctrineexpresseddi whichallowedthe arbitrability of disputes 1486 Andfourth,arbitratorsusuallycome fromthebusinesscommunity andhenceit See also id. See also

at 9 (“The expansion of American business and industry will hardly be encouraged if, encouraged be industry will hardly and Americanof business expansion at9(“The

; 1482 wouldbefitenough ust disputesariseareusually usuallyreferredtoasthe“ strust inarbitration and itsfitness todeal withan issue of consequently,thestandpointth d withtheCourt’sdecisionin reflect the free willof theparties. weaken antitrust enforcement asawhole. not haveand trade commer 269 ce ofarbitration for role intheAmerican milar toantitrustlawsin thatbothserve not arising outofsecuriti adually startedtochange.Oneofthe e arbitrabilityofan to decideonissu M/S Bremenv.ZapataOff-Shore American Safety doctrine”. contracts ofadhesion,andthe ce in world markets and at antitrustdisputescannot international trade. Scherk v.Alberto-Culver antitrust system, and es regulationsinthe 1483 es ofgreatpublic titrust claims, itis Second,private 1484 1488 Third, The CEU eTD Collection 1490 reached theSupreme Court,themain question being“whetheranAmerican courtshould Invoking the practically allclaims toarbi distribution agreement wasinviolationofth Soler counterclaimed, allegingamongotherthi submitted arequestfor arbitration before th order tocompel arbitration inthe U.S.Dist However, Mitsubishiopposedthis,andconseque Rico, Solerattempted to transship surplusvehicles intoLatin America andcontinentalU.S. was notabletomeet theminimum salesrequir fulfilling thisobligation. Nevertheless, in1981 a minimum salesvolume Solerwassupposedto Soler wassupposedtodistribut summarized asfollows. form PuertoRicocalledSoler.Thefactsof concerned adisputebetweentheJapanesecar known caseof 6.2.2.2 Scherk announced apossible change inthearea of thearbitrability of antitrust disputes. only toprotect individual parties, but also thegeneral interest. For this reasonthe ruling in 473 U.S. 614 (1985). (1985). U.S.614 473

The newera with regards tothe arbitrability Since theagreement containedanarbitrati In 1979MitsubishiandSolerenteredintoa Mitsubishi Mitsubishi American Safety Mitsubishi Motors Corp.v.

tration, includingtheonesabout doctrine, theCourtof e Mitsubishicarsin 270 the casearesomewhat the complex, butcanbe e Japan CommercialArbitrationAssociation. the demand fornewcars slackened,and Soler e Sherman Act.TheDistrict Courtreferred ement. ofweakdemand inPuerto Asaresult Soler Chrysler-Plymouth, Inc. rict CourtinPuertoRico.Mitsubishialso ntly withheldashipment ofnewvehicles. manufacturer Mitsubish achieve; initially,Solerhadnoproblems in on clause,in1982Mitsubishifiledforan ngs thattheexclusivecharacterof distribution agreement accordingtowhich Appealsreversed.Thedisputeeventually Puerto Rico.Theagreement providedfor of antitrust disputes came withthewell alleged antitrustviolations. i andthecardealer 1490 Thecase CEU eTD Collection 1496 1495 1494 1493 1492 1491 of theSherman Act,theeffectiv arbitration is aninadequatemechan function. arbitrability of antitrust claims the Actwill tribunals willalsoapply theSherman Act, be soughtoutsideAmericancourts. that thetreble damage remedy isbeforeallaprivate remedy, for antitrustthatitcannot beleft toarbitrator of theclause. arbitral clause hasin any way that itshouldnotbepresumed thattheforum sel arbitrable becauseofpossibleunf by this decision theCourtrebutted thereasonsfor from aninternationaltransaction.” enforce anagreement toresolveantitrust clai cause of action in the arbitral forum, the statute will continue to serve both its remedial and deterrent function.”). function.”). itsremedial deterrent arbitral toserve and statuteforum,both the the willcontinue cause actionin of Book,v. 538 U.S. 401, 405 (2003). ar tribunals arbitral and hence courts, actually proved, is designed primarily asaremedy.”). injuryparties, injured the amultiplethe awards by of to and only measures available makes awards which wrongdoing, as we also have frequently observed . . It nevertheless is true that the treble-damages provision, laws....'Ofco antitrust damages to ‘[a]ny person who shall be injured in his business or property by reason of anything forbidden in the In alater decision, the Supreme Court confirmed that treble damages are not an exclusive prerogative of the American Safety Id. Id. Mitsubishi, Id. Id. Id. at 635-36 (“Section 4 [of the ClaytonAct] . . is at 632. at 624. at 636. at 636. The Courtseemingly answeredinthe positiv The Court’sreasoningseems arbitrabilityofdisputesarisingout sound.Byallowing The Courtthenturned totheargumentthat 1495 Consequently,theCourtfoundnoreasontoassume 473 U.S. at 637 (“[S]o long as the prospective litigant effectively may vindicate its statutory itsstatutory may 473 effectively U.S. at asthe vindicate long 637 (“[S]o litigant prospective 1492

urse, treble damages also play an important role in penalizing wrongdoers and deterring deterring and wrongdoers inpenalizing role important an also play damages urse, treble . First, the Courtrefuted the argument th

e not precludedfrom awardingthem. been tainted, the partyalleging this can challenge the validity eness ofantitrustenforcement doe airness inthedraftingofarbitr 1491 ism for resolvingantitrust disputes.

1494 NotingthatbyapplyingAmerican lawarbitral 271 s todecideon it.Inthisrespect itemphasized in essence a remedial provision. It provides treble theCourtconcludedthatbyallowing the ms byarbitrationwhenthatagreement arises preservebothitsre ection in favor of arbitration is unfair – if the ection infavorofarbitrationisunfair–ifthe inarbitrability of antitrust issuesput forward private enforcement isofsuchimportance e, withcertain qualifications. Inreaching at antitrust disput es shouldnotbe 1493 See implying thatassuchitcan PacifiCareHealth Systems, Inc. al clauses. TheCourtstated s notappeartosuffer.Even a priori 1496 medial anddeterrent

thatinternational CEU eTD Collection customers . . or suppliers.”). relationship, the standing requirementsmay be satisfied by parties outside the contract, such as competitors … (1986), pp. 178-190, at 182. at 182. 178-190, pp. (1986), an arbitraltribunalwouldinte concern doesnotseem bejustifiedforatleas to addition, arbitratorsaregenera properly handleantitrustmatters. holding thatcomplexity aloneisnotenoughfora are toocomplextobeleftforarbitrators decide.TheCourtrebu clear whyarbitratorswouldbemore reality. Inaddition,evenifar efficient. Althoughtheoretically 1500 1499 1498 1497 clear whyantitrustshould beconsidered tribunal could condemn abusiness practicethat isactuallynotanti-competitive. party, withregards toissues falling outsid e thescopeofar the infringer of theSherman Act. other damaged privatepartiesorgovernment agencies,tostart theirownproceedings against Therefore, nothingpreventsothersubjectsnot conduct, theawardisconclusiveonlybetween if itwouldbepresumed thatanarbitral tr injunctive relief or both. Where an antitrust violation has occu violation antitrust an Where both. relief or injunctive partiesto enforce, third ofinjured rights effect the on agreement has no arbitration laws. antitrust the atransnational to enforce .Moreover, proceedings initiate to arefreeatalltimes StatesGovernment United s ofthe authoritie enforcement antitrust (“The at 93-94) pp. 82-96, Plymouth, US Supreme Court, 2 July Court, 2July 1985 US Plymouth, Supreme

See Id. Mitsubishi, See at 633-34. at 633-34. Andreas F. Lowenfeld, AndreasF. as Brief Association theAmericanof Arbitration Connected tothisisthe thirdpremise of However, thedissentwasmore concernedabout 473 U.S.at 657 n.32 (Stevens,J.,dissenting). The Mitsubishi case: another view

bitrators condemnedanefficien lly experiencedlawyers, whocanbeexpectedtoknowenough ntionally condemnabusinesspr 1499 1497 possible, thisfeardoesnots , J pronetoerrorsthanjudges. Thisreasoningseems sound.On OURNAL OF OF OURNAL Additionally, thesame applie as more difficultthanother areas oflaw. ibunal might fail tosanction ananticompetitive the antitrust laws through actions for treble treble damages, for actions lawsthrough antitrust the 272 I amicus curiae amicus NTERNATIONAL NTERNATIONAL boundbythearbitration American Safety,namely thatantitrustissues t tworeasons. First,itis difficult toseewhy determination thatarbitraltribunalscannot the partiestoar rred oristhreatened in , A adifferentscenario RBITRATION RBITRATION (Note, A bitration agreement. RBITRATION t conductbymistake, itisnot eem tohavemuch basisin actice whichitconsidersas Mitsubishi v. Soler Chrysler- I s totheothercontracting NTERNATIONAL agenerallevel,itisnot the course of a contractual contractual a of course the tted thispresumption, , Vol. 2 No. 3 (1985), 3(1985), 2No. , Vol. bitration agreement. agreement, thatis – thatanarbitral , Vol. 2No. 3 , 1498 1500 This . In CEU eTD Collection antitrust issues. community. even if ina particular situa In thisrespect theCourtexpressedtrustinarbitrators thatthey willfo to theissueof arbitrab complete freedominthisrespect.Inaddition, disputes are arbitrable. However,itwillbe 1504 1503 1502 1501 international context. recognizing thatarbitratorsdoha automatically make themineligible todecide public interest. Thefact thatarbitrators of allowing arbitrators todecide opposite couldbeargued. any waylessknowledgeablethanjudgestodealwithantitru generally recruitedamong distingui about antitrustinordertosolveantitru Vol. 4 No. 3 (1987), pp. 7-24, at 8 (arguing that everything that that everything at8 (arguing pp. 7-24, 3(1987), 4No. Vol. arbitrators”). or will be unable unwilli a proceeding conducting body issues wasonly

But see Id. See See id. at 640.

Mitsubishi, Mitsubishi, Based onthis, the Courtfoundthearbitrati

The Supreme Courtalso

Hans Hans Smit, dictum 1503 473 U.S. at 634 (the Court declining “to indulge the presumption that the parties and arbitral ). Byallowingthearbitr Mitsubishi: It is Not What it ToBe Seems It isNot What Mitsubishi: 1504 ility inawidersense. Inotherwords, tion itwouldbeinconflict with

on antitrustdisputeswouldbeinsome dangerousforthe way ve authoritytodecideonanti rejected thefourth shed legalexperts,anditdoes notseem thattheyarein st issuesarising Mitsubishi ten come from thebusiness community doesnot ation togoforward, 273 onissuesintertwinedwithgeneralinterests. ng to retain competent, conscientious, and impartial and conscientious, to competent, retain ng shown thatthe Courtdid notgive arbitrators Mitsubishi on agreement enforceable withregardsto canbeseenasac Mitsubishi , J OURNAL OF American Safetyargument, i.e.that out ofthedispute. leftopenanumberofissuesrelated said about arbitrability of antitrust antitrust of arbitrability about said the interest of the business I st claims. anything,the If trust issues,atleastinthe NTERNATIONAL NTERNATIONAL Mitsubishi knowledging thatthese ster thepublicinterest 1501 canbeseenas Arbitrators are Arbitrators A RBITRATION 1502 ,

CEU eTD Collection Clearly, when there is no arbitration ag arbitration there isno Clearly, when the arbitrability of antitrust di arbitration. Following 1509 1508 1507 1506 1505 of theSherman Actarearbitrable, incl international context”.ThiscanbereadastheCourt’srecognitionthatalldisputesarisingout Sherman Actareappropriate forarbitration, Gilmer vInterstate/JohnsonLaneCorp. third parties arenotaffected. American Safetydoctrinewithregardstodomestic arbitration. disputes intheinternationalcontext,findingit if domestic antitrust disputes canbe referred to arbitrable outsidetheinternational context.Inotherwords,theCourtdidnotexplicitlydecide 6.2.2.3.1 6.2.2.3 division involving a firm which is not a party to the arbitration agreement are arbitration not). the afirm is ato not party which involving division vertical licensing agreement between th claims out a Cir. Breweries,of (antitrust (10th F.3d 1517-18 Co.1995) 1511, arising v.Molson Brewing 51 opportunities and hazards for a corporate counsel forcorporate a hazards and opportunities exist. willgenerally not for arbitrability conspiracies to regards with case ofdisputes in while cas disputes in antitrust of arbitrability afor may be basis there in general that Stabileemphasize Bakerand this respect claim. In antitrust an with F.Supp.2d 319 (2dCir. 2009). Cir. (2d 790962 WL 2009 Intern., BBI LLCv. Energy, and Empire State Ethanol Cir. 2006); (4th 518 F.Supp.2d 446 Inc., v. Inc. Avaya, Technologies, HCI 2006); (1st Cir. F.3d 25 446 ComcastCorp., v. Kristian 2001); Cir. F.3d 6 (1st 271 Corp., Motors DaimlerChrysler Ford Dealer Computer Services, Inc. v. Prestige Ford Cir.1991); (2d &Smith, 283 Inc., Pierce, Fenner F.Supp. MerrillLynch, 757 v. Hough 1988); Cir. F.2d 168 (7th Co., 854 Tribune Chicago v. Kowalski 1987); Cir. 972 (1st F.Supp. 671 TimeSeiko v. Corp., U.S.20 (1991). 500 itha bearbitrable, to dispute anantitrust for In order Id. E.g. Id. at 28. at 629. , GKG Caribe, Inc. v. Nokia-Mobira, Inc., 725 F.Supp. 109 (1st Cir. 1989); Gemco Latinoamerica, Inc.

However, thisdoesnotmean thatdomestic One oftheissuesthat Some limitations of Mitsubishi Mitsubishi of limitations Some Domestic v. international context Mitsubishi 1507 sputes tothe domestic context,

, 324 F.3d 391 (5th Cir. 2003); Seacoast Motors of Salisbury, Inc. v. Inc. Salisbury, of SeacoastMotors Cir.2003); 391 , (5th F.3d 324 Mitsub e there is privity between the partie the between isprivity e there ItisalsoconsideredthattheSupreme Courtdidthesame in reement between the parties, an arbitral an the parties, between reement I.Baker Donald & R. Mark Stabile, e parties are arbitrable, claimswhile e partiesarearbitrable, , several lowercourtshave implicitly orexplicitly extended ishi uding thoseinthedomestic context. leftuncleariswhetherantitrustissues canalsobe , 48 1508 with strangers or disputes between competitors the basis basis the competitors between disputes strangers or with 274

B TheretheCourtnotedthatclaims underthe 2009); Xerox Corp. v. Media Sciences, Inc., 609 Sciences,Inc., 609 Media Corp. v. Xerox 2009); US s to fall under the scope of the arbitration agreement. arbitration the scope of the s tofallunder unnecessary todecideonthelegitimacy ofthe arbitration. Rather,itlimited its decision to 1509 .

L AW leavingoutthequalification“in antitrust disputescannotbereferredto .

395, 398-400(1993). In thisrespect see Coors 1506 s (i.e. between commercial partners), partners), commercial s (i.e.between 1505 thatallegeahorizontal market Arbitration of antitrust claims: antitrust of Arbitration aslong as theinterests ofthe tribunal is not competent to deal deal competent to is not tribunal

CEU eTD Collection Issue 4 (1986), pp. 81-84, at 82. pp. 81-84, 4(1986), Issue 1515 1514 1513 1512 1511 1510 Kristian v. ComcastCorp. award oftrebledamages. AccordingtotheCourt arbitration agreement canmodify theremedies provided toitbytheSherman Act. noted thatbyagreeingtoarbi 6.2.2.3.3.1 6.2.2.3.3 fully below. important partofthedecision. that itisagainst public policy. Some commenta legislation. Otherwise,American courtsmay is substantially related to theU. are limited intheirchoiceofla hesitation incondemning theagreement asagainstpublicpolicy”. a party's righttopursuestatut the choice-of-forum andchoice-o main textbut in afootnoteofthedecision.In 6.2.2.3.2 within its ken a presumption against arbitration of statutory claims.”). 446 F.3d 25 (1st Cir. 2006). 2006). (1stCir. F.3d 25 446 Jacques Werner, See See See infra Mitsubishi,

Mitsubishi, Mitsubishi, id. One ofthemosti Although at 628. Waiver ofremedies Choice oflaw Part 6.4.1. Treble damages 1512 473 U.S. at 637 n.19. n.19. at 637 U.S. 473

473 U.S. at 625 (“[W]e find no warrant in the Arbitration Act for implying in every contract contract every in implying for Act inthe Arbitration no warrant find at (“[W]e 625 473 U.S. A Swiss Comment on Mitsubishi Mitsubishi mportant qualificationssetoutby heldthatstatutoryclaim , 1515

w –whateverlawtheychooseas trate astatutoryclaim apart S. the arbitral tribunal should 1511 ory remedies forantitrustviol theawardoftrebledamages cannotbewaived, and f-law clausesoperated intandem asaprospectivewaiver of Consequently,theissuedese 1514 Consequently,itisnotclear whetherparties toan , J 275 refuse enforcement of OURNAL OF the footnoteCourtnotedthat“inevent provided bytheAct.Onesuchremedy isthe tors havedescribedth of AppealsfortheFirst s canbereferredtoarbitration, s I NTERNATIONAL NTERNATIONAL Mitsubishi y doesnotrelinquishtherights always apply American antitrust ations, wewouldhavelittle lex causae rves to be a 1510 the awardongrounds A Inotherwords,parties iscontainednotinthe e footnote as the most e footnoteasthemost RBITRATION Circuit’s decisionin , whenthedispute ddressed more , Volume 3 1513 italso CEU eTD Collection enforce arbitralawardsawardingsuchdamages. certain countries see punitive damagesasagainst theirpublic policy, hencerefusing to discussed above,thesituationbecomes evenmo damages. What ismore, trebledamages canbeseen as atype of punitive damages. As American peculiarityandotherlegalsystem outside the UnitedStates. Thisisdue tothefact that theinstitute of treble damages is an 1523 1522 1521 1520 1519 1518 1517 1516 award oftrebledamages. prohibition inanarbitralagreement against in aparticularcase. damages may ormay notencompass trebledama issue tothearbitraltribunalinte decision theCourtdidnotgiveastraightforw Supreme Court addressedthisissuein the award of punitive damages alsoencompasses theaward of treble damages. award oftrebledamages. unenforceable. consequently anarbitrationclauseprohi special indirect, incidental (2003). U.S.401 538 See supra See See supra PacifiCare See supra See Id. at 48. Investment Partners, L.P. v. Glamour Shots Licensing, Inc., 298 F.3d 314, 317 (5th Cir. 2002). id. The issueof trebledamages isalsorelate In

at 44 (“In no event shall we or our employees or shallweor employees or our at event 44 (“In no Comcast Parts 5.1.2.1, 5.2.2.3.4.3. Part 5.1.2.1. Part 5.1.2.1. , 538 U.S. at 407. at 407. U.S. , 538 1516

thearbitral agreement 1521 or consequentialdamages.”). Accordingto atleast one 1522 1517

Arelatedquestioniswhetheran

rpreting thearbitrationagreement. PacifiCare HealthSystems,Inc.v.Book. awarding punitivedamages doesnotextendtothe provided anexplicitwaiv 276 biting theawardof ard answer,leavingtheassessment aboutthis 1523 s generallydonotrecognizethistypeof s ges, dependingonthearbitrators’judgment agents have liability for punitive, treble, exemplary, treble, for punitive, liability agents have lower courtdecisionbefore re complexifwetakeintoaccountthat

d totheenforcement arbitral clausethatprecludes 1520 er withregards tothe Therefore, punitive treble damages is of arbitral awards of arbitral PacifiCare 1519 1518 Inthis The , the CEU eTD Collection reasonable arbitration fees filing arbitration reasonable arising outof thelitigation. that costs followtheevent,meaning thattheprev respect itshouldbenotedthat litigation isanimperative oneandhencebe Based onthisdecision,itwouldse 1528 1527 1526 1525 1524 issue came upintheCourtofAppeals 6.2.2.3.3.3 international arbitrationthanthegenera litigation. according towhicheachpartybearsitsown costs, regardlessof litigation costs directly conflicts withth Appeals foundthiswaiverunenforceable,holdi agreement canwaivethisprovisionornot. Due totheinvolvement ofthepublicinterest,it the ruleregardingattorney’s antitrust infringers,aimed atmaking antitrust enforcement moreeffective. antitrust plaintiff canrecover litigation costs 6.2.2.3.3.2 YOUR EXPERT WITNESSES OR ATTORNEYS.” FOR ALL COSTS THAT YOU INCUR IN THE ARBITRATION, INCLUDING, BUT NOT LIMITED TO, th contained inquestion agreement arbitration The See id. at708. See Id. See supra at 50. Price & Stans, Price& A related issue iswhether parties can waiveth This issue arose in Antitrust litigationcanbeverycomplex and 1528 Part 5.1.2.1. Equitable reliefs Litigation costs Consequently, theSherman Actrule on costs is morein linewiththe trend in supra note 1226, at 706. at706. 1226, note the alreadymentioned Comcast and arbitrator's costs and expenses and costs arbitrator's and 1527

