Download Article 81(1)

Article 81
Paul Hughes
Brussels
30th March 2005
Presentation Overview
• Article 81(1) - its width
• Horizontal agreements
• Vertical agreements
• Article 81(2) – nullity sanction
• Article 81(3)- capable of exemption?
Article 81(1) - structure
• Agreements between, concerted practices and
decisions by associations of
• Undertakings
• Which may affect trade between member states
• Having as their object or effect
• Prevention restriction or distortion of competition in EU
Article 81(1)
• Agreements: ACF Chemiefarma NV; BP Kemi; Sandoz;
Ford Europe; Adalat
• Concerted practice: Dyestuffs; Suiker Unie;
Polypropylene; Wood Pulp
• Decisions of associations: Vereeniging van
Cementhandelaren; EPI Code of Conduct
Article 81(1) - Undertakings
• Public sector: Aeroports de Paris; Bodson; Hofner &
Elser; Fenin
• Employees/self employed: Becu; Reuter/BASF; Albany;
• Share ownership: Viho; Hydrotherm/Andreoli
• Professions: Wouters; EPI Code of Conduct
Article 81(1) – Effect on Trade
• Consten & Grundig – concept defines boundary
between national and EU law;
• Key issue is capacity to affect imports/exports;
Dutch Electro-technical Fittings Equipment; BNIC v
Clair; Fire Insurance
Bagnasco; Dutch Banks
Javico v Yves St Laurent
• Commission Guidelines 2004/C 101/07
Article 81(1) – Object or Effect
• Object: price fixing, allocation of markets or customers,
output or sales limitations
• Effect: requires economic analysis
Delimitis v Henninger Brau
European Night Services
Van den Bergh
Article 81(1) – Restriction of Competition
• Commission Notice on Agreements of Minor Importance
- where parties are:
– Competitors – aggregate market share cap of 10%
– Not actual/potential competitors - individual market share cap
15%
– Classification difficult – 10% cap applicable
• Parallel networks of restrictive agreements cumulatively
affecting competition in relevant market – caps reduced
to 5%
Article 81(2) - Nullity
• English blue pencil test – agreement may be invalid
• Passmore v Morland plc: market shares may rise
• Right of damages: Courage Limited v Crehan
Relationship of Articles 81(1) and 81(3)
•
Article 81(1) infringed? SLT v Maschinenbau Ulm; Metro; Pronuptia;
Nungesser; Remia & Nutricia; Gottrup Klim
•
“Rule of Reason”: Metropole v Commission
•
Commission Guidelines on application of Article 81(3) 2004/C 101/08
•
Article 81(3) requirements:
– Improve production/distribution or promote technical/economic
progress
– Confer fair share of benefits on consumers
– Restrictions imposed indispensable to these objectives
– Do not substantially eliminate competition
•
Block exemptions: legal certainty
Horizontal Arrangements
Art 81(3)
Concerted Practice/
Information Exchanges
Behavioural
arrangements
Collaborative
Agreement
ECMR
Corporate
JV
Merger
Structural
arrangements
Horizontal Arrangements
Art 81(3)
Concerted Practice/
Information Exchanges
Behavioural
arrangements
NB: Between Competitors
Hard core cartel
criminal offence UK
Collaborative
Agreement
ECMR
Corporate
JV
Merger
Structural
arrangements
Horizontal Arrangements
•
R & D Block Exemption Regulation (Reg 2659/00) NB:
– Competing undertakings - 25% market share cap
– Parties must have access to results for research/exploitation (research
bodies/universities can be confined to research)
– Parties must be free to conduct R&D in unconnected fields and to
challenge other party’s IP (however right to terminate R&D agreement)
•
Specialisation Block Exemption Regulation (Reg. 2658/00) NB:
