Agency agreement are agreements by which "the agent" is empowered to negotiate and/or conclude contract on behalf of the "principal". The agent can in its own name or in the name of the principal. The degree of dependency between the agent and the principal determines the fact whether or not they form the same economic entity or not.
One has to make the difference between the market where the agent meets the principal and the market where the agent meets the customers. A dependent agent in the second market is still treated as an independent economic unity in the first market. The Article 101(1) TFEU applies to the relation between agents and principal in the market for appointing new agents or acting for new principals. (CEPSA Estaciones de Servicio SA v LV Tobar e Hijos SL - para 19)
Following will qualify the agent as being an independent economic unit:
Market specific investments are (CEPSA para 39):
Commission Legislation related to Vertical Relations
Agreements/concerted practices fall under the scope of Vertical Block Exemption, where it are concluded between two or more parties operating at different levels in the distribution chain, and the object is purchase, sale or resale goods/services.
An agreement between competing (or potential competitors) undertakings will as a rule fall outside the scope of this Block Exemption. There two exceptions to this rule provided by the Block Exemption Regulation- Article 2(4)- that applies on non-reciprocal agreements between parties competing at a certain level of trade:
(a) the supplier is a manufacturer and a distributor of goods, while the buyer is a distributor and not a competing undertaking at the manufacturing level; or
(b) the supplier is a provider of services at several levels of trade, while the buyer provides its goods or services at the retail level and is not a competing undertaking at the level of trade where it purchases the contract services.
Intellectual Property Rights
IPR includes industrial property rights, know how, copyright and neighbouring rights. They fall outside the scope of Vertical Block Exemption- Article 2(3) where the main scope of the agreement is the transfer of IPR. In contrast when they are directly related to the use, sale or resale of goods or services by the buyer or its customers, they fall under the Vertical Block Exemption, provided that no hardcore restrictions are embedded in them.
Trade marks, copyright and know-how are usually following with a distribution agreement. In the Guidelines on Vertical Restraints, one can find more detailed information about the IPR provisions (III 2(4)).
Association of retailers
Vertical agreements entered into by associations of undertakings are generally outside the scope of the Block Exemption -Article 2(2). More details one can find in the Guidelines on Vertical Restraints. (III 2(3)).
The relation to other Block Exemption Regulations
Where an agreement satisfies the conditions of the technology transfer, R & D or specialisation block exemption regulations, then the Vertical Block Exemption is not applicable.
Parties in this contract are the contractor and the subcontractor. Where they are competitors, theDe minimis notice may also apply, but any hardcore restrictions, such allocation of customers or limitation of output/sales, make the Article 101(1) TFEU to be applicable. Restrictions on selling components to third parties are hard-core. The Specialisation Block Exemption may also apply.Guidelines apply.
Exclusivity clauses are generally speaking less problematic within the relation between non-competitors. If certain conditions are satisfied the contract falls outside the scope of Article 101(1) TFEU. The Vertical Block Exemption may be applicable where the contractor transfers only equipment and not technology. The instructions received by the subcontractor are not protected by IPR in this case.
Where transfer of IPR, including Know-How is the main object of the contract, then the Technology Transfer Block Exemption may be applicable. The subcontractor must undertake to produce certain products for the contractor.
The Article 101(3) TFEU may be applicable on subcontracting, where no exemption is possible under the Block Regulations.
De Minimis may be applicable. If it is not and the clause falls within the scope of Article 101(1), we should check the applicability of the Vertical Block Exemption and then in the last instance the applicability of the Article 101(3) TFEU. The clause can escape the scope of 101(1) where there is no effect on the internal trade.No hard-core restrictions and market shares under 30% are the main conditions to be fulfilled for the Block exemption to apply.
The application of Article 101(1) TFEU The clause can fall outside the scope of 101(1) TFEU where the distribution is open i e the distributor is not protected from other distributors located outside the territory. The supplier will not sale to anyone else in the territory, but the distributors from outside may sell. If the open distribution exclusivity is necessary for protecting the investment made by the supplier, does not lead to significant impairment of the intra-brand competition, collusion, foreclosure of other distributors, then it will be compatible and may fall outside the scope of Article 101(1) TFEU. Where the distributor is protected by "Active Sales Clause" then it is more probable that the clause falls under the scope of Article 101(1) TFEU. "Passive Sales Clause" is illegal.
Criteria of assessment:
The application of Article 101(3) TFEU
Where no foreclosure of suppliers in the upstream market, the exclusivity clause may be combined with single branding. However the combination of exclusive distribution and supply is unlikely to be exemptable under 101(3) TFEU.
The application of Article 101(1)
The application of Article 101(3)
Factors of assessing eligibility for an exemption:
The purpose is to insure a minimum standard related to the product presentation and level of service provided. The supplier commits to appoint only qualified resellers and they in their turn are prohibited to sell to non-members of the system. In order to limit the negative effects on intra-brand competition, the criteria for selection should be qualitative and non-discriminatory.
Application of 101(1) TFEU
Conditions to be met for the clause to be compatible with the 101(1) - Leclerc v Commission
Main factors of assessment of legality are:
Application of 101(3) TFEU
Main factors of assessment of compatibility are:
The franchisor provides the franchisee with IPR and technical assistance and enables it to sell a product
Combination with other forms of distribution:
The Pronuptia case- Wedding dresses
The restriction specific to the franchising arrangement should not fall under the scope of article 101(1) TFEU.
Type of restrictions allowed are (para 23):
Protection of know-how
Protection of reputation and identity of the system
Restriction that benefit by the exemption under 101(3) TFEU anyway.