Thisisunlikethegeneral American rule on costallocation, with regards to international arbitration therule isgenerally fees isatleastpartlyaimed em thattheprovisionregarding l rule inAmerican civilprocedure is. e Sherman Actprovisionprovidingsuchcosts. for theSeventhCircuitdecisionin Comcast, 277 e following provision: “The Company will pay for all for pay will Company “The provision: e following yond thereachofpartie is anincentive for privatepartiestogoafter is notclearwhetherpartiestoanarbitration ailing partyisentitledto ng thattheprohibition ontherecoveryof 446 F.3d at 50. 50. at F.3d 446 e right toseekan injunctive relief. This expensive. Therulethat asuccessful except that YOU that except ARE RESPONSIBLE case. at protectingthepublicinterest. 1525 TheFirstCircuitCourtof attorney’s feesinantitrust s’ autonomy. Inthis the outcome ofthe recoverallitscosts 1524 Consequently, Kowalski v. 1526

CEU eTD Collection arbitration agreement explicitly limited remedies tomonetary relief. (Judge Posner)foundthattheap court requestinganinjunctivere monetary reliefwillbetheex 1531 1530 1529 decision. Attacks came from si several does notmean thateveryoneinthearbitralco briefs inthecasearguingthatpa commentators. Although theAmerican ArbitralAssociation andtheICCsubmitted amicus 6.2.2.4 implies animperative norm thatcannot on injunctive relief usetheterm “shall”. conflict with Chicago TribuneCo. the future. the Supreme Courtmay beexpectedtoaddressthe issueofwaivingremedies atsome pointin the solution inthelaw.Therefore, inorderto the otherway,findingthatwi Distributor”.). that makes arbitration the parties' “exclusive remedy toresolve agreements in the this how withthe provision understand jibes wecannot but termination, anunjust of event the form ofremedy. They argue now that they neve termination but they evidently decided that monetary relief would be adequate and expressly waived any other Cir. 1988). (7th F.2d 168 854 Compare Id. at 170. (“The plaintiffs could have negotiated for some form ofequitable relief in the event of

At thetime whenitwasrendered, Based onthisitcouldbec The impact of Mitsubishi Mitsubishi of impact The Clayton Section Act 4,15 U.S.C. §15 Comcast 1529 . Boththeprovisionontrebledamages andattorneysfeestheone Therethearbitral agreementprovi

clusive remedy. Despitethis,one des, withsome usingquitestrongwords tocondemn the rties shouldbeableto lief withregards to ll of theparties to anarb plicant wasnotentitledto oncluded thattheoutcome in r surrendered their right to seek equitable relief be changedbytheparties’agreement, 1531 Mitsubishi with However, whileComcast However, 278 mmunity wassatisfiedwiththeCourt’sruling. resolve this conflict between different circuits, Clayton Act Section 16, 15 U.S.C. § 26. 26. § U.S.C. 15 16, Section Act Clayton the allegedantitrustviolation.The Court any receivedalot ofattention among legal referantitrustdisput dispute concerning the termination of a itration agreement cansubrogate ded thatinthe caseofadispute of thepartiesturnedto equitable relief,sincethe 1530 Kowalski seems tobe in ruledthatthis wording

es toarbitration,it Kowalski from a from court went in in CEU eTD Collection International Arbitration and Antitrust Claims Antitrust and Arbitration International LisaSopata, fundamental domestic policy.” presence of international business concerns in the arbitration do not outweigh the importance of this Volume 2Issue 2 (1986), pp. 116-139, at 135. Some other commentators followed this line, noting that “[t]he national’ lawlessness”. He wentontomake aboldforecast-that arbitrability if suchfundamenta properly take intoaccount publicpolicy considera 1537 1536 1535 1534 1533 1532 antitrust claims arisingfrom international obligations. arbitrability of antitrustdisput to thefundamental interestofnations. recognizes thatarbitrationisnot declare antitrustdisputes arbitrable.Thear Anotherline of criticism wasthat the Courtin since internationalcomity andtheNYC didnot in tandem, Idoubtthattheusersofintern Mitsubishi non-U.S. lawasgoverningthedispute.” proceedings held outside the UnitedStates export U.S.substantivelawswheretheyhadno criticism atfootnote19ofthe Corp. v.Soler Chrysler Plymouth, Inc. through resolution dispute international to closer placing countermands restraints necessary JillA. Pietrowski, Werner, supra Thomas E.Carbonneau, See Id. See

Carbonneau, Mitsubishi, Mitsubishi, For example, ProfessorCarbonneauarguedthattheCourtin isthis dilution of parties’ freedom andextension of U.S.substantive laws operated 1537 Followingthislineofargument, anot note 1511, at 1511, 83. note 473 U.S. at 665. at 665. U.S. 473 supra note 1532, at 136 (“The court's failure to acknowledge logical, sensible, and Enforcing international commercial arbitr commercial international Enforcing 1533 Mitsubishi: the Folly of Quixotic Internationalism Quixotic the Folly of Mitsubishi: Ontheotherhand,JacquesWern the basic consensus of the New York Arbitration Convention and moves

decision. Hecalledit“amagnificent exampleofanattempt to es, thiswouldnothaveinany l issues as antitrust matters can besubmitted to arbitration. , 36 capableofdealing

A Mitsubishi Motors Corp. v. Corp. Sole Motors Mitsubishi M . , 7

U.

NW. 1536 ational arbitrationcanaffordtopayit.”

L. Mitsubishi

R Consequently,hadtheU.S.insistedonnon- 279

under an arbitrationagreement providingfora gument wasthatArticleVof theNYCitself J. EV

contracts werefoundtobearbitrable,the I arbitration ina ‘a-national’realm lawlessness.”). arbitration of . NT make itinanywaynecessaryfortheCourtto

1534 57, 89 (1986). 89 (1986). 57, place up tonow:ininte tions, asking whetherthere areanylimits to 'L

with certaindisputes Heconcludedthat L. willbringarbitrationintoastateof“’a-

ation agreements - post-Mitsubishi Motors Motors - post-Mitsubishi agreements ation & Mitsubishi her commentatornotedthat“[i]fall

B US .

595, 616(1986). r Chrysler-Plymouth, Inc.: er addressedthebulkofhis way violateditsinternational , A unnecessarilywenttoofar, RBITRATION RBITRATION whichareconnected rnational arbitration Mitsubishi “[i]f the price for price the “[i]f I NTERNATIONAL 1535

didnot 1532 ,

CEU eTD Collection (1986). (1986). 1545 1544 1543 1542 1541 448, 472-73 (1987). 1540 1539 1538 parties awayfrom arbitration. able toadopt arandomizing strategy, theywillal rules. engage inarandomizing strategyofsometimes respectingandsometimes ignoringantirust and sometimes reviewingarbitralawards.This Sherman application,thentheycanadopt Act arandomizing strategyofsometimes enforcing arbitrators might startignoringtheAct. efficiency thanabouttheSherman Act,they created amodel analyzingtheinteractionbe dealing withantitrustissuesis Eric Posner. commercial disputes.” of enforcement oftheirarbitrationagreements.” open thedoortoincreasedinternationaltradew Nevertheless, therehave alsobeen a ruling. meaning.” Convention's language,‘norcapable ofsettleme 39

V Eric A.Posner, Lauri Newton, LisaM. Ferri, Sopata, Id. Id. Id. See, e.g. Mitsubishi A . 1544 at 654. at 653-54. at 653.

J. 1539 The model envisagesthree possible equilibrium

I NT Andthird,ifthecourtsdocareaboutapplicationof antitrustrulesbutarenot note 1532, at 611. 611. at 1532, supra note Somehaveaddedoptimistic notes,predictingthatthe , Lowenfeld, 1538 ' L 1542 L.

“willstrengthenandencouragetheus

647 (1999). (1999). 647 Note on Mitsubishi Motors Corp. Chrysler-Plymout, v. Motors Inc. Soler Mitsubishi on Note Accordingtohim, Arbitration and antitrust: a leg up for international arbitration international for leg up a and antitrust: Arbitration Arbitration and the harmonization of international commercial law: a defense Mitsubishi of adefense law: commercial international of the harmonization and Arbitration supra 1541 Perhapsthemostinteresting justification of note 1500. 1500. note 1545

probably thebestpartofdeci

Mitsubishi 1543 tween thecourtsand 280 1540 Second,ifthecourts ’s vagueness about the court reviewofawards willalways enforceawards, and as aresult number ofcommentatorswhodefendedthe Ithasalsobeen forecastedthattheoutcome waytheywouldinducearbitratorstoalso ways reviewarbitralawards,therebydriving ith American parties due nt byarbitration,’wouldhavelittleorno s. First,if thecourtscare more about e ofarbitrationininternational sion. Inordertoshow this,he arbitral tribunals. Mitsubishi , 25 careenoughaboutthe , 17 Mitsubishi

W

S ASHBURN ETON tothecertaintyof decision“will H ALL ALL comes from L.J. L.

536, 551

R EV .

, CEU eTD Collection antitrust issues. no caseswhereapartywouldbeforeAmerican c according to EricPosner,theresult before writingavagueopinion. Of course,thisdoesnothavetomean that Act Mitsubishi 1549 1548 1547 1546 licensing agreement, EcoSwiss license beforethelicensing period expired.In accordancewiththearbitralclause inthe market watchesunderthename “BenettonbyBu entered alicensing agreement according towh interpreted thisECJdecisionindifferentways. many waysvagueandambiguous.Asaresult,the arbitration. Further,thecasewhereth would directly deal withtheissue of whethe matters seems tobemorevague than in the U.S.First, at EUlevelthere isno ruling which 6.2.3 International-Arbitral Awards International-Arbitral Busse Hochseefischerei Nordstern& AG Co. KG Hochseefischerei GmbH v Reederei an of arbitrability recognized ECJimplicitly the co litigation trial. avoid To novo de they respect mandatory rules, thelosing party knowsthat Case C-126/97 CaseC-126/97 See Id. Id. 1548 at 667.

id. , justifying thetrustinarbitratio Eric Posner arguesthat thesecond equilibrium isthesuperior oneand opinesthat The factsof In the EU,thesituation regarding thearbi Arbitrability ofEUcompetition law at 668 (“If arbitrators fear the de possibility of ’s ambiguity abouttheleve 1547 Eco Swiss China Time Ltd v Benetton International NV Thismeans thatarbitrators werein Eco Swiss , N EW sts, the to sue.”). party declines

Mond HochseefischereiNordstern AG Y ORK canbesummarizedasfollows.BenettonandEcoSwiss invoked arbitrationintheNeth However, itseems thattheoutcome iswhatmatters. And L is thatinfourteen yearsfollowing AW e ECJ came closesttothepoint- e ECJcame l ofreviewactuallyprovi n expressedbytheSupreme Court. titrust disputes even earlier, in Case 102/81 Case102/81 earlier, in even disputes titrust J [1982] ECR 1095. Edward Kling, Edward Kling, ECR 1095. [1982] OURNAL the Justicesmade ala 281 r competition lawdisputescan bereferred to it cannot win in a U.S. court, even ifthewin in a U.S.court, courtit cannot grantsa novo review, they might mandatory theynovo respect review, might If rules. ich Benetton granted Eco Swissthe rightto , Vol. 238, No. 26 (2007). ourts tryto setaside an award dealingwith national courtsofEUMember Stateshave lova”. However,Benettonterminated the trability of antitrust (or competitionlaw) generalproperlyapplyingtheSherman [1999] ECR I-3055. Some argue that that Some argue ECRI-3055. [1999] & Co. KG and Reederei Friedrich & Friedrich Reederei KGand Co. erlands. Thearbitraltribunal ded suchanequilibrium. w andeconomics analysis Court Review of Antitrust Antitrust Court Review of Mitsubishi Eco Swiss Nordsee Deutsche therewere 1549 -isin 1546

CEU eTD Collection 1554 1553 1552 1551 1550 accepted bothbythecommentators issues, then suchissues aredeemed tobearbitrable. Thisisthepositionthatseems tobe and shouldapplysuchrules. C award hastobeincompliance with EUcompetiti arbitration awards that arenot in However, itseems donesoimpliedly,by tohave Therefore, matter of publicpolicy withinthe meaningof the NYC. the ECJ,asking law isnotpartofDutchpublicpolicy.Thecour policy. The caseeventually reached theDutchSupreme Court,which foundthat competition was notinaccordance withEUcompetitionlaw Dutch court, arguing thatthelicensing agreem not addresssuchissues damages to EcoSwiss. found thatBenettondid infactbreach the lice issue is whether they come within the scope of the arb the scope of the come is within they issue whether isno rea There and [102] claims: [101] TFEU. Article 101(1) if annulled be should an award that noted Court The See, e.g. See, e.g. Id. Eco Swiss , para. 49. to observenationalrulesofpublicpolicy. procedure requireittograntanappl fact contrarytoArticle[101]ofth award must grantthat application if itc a nationalcourttowhichapplication ismade forannulment ofanarbitration The ECJfoundthattheyare,stating During arbitrationthepartiesdidnotraisea , [England] ET Plus SA v Welters , L , para. 39. Eco Swissdoesnotexpresslyprovidethatan ANDOLT inter aliawhetherEU competition rulesarepa Id. note 1316, at xiii (“no one doubts th doubts one (“no at xiii 1316, , supra note , para.37. ex officio

onsequently, ifarbitral tribuna listic doubt that such ‘competition’ or ‘antitrust’ claims are arbitrable; the the claims arearbitrable; ‘antitrust’ or ‘competition’ such that listic doubt compliance withEUcompetition law. 1553 . Nevertheless,Benettoncha [2005] EWHC 2115 (Comm) of 7 November 2005 (“The Arts. (“The 2005 7November of (Comm) EWHC 2115 , [2005] andcourts. ication forannulment foundedonfailure itration clause, as a matter of its true construction.”). construction.”). itstrue asa itration clause, matter of 282 e Treaty,whereitsdomestic rulesof it does not comply with the prohibition laid down in laiddownin the prohibition complywith it not does ent basedonwhichthedamages wereawarded onsiders thattheawardinquestionis t then made an Article 267 TFEU reference to t thenmade Article267TFEUreference an nsing agreement, and consequentlyawarded 1551 holdingthatthereviewingcourtwillannul on rules, itmeans thatarbitral tribunals can Article 101TFEUshouldberegardedasa 1554 ny antitrustclaims, andthearbitratorsdid and wasthereforein violationofpublic

1550 at [EU] competition law is arbitrable”). lawisarbitrable”). at [EU] competition Thecourtwentontosaythat: ls candecideoncompetition law titrust disputesarearbitrable. rt ofpublicpolicyatEU level. llenged theawardbeforea 1552 If an arbitral CEU eTD Collection agreement. distribution agreement evenwherethereis enforcement oftheserules. TheCommissionmaylaunch proceedings against an exclusive apply EUcompetition rules, this doesnotlessen the Commission’s powers in the the factthatbasedon 1558 1557 1556 1555 forward, thenationalcourts oftheUnitedStateswillhave theopportunityat award- decision might notbefinal.Accordingto 6.3.1.1 6.3.1 6.3 corresponding discussionaboutthele competition lawexofficio. Theseissues will competition law.Also,animportant issue iswh that nationalcourtsaresupposed of theproblem thatarestillfarfromunconteste Even ifitisbeyonddoubtthatEUcompetition lawisarbitrable,therearemany otheraspects award setaside byanationalcourt. into accounttheCommission’s decisions. Although theCommission isnotboundbyarbitralawards,tribunalsdohavetotake already rendered itsdecision. international arbitration proceedings arbitration international approach inthe light at161. 153-162, 25(3), Epameinondas Stylopoulos, RenatoNazzini, Ibid See With regardsto thearbitrability ofEUco Court reviewofawardsdealingwithantitrustissues Carl Nisser & Gordon Blanke, .

Even if anarbitral tribunal can decide onissues arising out of theSherman Act,its U.S. Mitsubishi second look look second Mitsubishi 1555 Whatismore, theCommission coulddoso International Arbitration and Public Enforcement of Competition Law Competition of Enforcement Public and Arbitration International of recent developments Eco arguablyeventheduty)to Swiss arbitratorshavethepower(and Powers and duties of arbitrators in the application of competition law: EC law: an competition of the in application of arbitrators duties Powers and

, E.C.L.R. 2006, 27(4), 174-183, at 178. 174-183, , E.C.L.R. 27(4), 2006, 1556

Reflections on the role of the European Commission as amicus curiae in toapplywithregardsth However,thisdoesnot 1558 , E.C.L.R. 2009, 30(3), 118-124, at 123. at 123. 118-124, 30(3), E.C.L.R. 2009, , vel ofcourtreviewintheU.S.

Mitsubishi 1557 283 Otherwisetheyrunadangerofhavingtheir a pendingarbitralproceeding regarding the mpetition law,itshould benotedthatdespite d. Thismainly refers tothelevel of review ether arbitrators have thedutytoapply EU be affordeddueattention, rightaftera , “[h]aving permitted the arbitration togo even if the arbitral tribunal has e arbitralawardsinvolvingEU apply theotherwayaround. , E.C.L.R. 2004, CEU eTD Collection 1562 1561 1560 1559 parties cannot reargue before thecourt antitr the Seventh Circuitin the wayinwhichitaddressed them. inquiry onlywhetherthe “actually decided”antitrustclaims Second, thewordingthatcourtexamining an but onlyifoneoftheparties seems thatthetribunaldoesnot toimply wording thatthetribunaln antitrust issues. review should beratherlimited. Therefore,anar which thereviewissupposedtobeperforme actually decidedthem.” intrusive inquirytoascertainthatthetribun substantive reviewattheaward-enforcement on Mitsubishi with antitrustclaims isoftenreferredtoasthe“secondlookdoctrine”.However,basedonly during theenforcement procedure.Consequently, laws hasbeenaddressed.” enforcement stagetoensure that the legitimate Cir. 2003). (7th F.3d 829 315 Id. Id Mitsubishi, . at 831. The breadth ofthe First, thearbitraltribunal According to 473 U.S.at 638. itisnotclearhowfarreaching thisreviewshould be. Mitsubishi Baxter Intern.,Inc.v.AbbottLaboratories 1560 arbitral tribunaladdre 1559 Mitsubishi AlthoughtheCourtdidnotspecif eeds toacknowle Inotherwords,thecourtsmay asecondlookattheaward have

puts forwardaclaim thatantitru , “[w]hiletheefficacyof needsto“[take]cognizanceof canbereadassaying that secondlookwasrevisited have thedutytoaddressantirustissues ust issuesdecidedbythearbitraltribunal. 284 al tookcognizanceoftheantitrustclaims and dge antitrust d, from thequotedword stage remain minimal, remain stage ssed theclaims raisedbythepartiesandnot bitral tribunal hastwodutieswithregards to interest inthe enforcement of theantitrust award needstoinquire the courtreviewofar claims the courtwilllimit itselftothe arbitral process requires that y inmore detailthewayin by theCourtofAppealsfor st lawshavebeenviolated. rather thanantirust theantitrustclaims”. The . 1561 itwouldnotrequire ing itseems thatthe bitral awards dealing Thiscaseheldthat whether thetribunal ex officio 1562 issues The ,

CEU eTD Collection 1566 1565 1564 1563 the courtswouldsubmit arbitral that arbitralproceedings aresupposedtobefast one ofthemain advantagesofarbitrationcompar limited, outset, thegroundsforrefusingenforcem the courttodecideonantitrust government agenciesorprivatepartiesnotboundth between theparties makes thedecision, itcannotberearguedbefo decision ofanarbitralcourtisconclusive,i.e. between [the]parties laws .donotdiminish [aparty’s] contractualrights-a words that“[a]ll thatmatters today isthatth the courtswouldbeonesdecidingonantitrustclaims. issues from beingreferredto already beendecidedbyanarbitraltribunal, words, ifpartieswereallowe would justbeanotherwayofsayingthat courts would throwtheresultin wastebasket court notedthat“Mitsubishi This of course applies only with regards to th regards with only applies This of course See Id. Id. at 833 (emphasis added). at 832. NYC, Art. 5. 5. Art. NYC, Baxter The last sentence of 1565 and American courts cannot refuseenforcement onotherbasis. ’s interpretation of the Mitsubishi second look seems to be correct. Atthe ’s interpretationoftheMitsubishisecondlookseems tobecorrect. tothearbitrationagreement. Th .” 1564 Thiscan bereadascontaining Baxter didnotcontemplate that,oncear arbitration inthe first place.

