EUROPEAN COMMISSION: NEW BLOCK EXEMPTION REGULATION ON VERTICAL AGREEMENTS

Kador & Partner, Munich, Germany, Jennifer Clayton-Chen

On December 22, 1999, the Commission adopted new competition rules for the distribution sector, i.e. agreements for the sale or purchase of goods or services between companies operating at different levels of the production or distribution chain, in particular industrial supply agreements, exclusive and selective distribution agreements, franchising agreements and non-compete agreements in certain industrial sectors. According to the press release of the Commission, the Regulation will reform a key area of European competition policy. The new Regulation prolongs Regulation 1983/83 on exclusive distribution agreements, Regulation 1984/83 on exclusive purchasing agreements, and Regulation 4087/88 on franchise agreements until June 1, 2000, and will replace them thereafter. Existing agreements between companies will continue to benefit from the current regulations until the end of 2001.

The main aim of the Commission's new approach is to simplify the rules and to shift from the previous regulatory approach to a more economic approach, by providing automatic exemption if the supplier, or, where there are exclusive supply obligations, the buyer, has a market share of less than 30%. Above this threshold the automatic exemption will not apply, but will on the other hand also not be presumed to be illegal; instead, they may require an individual exemption.

The automatic exemption will not apply, and individual exemption will be unlikely, in the case of several types of competition restrictions referred to by the Commission a s "hard core" restrictions, in particular sales price restrictions and certain types of territorial and customer protection restrictions. Certain sales restrictions, in particular non-compete obligations exceeding five years, and post agreement restrictions, will not be automatically exempted but may be individually exempted.

The Commission is still working on the accompanying Guidelines, which will contain more details and examples, and which may be published in the course of spring, 2000.