Paul Hughes Brussels 30 th March 2005 Article 81.
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Transcript of Paul Hughes Brussels 30 th March 2005 Article 81.
Paul Hughes
Brussels
30th March 2005
Article 81
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
• 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
Relationship of Articles 81(1) and 81(3)
Concerted Practice/Information Exchanges
CorporateJV
MergerCollaborative
Agreement
Behavioural arrangements
Structural arrangements
ECMRArt 81(3)
Horizontal Arrangements
Concerted Practice/Information Exchanges
CorporateJV
MergerCollaborative
Agreement
NB: Between CompetitorsHard core cartel
criminal offence UK
Behavioural arrangements
Structural arrangements
Art 81(3) ECMR
Horizontal 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
IP Owner(s)(R&D <25% Share)
Supply Agreement
MANUFACTURER/SUPPLIER <30% Share
Licence
RESELLER
• RPM• Export bans• NB Agency
Price/Geog
Supply Agreement
EFFECT
Licence
RESELLEROBJECT
IP Owner(s)(R&D <25% Share)
MANUFACTURER/SUPPLIER <30% Share
Vertical Agreements
• RPM• Export bans• NB Agency
Price/Geog
Supply Agreement
EFFECT
Licence
RESELLEROBJECT
Price/Geog
• RRP• Exclusive territory
IP Owner(s)(R&D <25% Share)
MANUFACTURER/SUPPLIER <30% Share
Vertical Agreements
• RPM• Export bans• NB Agency
Price/Geog
Supply Agreement
EFFECT
Licence
RESELLEROBJECT
• Selective• Franchising
QualityPrice/Geog
• RRP• Exclusive territory
IP Owner(s)(R&D <25% Share)
MANUFACTURER/SUPPLIER <30% Share
Vertical Agreements
• RPM• Export bans• NB Agency
Price/Geog
Supply Agreement
EFFECT
Licence
RESELLEROBJECT
• Selective• Franchising
Quality Segmentation
• Customers• Product categories
Price/Geog
• RRP• Exclusive territory
IP Owner(s)(R&D <25% Share)
MANUFACTURER/SUPPLIER <30% Share
Vertical Agreements
• RPM• Export bans• NB Agency
Price/Geog
Supply Agreement
EFFECT
Licence
RESELLEROBJECT
• Selective• Franchising
Quality Segmentation
•
Volumes/foreclosure
• Purchase obligations• Non-compete
Price/Geog
• RRP• Exclusive territory
• Customers• Product categories
IP Owner(s)(R&D <25% Share)
MANUFACTURER/SUPPLIER <30% Share
Vertical Agreements
IP Owner(s)(R&D <25% Share)
MANUFACTURER/SUPPLIER< 30%Share
Licence
RESELLER
Supply Agreement
Vertical Agreements
• Export Bans• RPM
OBJECT
IP Owner(s)(R&D <25% Share)
MANUFACTURER/SUPPLIER< 30%Share
Licence
RESELLER
Supply Agreement
Vertical Agreements
• Export Bans• RPM
30% 40%
Market Share
EFFECTOBJECT
20%
IP Owner(s)(R&D <25% Share)
MANUFACTURER/SUPPLIER< 30%Share
Licence
RESELLER
Supply Agreement
Vertical Agreements
• Export Bans• RPM
30% 40%
Market Share
• Territorial exclusivity• Selective Networks• Franchising
EFFECTOBJECT
20%
IP Owner(s)(R&D <25% Share)
MANUFACTURER/SUPPLIER< 30%Share
Licence
RESELLER
Supply Agreement
Vertical Agreements
• Export Bans• RPM
30% 40% 50% 70%XX
• Loyalty rebates • Exclusive purchase (80%+)• Bundling/Tying• Pricing Discrimination• Refusal to deal
Market Share
• Territorial exclusivity• Selective Networks• Franchising
EFFECTOBJECT
20%
IP Owner(s)(R&D <25% Share)
MANUFACTURER/SUPPLIER< 30%Share
Licence
RESELLER
Supply Agreement
Vertical Agreements
Vertical Agreement Block Exemption Regulation 279/99 (“VABER”)
Covers agreements between 2 or more undertakings at different levels in distribution chain
Supplier
Retailer
Wholesaler
Non-Competitors
Parties must not be actual or potential competitors unless reseller’s total annual turnover < €100 million
ORSupplier of Services
Service Provider (not competing upstream with
supplier)
Direct Supply
Supplier of Goods
Direct Sales
Distributor (where not a competing –
manufacturer)
Where agreement is non-reciprocal
Market Share Cap
Supplier
Reseller
Non-exclusive
Supplier
Reseller
Exclusive
< 30%
< 30%
Hardcore Restrictions – Price
Supplier
Reseller
NB. Indirect RPM/fixed prices: price monitoring, discount fixing, margin fixing, delivery and suspensions, pre-printed prices.
