Agent for Change? Publication by the European Commission of a Working Paper providing guidance in relation to dual role agents
On 5 February, the European Commission published a Working Paper setting out guidance on the circumstances which may warrant disapplication of the prohibition on anti-competitive arrangements contained in Article 101(1) TFEU in cases where the same entity acts both as an independent distributor and as an agent for products of the same supplier.
The Working Paper was published in the context of the Commission's ongoing review of the Vertical Block Exemption Regulation (Commission Regulation (EU) No 330/2010) (VBER), which is scheduled to expire on 31 May 2022, and the accompanying Commission Guidelines on Vertical Restraints (the Guidelines). The VBER and the Guidelines provide clarity on the circumstances in which arrangements between businesses operating at different levels of the production or distribution chain and relating to the conditions under which the parties may purchase, sell or resell certain goods or services (so-called "vertical" arrangements) may fall outside the scope of Article 101(1) TFEU.
Launched in 2018, the VBER review process comprises both an evaluation and an impact assessment phase. Key milestones of the VBER review process to date have included the publication in September 2020 of a Staff Working Document summarizing the results of the evaluation phase (which involved evidence-gathering initiatives such as a public consultation, a stakeholder workshop and a targeted NCA consultation), as well as the issuing in October 2020 of the Inception Impact Assessment and the launch of a public consultation on policy options and their likely impact, which remains ongoing.
The objective of the Working Paper of 5 February is to address feedback from respondents to the Commission's consultations, who have highlighted the lack of available guidance on the applicability of the VBER and Guidelines to distributors who simultaneously act as agents and as independent distributors of a supplier's products. The Commission has noted the increasing prevalence in consumer goods markets of such "dual role" agency models, under which a single undertakings combines the functions of agent and as independent distributor for the same principal.
Agency agreements under the current guidelines
The Working Paper re-states the core principles laid down in the current Guidelines – i.e. that in the case of "genuine" agency agreements, obligations imposed on the agent in relation to contracts concluded and/or negotiated on behalf of the principal will be able to avail of a safe harbour from Article 101(1) TFEU where the selling or purchasing function of the agent forms part of the principal's activities and the principal bears the commercial and financial risks related to the selling or purchasing of the contract goods or services. This must be assessed on a case-by-case basis, taking account of the economic reality of the situation.
Three types of risk are material to the question of whether a genuine agency agreement arises, namely (i) contract-specific risks; (ii) risks relating to market-specific investments; and (iii) risks related to other activities undertaken in the same product market, to the extent that the principal requires the agent to undertake such activities, not as an agent on behalf of the principal, but for its own risk. An agreement will not qualify as a genuine agency agreement unless the agent bears no, or only insignificant, risks falling with the three aforementioned categories. Investments that are common to agency activities in general (e.g. the cost of renting a shop or staff salaries, provided they can also be used for the sale of different goods unrelated to the agency agreement) are not considered material to such an assessment.
Categories of risks which cannot be borne by an agent in order for an agreement to qualify as a genuine agency agreement
Such risks relate directly to the contracts concluded and/or negotiated by the agent on behalf of the principal, such as the financing of stocks.
Investments which are specifically required for the type of activity for which the agent has been appointed by the principal (usually sunk investments).
Risks relating to other activities undertaken in the same product market, where the principal requires these activities to be performed by the agent for its own risk (rather than as agent on behalf of the principal).