– Competing undertakings
– 20% market share cap
•
Article 81(3) and Commission Guidelines(2001/C 3/02): UEFA; Premier
League; Veronica/Endemol; Television par Satellite; Ford/VW
Vertical Agreements
Licence MANUFACTURER/SUPPLIER
IP Owner(s)
<30% Share
(R&D <25% Share)
Supply Agreement
RESELLER
Vertical Agreements
Licence MANUFACTURER/SUPPLIER
IP Owner(s)
<30% Share
(R&D <25% Share)
Supply Agreement
OBJECT
Price/Geog
• RPM
• Export bans
• NB Agency
RESELLER
EFFECT
Vertical Agreements
Licence MANUFACTURER/SUPPLIER
IP Owner(s)
<30% Share
(R&D <25% Share)
Supply Agreement
OBJECT
Price/Geog
• RPM
• Export bans
• NB Agency
RESELLER
Price/Geog
• RRP
• Exclusive
territory
EFFECT
Vertical Agreements
Licence MANUFACTURER/SUPPLIER
IP Owner(s)
<30% Share
(R&D <25% Share)
Supply Agreement
OBJECT
Price/Geog
• RPM
• Export bans
• NB Agency
RESELLER
Price/Geog
• RRP
• Exclusive
territory
EFFECT
Quality
• Selective
• Franchising
Vertical Agreements
Licence MANUFACTURER/SUPPLIER
IP Owner(s)
<30% Share
(R&D <25% Share)
Supply Agreement
OBJECT
Price/Geog
• RPM
• Export bans
• NB Agency
RESELLER
Price/Geog
• RRP
• Exclusive
territory
EFFECT
Quality
Segmentation
• Selective
• Customers
• Franchising • Product
categories
Vertical Agreements
Licence MANUFACTURER/SUPPLIER
IP Owner(s)
<30% Share
(R&D <25% Share)
Supply Agreement
OBJECT
Price/Geog
• RPM
• Export bans
• NB Agency
RESELLER
Price/Geog
• RRP
• Exclusive
territory
EFFECT
Quality
Segmentation
• Selective
• Customers
• Franchising • Product
categories
Volumes/foreclosure
• Purchase obligations
• Non-compete
Vertical Agreements
IP Owner(s)
(R&D <25% Share)
Licence
MANUFACTURER/SUPPLIER
< 30%Share
Supply Agreement
RESELLER
Vertical Agreements
Licence
IP Owner(s)
(R&D <25% Share)
MANUFACTURER/SUPPLIER
< 30%Share
Supply Agreement
OBJECT
• Export Bans
• RPM
RESELLER
Vertical Agreements
IP Owner(s)
(R&D <25% Share)
Licence
MANUFACTURER/SUPPLIER
< 30%Share
Supply Agreement
OBJECT
EFFECT
RESELLER
• Export Bans
• RPM
Market Share
20%
30%
40%
Vertical Agreements
IP Owner(s)
(R&D <25% Share)
Licence
MANUFACTURER/SUPPLIER
< 30%Share
Supply Agreement
OBJECT
EFFECT
RESELLER
• Export Bans
• RPM
Market Share
20%
30%
40%
• Territorial exclusivity
• Selective Networks
• Franchising
Vertical Agreements
IP Owner(s)
(R&D <25% Share)
Licence
MANUFACTURER/SUPPLIER
< 30%Share
Supply Agreement
OBJECT
EFFECT
RESELLER
• Export Bans
• RPM
Market Share
20%
30%
40%
X
50%
70%
• Territorial exclusivity • Loyalty rebates
• Selective Networks • Exclusive purchase (80%+)
• Franchising
• Bundling/Tying
• Pricing Discrimination
• Refusal to deal
Vertical Agreement Block Exemption
Regulation 279/99 (“VABER”)
Supplier
Covers agreements between 2
or more undertakings at different
levels in distribution chain
Wholesaler
Retailer
Non-Competitors
Parties must not be actual or potential competitors unless reseller’s
total annual turnover < €100 million
OR
Supplier of
Services
Supplier of
Goods
Direct Sales
Direct Supply
Service Provider
(not competing
upstream with
supplier)
Where agreement is non-reciprocal
Distributor
(where not a
competing –
manufacturer)
Market Share Cap
Supplier
< 30%
Supplier
Non-exclusive
Reseller
Exclusive
Reseller
< 30%
Hardcore Restrictions – Price
Minimum/fixed prices
impermissible
Supplier
Maximum or recommended
prices permissible
Reseller
NB. Indirect RPM/fixed prices: price monitoring, discount
fixing, margin fixing, delivery and suspensions, preprinted prices.