Maximum or recommended prices permissible
Minimum/fixed prices impermissible
Hardcore Restrictions – Customers and Territory (1)
Can allocate
• Exclusive territory
• Exclusive customer segment
Reseller
Supplier
Reseller(s)
Where exclusive territories are reserved to supplier or conferred on other resellers
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
Selective Wholesaler 2
Selective Wholesaler 3
Selective Retailer 1
Selective Retailer 2
Selective Retailer 3
End Users
Cannot ban end user sales; can require to operate from authorised premises
Must allow cross sales within the selective network
Can ban
sales
Vulnerable Restrictions (1) – Spare Parts
Supplier
Reseller
Competitors of supplier for incorporation
Can Restrict
Spare Parts
End User/Repairer
Cannot restrict
Components
Vulnerable Restrictions (2) – Non Compete Obligations
Supplier
Reseller
5 years only 80%+ exclusive
purchase obligationExcept where lease conferred when duration = period of lease
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
Licensor
Licensee
Not multiparty, although guidelinesindicate that multiparty licenceswill be judged accordingto their effects underArt.s 81(1) and 81(3)
Technology Transfer Block Exemption Regulation
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
The IP rights
Licensor
Licensee
Know-how: package of non patentedpractical 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
Licensee
Software copyright
Licensor
Licensee
Licence of each or a mixture of:
1) patents2) know-how3) software copyrightand other ancillary IP rights necessary for the manufacture orprovision of the contract products/services
The IP rights
• 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 Concept of Competitors
The Market Share Caps
Licensor
Licensee
Non-Competitorseach party’s share < 30%
Competitors -parties’ shares in aggregate < 20%
NB. Para 131 Guidelines – 4 competing technologies
The technology
market
Licensor A(has separate market sharesof 100%+15%)
Licensor B(45%)
Licensor D(20%)
Licensor C(30%)
The product market
Licensee A (100%)market share in specialist
safety gloves
Licensee A (15%), Licensee B (45%),Licensee C (30%), Licensee D (20%) in general non-specialist market forsafety apparel
End Users
Market Shares
• 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 competitors
• Minimum/fixed resale prices
• Restrictions on parties’ R&D unless indispensable to protect know- how
• Restriction on territories/customers (save for certain permissible restrictions - see next slide)
The “Hardcore” Restrictions where licensor and licensee are not competitors
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
Licensor
Licensee 1
Non-competitors
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
Licensee 2
Non-competitors
Territory 1Sub-distributor 1
Territory 2Sub-distributor 2
Territory 3Sub-distributor 3
Cannot ban sales
The Permissible Territorial and Customer Restrictions (1)
Licensor
Licensee 1
Non-competitors
Licensee 2
Non-competitors
Selective Wholesaler 1
Selective Wholesaler 2
Selective Wholesaler 3
Selective Retailer 1
Selective Retailer 2
Selective Retailer 3
Must allow crosssales in network
End Users
Cannot bansales
The Permissible Territorial andCustomer Restrictions (2)
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)