d toreargueantitrustissues issues, ashasbeennotedabove. awards tomore extensivescrutinythantheoneenvisagedin deservesadditiona e awards that fall under theauspices ofthe NYC. antitrustmatters arenot arbitrable.” 285 e arbitratorshaveconclu final. Inotherwords,oncethearbitraltribunal then thelawcouldaswell prohibitantitrust ent of an award envisaged by the NYC are ofanawardenvisagedbytheNYCare ent er, withingeneralnopossibilityforappeal.If re acourt.Second, thisfinalityapplies and litigate theantitrust issues anew. That ed tolitigation before thestate judiciary is e arbitrationagreement,canstillreferto l attention.The deci The outcome wouldbethesame – erefore, othersubjects,suchas erefore, before acourtalthoughtheyhad twoimportantmessages. First,a nd thatdecisionis bitration wasover,thefederal ded thatthe antitrust sion endswiththe 1566 In addition, addition, In 1563 conclusive Inother only CEU eTD Collection 1569 1568 1567 possible ifarbitratorsactedinmanifest disregardofthe law. although courtscannotreviewthewayarbitrator courts, tojudicialreview of thelawbyarbitrators incontrast toma precisely, itcomes fromthe dictain This doctrine originates from potential avenueforsuchareview couldbeth which thecourtscanexercisesupervisionover 6.3.1.2 Sherman Act. Mitsubishi enforcement oftheaward.Consequently,insu prevailed in arbitration will of thelosingparty.Ifpartydoesnot turn to acourt fortheenforcement ofanaward to some practical reasons arising outof thecase review arbitralawardsdealingwithantitrus advantages ofarbitral Baxter Arbitration Practitioners beConcerned? Practitioners Arbitration International Should or Domestic to Arbitrations U.S. Awards to Confined of theArbitral Finality Challenge (1953). U.S.427 346 & Mackay, Nigel Stephan Wilske Id. at 436-37. at 436-37. , theymight beactingasa

It ispossiblethatthe Finally, itshouldbenotedthattheAmerican Manifest disregard of the law law the of disregard Manifest and Baxter disputesettlement. willnotbe possible, even ifthe for errorininterpretation.” courtpracticeanddoesnothaveanybasisintheFAA.

second looklaiddownby not haveareasontoturnanAmerican courttoseek The Myth of the ‘ManifestThe Mythof Disregard , ASA Bulletin, Vol. 24 No. 2 (2006), pp. 216-228, at 217. at217. pp. 216-228, 2(2006), , Bulletin, No. Vol. ASA 24 de facto de Wilko v.Swan t issues.The“secondlook”couldbemissing due appeal instance, thereby eliminating oneofthe 286 nifest disregardarenotsubject,inthefederal ch asituationthesecondlookenvisionedby awards dealingwithan in orderto be compensated against theassets athand.Ingeneral,the prevailing party will e doctrineofmanifest disregardofthelaw. have anyassetsintheU.S.,partythat 1568 s interpretedthelaw, courts willnotalwayshavethechanceto according towhich“theinterpretations 1569 award concerns the application ofthe Thiscouldberead Mitsubishi of the Law’ Doctrine:thisof the Is isnottheonlywayin titrust issues.Another suchareviewis as saying that that saying as 1567 More CEU eTD Collection arbitral award.”). does not rise tothelevel ofa violation of public polic meant bythe manifest disregar because theconceptitself isvague. 1574 1573 1572 1571 1570 arbitral awardsrenderedintheU.S. sought. Atleastonecourthasfoundthatthisisnotpossible. grounds thattheawardisagains disregard ofthelawcanbeinvokedunderArti manifest ofthelawisnotonethem. disregard V oftheConventionlistsgroundsforrefusing disregard doctrinedoesnotappl principles aboutthedoctrine. involving manifestdisregardof actually referringtoa attempt at nonstatutory supplementation.”). supplementation.”). atnonstatutory attempt exhaustively stated inthe statute. Now that is Wilko histor in law. the confusion isenough confusing. There and statutory formula thatitmost nearly theentir with itisinconsistent door, arbitration (we suspect none-that it is just words). If it is meant to smuggle review for clear error in by the back Wilko. We can understand neither the need for the form the arbitration for of that mistrust which precisely formula the reflectsWilko awards, arbitral for aside tobeground a setting (“Created exnihilo nonstatutory (2003). Local 1100, 256 F.3d 89 (2d Cir. 2001). 2001). Cir. (2d 89 F.3d 256 1100, Local America of Workers Communications Companyv. Telephone York New 1998); Cir. (2d 197 F.3d 148 Inc., confirmation ofan arbitralaward”). ‘manifes arbitrator's that an position te the in either Cir. 2011) support (“there issimply no International Trading and Indus. In theNYC); Vof light of Article in invoked be law cannot the of disregard (manifest 2004) Cir. (2d 1423 LEXIS &Mackay, Wilske C.Bennett, Steven See See, e.g. See, e.g. M &C Corp. v. Erwin Behr GmbH & Co., KG, 87 F.3d 844, 851 n.2 (6th Cir. 1996) (“Whatever may be See also The exactreachofthe doctrineisnoteasy However, thedoctrinehasbeensuccessfu , Montes v. Shearson Lehman Bros., Inc., 128 F.3d Inc., 128 LehmanBros., Shearson , Montesv. , Shanghai Foodstuffs Import & Export Corp. v. International Chemical, Inc., 2004 U.S. Dist. Baravati v. Josephthal, Lyon & Ross, Inc., Cir. J., 1994) 28 7th (Posner, F.3d 704, 706 The developingAmerican supra new groundforcourtreviewofaw note 1567, at 221. at221. 1567, note d doctrine applicable indomesticarbitratio applicable d doctrine v. Co. v. DynCorp Aerospace TechnolCo. v.DynCorpAerospace v. 1571

resembles-whether the arbitrators “e e modern law of arbitration. If it is intended to be synonymous with the t disregard of the law’ is a valid basis upon which the Court can can deny theCourt which law’basis upon ofthe is avalid t disregard the lawarefewanditishence y to theenforcement ofawar Inanycase,itisimportant to emphasize thatthemanifest t publicpolicyof 1570 1574 Itisfarfrom clearwhether theCourt in ThisisbecausetheNYCdoesnotapplytosuch approach to arbitrability Court in its two Shearson/American opinions criticized in criticized Court itstwoShearson/American opinions The grounds for setting aside arbitration awards are awards arbitration aside for setting The grounds y thatisnecessary to deny xt of the New York Convention or case law for DynCorp's DynCorp's or case law for theYork Convention of New xt 287 ula northe rolethat itplaysin judicial review of y, there is no reason to continue to echo its gratuitous its toecho gratuitous tocontinue isno reason y, there 1572 cle V(2)(b)oftheConvention,thatison the enforcement ofarbitralawards,andthe lly invokedregardingthesettingasideof the countrywhereenforcement isbeing 1456 (11th Cir. 1997); Halligan v. Piper Jaffray, Piper v. Halligan 1997); Cir. (11th 1456 Arelated issueiswhetherthe manifest todetermine. Ontheone hand,itis 1573 xceeded theirpowers” ogy, 2011 WL192517 ogy, n cases,itisclear thatsuch a doctrine ds coveredbytheNYC.Article , 58-APR ards ornot.Inaddition,cases difficult todisc

confirmation of aforeign

D ISP .

R ESOL ern anygeneral -it issuperfluous , at12 (D.C. .

J.

Wilko 8, 13 was CEU eTD Collection 1580 1579 1578 1577 1576 1575 reasoning mightcome underclosecourtscrutiny sitting intheU.S.shouldpayadditionalattent from infer might awards dealingwithantitrust issues canpoten on themerits, itcertainlyapproachesit. was engagedinexclusionaryconduct. that thecompanyinquestionhadm antitrust claims. thecourtwasan Forexample, which isofsignificanceforourdiscussion. examined bytheFifthCircuitCourtofAppeal law. Thedistrict court refused tosetasideth arguing thatinreachingitsdeci party thatlostinarbitrationchallengedtheawardbeforeafede U.S. Among otherissues,theawarddealtwith claims arisingoutofthe Sherman Act.The Resources Inc, domestic arbitral awards dealing withantitrust issues. arbitrable, awards. Sinceantitrustdisputesinthedom proceedings, sinceits applicati ( 2004) Cir. 1 (5th Fed.Appx. 93 than Rather domestic. aside. than setting Rather Id. Id. Gilmer at 9. at 7-8. In reaching itsdecision, theCourtof Appealswentverymuch intothe substanceof In thisrespect, consider , 500 U.S. 20. 1577 themanifest disregardof thelawmayused as be atool forthecourtreview of 1578

Mitsubishi a case that involved thesetting aside and Baxter

Texas Gas on islimited to theenforcement sion thearbitral tribunal actedinmanifest disregardofthe American Cent.EasternTexasGasCo.v.UnionPacific onopoly powerintherelevantmarket 1580 ). ). . From thisitwouldfollow Althoughthismight notamount toreexamination Texas Gasshowsthatthecourtreviewofarbitral 288 e award, andfollowinganappeal the awardwas ion whenapplyingtheSherman Act,sincetheir s. TheCourtofAppealsaffirmed, inamanner tially bemuch more extensive thanwhatone alyzing whetherthearbi estic contextarenowalsoconsidered as byAmerican courtsapplyingthemanifest of anarbitralaw ral districtcourtinTexas, 1575 offoreign that arbitraltribunals trator correctlyfound ard renderedinthe 1579 andwhetherit 1576 arbitral CEU eTD Collection where the arbitrator's conclusions of law are erroneous.” (ii) or evidence, substantial by supported are of not facts findings the arbitrator's where (i) any award: correct to confirm thatthe doctrine exists inthefirst place. casts furthershadowonthemanifest disregarddoc 1586 1585 1584 1583 1582 1581 decide antitrust claims. abandon itatsome pointinthefuture.Conse manifest disregarddoctrinedoesnotseem to remaining silentonwhethercourtscoulddoso. limited itselftoholdingthatparties cannotexpand thestatutorygrounds forsetting aside, agreement. one ofthegroundsforsettingasideanaward), courts canexpandthescopeof also considered the manifest disregardofthela arbitration award,apartfrom thoseprovidedbytheFAA. parties toanarbitration agreement canc importance of disregard ofthelawdoctrine.However,twor Gas an independent ground for review.”). review.”). for ground independent an S.Ct.1758 (2010). 130 The arbitrationagreement (2008). U.S.576 552 See See Id. seems beanexceptionwhenitcomes to to at 1403. at 1403.

id. id. The Court’sdecisionin First, inHallStreetAssociates,L.L.C.v.Mattel,Inc. at 1768 n.3 (“We do not decide whether ‘man at 1403-04. at 1403-04. 1583 However,theCourtrejectedsuch acontention. Texas Gas. in questioncontained a provision which r

award review(byaddingthemani Stolt-Nielsen S.A.v.Animal ontractually add groundsforsettingasidean 289 ecent Supreme Courtdeci quently, thetypeof ifest disregard’ surviv ifest disregard’ Hall Street be bright,andtheCourtmay evenexplicitly w. Inessence, HallStreetwas arguing thatif examining thewayinwhicharbitraltribunals trine. Inthiscasethe Courtevendeclined then socanthepartie 1586 , 552 U.S. at 1400-01. , 552 U.S. at 1400-01. 1582 Basedonthis,thefutureof ead: “The Court shall vacate,modify or Indecidingthisissue,theCourt 1581 Feeds InternationalCorp. themainissue waswhether 1584 es our decision in [ in es ourdecision fest disregard ofthelawas review exercisedby Indoingso,theCourt sions seem tolimit the s toanarbitration Hall Street Hall Texas ] as 1585

CEU eTD Collection arbitration award, which may be more maybe award,which arbitration by agreement, the ordinary courts may haveto examine those questions, in particular during review of the However, in thenext paragraph theCourtwent to givearbitralawardsasecondlook. make withEUcompetitionlaw, surecompliance parties’ claims inthatdirection. thereby making surethat EUcompetition lawis imposed onarbitrators thedutytodealwithco make itwasrenderedincomplian surethat in tworespects. First, itenvisagedthat thecourts arbitrators will diligently apply dealing withEUcompetition law.Ontheoppos arbitrability of antitrust issues,itdoes notmean dealing with antitrustissues isalsovery important for theEU.Evenif 1589 1588 1587 refusal torecognizeanawardshouldbe depending onthecircumstances.” second lookshouldbe.Accordingto 6.3.2.1 6.3.2 EU form ofaction or review available under the relevant national legislation.”) other any upon or award an enforce to leave for aside, setting for appeal, an of event the in out carry to obliged antitrust laws has been addressed.”). addressed.”). laws has been antitrust opportunity at the award-enforcement stageto ensure that thelegitima the States will have United the courts of thenational togo forward, arbitration the permitted (“Having

Id., Id., Eco Swiss, Compare para. 35.

Using language similar totheonein The issueof thelevelof scrutinythatthe Eco Swiss second look look second Swiss Eco

Eco Swiss, para. 32. para.(“[W]here 32 questionsCommunity of la

or less extensive depending on th EU antitrust legislation. TheCourtcan beseen as doing this 1588 Eco Swiss,thereviewshouldbe“m Inaddition,theECJnotedthat“annulment ofor 1587 Same asintheU.S., theissue is howbroadthe possible onlyinexceptionalcircumstances.” ce withEUlaw.Andsecond,theECJarguably Mitsubishi 290 mpetition law issuesevenof theirownmotion, ontostress theimportance of EUcompetition that theECJgavearbitrators ablankcheck in sues willbeproperlyaddressed even absent thenational courtswillhave anopportunity willbeable toreviewtheawardinorder ite, theCourtwantedtomake surethat courts are toaffordarbitralawards , Eco Swissenvisagedthat,inorderto te interest in the enforcement of the the of enforcement in te interest w are raised in an arbitration resorted to resorted arbitration an w areraisedin e circumstances andwhichthey are with

Mitsubishi, Mitsubishi, Eco Swissdoesallow ore orlessextensive 473 U.S.at 638 1589

CEU eTD Collection L 1591 1590 only onclaims raisedbytheparties.Otherwise, easy toreconcilewithth can goinscrutinizing the award.Onthe aside suchanaward,inaccordance withthe arbitral award.Ifarbitrators doha great importance forthearbitralproceeding asa not clearwhetherarbitratorshaveth parties themselves didnot raise ECJ leftopeniswhetherarbitratorshavethe 6.3.2.2 its ownmotion isaddressed. have interpreted legal systems for clarification. review ofarbitralawards inthelight of antitrust issues are exactly oneofthoseexceptio stressing the importance of competition lawthecourtimpliedthat awards dealingwith limited inscopeandperformedexceptionalcircumstances.Ontheotherhand,by only seems somewhat ambiguous. Onthe onehand, essential fortheaccomplishment ofth rules, statingthat“Article , as Amici Curiae the inStatus of Their Proceedings Arbitral Authorities and Decisions AW RenatoNazzini, Id. R , para. 36. EVIEW EVIEW

With regardstothecourtreviewinlightof Based onthis,theCourt’ssta The Arbitrators’ duty to apply EU competition law ex officio officio ex law competition EU apply to duty Arbitrators’ S ex officio PECIAL PECIAL Eco Swiss A Principled Approach to Arbitration of Competition Law Disputes: Competition Competition Disputes: Law Competition of to Arbitration Approach Principled A E DITION DITION problem revolvesaroundthequestionofhowfarreviewing courts e contractualnatureof -

, the issue of thearbitrator’s duty toapplyEU competition lawof [101] oftheTreatyc A RBITRATING RBITRATING

1591 such issues duringarbitral pro ve thisduty and fail tofulfill Before analyzing the wayin e dutytoapplyEUcompetitionlaw ndpoint onthescopeofcourtre e tasksentrusted totheCommunity.” C Eco Swiss OMPETITION OMPETITION one hand,thearbitrator’sdutytoact Eco Swiss 291 nal circumstances. Therefore, thestandard of arbitration. Ingeneral, duty toaddressantitrustissuesevenifthe theywouldrunadangeroftheiraward(or onstitutes afundamental isnotclear andtheissue isleft tonational the ECJfoundthatreviewshouldbe whole, as itcouldaffectthe futureofan L AW Eco Swiss,oneofthequestionsthat second look. I SSUES SSUES 89, it, thenationalcourtscouldset ceedings. Inother words, itis

which Member Statescourts 103

(Gordon Blanke ed., 2008). view of arbitral awards view ofarbitralawards arbitrators candecide in ex officio provisionwhichis E 1590 UROPEAN ex officio

. This isof B USINESS USINESS isnot CEU eTD Collection conferred upon him”). him”). upon conferred th “[w]here refused maybe (the recognition/enforcement law, including anticompetitive and antitrust laws.”). antitrust and law, including anticompetitive arisingapplicable seems issues any under encompass formulation to me to This arbitration’. by resolved finally includ this arising contract, to of dispute out relating or problem ofsuch matters falling outside of the arbitrators' matter the arepresent in lawthat beforethem ofcompetitive . questions the about . concerned I am too not agreement isvoidunderArticle101(2)TFEU. tribunal wouldhavepowertoaddressissuesre distribution agreement apartyraisedclaim re claims I 1597 1596 1595 A 1594 I 1593 I 1592 Bementioned that duty.However,itsexistencecouldbe as it may, enforceable award duty couldbejustifiedbysome generalarbitr address issues related to the parties’ claims. not havethepowertoraiseclai authorization bythepartiesisneeded inthatrespect. arbitrator sufficient jurisdicti as France. part of the award) being setaside. This is th courts' scrutiny.”). scrutiny.”). courts' th quality of the andimpairs of the parties expectations the to applicable objectively rules mandatory transnational Issues Legal Corresponding and Ground, Common Conflicts, Conceptual - 1/2003 conform to the terms ofhis reference.”). French the award in international an tochallenge possible NTERNATIONAL NTERNATIONAL NTERNATIONAL NTERNATIONAL NTITRUST NTITRUST Derains, Yves See See, e.g. See See See Sotiris I. Dempegiotis, I.Dempegiotis, Sotiris Robert B. von Mehren, Redfern, Alan

id Related tothis,itisimportant toemphasi ex officio . L , ICC Rules, Art. Art. 35; LCIA Rules, 32.2. 1592 AW , Vol. 19 No. 4 (2003), pp. 465-469, at 468-69 ([A]rbitrators should . . raise sua sponte should ([A]rbitrators at468-69 pp. 465-469, No. 4 (2003), , Vol. 19 Ontheotherhand,itcanbearguedthat 283, 290 (Claus-Dieter Ehlermann & Isabela Atanasiu eds., 2003). A A Panel discussionon arbitration courts RBITRATION RBITRATION asopposedtodeci 1596 The Jurisdiction of an International Commercial Arbitrator of an International Jurisdiction The andtomeet thelegitimate expectationsoftheparties. , Vol. 3 No. 1 (1986), pp. 19-34, at 26 (“[O]ne of the few grounds on which itis on which few grounds the of at26 (“[O]ne 19-34, pp. , Vol. 3 No. 1 (1986), , Vol. 25 No. 3 (2008), pp. 365-395, at 384 (“The disregard by arbitrators of of arbitrators by disregard (“The 384 at 365-395, pp. (2008), 3 No. 25 Vol. , EC Competition Law and International Arbitration in the Light of EC Regulation EC of Regulation inthe Light Arbitration International Law and EC Competition The Eco-Swiss Case and International Arbitration International and Case Eco-Swiss The Eco Swiss

on todecidean ms notraised by theparties, buttheydo havethepower to See also ding antitrust issues is not specificon whether [French] Code of Civil Procedure (as amended), Art. 1502(3) e case even in pro-enforcement jurisdictions such 1594 292 eir award, thereby rendering it susceptible to national tonational itsusceptible rendering thereby eir award, ing the breach, termination or validity thereof, shall be be shall or thereof, validity termination the ing breach, 1595 jurisdiction. A typical arbitration clause reads: clausereads: ‘Any arbitration A typical jurisdiction. e arbitrator ruled without without ruled arbitrator e titrust issues , Forexample, ifwithregards toan exclusive in courts is where . [t]he ar dispute in hand falls definitely outside the legitimate ze thedistinction betw lated tosuchaclaim, suchaswhetherthe inferred from thepartof thedecision which E lated tocontractperformance, thearbitral Inaddition,theexistenceof ators’ obligations,su FFECTIVE FFECTIVE 1593

a typicalarbitratio inthesame manner.Arbitratorsdo P RIVATE ex officio arbitrators havetheabove E , A , J , J complying with the mission mission the with complying NFORCEMENT OF OF NFORCEMENT OURNAL OF OURNAL OF OURNAL OF RBITRATION RBITRATION bitrator'sdecision does not andthatno special een deciding antitrust een decidingantitrust ch asto renderan n clausegivesthe 1597

EC ex officio

CEU eTD Collection & Co.KGand Reederei Friedrich Busse well. national courts,andforthisreasonitcouldbearguedthatasaresulttheirdutiesdiffer arbitrators. ThisisbecauseEUlawdoesnotaffo motion isambiguous,thisevenmoresoif the impact of

same rightsasjudges,theyalso 1601 1600 1599 1598 Swiss, have theright tomake anArticle 267 TFEUreference totheECJ. found thatarbitraltribunalsarenot duty ofthenationalcourtsto analysis. Oneoftherelevantcases is of the violates publicpolicy. competition law.Consequently,national courts could setaside such award onthebasisthatit of itsownmotion,theawardmight beconsid if parties fail toraise competition law claims andthearbitral tribunal does notaddress them that basis,andthearbitraltribunaldidnotaddress thoseissuesonits parties were inviolation ofcompetition rules arbitral awardcouldbeinnonconformity withEUcompetition lawisif national court canset it aside as proclaims that anarbitral awardhastobein Case102/81 Id. See supra Eco Swiss , para. 13. Nordsee could be interpreted inthe following ex officio Especially relevant in thisrespect isECJjudgment in Since Part 5.2.1.3. , para. 37. Eco Swissalonedoesnottellusmuch aboutthescope(andevenexistence) Van Schijndel Nordsee Deutsche Hochseefischereiv R GmbH duty,takingintoaccountsome other ECJcasesmight behelpfulforour on the duty of national courts to raise antitrust issues of their own address EUcompetition lawissuesoftheirownmotion.

donothavethesame obligat contrarytoth Hochseefischerei Nordstern & AG Co.KG ECR1095. [1982] Van Schijndel 293 e publicpolicy. compliance withEUcompetition law,orelsea for thepurposesofEUlaw,andhencedonot the decisionweretobebyanalogyapplied the but neither of thepartiesraised anyclaims on rd arbitrators thesame rightsitaffords tothe ered asnotbeingin eederei Mond Hochseefischerei Nordstern AG , discussedaboveinthecontextof way. Sincearbitrator ions. Forthis 1598 Nordsee. Oneofthewaysinwhichan own motion. Therefore, 1601 accordancewithEU thedealingsbetween 1600 Inthelightof reason, evenif s donothavethe TheretheCourt 1599 Van Van Eco If CEU eTD Collection Gyorfi and Case C-40/08, Asturcom Telecomunicaciones SL v Maria Cristiba Rodriguez Nogueira R 1605 1604 1603 1602 consequently thequestion thattheSpanish court referred tothe ECJwasasfollows: contractual term. However,MsClarodidnot aside theaward,arguingthat tribunal foundinfavor subscription period,and Movilinitiated arbitral proceedings againstMsClaro.The arbitral operator Movil; the contract motion. cases shedmorelight on thearbitrator’s duty in thearbitral proceedings. enforcing courttoaddressconsum involved arbitraldisputesbetweentelecom operatorsandcu protection directive: worth consideringisthetriadofECJcasesabout thisdutyinthelightofconsumer such adutydoesnotapplytoarbitrators. that even if However, onecouldturnthesituationaroundandapply duty toaddress competition lawissues exofficio own motion, thisappliestoj Schijndel EV Fora discussion aboutthese cases, see Jules Stuyck, Case C-40/08 CaseC-243/08 CaseC-168/05 .