Hardcore Restrictions – Customers and
Territory (1)
Supplier
Can allocate
• Exclusive territory
• Exclusive customer
segment
Reseller
Where exclusive territories are
reserved to supplier or
conferred on other resellers
Reseller(s)
Hardcore Restrictions – Customers and
Territory (2)
Supplier
Reseller 1
Reseller 2
Exclusive
Territory A
Exclusive
Territory B
Can prevent active
but not passive
sales (NB. Internet)
Hardcore Restrictions – Selective Networks
Supplier
Selective
Wholesaler I
Can
ban
sales
Selective
Retailer 1
Selective
Wholesaler 2
Selective
Retailer 2
Cannot ban end user sales; can require
to operate from authorised premises
End Users
Must allow cross sales within the selective network
Selective
Wholesaler 3
Selective
Retailer 3
Vulnerable Restrictions (1) – Spare Parts
Supplier
Cannot
restrict
Can
Restrict
Reseller
Spare
Parts
End
User/Repairer
Components
Competitors of
supplier for
incorporation
Vulnerable Restrictions (2) – Non Compete
Obligations
Supplier
5 years
only
80%+ exclusive
purchase obligation
Except where
lease conferred
when duration =
period of lease
Reseller
NB. Cannot prohibit selective
dealers from selling specified
competitive brands
Vulnerable Restrictions (3) Post Termination
Restrictions
• Limited to:-
 Competing goods/services
 Premises from which reseller operated
 One year (know how unlimited whilst remains secret)
and must be indispensable to protect know how
Motor Vehicle Block Exemption Regulation
1400/2002 (“MVBER”)
• Previous BERs conferred high degree of intra-brand protection to
safeguard dealer investments in sales/servicing
• However price differentials between Member States have persisted
• Frequent violations of Article 81 by manufacturers, e.g. BMW, Ford,
Peugeot, Citroen, VW, Opel and DaimlerChrysler
MVBER - Outline
• Follows a similar pattern to VABER
• Applies to agreements at all levels of vehicle distribution in respect
of:
– Sale of new motor cars and commercial vehicles
– After-sale servicing
– Spare part supply
• Parties must be non-competitors save for non-reciprocal vertical
agreements:
– between reseller with annual sales <€100m; or
– where manufacturer competes in direct sales and reseller not a
manufacturer
MVBER – Market Shares
• As with VABER a 30% cap (measured by reference to reseller for
exclusive distribution)
• Selective distribution:
– Qualitative selective distribution – no limit on market share (case law
reliant)
– Quantitative selective distribution 40% cap
• Different markets for (and consequent shares of):
– new vehicles
– new parts
– service/repair
MVBER – Conditions (1)
• Agreement must:
– be for a minimum of 5 years; or
– if indefinite be terminable on 2 years notice or one year if supplier pays
compensation (mandated by law or special agreement) or
whole/substantial part of network being reorganised
• Disputes to be remitted to arbitration
• Termination notices must be in writing giving detailed objective and
transparent reasons
• Reseller must have right to assign to another approved dealer
MVBER – Conditions (2)
• Cannot require reseller to purchase 30%+ of requirements for
goods/services from supplier
• Prohibition of sales of competing brands goods/services
impermissible
• Post-termination restrictions on provision of goods/services
impermissible
MVBER – Hardcore Restrictions (1)
• Follows a similar pattern to VABER
• Setting fixed/minimum prices
• Territory/customer restrictions save for prohibition of:
– Active sales to reserved customers/territories
– Wholesale sales to end users
– Sales to dealers outside selective network
– Sales of components for incorporation by competitor
• Prohibition on cross supplies within selective network
• Prohibition on retail sales by selective dealers (subject to authorised
establishment requirement)
MVBER – Hardcore Restrictions (2)
• Prohibition on selling new model within contract range
• Restricting reseller’s ability to subcontract repair/services to
authorised repairers
• Linking vehicle sales and servicing/sale of spare parts
• Limits on sales of OEM products
• Refusing access by independent operators to manufacturer’s
technical information, diagnostic tools and software needed for
repair/maintenance
Technology Transfer Block Exemption
Regulation
Licensor
Licensee
Not multiparty,
although guidelines
indicate that
multiparty licences
will be judged according
to their effects under
Art.s 81(1) and 81(3)
The IP rights
Licensor
Licensee