2010, 47(3), pp. 879-898. require thecourthearinganactionfor May theprotectionofconsumers under[a In tribun Regarding thedutyofarbitral holdsthatcourtsdonothavethedutyto Mostaza Claro,Msconcludedamobile tele Peterbroeck Asturcom Telecomunicaciones SL vCristina Rodríguez Nogueira Pannon GSM Zrt.v Erzsébet Sustikné Gy Elisa María Mostaza Claro vCentro Móvil Milenium SL Mostaza Claro, of Movil.Subsequently,MsClarom holdsthatjudgesshouldrootoutinfringements ontheirownmotion, 1605 udges only.Consequently,thefact

Takentogetherwith contained an arbitration clause. Adispute aroseabout the of the parties raised them er protectionissuesevenifnoneofthepartiesraisedthem arbitration agreement isvoid 1602

als toaddress EU competitionlaw Pannon 294 to address EUcompetition lawissues of itsown Case C-243/08, Pannon GSM Zrt v Erzsebet Sustikne annulment ofanarbitrationawardto doesnotmean thatarbitratorsdonothaveit. raise suchaclaim arbitration,and before ő consumer protec rfi root outinfringements ofEUlawtheir 1603 Van Schijndel [2009] ECR I-4713. ECRI-4713. [2009] andAsturcom Nordsee oved beforeaSpanishcourttoset phone contractwiththetelecom stomers andthepowerof [2006] ECR I-10421. ECR I-10421. [2006] thatjudgesdo to Peterbroeck since itrepresentsanunfair andEcoSwiss,these three tion directive]… [2009] ECR I-9579. I-9579. ECR [2009] . 1604 Allthree cases ex officio , in thesense not havethe , C.M.L. , also

CEU eTD Collection competition lawrules. Community legalsystem,making apara 1610 1609 1608 1607 1606 where ithas availableto itthelegal andfactua limited toamere powertoruleon thepossi protection legislation,theCourt possibility thattheiraward couldbe imply thatarbitrators dohavethedutytoapplyEUcompetition law rights conferredbysuchlegislation protection andcompetition lawareoffundame later, inthesettingasideprocedure.Thisisbecauseitwouldseem bothconsumer that an objection duringarbitration that a contract course ofthe arbitrationproceedings, butonlyinthatoftheactionforannulment. contained anunfairterm,eventhoughtheconsum the nationalcourtdealingwithactionhas policy. some fundamental Communityrules,itcanbe The ECJansweredaffirmatively,

Id. Id. Id. Id. Mostaza Claro , paras. 38-39. 38-39. , paras. , para. 37. , para. 35. , para. 39. 1608 was notraised bytheconsumer inthearbitrationproceedings? consumer's detriment, when it finds that that arbitration agreement containsan unfair term tothe determine whether thearbitr Applied toourdiscussion, Pannon seemtohavegoneabitfurtherthan First, the Courtreferred to Inaddition,theCourtemphasized theim , para. 20. 1609 Consequently,

1607 in thiscasefoundthattherole Eco Swiss Mostaza Clarocouldmean thatevenifpartiesdonotraise that issueisraisedintheactionforannulment but ation agreement isvoidandtoannultheawardif twiceciting Eco Swissinordertosupportitsfinding. set asideasbeingagainstpublicpolicy. cannot bewaived. Thisreadingof Mostaza Claroheldthat, inactions for settingaside, llel withtheimportance that inthe sense thatif an 295 is against EUcompetition law,theycan doso l elements necessary forthattask,thenational ble unfairnessofacontractualterm. Rather, set asidebynationalcour to assesswhether thearbitrationagreement ntal importance to theEU,andhence er hadnotpleadedthat Mostaza Claro portance ofconsumer protectionfor the ofthenationalcourtisnot award failstocomply with . Inlightof EUconsumer ex officio 1606 Mostaza Claro

ts asagainstpublic Eco Swissgaveto invalidityinthe , orelsefacethe 1610

would CEU eTD Collection mitigating 1616 1615 1614 1613 1612 1611 Van Schijndel officio proposition thatnationalcourtsdohave the Based onthis,itwouldnowseem domestic law. motion mustnotbelessfavorablethanthe under domestic lawtheconditions underwhich thecourtsmayown applyEUlawoftheir Asturcom remedy aninfringement ofa of procedureconferring finalityonadecision, proposition that“Communitylawdoesnotrequ Van Schijndel related to EU competition law, court not only hasthepower to examine EUcompetition law issueswhen facedwithanissue competition lawcouldbe made, then court alsohas theobligation toexamine thatissueof itsownmotion. Stuyck, Van Schijndel Id. Asturcom See Pannon , para. 49

, unlessthiswouldbeinviolationofdomesticprocedural rules. However,theeffectof Asturcom consider ofitsownmotion whethersuch award] where,underthedomestic legal consumer protectionissuesexofficiowhenseizedofenforcement ofan The nationalcourtortribunalis. . underanobligation[toassess rules ofpublicpolicy. Finally, byrecognizingtheresjudicata first mentioned itinthecontext of the principle of equivalence, inthe sense that , para. 32. supra Pannon. , para.37. 1615 onthecorrespondingdutybyarbitrator . With regards to , para. 38. note 1605, at 890. 890. at 1605, note , para. 54. TheCourtaddedthat: 1613

Asturcom 1616

but alsohasthedutytodoso. provision ofCommunitylaw.”

isalsointeresting becauseitreferstoboth Eco Swiss withmore certainty that Pannon wouldstandfor theproposition that anational , the Courtnotedthat this case stands for the 296 duty toaddress EUcompetition lawissues conditions pertainingtosuchapplicationof ire anationalcourttodisapplydomestic rules system, ithasadiscretionwhetherto even iftodosowouldmake itpossibleto principle, a clause isinconflict withnational s isstillnotcompletelyclear. 1612 Van Schijndel

Asturcom 1614 Asfor 1611 does stand for the doesstandforthe Ifaparallelwith could beseenas Van Schijndel and Eco Swissand ex , CEU eTD Collection should do so or risk the annulment of their award on grounds of a violation of public policy.”); L No. 7181, 21 Y 21 7181, No. the issue exofficio.”);R mi policy public international to pertaining and arbitrability themselves made no reference to it, this decisionmade isgenerathemselves it,this reference no to Art.ifthe ex parties apply officio a [101] to have duty on arbitrators whether rule explicitly ECJ did not question in its in Eco Swiss judgment.”); W question European CourtofJusticecase law doe Competition Law by Resorting toArbitration? Resorting Law by Competition absence of the parties' agreement andin ex into may arbitrator take the the EU, then territory of Vol.17 No. 2(2000), pp.at94,“It– 9193. ( could be EC Antitrust Arbitrations.”) (Emphasis added.). (Emphasis Arbitrations.”) Antitrust EC inOrdinary curiae asamicus involvement theCommission's of this the raises the of desirability question awards, arbitrator's Benetton International NV - Courts' Involvement in Arbitration NVInvolvement - Courts' International Benetton the matter in them.”); I. are Georgios Zekos, before that present law competitive at 468, 469 (“ Article includes which policy, public community question waspartoftheDutchSupr S 1619 A A 1618 1617 competition law legal theory issplitbetween thosewhoargue ambiguity, commentatorshaveinterpreted the ArbitralTribunal own initiative investigate whether the comes Agreement whether investigate initiative own competition lawmattersin theircompetition motion,suggestion of the own strong to raise EC aduty are under arbitrators not saythat theECJ does although the result, (“In at230 1316, note Community Law and Arbitration – National Versus Community Public Policy Public Community Versus National – Arbitration Lawand Community law Dempegiotis, interest in application of those provisions relied in order to substantiate claim.”). his tosubstantiate in order relied ofthose provisions in application interest dispute defined by the parties and relying on facts and circumstances other than those on which the party with an questions would oblige them to abandon the passive role assigned to them, going beyond the ambit ofthe of those ifconsideration law with competition Community agreement that of compatibility aboutthe questions arbitrators, whenthey have inEcoGeneral Saggio Swiss the competition infringements out of root to actively court anational upon is there no obligation that established International Arbitration Proceedings – The Text The – Proceedings Arbitration International Blanke, Gordon issues placed before him, EClawshould be applied as jurisdiction adversarial an in at251 (“Even 258, arbitrated, by holding that they they that holding by arbitrated, September 1983 in Case No. 4132, 10 Y 10 4132, Case No. in 1983 September of22 Award Preliminary Korea), (South Buyer (Ital y) v. Supplier of agreements.”); restrictive prohibition PECIAL PECIAL RBITRATING RBITRATING RBITRATION

See See See ex officio Hanotiau, Hanotiau, AlexisMourre, Eco Swiss E The Courtin DITION DITION potentially impliedexofficioduty potentially when it is relevant to the dispute before them.”); Brulard& the itis Yves to Yves before relevant Quintin, when dispute Eco Swiss 18(5), 533-547 (2001), at 536 (“The Eco Swiss ju Eco at536 (“The (2001), 533-547 18(5), note 1597, at 385 (“International arbitrators have a de facto duty to apply EC competition ECcompetition toapply a duty have de facto supra arbitrators at385 (“International note 1597, C EARBK OMPETITION OMPETITION ICC Draft Best Practice Note on the European Commission Acting as Amicus Curiae in Curiae Commission Acting Amicus as European the Note on ICC BestPractice Draft - , para. 42 (noting that there is no need to answer the question). the question). answer to isno need there that , para.42 (noting supra

A ex officio, RBITRATING RBITRATING does have to examine .

C extends extends Dissenting Opinion on a Dangerous Project note 1449, at 154 (“[I]f the arbitral tribunal discovers that a provision regarding aprovision that discovers tribunal at (“[I]f arbitral 154 the note 1449, EDFERN OMM Eco Swiss been asked to rule on the performance of , delivered on 25 February 1999, para. 26 (“Community law does not require require does not law (“Community 1999, para. 26 February on 25 , delivered L . AW

A must 1618 , Mitsubishi

RB H C I SSUES SSUES OMPETITION OMPETITION UNTER '

N andthosewhothinkthatsuchadutydoesnotexist. be arbitrated…”) (“Arbitrators should . . raise 99, 105 (1996) (“In view of the public policy character of Art. [101](1) Art. [101](1) of character policy public the of (“In view (1996) 105 99, s not support the existence of such duty . . . as it did not rule on the EARBK ineffectavoideddeciding HISH 198, 202 (Gordon Blanke ed., 2008) (“Coupled with the international ,

cessof his powers…”);Frank-Bernd Weigand, B , which held that claims arising out of competition laws ofcompetition that out claims, arising held which ex officio LACKABY LACKABY eme Court’sreferraltotheECJ. , , A

supra note 37, at 318 (“[T]he ECJ’s judgment in Van Schijndel . to raise EC lawissues raise competition to

L C See also , in RBITRATION RBITRATION AW [101], ex officio.”); Robert B. von Mehren, supra1593, note OMM in the United Kingdom, where a judge deals only with those ex officio consideration matters in Artic consideration E whether theAgr Art.Xof rules.”) (emphasis added); (emphasis added); rules.”) Opinion Mr of Advocate I Eco Swiss SSUES SSUES 297 UROPEAN argued that if the award is to be enforced the within enforced awardisto be if the that argued & .

A Claimant v.Respondents, Final Award of 1992 in Case

under the prohibition of of prohibition the under P RB lly seen - atthe very least ARTASIDES that arbitrators have ght be applicable to the the case,itmustparticular to raise applicable be ght (nor therefore upon an arbitration panel) pro- 219, 221 (Gordon Blanke ed., 2008) (“[T]he (“[T]he ed., 2008) Blanke (Gordon 221 219, ' N where itdeclares acontract nulland void.”); I 49, 51 (1985) (“[T]he Tribunal must . . on its NTERNATIONAL , J dgment establishes the arbitrators’ duty to apply apply to duty thearbitrators’ establishes dgment B OURNAL OF OURNAL OF indifferentways.Consequently,the USINESS USINESS , in an agreement, toraise oftheir own motion ,

Eco Swiss supra E UROPEAN L onthisissue,althoughthat AW note 1470, at 141 (“Although the (“Although 141 at 1470, note I , J NTERNATIONAL NTERNATIONAL , Vol. 9 No. 3 (1993), pp. 249- pp. (1993), 3 No. 9 Vol. , eement isnotcaught by the OURNAL OF R isthatthey are.”); Eco Swiss China Time Ltd v Art. [101(1 EVIEW EVIEW le [101], regardless of regardless the le [101], B in the making of arbitral - asimplying that arbitrators sua sponte sua USINESS USINESS 1617 the dutytoapplyEU S Asaresultofthis PECIAL PECIAL Evading EC I NTERNATIONAL NTERNATIONAL ) TFEU].”). L A European European questions of AW RBITRATION ANDOLT E R 1619 DITION DITION may EVIEW Inlight be ,

supra -

, CEU eTD Collection nearly acquiringtheforceofprece law onsubstantiveinarbitrabilityhasmade cons parallel betweenthetwodecisionsnotingthat ruling seems tohavebeenalargeextentinfluencedby law cannotbereferredtoarbitration andanappealfollowed. Commercial Courtrefused tostaythe proceedin the joint venture between Westland andLabinalviolated EUcompetitionlaw.The agreement, Morsstarted anactionbefore exclude Morsfrom thewholetransaction.Asaresult,despiteexiste Mors learnedofsecretnegotia submission withLabinal,whichwasalsodoin aircraft partstoBritis 1623 1622 I 1621 1620 was againsttheoutcome Westland Aerospace. competition law 6.3.2.3.1 6.3.2.3 national courts. of allthis, itwouldseem useful toexamin United States Supreme Courtandth NTERNATIONAL Carbonneau, 209. supraat 1444, note The factsare summarized Cour d’appel [CA] [regional court of appeal] Paris, 1e ch., May 19, 1993. See

id.

The ParisCourt ofAppealreversed,findingan Mors andWestlandcreatedajointventureinordertomakesupplyof anofferforthe France wasoneofthefirstcountriestorecognizearbitrabilityissuesarisingoutE at 221 (“Although the tempo and logic differ, ‘a-l logicdiffer, and the tempo at 221 (“Although Review before national courts courts national before Review France , Vol. 12 No. 4 (1996), pp. 373-390, at 376. 376. at 373-390, pp. (1996), 4 No. 12 Vol. , . Ithappenedasearly1993,withthedecisionin 1620 h Aerospace. Eventually,thetwocomp Thefactsofthe casecanbe brieflysummarized as follows. Mitsubishi based on: AntoineKirry,

e French courts alike. Each Each alike. courts e French tions betweenWestland andLabinal, theaim of whichwasto , Carbonneaualsolashedoutat dent among Frenchlowercourts.” theParisCommercial Court,alleging 298 e howthematter hasbeendealtwithbythe Arbitrability: Current Trends in Europe Trends Current Arbitrability: “the UnitedStatesSupr g businessinthesame field.Atsomepoint gs, onthebasis that the rulesofcompetition iderable inroadsinto egality’ informs the arbitral the law arbitral decisional egality’ informsof the madnessits has method.”). own titrust disputesarbitrable.ThisFrench Mitsubishi anies started toconsiderajoint Labinal . Carbonneau has drawn a . Carbonneauhasdrawna eme Court's decisional 1622 French legalthinking, nce ofanarbitration Labinal v.Mos& Thesame wayhe . 1623

, A inter alia RBITRATION RBITRATION 1621

that U U CEU eTD Collection on public policy grounds.”). grounds.”). policy public on not, does law sponte sua competition European issues of ( at 240 239-244, pp. (2005), 3 Issue 22 Volume arbitrability att 1625 1624 the non-applicationofEU compe EU competition lawoftheirownmotion.However, the onehand, thiscould alsomean thatinFr a violationofpublicpolicyandistheref failure of an arbitral tribunal to address comp manifest, actualandspecific violation of competition law. competition lawis notfarreaching –thecourt will this itcan beconcluded thatinFrance thecourtreview ofawardsdealingwithEU award in question did not satisfy su only iftheviolationwasmanife TFEU. Thecourtnoted thatin that theaward violated publicpolicybecause proceedings, nordidthe tribunalassessthem onitsownmotion. and awardedEuromissile damages. Neither arbitral clause,Thalesreferre Euromissile, twocompanies involvedinproduc is (2007). (2007). Based on Alleged Violations of European Competition Law Competition of European Violations Alleged on Based Gaillard, Emmanuel SA Thales,AirDéfensev.Euromissile the ison facts of based summary The appeal] Paris, Nov. 18, 2004. of court [regional [CA] d’appel Cour See Thalès Air Defence BV v. GIE Euromissile: Defining the Limits of Scrutiny of Awards Denis Bensaude, Awards of the Limits BVv. Thalès of Scrutiny Air Defence GIEEuromissile: Defining Some latercases seem toshowthat the French courtshave maintained thispro- Based onthis,some havedrawntheconclusionthatinFrance commentators Thales subsequently challenged theawardbe itude expressedby Extent of Court Review of Public Policy

d thedisputetoarbitration.The tribunalfoundag st, actualandspecific.Conseque accordance with theFrench la tition rulesdoesnothave tolead Labinal ch astrictstandard,andhence Thales ore notagroundforannulment oftheaward. . 1624 . ThefirstrelevantFrenchcasefollowing Thereadisagreement arosebetween Thales and 299 ance arbitratorsdonotha “makesclearthat an arbitral tribunal's failureto raise etition lawissues does in and of itself, provide a basis for annulling anaward annulling in afor itself, and basis of provide itwasnot inaccordance withArticle101 , J party raised antitrust issues duringthe , N tion ofmissiles. Inaccordancewiththe be satisfied todetermine that therewasno OURNAL OF fore theParisCourtofAppeals,arguing EW Thales Y ORK couldalsobereadassayingthat I L NTERNATIONAL NTERNATIONAL AW w theawardcan besetaside ntly, thecourtfoundthat J refused to set it aside. From refused tosetitaside.From toannulment ofanaward, OURNAL not onitsownrepresent ve thedutytoaddress , Vol., 237 –no.65 A RBITRATION ainst Thales Eco Swiss , 1625 On On

CEU eTD Collection Annulment - The Belgian Experience of 8 March 2007, SNF SAS (F) v.Cytec Industrie (NL) -Merits revisited? Arbitral Award, Public Policy and follows. 1629 1628 1627 1626 the consequencesofsuchafinding,concl the arbitratorsfoundallelements enforced since thearbitrators did notcorrectly enforcement andalsostarted thesetting asideprocedure inBelgium. exclusively toCytec.Cytec th therefore nullandvoid.The partial award,whichfoundthatthepurchaseag the tribunalwasinBelgium, withFrenchla expiration andCytecinitiatedarbitration. Accordingtothearbitration agreement, theseatof agreement for thepurchaseofacertainchemical. SNFterminated thecontractbefore had anotherchancetoconsider the enforcement inFrance. oftheaward fail toproperly address competition lawissues, thismayor notendanger the Appeals actuallyconfirmed thatarbitratorsdohavesuchaduty. occurred. Finally, some commentators have read but thatitmight asaresultofnon-a –if level due to the arbitrator's to the due level parameters to be applied by a French court in order to decide whether an award is unenforceable at the national case law.Onthe contrary, it actually confirms theexis Swiss Court to ofJustice's(ECJ)Eco lawissuesas fromofficio duty European raise ECcompetition flowing the implied ex ofan existence the general of thedoes ParisCourt not question that Appeal reveals decision the J OURNAL OF OURNAL SNF v. Cytec, Cour d’appel [CA] [regional The facts are based on Dirk De Meulemeester & Maud Piers, 2008. Jun. 4, Cassation, Cour de 23, Mar. 2006; appeal] Paris, of court [regional [CA] d’appel Cour See GordonBlanke, SNF wasarguingbeforetheParisCourtofAppeal The caseinquestion was 1628 I NTERNATIONAL NTERNATIONAL Frenchcompany SNFandDutchcomp A Réplique toDenis Bensaude's “Thalès Air Defence BV v. GIE Euromissile” breach of that duty.”). A RBITRATION

en soughttoenforcetheaward , ASA final awardwasrenderedin2004,anditgranteddamages ofabusedominant positi SNF v.Cytec Eco Swiss secondlook.

, Vol. 23 No. 3 (2006), pp. 249-257, at 250 (“A careful reading of of reading careful at (“A 250 pp. 23 No. 249-257, 3 (2006), , Vol. B ULLETIN Be thatisatmay, notlongafter court of appeal] Paris, Mar. 23, 2006. 2006. 23, Mar. Paris, appeal] of court , Vol.25 No. 3(2007),, pp.630-642. uding thatonlySNFwasliablefordistorting 300 pplication aviolationof tence ofsuch a duty and proceeds to define the w applicable.In2002thetribunalrendereda apply EUcompetitionlaw.AccordingtoSNF, , 1627 reement violatedArticle101TFEUandwas thefactsofwhichcanbesummarizedas Thales Brussels Court, Judgment R.G. 2005/7721/A 2005/7721/A R.G. Judgment Court, Brussels any Cytecentered intoalong-term arguingthattheParisCourtof 1629 on byCytec,butfailedtodraw in France.SNFchallengedthe thattheawardshouldnotbe 1626 Therefore,ifarbitrators Frenchpublicpolicy Thales Frenchcourts , CEU eTD Collection court, “[thecourtofappeal],which–within 1635 1634 1633 1632 1631 1630 award amuch closerscrutinythanitwasthecasein France. Court ofFirstInstance,whichwasdecidingon fighting enforcement in France,SNF alsochal 6.3.2.3.2 policy. law andthatintheprocess there was noflagra reviewing courtshouldlimit itself reexamine theawardonmerits onlyinthesp read assaying that, even if anaward dealsw were notcontrary tointe the community rules on competition, correctly he reviewing themerits ofthearbitralaward–reviewedawardsinlight it wouldnot. to determining whethertheaward’senforcem policy when [the award] issubmitted tothecourt.” whether [theaward's] recognitionorenforcem [arbitration] proceeding, onlycarriesoutanextrinsic review, becauseitonlyexamines applied thelaw,statingthat“thecourt,which competition. SNF SAS v. Cytec Industrie, Brussels Court, Judgment R.G. 2005/7721/A of 8 March 2007. SNF v. Cytec, Cour de Cassation, Jun. 4, 2008. Id. Id. Id. Id. , para. 7. , para. 14. , para. 9. , para. 7. The disputebetweenSNFandCyt SNF appealedandtheCourdecassationaffirmed. Belgium 1630 1632 However,thePariscourt refused to examine thewayinwhicharbitrators

rnational publicpolicy.”

to findingthatthearbitraltr ec haditscontinuationinBelgium: parallelwith 301 ith EUcompetition law, the reviewing courtcan ent wouldviolatepublicpolicy,andfoundthat nt, effectiveandconcre SNF’sapplication,seems tohavegiventhe lenged theawardinBelgium. TheBrussels is thejudgeofawar thelimits ofitspower ent iscompatible with ectrum ofpublicpolicy.Inotherwords,the 1634 ld that their recognition andenforcement 1631 TheFrenchhighestcourtcanherebe Consequently,thecourtlimited itself 1633 According tothe highest French 1635 ibunal appliedEUcompetition Inanalyzing theaward te violationofpublic internationalpublic oftheapplication d ratherthanofthe s, thatis,without CEU eTD Collection 6.3.2.3.3 alone atthisapproach. to reexamining theaward onthemerits.Aswillbeshown, Belgium doesnotseem tobe lip servicetypeexercisedbyFrenchcourts.Rath 1638 1637 1636 damages. found thatVanRaaltebreachedthelicense applicable. In1998adisputearose,andMDIre contained anarbitralclause, license agreement forthemarke and theDutchcompany Reclam VRVanRaalte involved adisputebetweentheAmerican comp taking intoaccount own dispute, and“seems tohavesubs competition law, andbased on contradictory inits essence. court foundthatthetribun Appeal], The Hague, Mar. 24, 2005. 24, Mar. 2005. The Hague, Appeal], 04/695,Marketing Displays International Inc./VR Van and 04/694 Cases nos. May27, 2004; The Hague, FirstInstance], of [Rb.] [Court Reclame B.V., Rechtbank Experience SAS (F) v.Cytec Industrie (NL) -Merits revisited? Arbitral Award, Public Policy and Annulment - The Belgian Cases nos. KG/RK 2002-979 and 2003-1617, Marketing Displays International Inc./VR Van Raalte Inc./VR Van Displays International Marketing 2003-1617, and Cases nos. KG/RK 2002-979 Dirk De Meulemeester &Maud Piers, Id. ” .

1637 It seem In reachingitdecisiontheBelg ThisshowsthatthecourtreviewenvisagedbyEcoSwiss , ASA The Netherlands

s thatintheNetherlands thesituation issimilar totheoneinBelgium, atleast B ULLETIN Marketing Displays Internatio , Vol. 25 No. 3 (2007), pp. 630-642, at 635. at 635. 630-642, pp. (2007), 3 No. 25 Vol. , 1636

al's reasoningconnectedto Eco Swisssettheawardaside. Consequently,thecourtfoundthat providing for arbitration in theU.S.,withMichigan law ting ofbillboardframes inBeneluxcountries.Theagreement tituted oratleastcompared th Brussels Court, Judgment R.G. 2005/7721/A of 8 March 2007, SNF ian courtwent significantly intothesubstance of the 302 Raalte Reclame B.V., GerechtshofRaalte Reclame B.V., [Hof][Court of agreement andconsequentlyawardedMDI any MarketingDisplays e. In1990thetwocompaniesenteredintoa er, itcould beof intensity that comesclose nal v.VRVanRaalteReclame sorted toarbitration. the awardofdamages was e arbitrator's opinionwithits thattheawardviolatedEU doesnothavetobeofthe The arbitraltribunal International(MDI) . 1638 Thecase CEU eTD Collection First Instance refusedenforcement. 1642 1641 1640 1639 uncommon thatamong otherthings Parties fromtheEUoftenc courts lookatarbitrabilityofcompetition lawdisputesisof 6.3.2.3.4 Netherlands. law issuesontheirownmotion,orriskaw with theECJ’s ruling in Movil party invokesinvalidityofanag agreement contrarytoArticle101[TFEU].Rath competition lawissues were notraised before th e arbitral tribunal didnot validate thelicense First Instance. affirmed, like theBelgiancourt in policy. Initsanalysis accordance withArticle101TFEU of Art. V(2)(b) of the New York Convention.”). Convention.”). York New the of V(2)(b) Art. of recognition and enforcement of thethr on Van Raalte [certain] obligations and prohibitions. [28] “Under these circumstances, this court too holds that inflicted and Benelux, sale outside for patents byMDI protected products alia,by offering inter agreement, that proceeding. The arbitral awards assu law that raised competition was arbitration, by VanRaaltein nor atallinthe dealtwas itapparently not with 24, 2005. Mar. The Hague, Appeal], [Court of [Hof] Gerechtshof May27, 2004. The Hague, FirstInstance], of [Rb.] [Court Reclame B.V., Rechtbank Cases nos. 04/694 and 04/695, Marketing Displays International Inc./VR Van Raalte Reclame B.V., Raalte Inc./VR Van Displays International Marketing 2003-1617, and Cases nos. KG/RK 2002-979 See id. See supra MDI soughttoenforcetheawardinNetherlands.However,HagueCourtof Although Switzerland isnotanEU Member An interestingpartoftheCourtApp , paras. 27-28 ([27] “The question of the validity of the license agreement in light of European European light of in agreement the license of of validity the “The question ([27] , paras. 27-28 1641 Switzerland Part 6.3.2.3.2. confirming thelevelofscrutinyafford 1642

thecourtseemingly toucheduponthe SNF v.Cytec

hoose Switzerlandastheplaceof med that thelicenseagreement wasva , andtendstoshowthatarbitr ee arbitralawards would contrary be reement attheenforcement stag 1639 and thatconsequently theaward violated the Dutchpublic thearbitraldisputealsoinvolvesissuesconnectedto Thecourtfoundthattheli 1640 . FollowingMDI’sappeal 303 ard beingrefusedenforcement –atleastinthe er, thecourtallowedth eal’s decision isthatthesituation where ed totheawardbyHagueCourtof State,anexamin substance ofthedispute,similar to public policy within the meaning the meaning within policy public to lid, held that Van Raaltebreached relevanceforourdiscussion. ators should raise competition cense agreement wasnotin e. Thisseems tobeinline arbitration,anditisnot the CourtofAppeal ation of how Swiss ation ofhowSwiss e possibilitythata CEU eTD Collection 1644 1643 actions violatedthecooperation agreement, in to Xandcertain consortiums Xcreated w regarding theabovementioned proclaimed Italianlawasa other companies andalsofrom exclusive character,inthateachcompany wastoabstainfrom anyseparateagreementswith construction ofahighspeedrailroadbetween agreement, thepurposeofwhichwastheirjo involved intheconstructionbusiness.In 1998 thetwocompaniesenteredacooperation recently revisited in had jurisdictiontoapplyEUcompetition law did havejurisdictiontoapplyArticle101.Thisca 101 TFEU.TheSwissFederal Cour tribunal violated the Swisslawbyholding that challenged beforeaSwisscourt.Oneofthegr submitted the dispute toarbitr contained anarbitralclause.Eventuallycert Belgian company)andV(anItaliancompa Switzerland hasrecognized arbitrability 1992, inVSpAvGSa. Swiss courts whenitcomes toarbitrating EUcompetition law disputes. Articles 101and102TFEU.Forthis Swiss Federal Court,Case 4P.278/20058 of March 2006. 193-198. pp. II 28, 1992, 118 Apr. Court] [Federal Suisse [ATF] Fédéral Tribunal du Arrêts After consultingeach otherabout the price, The Swissapproachto theissueof the X. S.p.A.v.Y.S.r.l. 1643 Thefactsofthecasecanbesu pplicable andSwitzerlandas the placeofarbitration.

ation. Theawardwas railroad construction.Thecons bidding individually.Anarbitr t grantedthechallenge,holding reasonitisinterestingtoconsiderthestandpointof 1644 ThecaseconcernedXandY,twoItalianfirms ain disagreements arose,andin1989theparties 304 rules, itmeans those 2002Ystartedarbitral ith some othercompanies. Allegingthat X’s ounds forthechallengewasthatarbitral ny) enteredacooperationagreementthat Milanand Naples.Theagreement wasof it didnothavejurisd int applicationforatenderregardingthe of EUcompetition lawclaims asearly as n beinterpretedinawaythatifthetribunal arbitrability of EUcompetition lawwas the twocompanies submitted joint offers rendered in1990 andwassubsequently mmarized asfollows.In1986,G(a truction workswereawarded al clause intheagreement rules arearbitrable. that thearbitraltribunal proceedings askingfor iction to applyArticle CEU eTD Collection 1646 1645 pro-arbitration EUMember with competition lawissues. In other words,on shows thatthecourtsin Switzerland arenotpr what represents aviolation ofSwisspublicpolic decisionsanditsowncourts is notboundbyECJ ThisSwissdecisiondoesnotseemto that EUcompetitionlawispartofpublicpol have tobefound inanylegalorder.” broadly recognizedvalueswhic provisions of competition laws,whateverthey of thenotionpublicpo international rulepublicpolicy between Switzerland and theEuro that “thedifferencesbetweenthevarious TheSwissFederalCourtrefusedtoset competition law cannotbeconsideredasbeingpa European and Italian competition laws. being againstpublicpolicysincethearbitrat Dissatisfied withsuchanoutcome, Xturned competition law infringement Xto andordered and European competition lawsandwasthusvoid.However,thearbitrators didnot find any damages. X’s defenseduringarbitrationwasth Id. at Id. 558. Id. at 557. licy, thecourt concluded that “there isno more room for doubt:the States, such asFrance.

would havetobefoundthere.” h, accordingtotheconceptspr pean Union–toallowafindi 1646

laws oncompetition aretooacute–specially 305 icy. However,asanon-EUcountrySwitzerland correspondtotheECJ’s findingin to aSwisscourt.Xchallengedtheawardas epared toreexamine indepthawards dealing may be,donotbelongtotheessential and at thecooperationagreem pay damages toYforthebreachofcontract. ors disregardedfundamental provisionsof this pointSwitzerland isin line withsome y. Thisdecisionisalsoimportant becauseit rt ofSwisspublicpolicy.Thecourtstressed the awardaside,ongroundsthatEU aretheoneswhosupposedtoassess 1645 evailing inSwit After anextensive analysis ng thatatransnationalor ent violatedItalian zerland, would Eco Swiss

CEU eTD Collection 2006 -SwissSupreme Court this Landolt, a case,see First For about Section], discussion Phillip Jul. Appeals, 2006. 5, Civil initiated proceedings inItaly the awardfrom thechallenge inSwitzerland, the lastword inthedispute between the two Italian companies. After successfully defending C 1649 1648 1647 France. adopted by theBelgianandDutchcourtsth issues tends toshowthat theItalian interpretation of The factthattheCourtwaspreparedtoevalua economic examination, couldbeconsideredas the relevantmarket. Theprocessofdefining performed byitsSwisscounterpart. note thatthe reviewexercised bytheItaliancourtwasmuchmore extensive thantheone Swiss court, sincethe Milan court decided to apply EUand Italian competition law.Theresult was identical tothe onereached bythe should notbe enforcedbecause itviolates publ Y’s name was TerraArmata. Same asinSwitzerland,Tensacciaialso dispute itself.ItturnedoutthatcompanyX the finalwordaboutenforcement wastheMilanCourtofAppeal. 6.3.2.3.5 Bologna no. 1786. 1786. no. Bologna Coveme v.CFI -Compagnie Française des Isolants SA, Corte di Appello [Court of Appeal], Dec. 21, 1991, Italy Actually, to was amongfirstcountries the OMPETITION OMPETITION Terra Armatav. TensacciaiS.p.A., dea of history a long courts have relatively Italian See supra For example, theCourtreviewed(and agreed The judgment revealedalotofpreviously However, thedecisionofth Italy Part 6.3.2.3.4. L AW I SSUES SSUES 129 , in

(Gordon Blanke ed., 2008). ed., Blanke 2008). (Gordon E UROPEAN in order toenforcetheaward.

La Cour d’Appel de Milan, Premiè e SwissSuprem B USINESS USINESS recognize the arbitrability of EU competition law. EU competition the of recognize arbitrability ling with the arbitrability of EU competition lawclaims. EUcompetition of arbitrability ling with the L 306 was actuallycalledTensacciai, whilecompany AW enforce theaward. However,itisimportant to te thetribunal’sreasoningonsuchsubstantive the relevantmarket, involvingbothlegaland ic policy,sincethearbitratorsdid notproperly an tothedeferential approachembracedby R the claimant (referred toascompanyY) EVIEW EVIEW unknownfactsaboutthepartiesand e Courtin ing partofsubstantiv with)thearbitraltribunal’sdefinitionof Eco Swissismuch closer to theone S PECIAL 1648 re SectionCivile [Milan Court of X. S.p.A.v.Y.S.r.l. Eventually,thecourtthathad E DITION DITION 1649 - argued thattheaward

A

e antitrustanalysis. RBITRATING Note- 8March See 1647 SpA SpA

was not CEU eTD Collection examining arbitralawardsdeali two jurisdictions. dealing with competition lawissues,itwouldseem thatthe Considering theintensitythat Belgianand arbitral awards.Consequently,thisduty that theexistenceofsuchadutydependsonhow officio Anotherimportant implication of the interpreted of thearbitrators’antitrustanalysis. and Italyshowthatthereviewcouldalsobe exercised bytheFrenchcourts.Onotherha complied withEUcompetition rules.Asshown, review arbitralawardsdealingwith antitrust is competition law. Rather, theECJpronounced that 6.3.2.4 their ownmotion,ortheenforc court implied thatevenabsentparties’claims law, eventhoughsuchaclaim wasnotraiseddu opposing the enforcement toargue thattheawar not besufficientforthecour showed thatthefact thatarbitrators didnot Taking intoaccountthe levelsofscrutiny On theotherhand,HagueCourtofAppealin . Inthis respect the nationa

Eco Swissdidnotgivearbitratorsablankcheck The impact of Eco Swiss Swiss Eco of impact The Eco Swisshas to dowiththe arbitrator’s duty toapply EUcompetition law t toset aside theaward. ng withantitrust issues,itisinteresting to compare theimpact ing courtmight findthatthe l courtsdonothaveauniform approach.Rather,itseems does notseem toexistinFrance,since resolve antitrustclaims ontheirownmotion will 307 much more intrusive, scrutinizing thesubstance nd, theexamples ofBelgium, theNetherlands, arbitratorsshouldaddres d wasnotin accordancewithEUcompetition sues, inordertomake surethatthe awards ring arbitralproceedings. BythistheDutch Italian haveshowninscrutinizingawards way inwhichthena nationalcourts willhave anopportunity to far thecourtiswilling togoinreviewing such areview canbe exercised by the courts in the EU when exercised bythecourts intheEUwhen Marketing Displaysallowedtheparty with regards totheapplication of EU ex officio award violatedpublicpolicy. dutyalsoexists inthese s antitrust issues of tional courtshave only superficial,as Thales ex

CEU eTD Collection 1650 setting aside of arbitral awards, whilethemani the U.S.Further,publicpolicycanbeba awards, whilethemanifest disregardofthelaw practical implication inthatthepublic policy ex determine whetheritwasinmanifest disregard they might beagainstpublicpolicy,whiletheAm differences alsohave of damages awardedbythearbitraltribunal. substantive antitrust analysis, su Texas Gas.Inallof theseinstances thereviewing courts werewillingtogetinvolved in Themore stringenttypeofreviewexer could beroughlycompared with American decisions onarbitrability havesignificant in Swiss. Ifthiswasthecase,itwouldconfirmtendencynoticedbyCarbonneauthat court actuallymight havebeeninfluencedbythe interesting tonotethat court willinterferewiththeawardonlyinexceptional circumstances. Inthisrespect itis “took cognizanceofantitrustclaims andactually “manifest, actualandspecific” standard w merits of thedispute, being satisfied withan Court ofAppealsin Appeals inThales of Carbonneau, 209. supraat 1444, note Eco Swiss Most importantly, theEuropean courts reviewed theawardsbasedonpremise that withthatof Mitsubishi seemstobeinlinewiththelevelofreviewsetoutbySeventhCircuit Baxter to bepointedout. Thales . Inbothcasesthereviewingcourtswerereluctanttogointo

wasdecidedoneyearafter ch asdefiningthe relevant market or assessingtheadequacy theapproachtakenbyFift . The deferential approachtakenbytheParisCourtof . Thedeferential ould seem tohavethesame as effect 308 extrinsic examinationofthe award.The French sis bothforrefusingtheenforcement andfor fest disregardofthelaw canbeusedonlyfor However,despitethesesimilarities, major cised byBelgium, theNetherlands andItaly of thelaw.Thisdifference hasanimportant ception also applies to international arbitral doctrine isreserved forawardsrendered in erican courtanalyzedtheawardinorderto decidedthem” approach–thereviewing Baxter fluence onFrenchcourts. Baxter decisionwheninterpreting h CircuitCourtofAppealsin . This means thattheFrench 1650