Patents, includes:
• utility models
• design rights (registered
and unregistered)
• topographies of
semiconductor products
• supplementary certificates
for medicinal products
• plant breeder’s rights
The IP rights
Licensor
Licensee
Know-how: package of non patented
practical information
• secret (not generally known)
• substantial: information indispensable
for the manufacture or provision of
the contract products
• identifiable in a manner which enables
verification of criteria of secrecy and
substantiality
The IP rights
Licensor
Software copyright
Licensee
The IP rights
Licensor
Licensee
Licence of each or a mixture of:
1) patents
2) know-how
3) software copyright
and other ancillary IP rights
necessary for the manufacture or
provision of the contract
products/services
The Concept of Competitors
• The technology market - actual competitors
• The product market – actual OR potential competitors
• Difficult to ascertain markets
• Technology markets based on downstream sales of product
• NB: Market share volatility
The Market Share Caps
Licensor
Competitors parties’ shares in
aggregate < 20%
Non-Competitors
each party’s share < 30%
Licensee
NB. Para 131 Guidelines – 4 competing
technologies
Market Shares
The
technology
market
The
product
market
Licensor A
(has separate
market shares
of 100%+15%)
Licensee A (100%)
market share
in specialist
safety gloves
Licensor B
(45%)
Licensor C
(30%)
Licensor D
(20%)
Licensee A (15%), Licensee B (45%),
Licensee C (30%), Licensee D (20%) in
general non-specialist market for
safety apparel
End Users
The “Hardcore” Restrictions where licensor and
licensee are competitors
• Restriction on either licensor or licensee prices
• Output/sales limitations (save for limitations on a licensee in a
non-reciprocal agreement or on only one licensee in a
reciprocal agreement)
• Restriction on licensee’s exploitation of own technology or on
parties R&D unless indispensable to protect know-how
The “Hardcore” Restrictions where licensor and
licensee are competitors
• Market/customer restrictions save for:
 Field of use restriction on licensee
 In a non-reciprocal agreement restriction on either/both parties relating to
reserved field of use or exclusive territory
 Licensor obligation not to license another licensee in a particular territory
 Restriction in a non-reciprocal agreement of active and/or passive sales to
territory/customer group of other party
 Restriction in a non-reciprocal agreement of active sales by licensee to
exclusive territory/customer group of a licensee (which was non-competing on
grant of licence)
 Restriction on licensee to produce for own use (no active/passive restrictions
on sale of spare parts for own products)
 Restriction in a non-reciprocal agreement to produce as alternative source of
supply for designated customer
The “Hardcore” Restrictions where licensor and
licensee are not competitors
• Minimum/fixed resale prices
• Restrictions on parties’ R&D unless indispensable to protect knowhow
• Restriction on territories/customers (save for certain permissible
restrictions - see next slide)
And save for:Own use (and spare parts sale rights)
 Alternative source of customer supply
 Restrictions on wholesales to end users
Prohibition of sales to unauthorised distributors by members of a selective network
The Permissible Territorial and
Customer Restrictions (1)
Licensor
Non-competitors
Licensee 1
Can allocate:
• Exclusive territories
• Customer segments and
restrict passive sales into
licensor territories/customers
and passive sales into other
licensee territory/customers for
initial 2 years
Noncompetitors
Licensee 2
Cannot
ban
sales
Territory 1
Sub-distributor 1
Territory 2
Sub-distributor 2
Territory 3
Sub-distributor 3
The Permissible Territorial and
Customer Restrictions (2)
Licensor
Noncompetitors
Non-competitors
Licensee 1
Licensee 2
Selective
Wholesaler 1
Selective
Retailer 1
Selective
Wholesaler 2
Selective
Retailer 2
End Users
Selective
Wholesaler 3
Must allow cross
sales in network Cannot ban
Selective
sales
Retailer 3
Excluded Restrictions
• Grant back of exclusive licence or assignment by licensee of
severable improvements
• Prohibition on challenging licensor’s intellectual property
(NB licensor right of termination)
• Where licensor and licensee are not competitors, limitation on
licensee’s ability to exploit own technology or engage in independent
R&D (unless indispensible to protect licensor known how)