Baxter Eco ’s CEU eTD Collection (1987), pp. 87-90. 87-90. pp. (1987), 1653 1652 1651 tribunals shouldrespectma outcome iscertainlyneither intheparties’ norin then thewholearbitralprocedurewouldturnou enforceable. arbitrators might dosoforatleasttworeasons. the parties’ choice of law, if grounds thatitviolatespublicpolicy. rule, thecourtsofcountry whenever adisputehas astrong connection with it. this partyautonomy issometimes limite nature ofarbitration,partiesaregenerallyfreetochoosethe determining thelawappli arbitrability ofissuesbefore exclusive territorieshave mandatory character. distribution agreement, animportant issue 6.4.1 6.4 have emerged. remains, which isratherremarkable takinginto vacatur (i.e. settingaside).Nevertheless, V. Art. NYC, See, e.g. See Mandatory characterofthe Sigvard Jarvin, Sigvard First, there isa general duty for arbitr Mandatory rules are rules for theapplication of whichastateisextremely interested W Antitrust legislation as mandatory law Antitrust legislationasmandatory law ith regards tothearbitral resolution of , ICC Rules, Art. Art. 35; LCIA Rules, 32.2. 1653 Ifanarbitraltribunalre Mitsubishi- ICCcomment Mitsubishi- cable tothedispute( ndatory rulesinordertopreservethegoodwillthat countrieshave such achoicewouldbeagainst

itandfoundthattheyarearbi whichenacteditmight refusetoenforcetheawardon 1652 law ofexclusiveterritories d bytheconceptofmandatoryrules. ndered anawardthatcourts , J Consequently,arbitratorsmay sometimes override OURNAL OF the resemblance betweenthetwoapproaches 309 is whether the rules comprising the lawof lex causae t tobeawaste oftime andresources.Suchan Oncethearbitraltribunal has assessedthe accountthedifferentsettingsinwhichthey thearbitrators’ interest. Inaddition, arbitral ators torenderanaw disputesarisingoutofanexclusive I 1651 NTERNATIONAL NTERNATIONAL Ifarbitratorsdisregard amandatory ). Inaccordance withthecontractual lex causaethemselves. However, the relevant mandatory law.The trable, itthenproceedsby A RBITRATION would refusetoenforce, ard thatwouldbe , Vol. 4No.1 , CEU eTD Collection 1658 1657 1656 1655 1654 for theAmerican economy asawhole. in theU.S.and intheEU. today itseems beyonddisputethat courts ofthejurisdictionthatpromulgated ithavepronouncedso. determine whetheranormistobetreated relating tocurrency, acts of state, and–competition (or antitrust) law. can bemade. Mandatoryrulesusually include restrictions ontrade, politicalmeasures mandatory law inonecountrymight notbeso mandatory. Itisnot always easy toprecisely determine whichlaws areconsidered as whose mandatory lawwasignoredmay r connected withthedispute.If courts isaccompanied bytheresponsibility totakeintoaccount thepublicpolicyofcountries shown towardsarbitration.Thepower a party's righttopursuestatut the choice-of-forum andchoice-o conceded that theSherman Actappliestothedi that in be readasconfirming thattheSherman Actispa organization.”). its pub safeguarding for acountry ascrucialby regarded in particular, aretheMagna Cartaof free enterprise.”). Hanotiau, E.g. Id. See See, e.g. at 184. L , U.S. v. Topco Assocs., Inc., 405 405 Assocs., Inc., , U.S.v.Topco Mitsubishi The U.S.Supreme Courthasrepeatedly empha ANDOLT , Rome I, Art. 9(1) (“Overriding mandatory provisions are provisions the respect for which is 1655 supra Publicpolicydoesnothavethesame c ,

note 1316, at 114. supra at 1316, 114. note note 1449, at 161. itselftheproblem ofmandatorylaw

arbitratorsdonotliveuptoth ory remedies forantitrustviol f-law clausesoperated intandem asaprospectivewaiver of U.S. 596, 610 (1972) (“Antitrust laws (“Antitrust (1972) 610 U.S. 596, antitrust rulesareto todecidedisputesthatw 1658 eact byrefusingto enforcetheaward. Additionally,intherelevantpart 310 as mandatory, oneshouldlookatwhetherthe lic interests, such as its political, social or economic oreconomic social as itspolitical, lic such interests, in another.However, spute. Accordingtothe Court,“in theevent rt of mandatory law.Thisisdespite the fact sized theimportance ofantitrustrules beconsideredasmandatory lawboth did notcome up,sincethedefendant ontents inallcountries,andwhatis ould otherwiseberesolvedby ations, wewouldhavelittle is responsibility,thecountry in general, and the Sherman ingeneral, the Act Sherman and 1657 Fromthisperspective, certain generalizations Mitsubishi 1656 1654 Inorderto

could could CEU eTD Collection law fully,he isobliged to at leasttakeitintoaccount). Eco Swiss.TheECJthereheldthat theenforcement of enforcement issoughtoutsidetheU.S.,this U.S.; otherwise,anAmerican court may re always haveinmind theSherman Actifthedisput 1664 1663 1662 1661 1660 1659 where thecontractistobeperformed to consideritsmandatory rules.Althoughthereis sufficiently strongrelationshipwith 6.4.2 rules. Otherwise,theaward might notbeenforceablewithintheEU. with theEU,arbitratorsshouldappl EU competition rules are mandatory. enforceable intheEU.Inotherwords,ECJ competition lawregardless of thelaw applicabletothedispute ortheir awardmight notbe accordance withArticle101TFEU. approach hasbeenbothpraised parties areeffectivelylimited intheirchoice hesitation incondemning theagreement asagainstpublicpolicy.” as a set of transnational mandatory rules and irrespective of it being law.”). applicable part of the of itbeing andirrespective rules mandatory as aset transnational of law). U.S. lawwhenever the perform policy.). public asagainst agreement the incondemning we havelittlehesitation would tandem waiver in operated asaprospective of a ri party's

See See See See, e.g. See, e.g. See L Dempegiotis, Eco Swiss Mitsubishi An i As for the EU, themandatory character of EUcompetition lawcanbe impliedfrom Circumstances thattriggermandatory rules ANDOLT , Werner, , Werner, , Lowenfeld, mportant questioniswhichjurisdic , , para. 37.

, 473 U.S. at 637 n.19 (“[I]n the event th the event at n.19 (“[I]n 637 , 473 U.S. note 1316, at 227 (suggesting that even if the arbitrator does not apply EU competition EUcompetition apply does not arbitrator ifthe even that supra at (suggesting 1316, 227 note note 1597, at 381 (“[A]rbitrators should apply EC competition law, when relevant, law, relevant, when ECcompetition apply should supra at (“[A]rbitrators 381 1597, note note 1511, at 83 (attacking the idea that parties cannot freely determine applicable applicable freely determine partiescannot that supra idea the at83 (attacking 1511, note supra note 1500, at 186 (emphasizing the need of deciding antitrust claims based on at on of claims 1500, the antitrust 186 (emphasizing need based note deciding ance of the contract significantly involves U.S.). the involves significantly contract ofthe ance

1660 thedisputeinorderforar andcriticized. y (oratleasttakeintoaccount) qualifies inthisrespect.Accordingly, 1663 1662 Therefore,ifadispute has sufficientconnections Thisimpliesthatarbi pronouncement doesnothavemuch effect. 311 ght to pursue statutory remedies for antitrust violations, violations, remediesantitrust for statutory to pursue ght fuse toenforcetheaward.Ofcourse,if effectively proclaimed thattheprovisions of of lawinantitrust-related disputes. This e choice-of-forum and noclearrule,itseems e before them issubstantially related tothe 1661 tion shouldbeconsideredashaving Bethatasitmay, arbitratorsshould an awardwillberefu bitral tribunaltobeobliged 1659 trators shouldapplyEU choice-of-law clauses 1664 . Inotherwords,private EUcompetition law that thejurisdiction sed if itisnot in CEU eTD Collection 1669 1668 1667 1666 C 1665 whenever anexclusivedistribution agreement islikelytoaffecttradebetween Member even iftheprohibitionofparalleltradeapplies foranon-Member State. located in aMember State. distribution agreements EUcompetition lawwill lex causae to applyEUcompetition lawwhenevertrade betw seems tobeofmore practicalsi Act wouldapplyitisunlikely be thecase.However,basedonanalysis fromthepreviouschapters, eveniftheSherman is intheU.S.,butfromquotedSupreme Cour produces substantial effect intheU.S.Thiswill discussion, anexclusivedistributionagreement and didinfactproducesome substa the Supreme Court,“theSherman Actapplies to reflect ontheterritorial 101 and102TFEU,ifthecontractis account theprovisionsofShermanAct. Therefore, ifthecontractis ONGRESS SERIES ONGRESS Hartford Fire Ins. Co. v. Calif Derains, Yves See supra See supra See note 1558, at 120. Stylopoulos,at 120. 1558, supra note As fortheU.S.,TheSherman Acthasavery of coursewhenthepartieshavenotchosenalexcontractus performance ofthecontract,whichar guarantee asaminimum the respectofmandatoryrulesplace if hewishestoavoidabuseofoffice,

On theotherhand,identifying thesituati Parts 4.1.1, 4.4.2.2. Part 4.1.1. is ofanon-Member State. (1986), pp. 227 – 256, at 251-52. at 251-52. 256, – 227 pp. (1986), Public Policy and the Law Applicable to the Dispute in International Arbitration in International to theDispute Applicable the Law Policy and Public scope ofapplicationU.S. ornia, 509 U.S. 764, 796 (1993). (1993). 796 764, U.S. 509 ornia, 1668

that itwouldcondemn theus to beperformed intheU.S.,th However,basedon gnificance. Inthis respectanar performed intheEU.Inthis ntial effectintheUnited States.” 1667 312 Asshownabove,withregardstoexclusive Mutatis mutandis to foreignconductthatwasmeant toproduce could fallundertheSh generally be thecaseif theexclusive territory bitrators considerto theinternational arbitrator has to ons in which EU competition lawappliesons inwhichEUcompetition t wording thisdoes no generally apply if theexclusive territory is een Member States isaffected, evenif the broadrangeofapplication.Asnotedby Javico andEUantitrustrules. e ofexclusiveterritories. EUcompetition lawmay apply , thesame applies for Articles bitral tribunal may be required bitral tribunalmay berequired e arbitratorshouldtakeinto respectitisalsonecessary . 1665 applyasamatter

erman Actwheneverit t necessarilyhaveto 1666 Related toour 1669 Therefore, , 3I CCA

CEU eTD Collection 1671 1670 mind thesignificant freedom theypossesswhen itcomes todetermining theapplicable law. whether they willapply themandatory rules ornot. Consequently, theRegulationleavesitto compulsory, noting thateffect“may be scope. arbitrators. Inaddition,the cauasae arbitrators may alsorelyonthisprovisionas regardless oftheparties’choicelaw.Howe This provisionseems togive which inpertinent part reads: to bearealityintoday’sworld.Especiallywo 6.4.3 significance foranarbitratorwish the situations inwhichEUcompetition may a EU’s approachtoexclusive territories issomewh States, there isa possibility thatEUcompe Rome I,Art. 9(3). Id. , Art. 1(2)(d). 1(2)(d). , Art. However, arbitratorsmay stillfindawayto At theoutset itshould benotedthat theRe 1671 consequences oftheirapp those provisions,regardshallbehadto performance ofthecontractunlawful.In been performed, mandatoryprovisionsrenderthe insofarasthoseoverriding country wheretheobligations Effect may begiventotheoverridingmandatory provi Despite unc Rome I . What ismore, theRegulationdoesnotma ertainties, the application of mandatoryrulesoutside of Regulation explicitlyexcludesarbi

the judgepossibil lication ornon-application. ing toavoidtheriskofhisaw arisingoutofthecontr given” tomandatory tition lawwillapply. Takingintoaccount thatthe 313 groundsfortheapplicationofalawoutside discretion ofjudges(and, rth notinginthisrespec their nature and purpose andtothe considering whethertogiveeffect ver, itwouldbeinterestingtoconsiderif invoketheRegulation,especiallyhavingin at stricter than that of the U.S.,identifying ssert itsapplication isof greatpractical gulation isaddressedtojudgesandnot ity ofinvokingrelevant mandatory rules ke theapplicationofmandatory rules 1670 act havetobeor sions ofthelaw ard beingset aside inthe EU.

rulesoutsideof tration agreements from its t isRome IRegulation, arguably, arbitrators) lex causaeseems lex causae lex

. CEU eTD Collection legality of exclusive territories istobeasse although the effectof awards dealingwithantitrusti could bereadasgivingthecourtsanopportunity awards dealingwithantitrustissues,incerta antitrust issues arearbitrable. However,regardi regards toarbitrability,thetwosystems seem to arbitral awardsdealingwithanti agreements andarbitrationhasshownthatth arbitration. Moreprecise and procedurallawofexclusiveterritories also havethei 6.5 render anenforceable award. to attacksthatthear antitrust issuesofthei on thepertinentpartofRome I,arbitratorswouldhaveanadditiona the Regulationwithregardstomandatory rules. rules. Finally, thearbitrators there isacloseconnectionbetweenthedispute Regulation. Heshouldthenconcludethatantitr The processcouldbeasfollows.First,the In theU.S.,thisscrutinyisrelatively non-intrusive.Even ifsome partsof This chapterhasshownthatsom Assessment Invoking theRegulationmight al Sylvania Mitsubishi established theruleofreason asthestandardaccording to whichthe bitrators wentbeyondtheircompetence, r ownmotion. Thiswaytheymay tomake beable theawardlessprone ly, theanalysisaboutconnectionbetweenexclusivedistribution couldbecompared withthatof hould applytheseanti ssues, thishasnothappenedin trust issuesissomewhat stricterthantheAmerican one. With e tendenciesidentifiede inthe contextof thesubstantive so beasolutionforthe in aspects thereareconsiderable differences. ssed, inpractice thewayinwhichlower courts 314 e Europeanapproachtowards thereviewof arbitrator should find a way to invoke the arbitrator shouldfindawaytoinvokethe bealongthesame line–inbothjurisdictions ng thelevelofscrutinyth ust rulesarepartofmandatory lawandthat and thecountrythaten foramore invasives trust rules,relyingontheprovisionfrom inaccordancew Sylvania practice. Basedonthis,perhaps r expressioninthefieldof ex officio . Asdescribedabove, l basisforaddressing upervision ofarbitral problem. Byrelying acted thoseantitrust at courts afford to ith thedutyto Mitsubishi

CEU eTD Collection allowed thearbitrability ofantitrust issues a adopt solutionsfrom example U.S.law.One is enforced. this law.Otherwise,there isnotinsignifi examining anexclusive distributionagreement ar relatively high level of scrutinyto awardsdealing withEU competition lawissues, when courtsofcertainMemberStatesapplya States. Takingalsointoaccountthatthenational distribution isairtight,asit exclusive territoriesillegalunde shown abovethattherearestil exclusive distribution agreement shouldtake EU competition lawseriously.Ithasbeen deployment ofexclusiveterritoriesi.e.theusearbitration. brought lessintrusionbythest restraints, andtheotherwith and itshostileapproachtowardsar Schwinn. Ontheotherhand,withregardsto rendered. In thecaseof cases represented asignificant departure from in practice. although interpreted itactually meant started newtrendsinthe respect Finally, this chapter hasalso As for theEU,thischapter has shown that The effectof Mitsubishi Mitsubishi itselfhasthepotentialforastricter Sylvania couldbecomparedwiththatof can beperceivedasimpeding pa de factoperselegality regards toarbitration.Additi l anumber ofcircumstances ive fieldsoflaw–onewithre shown theEU’s(andthatof itsMember States)readiness to ate inprivatecontractualre r EUlaw.Thisisespecially , thiswasthe rigid bitration. In this respect, both 315 cant probability thatth nd thensome Europeancountries and theECJ Mitsubishi what hadbeenthelawbeforecaseswere arbitrability – first the U.S. Supreme Court arbitrability–firstthe U.S. Supreme Court arbitrators decidinga bitrators areadvisedtotakeintoaccount for this type of restraint. Similarly, type ofscrutiny,this itwastheAmericanSafetydoctrine per seillegality rulelaid downby onally, bothcases Sylvania which couldmake theuseof lationships –concerningthe rallel trade betweenMember gards to thelawof vertical thecaseifexclusive Sylvania and Mitsubishi eir awardwillnotbe inanotherway.Both dispute involvingan hasnotrealized effectively

CEU eTD Collection into accountthedifferentcontextsinwhich manage toachievethe same withregardstoth solutions to itsownsystem. Inthis respect, it following thedevelopments inU.S.law,th Consequently, althoughtheredoesseem tobe approach that seem tobedominant in the U. dealing withantitrust.Asshown,some Me about arbitrabilityandthelevelofscrutinythat the Comission issomewhat more structured than thatof been shownthatthesortofrulereasonfo Commission towards adoptingamore economics-base not adopting American solutionsuncritically. If itis consideredthat followed suit.However,whatcanalso benoticed the actionsariseinthesetwojurisdictions. 316 r (non-airtight)exclusiv e facilitationofprivatedamages actions,taking e EUisnotdoingso mber Stateshavenotfollowedthelenient S., rathergivingtheawards more scrutiny. will be interestingto courts exerciseinrevi a trendthatinmany respectstheEUis with regards tothisissue is thattheEUis d approachtoverticalrestraints,ithas Sylvania . Thesame couldbenoticed e territoriesadoptedby seehowthe EUwill ewing arbitralawards without adaptingthe Sylvania inclined the CEU eTD Collection arrangement; thisanalysiscouldbe type ofanalysisthat takes intoaccountbo prohibition isasuitabletreatment forthistype of exclusiveterritoriescannot other wayscauseharm toconsumers. Asare either among manufacturers oramong distributors harmful effects withregards tothe general intere would notentersuchanarrangement inthe brings certain benefits totheparties thatenter intoit;if thiswouldnotbethecase, they all of thebenefits arising outof hispromotion efforts willaccrue tohim. Such anarrangement isalsobeneficialforthe to retainacertaindegreeofcontroloverdistribution without theneedtoverticallyintegrate. based onexclusivedistributionagreements. Exclusivedistributionenablesthemanufacturer distribution agreement. Mostimportantly for cost-effective, amanufacturer which sometimes heis not willingtodo.Ifvert the lattercase,amanufacturer relinquishes much decide toentrust distribution to the finalcustomer, usinghisownemployeesfo On theonesideofspectrum, amanufacturer to consider some other factors, such asthelegal treatment of certainmodes of distribution. all takes into account whichsolution wouldbemostcost-effective. When decidingaboutthewayinwhichhew The effectsofanexclusiv e distributionagreement onehand,it areambiguous. Onthe may optforthemiddle groundintheform ofarestrictive an outsiderepresentative,be that be straightforward–neither referredtoasaruleofreason. 7

C ONCLUSION 317 sult, thelegal approach towards the imposition of arrangement. Rather, our discussion,hecouldmarket hisproducts first place.However,itcanalsohavesome exclusive distributor, si ical integrationintodi th beneficialandharmful effectsofthe st. Forexample,itcould facilitatecollusion, ofthecontroloverdistributionprocess, r thispurpose.Ontheotherhand,hemay may decide tosellhisproductsdirectly ill market his goods,amanufacturer before ; facilitatepricedi

per selegalitynoroutright anagent oradistributor. In Inaddition,healsoneeds stribution wouldnotbe it should be afforded a it shouldbeaffordeda nce he is assured that nce heisassuredthat scrimination; andin CEU eTD Collection approach towardsvertical restraintsandverticalintegrationinge be mainly explainedbytwofactors:first, the (bordering with anticompetitive. Consequently,thecurrent beyond doubtthatunder certainconditions th economic theory.Basedonthedi territories, thecurrent state ofthelawin importance of economics intheshapingof antitrust rules.However, withregardstoexclusive vertical restraints ingeneral. has hadagreatinfluenceonthe And takingintoaccount theprecedent-based system courts, President Reagan enabledthe infiltration established duringtheReagan The connectionbetweentheChicagoSchool belief thatthebestthingagovernment coulddoistoleavethemarket toregulateitself. linked withtheRepublicanphilosophy;atitsco politics andideology.Scholarsargu concerned aboutverticalrestraints.Suchanap school, thegeneralviewbyschool Chicago Schoolideology.Although the legal approach towards exclusive territori example ofbothjuri agreements doesnotdependsolelyoneconomic However, theapproachthatalegalsyst American antitrust scholars, especially per se sdictions analyzed inthisdissertati legality)doesnotseem icago scholars to the federal administration. ByappointingChicagoscholarstothefederal shaping of thesubstantive lawof exclusiveterritories and ing forlessintrusiveantitrus scussion presentedintheth therearedifferencesbetween ’s followersisthatantitrus 318 the ChicagoSchoolfollowers,emphasize the influence oftheChicago Schoolanditslenient proach couldalsobeconnectedwithAmerican U.S. doesnotseem tobeinaccordance with to beappropriate.Thepresentsituationcould American approachtowardsthis practice es istoalargeextent predisposed bythe of theChicago ideas into em adoptstowardsex re areanon-interventionistapproachand scholarship andlaw-making mainly was considerations. Thiscouldbeseenonthe e useofexclusive territories canbe present existingin theU.S.,this inturn on –theU.S.andEU.InU.S., t policiescaninthemain be eoretical chap t shouldrarely(ifever)be scholarsbelongingtothe neral; inaddition,one clusive distribution thejudicialsystem. ter, itseems CEU eTD Collection by toalargeextent exempting vertically in can rarely if ever beharmful if theparties do used byasmall firm. Asshowninthetheoreti towards theimposition of exclusive territories is realization of certainefficienciesand thereby redeeming virtues.Consequently,condemning them acrosstheboardmay preventthe reasons. First,exclusive distribution agreemen characterized asquasiperseillegality.Suchanapproachdoes conflicting withmarket integration andarehence affordedatreatmentwhichcouldbe European market.Inthis respectairtightexcl also takesintoaccountwhetheranagreement single market imperative. a whole.Mostimportantly, the by theotherpartsofTreatyandhavetobe of theEuropeanUnion.Asaresu U.S. Rather,theyarepartofalargerdocumen First, EUcompetition law provisions arenot stand-alone in thewaythis isthe case inthe antitrust defendantsfromexcessivepenalties. towards exclusive territories takenbyAmerican c imposing oftrebledamages apenalty intheform distribution agreements undercertainconditions dodeservecondemnation, itisdoubtfulthat most relevanceforourdiscussionistheexis should alsoconsiderthepeculiari This means thatapartfrom promoting economic The Europeanapproachtowardsexclusiveterr EU approach towardsexclusive distribution isaffected bythe lt, EUcompetition lawprovisi ties ofAmerican antitrustenforcement. Thetraitthatisof 319 nothavesignificantmark hurt theeconomyasawhole.Astrictapproach usive distribution agreements could be seen as usive distributionagreements couldbeseenas t, moreprecisely theTreaty ontheFunctioning interpreted bytakingintoaccounttheTreaty as cal chapter, exclusive distributionagreements tegrated firms from theapplication ofEU tence of treble damages. Even if exclusive ts, eventheairtightones,havesignificant especially problematic in case the restraint is hinders theachievement ofanintegrated is appropriate. In this light, a soft approach is appropriate.Inthislight,asoftapproach itories hasdeveloped ourts couldbeseenasanattempt tosave efficiencyassuch,EU competition law notseem justified,forseveral ons arenecessarilyinfluenced et power.Inaddition, in adifferentsetting. CEU eTD Collection the arbitrability of antitrust disputes showsth and arbitrationareinline withthefindingsinth even greaterlevelofover-enforcement. reconsideration ofthesubstant Consequently, if efforts tofacilitate private enforcement are not followed bya enforcement mechanism havetobefollowedbyadequatechangesinthesubstantivelaw. unrealized. Additionally,ifanop place. Asaresult, theprocompetitive potential of to theinjuredperson(s),firm couldbedisc fine from theCommission oranationalcompetit even further.First, ifafirm usingexclusiv reaching character oftheEUlawexclusiv restrictions, inthecontextofexcl Commission hasshownitsreadinesstoim Commission hasinrootingout enforcement mechanisms availableinEUco characterized asover-enforcement. Thisis airtight exclusiveterrito about theEU lawofexclusiveterritories,it is doubtfulwhetherastrictapproachtowards through theuseofexclusiveterr vertically integrating intodi competition law,thelaw isgiving firms anincentive toperform distributionin-house; by Therefore, theEUapproach towards ex The results reached inthech In thelight of theefforts toincrease thelevelofprivate enforcement intheEU,over- ries actuallycontributes stribution, afirm canachieveall thegoals itaims toachieve ive lawofexclusivedistribution, theconsequence couldbean itories, onlywithmore cost.Fi usive distributionorotherwise. restrictions onparalleltrad timal levelof enforcement isto beachieved,changes in the apter abouttherelationship be e territoriescould potenti 320 at theAmerican hands-off approach inantitrust especially soifone pose heavyfinesonfirms deployingsuch e distribution agreements could beextended to market tointegration. mpetition lawandtheactive rolethatthe ion authorityandberequiredtopaydamages ouraged fromusingtherestraintinfirst e restofthepaper.First, thepresent state of exclusive distributionagreements couldgo clusive distribution could generally be clusive distributioncouldgenerallybe e betweenMember States.The nally, asshowninthechapter tween exclusive distribution takes intoaccountthe ally facebothaheavy CEU eTD Collection jurisdictions byconsideringsome solutions antitrust betweentheU.S.andEUdoesnotn specialization agreements. Conseque approach couldbecharacterizedaslessst approach towards verticalnon-pricerestraints. developments; forexample,evenduringthe However, onecouldalsonotice framework. Inpractice,thiswouldmean that not adoptAmerican solutionsuncritically– a trend,whichtheEUlateradopts.However, EU lawadoptssolutions from theU.S.Ingeneral,American courtscan beseenassetting in antitrustintervention,especially seems tobein linewithahighe the Europeanapproachtowardslevelofscrutiny awards dealing withantitrust issues initiative (in this case, trust in arbitration as a contractual way of solving disputes). Similarly, neoliberal ideologyandtheChicagoSchool,i.e. matters extends alsotothefieldofarbitration. 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200. 201. 199. 198. 195. 204. 203. 202. 197. 196. OF OF Belgium: Lex Fori (and Lex Contractus)?Belgium: LexFori(and 32(5), 242-247 Arbitration I Switzerland ofUSJudgmentsContainingan AwardofPunitive Damages Punitive Damages Decision ConcerningTheRecognitionand RAND antitrust enforcement A Cigarette AdvertisingonConsumer C NTERNATIONAL ONTEMPORARY RBITRATION L L AW AND AND AW AW AND AND AW

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23. 22. 21. 43. 42. 41. 40. 39. 38. 37. 36. 35. 34. 33. 32. 31. 30. 29. 28. 27. 26. 25. 24. California v.ARCAmerica California v.American StoresCo.,495U.S.271(1990) Business ElectronicsCorp.v.Sharp Gilmer vInterstate/JohnsonLaneCorp., 500U.S.20(1991) 1987) General Leaseways,Inc.v.NationalTruckLeasingAss'n, 830F.2d716(7thCir. Gemco Latinoamerica, Inc.v.SeikoTi Institut FTC v.Cement Fortner Enterprises,Inc.v.U. Fastener Corp.v.FlushingEnterprises, 2009) Empire StateEthanolandEnergy,LLC Eiberger v.SonyCorp.ofAmerica, 459F.Supp.1276(2dCir.1978). Eastman KodakCo.v.Image Tech. Dr. MilesMedicalCo.v.JohnD.Park&SonsCo.,220U.S.373(1911) Donald B.RiceTireCo.,Inc.v.MichelinCorp., 483F.Supp.750(4thCir.1980) Davis-Watkins Co.v.ServiceMercha D.R. Wilder Mfg.Co.v.CornProductsRefiningCo.,236U.S.165(1915) Credit Suisse Securities(USA) Cowley v.BradenIndustries,In Copperweld Corp.v.Independence Coors BrewingCo.v.MolsonBrewer Continental T.V.,Inc.v.GTESylvania Continental T.V.,Inc.v.GTESy Cole MotorCarCo.v.Hurst,228Fed.280(5thCir.1915) e, 333U.S.683(1948) Corp., 490U.S.93,101(1989) S. SteelCorp.,394U.S.495(1969) LLC v.Billing,551 U.S.264(2007) c., 613F.2d751(9thCir.1980) lvania Inc.,433U.S.36(1977) Tube Corp.467U.S.752(1984) Servs., Inc.,504U.S.451(1992) Electronics Corp.485U.S.717(1988) 350 ndise, 686F.2d1190(6thCir.1982) ies, 51F.3d1511(10thCir.1995) me Corp.,671F.Supp.972(1stCir.1987) Inc.,362F.Supp.32(6thCir.1973) Inc.,461F.Supp.1046(9thCir.1978) v. BBIIntern.,2009WL790962(2dCir. CEU eTD Collection

64. 63. 62. 61. 60. 59. 58. 57. 56. 55. 54. 53. 52. 51. 50. 49. 48. 47. 46. 45. 44. Kowalski v.ChicagoTribune Co.,854F.2d168(7thCir.1988) Klor's, Inc.v.Broadway-Hale Stores, Inc.,359U.S.207(1959) Kelly v.Kosuga,358U.S.516(1959) Kansas v.UtiliCorpUnited,Inc.,497U.S.199(1990) JBL Enterprises,Inc.v.Jhirmack Ente 2002) Investment Partners,L.P.v.Glamour S WL 192517(D.C.Cir.2011) International Tradingand Indus.Inv. Co.v.DynCorpAerospaceTechnology, 2011 International LogisticsGroup,Ltd.v.Ch Illinois BrickCo.v.Illinois, 431U.S.720(1977) 1991) Hough v.MerrillLynch,Pierce,Fenner Helvering v.Hallock,309U.S.106(1940) HCI Technologies,Inc.v.Avaya,Inc.,446F.Supp.2d518(4thCir.2006) Hawaii v.StandardOilCo.of Hartford FireIns.Co.v.California,509U.S.764(1993) Hanover Shoe,Inc.v.UnitedShoe Halligan v.PiperJaffray,Inc.,148F.3d197(2dCir.1998) Hall StreetAssociates,L.L.C.v. 1974) GTE SylvaniaInc.v.ContinentalT.V., GTE SylvaniaInc.v.ContinentalT. Graphic ProductsDistributors,Inc. GKG Caribe,Inc.v.Nokia-Mobira, Cal.,405U.S.251(1972) Mattel, Inc.,552U.S.576(2008) Mattel, Machinery Corp.,392U.S.481(1968) v. ITEKCorp.,717F.2d1560(11thCir.1983) V.,Inc.,537F.2d980(9thCir.1976) Inc., 725F.Supp.109(1stCir.1989) 351 rprises, Inc.,698F.2d1011(9thCir.1983) rysler Corp.,884F.2d904(6thCir.1989) hots Licensing, Inc.,298 Inc., 1974-1TradeCasesP75,072(9thCir. & Smith, Inc.,757F.Supp.283(2dCir. F.3d 314(5thCir. CEU eTD Collection

67. 66. 65. 86. 85. 84. 83. 82. 81. 80. 79. 78. 77. 76. 75. 74. 73. 72. 71. 70. 69. 68. Leegin CreativeLeatherProducts,In Lawrence v.Texas,539U.S.558(2003) Kristian v.Comcast Corp.,446F.3d25(1stCir.2006) PacifiCare HealthSystems, Inc.v.Book, 538U.S.401(2003) Pacific Mut.LifeIns.Co. v.Haslip,499U.S.1(1991) v.Discon,Inc.,525 U.S.128(1998) Corp. NYNEX 284 (1985) Northern Wholesale Stationers,Inc.v.Pa Northern Pac.Ry.Co.v.U.S.,356U.S.1(1958) Newberry v.Washington PostCo.,438F.Supp.470(D.C.Cir.1977) 256 F.3d89(2dCir.2001) New YorkTelephoneCompanyv.Communicat New StateIceCo.v.Liebmann, 285U.S.262(1932) National Soc.ofProfessionalEngi Athletic Ass'n v.BoardofRegent National CollegiateAthleticAss'n v.Boar Nash v.U.S.,229U.S.373(1913) Montes v.Shearson Lehman Bros., Montejo v.Louisiana,129S.Ct.2079(2009) Monsanto Co. v.Spray-RiteServiceCorp.,465U.S.752(1984) Mitsubishi MotorsCorp.v.SolerChry McDaniel v.GreensboroNewsCo.,1984- Marrese v.American Academy ofOrt M/S Bremen v.ZapataOff- M &CCorp.v.ErwinBehrGmbH & Shore Co.,407U.S.1(1972) s ofUniversityOklahoma, neers v.U.S.,435U.S.679(1978) Inc., 128F.3d1456(11thCir.1997) c. v.PSKS,Inc.,551U.S.877(2007) 352 hopaedic Surgeons,470U.S.373(1985) Co., KG,87F.3d844(6thCir.1996) sler-Plymouth, Inc.,473U.S.614(1985) 1 TradeCasesP65,792(4thCir.1983) cific Stationery& d ofRegentsNationalCollegiate ions Workers ofAmerica Local1100, 468U.S.85(1984) Printing Co.,472U.S. CEU eTD Collection

88. 87. 108. 107. 106. 105. 104. 103. 102. 101. 100. 99. 98. 97. 96. 95. 94. 93. 92. 91. 90. 89. Package Shop,Inc.v.Anheuser-Busch, Package Shop,Inc.v.Anheuser-Busch,In 1987) 2004 U.S.Dist.LEXIS1423(2dCir.2004) 6 (1stCir.2001) Ryko Mfg.Co.v.EdenServices, Roper v.Simmons,543U.S.551(2005) Reiter v.SonotoneCorp.,442U.S.330(1979) Rebel OilCo. v.Atl.RichfieldCo.,51F.3d1421(9thCir.1995) Prestige Fordv.DealerComputer Phillips v.IolaPortlandCement Co.,125Fed.593(8thCir.1903) Pfizer, Inc.v.GovernmentofIndia,434U.S.308(1978) Perma LifeMufflers,Inc.v.Intern Payne v.Tennessee,501U.S.808(1991) Palmer v.BRGofGeorgia,Inc.,498U.S.46(1990) Packard MotorCarCo.v.Webster Mo State ofN.Y.byAbrams Inc.,673F.Supp.664(2d Cir. v.Anheuser-Busch, State Farm Mut.Auto.Ins.Co.v.Campbell, 538U.S.408(2003) Jerseyv.U.S., 221U.S.1(1911) Standard OilCo.ofNew Snap-On ToolsCorp.v.F.T.C.,321F.2d825(7th Cir.1963) Sherman v.BritishLeyland Motors,Ltd.,601F.2d429(9thCir.1979) Shanghai FoodstuffsImport&ExportCorp.v.InternationalChemical, Inc., Seacoast MotorsofSalisbury,Inc. v. Schwing MotorCo.v.HudsonSalesCorp.,138F.Supp.899(4thCir.1956) Scherk v.Alberto-CulverCo.,417U.S.506(1974) 823 F.2d1215(8thCir.1987) ational PartsCorp.,392U.S.134(1968) 353 tor CarCo., 243F.2d418(D.C.Cir.) Services, Inc.,324F.3d391(5thCir.2003) Inc., 675F.Supp.894(3dCir.1987) c., 1984U.S.Dist.LEXIS24942(1984) DaimlerChrysler Motors Corp.,271 F.3d CEU eTD Collection

130. 111. 110. 109. 131. 129. 128. 127. 126. 125. 124. 123. 122. 121. 120. 119. 118. 117. 116. 115. 114. 113. 112. 1993) U.S. 398,(2004) Verizon CommunicationsInc.v.LawO Stolt-Nielsen S.A.v.AnimalFeeds In State OilCo.v.Khan,522U.S.3(1997) State ofN.Y.byAbrams Inc.,811F.Supp.848(2dCir. v.Anheuser-Busch, White MotorCo.v.U.S., 372U.S.253(1963) Valuepest.com ofCharlotte,Inc.v. United Statesv.Columbia SteelCo.,334U.S.495(1948) U.S. v.White MotorCo.,194F.Supp.562(6thCir.1961) Associates,Inc.,405U.S.596(1972) U.S. v.Topco U.S. v.Socony-Vacuum OilCo.,310U.S.150(1940) U.S. v.Sealy,Inc.388350(1967) U.S. v.GeneralMotorsCorp.,384127(1966) U.S. v.GeneralElectric Co.,272U.S.476(1926) Corp.of U.S. v.Container U.S. v.Colgate&Co.,250300(1919) U.S. v.AddystonPipe&SteelCo.,85F.271(6thCir.1898) U. S.v.Arnold,Schwinn&Co.,388U.S.365(1967) U. S.v.Arnold,Schwinn&Co.,237F.Supp.323(7thCir.1965) Tripoli Co.v.Wella Corp.,425F.2d932(3dCir.1970) Timken BearingCo.v.U.S.,341U.S.593(1951) Roller Texas Industries,Inc.v.RadcliffMa Sullivan v.NationalFootball League, 34F.3d1091(1stCir.1994) Story Parchment Co.v.PatersonParchment PaperCo.,282U.S.555(1931) America, 393U.S.333(1969) 354 Bayer Corp.,561F.3d282(4thCir.2009) terials, Inc.,451U.S.630(1981) ternational Corp.,130S.Ct.1758(2010) ffices ofCurtis V. Trinko,LLP,540 CEU eTD Collection 8.3.2.1 8.3.2 8.3.1.2 7. 6. 5. 4. 3. 2. 1. 133. 132. 7. 6. 5. 3. 2. 1. 11. 10. 9. 8. 4.

In re In re In re In re In re Inre In re Case T-219/99 51 Case 127-73BelgischeRadioenTelevisievSVSABAMand NV Fonior[1974]ECR Case 22/71BéguelinImportCo.vS.A.G.L.Export Case C-40/08AsturcomTelecomunicacionesSL Case C-62/86 Case T-176/95 EU In re In re In re In re Case T-24/90 [2009] ECRI-9579 FTC decisions (listed alphabetically) alphabetically) (listed decisions FTC ECJ and GC decisions (listed alphabetically) alphabetically) (listed decisions GC and ECJ TheCoca-ColaBottlingCompany ofth theCocaColaCo.,1990WL 606319(1990) Snap-OnTools,59F.T.C.1035(1961) Lenox,Inc.,1988WL1025446(1988) BrunswickCorp.,94F.T.C.1174(1979) AdolphCoorsCo.,112F.T.C.191(1989) ToysRUs,Inc.,126F.T.C.415(1998) TheCoca-ColaCo.,117F.T.C.795(1994) TheCoca-ColaCo.,91F.T.C.517(1978) TheCoca-ColaBottlingCompany of BeltoneElectronicsCorp.,100F.T.C.68(1982) Zenith RadioCorp.v.HazeltineRe Wilko v.Swan, 346U.S.427(1953) Automec SrlvCommission AKZO Chemie BVvCommission[1991]ECR3359 AKZO Chemie British AirwaysplcvCommission Accinauto SAvCommission 355 [1992]ECRII-2223 search, Inc.,395U.S.100(1969) the Southwest,1991WL 639922(1991) [1999]ECRII-1635 e Southwest,118F.T.C.452(1994) [2003]ECR5917 v Cristina RodríguezNogueira vCristina [1971]ECR949

CEU eTD Collection

16. 19. 18. 17. 15. 14. 13. 12. 11. 10. 9. 8. Case 31/85 I-10421 Commission [1973]ECR215 Case 6/72EuropemballageCorporation andContinentalCanCompany Inc.v II-3141 and Sociéténationaledescheminsdeferfrançais(SNCF) vCommission Union internationaledescheminsdefer Ltd (ENS), Eurostar(UK) Ltd,formerly Joined casesT-374/94,T-375/94,T-384/94andT-388/94 GmbH vCommission Joined cases56and58-64ÉtablissementsConsten 3933 Case C-168/05 3055 Case C-126/97 Case T-43/92 Case 30/78 [2005] ECRII-3319 Case T-325/01 and Others[2001]ECRI-6297 Case C-453/99 others vCiné-VogFilmsSAand Case 262/81CoditelSA,Compagniegénéralepour 1147 dePeijpervSterlingDrugInc. Case 15/74CentrafarmBVandAdriaan Distillers Company LimitedvCommission ETA Fabriquesd'ÉbauchesvSADKInvestmentandothers Dunlop SlazengerInternationalLtd vCommission Eco SwissChinaTimeLtd Elisa María Mostaza Claro v Centro MóvilMileniumSL Elisa MaríaMostazaClarovCentro Courage LtdvBernardCrehanand DaimlerChrysler AG vCommissionofthe EuropeanCommunities [1966]ECR299 356 [1982]ECR3381 EuropeanPassengerServicesLtd(EPS), v BenettonInternationalNV (UIC), NV Nederlandse Spoorwegen (NS)(UIC), NVNederlandse ladiffusiondetélévision,and S.à.R.L. andGrundig-Verkaufs- Bernard CrehanvCourageLtd [1980]ECR2229 European Night Services European NightServices [1994]ECRII-441 [1999]ECRI- [1985]ECR [1974]ECR [2006]ECR [1998]ECR

CEU eTD Collection

27. 26. 25. 24. 23. 22. 21. 20. 33. 32. 31. 30. 29. 28. Case C-306/96 Case 85/76 Case T-66/92 Case 86/82 Case C-282/95P European Communities exportadores españolesdeproductosfarmacéu Commission oftheEuropean Communities 513/06 P) Commission oftheEuropeanCommunities Services Unlimited v Commission Joined casesC-501/06P,C-513/06 Case C-551/03P Case 5/69 ECR II-975 Case T-13/03 Case 19/77 and Télévisionfrançaise1SA(TF1) Case T-112/99 Case 26/76 Case T-17/93 4705 Cornelis vanVeenvStichtingPe Joined casesC-430/93andC-431/93JeroenvanSchijndelJohannesNicolaas [1998] ECRI-1983 andEuropeanAssociationofEuroPharmaceuticalCompanies(EAEPC)v Franz Völk vS.P.R.L.EtsJ.Vervaecke Hoffmann-La Roche&Co.AGvCommission Hasselblad (GB) LimitedvCommission[1984]ECR883 Miller InternationalSchallplattenGmbH vCommission Metro SB-Großmärkte GmbH&Co.KGvCommission[1977]ECR1875 Herlitz AG vCommission Matra HachetteSAvCommission Nintendo Co.,Ltdand of Métropole télévision(M6), Suez-Lyonnai Javico InternationalandAG Guérin automobilesvCommission General MotorsBVvCommission (C-519/06 P) [2009]ECRI-09291 nsioenfonds voorFysiotherapeuten of theEuropeanCommunities vCommission [2001]ECRII-2459 P, C-515/06PandC-519/06 357 [1994]ECR531 v GlaxoSmithKlineServices Unlimited ticos (Aseprofar) v [1994]ECRII-595 EuropeGmbHvCommission [1969]ECR295 (C-515/06 P) [2006]ECRI-3173 vYvesSaintLaurentParfumsSA [1997]ECR1503 se deseaux,FranceTélécom [1979]ECR461 andAsociaciónde Commission ofthe [1978]ECR131 (C-501/06 P) GlaxoSmithKline [1995] ECRI- [2009] and (C-

CEU eTD Collection

38. 47. 46. 45. 44. 43. 40. 39. 37. 36. 42. 41. 35. 34. Case 161/84PronuptiadeParisGmbHv I-4599 [1966] ECR235 Case 56/65SociétéTechniqueMinière (L.T.M.) GmbH undCo.KG[1983]ECR4173 Case 319/82SociétédeVenteCimentsetBét 351 Case 1-71SociétéanonymeCadillon vFirmaHöss,Maschinenbau KG [1983] ECR1825 Joined cases100to103/80 Roux andSociétédesFonderiesJOT Case 63/75SAFonderiesRoubaixWattrelosvSociéténouvelledesA. Case 10/69 Case 42/84 [1986] 353 Case C-312/93 Case T-77/92 Case 48/72 2015 Case 243/83SABinon&Ciev Agenceetmessageriesdelapresse [1969] ECR309 Case C-243/08 Hochseefischerei NordsternAG&Co.KG Hochseefischerei NordsternAG&C Case 102/81NordseeDeutscheHochseefischereiGmbH vReedereiMond Remia BVandothersvCommission SA BrasseriedeHaechtvWilkin-Janssen S.A. PortelangevSmithCoronaMarchantInternationalandothers Parker PenLtdvCommission Pannon GSMZrt.vErzsébetSustiknéGy Peterbroeck, VanCampenhout &CieSCSvBelgianState SA MusiqueDiffusionfrançaiseandothersvCommission [1976]ECR111 358 o. KGandReedereiFriedrichBusse [1982]ECR1095 [1994]ECRII-549 vMaschinenbauUl [1985]ECR2545 ons del'EstSAvKerpen& [1973]ECR77 deParis IrmgardSchillgallis őrfi [2009] ECR I-4713 [2009]ECR m GmbH(M.B.U.) [1985]ECR [1971]ECR [1995]ECR

CEU eTD Collection 8.3.2.2 14. 52. 51. 50. 49. 48. 13. 12. 11. 8. 7. 6. 5. 3. 2. 1. 53. 10. 9. 4.

66/5/EEC Case C-73/95P Commission [1978]ECR207 Case 27/76UnitedBrandsCompanyandContinentaalBVv Case C-279/87 Case C-333/94P Case C-234/89 95/477/EC 88/172/EEC 2002/190/EC 64/566/EEC 64/233/EEC 93/49/EEC 94/322/EC 2000/475/EC 90/645/EEC 96/478/EC [2006] ECRI-6619 Nicolò Tricarico(C-297/04) andPasquali Assicurazioni SpA(C-295/04), AntonioCann Joined casesC-295/04toC-298/04 65/426/EEC 82/367/EEC 65/366/EEC Commission decisions (listed alphabetically) alphabetically) (listed decisions Commission Maison JallatteS.A. BASF Lacke+FarbenAG, andAccinautoSA Exxon/Shell [1996]L201/1 ADALAT OJ Ford VolkswagenOJ[1993]L20/14 Konica Hummel-Isbecque OJ[1965]156/2581 Hasselblad Grundig-Consten Grosfillex-Fillistorf OJ[1964]58/915 D.R.U.-Blondel Bayer Dental JCB CECED Tipp-Ex GmbH&Co.KGvCommission Stergios DelimitisvHenningerBräuAG Viho EuropeBVvCommission Tetra PakInternationalSAvCommission OJ[2002]L69/1 OJ[1988]L78/34 OJ[2000]L187/47 OJ[1994]L144/20 OJ[1982]L161/18 OJ[1990]L351/46 OJ[1065]131/2194 OJ[1964]161/2545 OJ[1966]3/37 359 Vincenzo ManfredivLloydAdriatico na Murgolo(C-298/04) vAssitaliaSpA ito vFondiariaSaiSpA(C-296/04) and [1996]ECRI-5457 OJ[1995]L272/16 [1991]ECRI-935 [1990]ECRI-261 [1996]ECRI-5951

CEU eTD Collection 8.3.3 8.3.3.1 28. 27. 26. 25. 24. 23. 22. 21. 20. 18. 17. 16. 4. 19. 15. 3. 2. 1.

Other 98/273/EC 2001/711/EC 92/426/EEC 94/987/EC [1978] L50/16 78/163/EEC 85/618/EEC 1999/6/EC 87/409/EEC 94/986/EC 2003/675/EC 92/261/EEC 76/915/EEC appeal] Paris,1ech.,May 19,1993 [France] Labinalv.Mos &Westland Aerospace, 97/123/EC 2002/758/EC [England] ETPlusSAvWelters E.C.C. 4 [England] DevenishNutri of 8March2007 [Belgium] SNFSASv.CytecIndustrie,Br National courts (listed alphabeti (listed courts National VW Tretorn andothers Sicasov OJ[1999]L4/27 Philips-Osram Novalliance/Systemform Viho/Parker Pen Siemens/Fanuc OJ[1985]L376/29 Sandoz Newitt/Dunlop Slazenger International andOthers Miller InternationalSchallplattenGmbH OJ[1976]L357/40 The DistillersCompanyLimited,C Volkswagen Nintendo Mercedes-Benz OJ[1998]L124/60 OJ[1987]L222/28 OJ[2003]L255/33 OJ[2001]L262/14 OJ[1994]L378/37 tion LtdvSanofi-AventisSA,19October2007, [2008] OJ[2002]L257/1 OJ[1992]L233/27 OJ[1994]L378/45 , [2005]EWHC2115(Comm) cally according to the country) country) the to according cally OJ[1997]47/11 360 ussels Court,Judgment R.G.2005/7721/A onditions of SaleandPriceTerms Courd’appel[CA][regionalcourtof of7November 2005 OJ[1992]L131/32 OJ OJ CEU eTD Collection

15. 14. 13. 12. 11. 10. 9. 8. 7. 6. 5. Instance], TheHague,May27,2004 International Inc./VRVanRaalteReclam [The Netherlands]Casesnos.KG/RK Mar. 24,2005. Inc./VR VanRaalteReclame B.V.,Gerechtshof [The Netherlands]Casesnos.04/694and04/ March 2006 [Switzerland] X.S.p.A.v.Y.S.r.l.,Sw Court] Apr.28,1992,118IIpp.193-198 [Switzerland] VSpAv.GSA,Arrêtsdu Section Civile[MilanCourtofAppeal [Italy] TerraArmatav.TensacciaiS.p.A., [Court ofAppeal],Dec.21,1991,Bolognano.1786 [Italy] SpACoveme v.CFI- 2007 [Italy] JudyParrottvFimez SpA,Cortedi Civil Division]Jun.4,1992,118Bundesgeric [Germany] CaseIXZR149/91,Bundesgerichts [France] SNFv.Cytec,CourdeCassation,Jun.4,2008 2006 [France] SNFv.Cytec,Courd’appel[CA][r appeal] Paris,Nov.18,2004 [France] SAThales,AirDéfensev.Euromiss Compagnie FrançaisedesIsol 361 s, FirstCivilSection],Jul.5,2006 2002-979 and2003-1617,MarketingDisplays iss FederalCourt,Case4P.278/2005of8 e B.V.,Rechtbank[Rb.][CourtofFirst Cassazione decision no 1183 of 19 Jan Cassazionedecisionno1183of19Jan Tribunal Fédéral Suisse[ATF] [Federal ile, Courd’appel[CA] htshofes inZivilsachen[BGHZ]312 egional courtofappeal]Paris,Mar.23, La Courd’AppeldeMilan,Première 695, MarketingDisplaysInternational [Hof] [Court of Appeal], The Hague, ofAppeal],TheHague, [Court [Hof] hof [BGH][FederalCourtofJustice, ants SA,CortediAppello [regionalcourtof CEU eTD Collection 8.3.3.2 5. 3. 1. 8. 7. 6. 4. 2.

1992, 24aY Manufacturer (France)v.Distributor(Ire C Seller (France)v.Buyer(US),Fina Y Claimant (Germany) v.Respondent(Yugosla Y Agent (Spain)v.Principal(Denmark), 1996, 24aY Distributor (Japan)v.Manuf Y Distributor (UK)v.Manufact A Claimant v. Respondents,FinalAwa Case No.4132,10Y Supplier (Italy)v.Buyer(SouthKorea), Arbitral awards (listed chronologically) chronologically) (listed awards Arbitral OMM EARBK EARBK RB EARBK ' N 99(1996) .

A . . .

RB C C C OMM OMM OMM ' EARBK EARBK N 97(1991) . . .

A A A . . RB RB RB

C C EARBK OMM OMM ' ' ' N N N 164(1997) 11 (2000) 215 (1978) . .

. A A

C RB RB acturer (Sweden),Interim urer (US),FinalAward of1995inCaseNo.8362,22 OMM ' ' N N 141(1999) 149(1999) .

l Awardof1990inCaseNo.5946,16Y A rd of1992inCaseNo.7181,21Y 362 RB ' Preliminary Awardof22September1983in N Final awardincaseno.8817of1997,25 land), PartialAwardinCaseNo.7319of 49(1985) via), Awardof1967inCaseNo.1455,3 Award inCaseNo.7337of EARBK .

EARBK C OMM . .

CEU eTD Collection 8.4.1.2 8.4.1.1 8.4.1 8.4 8. 7. 6. 5. 4. 3. 2. 1. 5. 4. 3. 2. 1. Table oflegislative

Sherman AntitrustActof1890,15U.S.C.§§1–7 Federal Trade Commission Actof1914,15U.S.C.§§41-58 Federal ArbitrationActof1925,9USC§§1-14 Declaratory Judgment Actof1934,28U.S.C.§§2201-2202 Criminal FineImprovements Actof 1987,101Stat1279 Clayton AntitrustActof1914,15 Automobile Dealers’DayinC American Recovery andReinvestment Actof2009(Stimulus Bill),123 Stat115 accessed 17May2011) December (http://www.justice.gov/at 2008) U.S. DepartmentAntitrustDi ofJustice, 6263-03 U.S. DepartmentVerticalRest ofJustice May 2011) Guidelines of 19August2010(http://f U.S. DepartmentandtheFede ofJustice R (http://www.naag.org/assets/f National AssociationofAtto US Legislation (listed alphabetically) alphabetically) (listed Legislation Related materials (listed alphabetically) alphabetically) (listed materials Related ESTATEMENT (T HIRD a ) nd relatedmaterials OF A GENCY rneys General, VerticalRe iles/pdf/at-vrest_guidelin ourt Actof1956,15U.S.C.§§1221-1225 U.S.C. §§12–27,2952–53 (2006) 363 tc.gov/os/2010/08/100819hmg.pdf, accessed17 vision Manual(FourthEdition,Last Updated ral Trade Commission, HorizontalMerger raints Guidelines of23January1985,50FR r/public/divisionmanual/atrdivman.pdf, es.pdf, accessed17May2011) straints Guidelinesof1995 CEU eTD Collection 8.4.2.1 8.4.2 2. 1. 8. 7. 6. 5. 4. 3.

Regulation No19/65/EEC of2Marchthe the Treaty,OJ[1962]13/204 EEC Council:Regulation No17:FirstRegula 359/46 of Article85(3)the Treatytocategor Commission Regulation(EEC)No4087/88of30November 382/17 of theMemberStatesrela Council Directive86/653/EECof [1983] L173/5 Article [101](3) of theTreatytocategorie Commission Regulation(EEC [1983] L173/1 Article [101](3) of the Treaty tocategorie Commission Regulation(EEC practices ,OJ [1971]L285/46 Article 85 (3) of the Treaty to categorie Regulation (EEC)No2821/71oftheCouncil [1967] 57/849 Article 85 (3)of theTreatytocertain categ Regulation No67/67/EECoftheCommissi 36/533 of theTreatytocertaincategoriesagre EU Legislation (listed chronologically) chronologically) (listed Legislation ting toself-employed commercialagents,OJ[1986]L ) No1984/83of22June19 ) No1983/83of22June19 18 December 1986 on the coordination of the laws 18December 1986onthecoordinationoflaws 364 ements andconcertedpractices,OJ[1965] s ofagreements, decisionsandconcerted s ofexclusive distribution agreements, OJ ies of franchiseagreements, OJ[1988]L s ofexclusivepurchasingagreements, OJ on of22March1967theapplication ories of exclusivedealingagreements, OJ of20December 1971on application of Council on applicati tion implementing Articles85 and86of 83 ontheapplicationof 83 ontheapplicationof 1988ontheapplication on of Article 85 (3) on ofArticle85(3) CEU eTD Collection

16. 15. 14. 13. 12. 11. 10. 9. categories ofspecialisationagreements, OJ[2010]L335/43 of Article101(3)theTreatyonFunc Commission Regulation(EU) vertical agreements andconcer 101(3) oftheTreatyonFunctioning Commission Regulation330/2010of20Apr 177/6 June 2008onthelawapplicabletocontra Regulation (EC)No593/2008oftheEuropean 199/40 July 2007onthelawapplicable tonon-cont Regulation (EC)No864/2007oftheEuropean concentrations betweenundertakings(the Council Regulation(EC) No139/2004of [2003] L1/1 the rules on competition laid downinArticles [101]and[102]oftheTreaty, OJ 2002ontheimplementationCouncil Regulation(EC)No1/2003of16December of L 12/1 recognition andenforcement ofjudgments in Council Regulation(EC)No44/2001of22 practices, OJ [1999]L336/21 of Article81(3) of the Treatytocategories of vertical agreements andconcerted Commission Regulation(EC) No2790/1999of22December1999ontheapplication No1218/2010of14December 2010onthe application ted practices,OJ[2010]L102/1 365 EC MergerRegulation),OJ[2004]L24/1 ractual obligations ctual obligations(R tioning oftheEuropean Uniontocertain December 2000onjurisdictionandthe 20January2004onthecontrolof civil andcommercial matters, OJ[2001] theEuropeanUniontocategoriesof il 2010 on the application of Article il 2010ontheapplicationofArticle Parliament andoftheCouncil17 Parliament andoftheCouncil11 (Rome II),OJ[2007]L ome I),OJ[2008]L CEU eTD Collection 8.4.2.2 6. 5. 4. 3. 2. 1. 11. 10. 9. 8. 7.

Commission Noticeon agreements ofmi Commission Notice-GuidelinesonVerticalRestraints,OJ[2000]C291/1 Treaty, Commission Program White paperonmodernisation oftherules Community competition law,OJ[1997]C372/5 Commission noticeonthedefinitionof [1984] C101/2 to categories ofexclusivedistribution andexclusive purchasingagreements, OJ (EEC) No1984/83of22June1983ontheappli Commission noticeconcerningCommissi [1962] 139/2921 Commission NoticeonExclusiveDealingC 19.12.2005. Green Paper–Damages actions for breachoftheECantitrust rules,COM(2005)672, OJ [2004]C101/43 Commission Noticeon cooperationwithinth [101] and[102]ofthe Commission Notice-Guidelineson theeff Regulation onthecontrolof Commission Guidelinesontheassessment [2004] C101/97 Commission Guidelines ontheapplication of Article [101](3) 368/13 restrict competition underAr Related materials (listed chronologically) chronologically) (listed materials Related Treaty, OJ[2004]C101/81 rtakings, OJ [2004] C 31/5 concentrations betweenundertakings,OJ[2004]C31/5 me No99/027,28April1999 ticle [101](1)ofthe[TFEU] 366 implementing Articles85and86oftheEC nor importancewhichdonotappreciably ect ontradeconceptcontainedinArticles on Regulations(EEC)No1983/83and of horizontalmergers undertheCouncil e NetworkofCompetition Authorities, ontracts withCommercial Agents,OJ relevant market forthepurposesof cation ofArticle85(3)theTreaty (deminimis), OJ[2001]C of the Treaty, OJ of theTreaty,OJ CEU eTD Collection 8.4.3 8.4.3.1 17. 16. 15. 14. 13. 12. 3. 2. 1.

Other agreements, OJ[2011]C11/1 of theTreatyonFunctioningEu Communication from theCommission–Guidelin Commission GuidelinesonVertical dominant undertaki priorities inapplyingArticle Communication from theCommission —Gu 165, 2.4.2008. White PaperonDamages ActionsforBreach C 265/6 Council Regulationonthecontrolofconcen Commission Guidelinesontheassessmen 139/2004 onthecontrolofconcentrations Commission ConsolidatedJurisdictional (New YorkConvention),330U.N.T.S.38 Convention ontheRecognition andEnforcem U.N.T.S. 11 Treaty EstablishingtheEuropeanEconom 261 U.N.T.S.140 Treaty EstablishingtheEuropeanCoaland Steel Communityof Treaties (listed chronologically) chronologically) (listed Treaties ngs, OJ[2009]C45/7 [102]ofthe[TFEU]toa Restraints, OJ [2010] C 130/1 Restraints,OJ[2010] 367 Notice underCouncilRegulation(EC)No between undertakings, OJ[2008]C95/1 ic Communityof1957(Rome Treaty),298 trations betweenundertakings,OJ[2008] ropean Uniontohorizontalco-operation t ofnon-horizontalmergers underthe idance ontheCommission's enforcement ent ofForeignArbitralAwards1958 of theECantitrustrules,COM (2008) es onthe applicability of Article 101 busive exclusiona 1951 (Paris Treaty), 1951 (Paris ry conductby CEU eTD Collection 8.4.3.3 8.4.3.2 8. 7. 6. 5. 4. 3. 2. 1. 4. 3. 2. 1. 9.

[Swiss] PrivateIntern [Swedish] ArbitrationActof1999 [Serbian] LawonObligationsof1978(asamended) [Italian] CodeofCivilProcedure1990 [German] ArbitrationLawof1998 [French] CodeofCivilProcedure(asamended) [French] CodeCivilof1804 indefinite durationof1961 [Belgian] Lawon theunilateral termination amended in2006) UNCITRAL ModelLawonInternational London CourtofInternationa International Chamber ofCommer International ArbitrationRu [UK] ProtectionofTradingInterestsAct1980 National statutes (listed alphabe (listed statutes National Arbitration rules and model laws (listed alphabetically) alphabetically) (listed laws model and rules Arbitration ational LawActof1987 les oftheAmerican Arbi l ArbitrationRulesof1998 ce RulesofArbitration1998 tically according to the country) country) the to according tically 368 of exclusivedistributionagreements of Commercial Arbitration of 1985 (as Commercial Arbitrationof1985(as tration Associationof2009