Contracts, on-line selling and staying the right side of EU and Irish competition law
EU and Irish competition law prohibit anti-competitive agreements between companies. In Ireland, agreements which breach EU and Irish competition law can have material adverse consequences for those involved, including that: (i) the agreement is void, (ii) significant fines can be imposed, (iii) damages can be awarded to parties who have suffered harm and (iv) bad publicity.
One of the categories of agreement most under scrutiny by competition regulators (such as the European Commission (Commission) and the Irish Competition and Consumer Protection Commission (CCPC)) is agreements between companies operating at different levels of the supply/distribution chain (vertical agreements). These agreements include exclusive distribution agreements, exclusive supply agreements, selective distribution agreements and franchise agreements. Vertical agreements tend to involve parties accepting certain restrictions such as exclusive dealing obligations. A key question is how far parties can go in seeking to impose such restrictions and with the increasing impact of on-line cross-border selling complicating the overall position.
Both the Commission and CCPC have issued guidance on how such vertical agreements can stay in line with the EU and Irish competition rules. The Irish rules and guidelines essentially follow the EU rules and guidelines (i.e. the 2010 Vertical Block Exemption Regulation and its accompanying guidelines (VBER)).
Recent cases and a recent study at the EU level have changed the landscape significantly in particular regarding certain practices connected to on-line agreements. These include practices such as "geo-blocking" and internet bans.
On 4 February 2019, the Commission launched a public consultation regarding the VBER. The VBER provides a "safe harbour" for vertical agreements from the prohibition on anti-competitive agreements and will expire on 31 May 2022. The equivalent Irish competition law "Declaration" on vertical agreements remains valid until 1 December 2020 and there has not been a review as yet of the Declaration.
The Commission is evaluating the VBER to decide on whether to renew and revise it to take account of market developments (particularly on-line developments) since 2010. The Commission's consultation asks questions on a range of subjects including whether EU action in this area remains necessary in light of market trends over the last five years e.g. increased importance of online sales and the emergence of new market players. The eventual outcome of the Commission's review of the VBER will be eagerly awaited.
Until the EU completes its review, recent competition law cases in the EU, UK and Ireland on vertical agreements (including in relation to hotel bookings, e-books, high-end products and internet bans on retail goods) mean that parties entering into vertical agreements contracts should look very carefully at the terms and conditions of their agreements (including the wider market effects of their agreements by reference to market share). While there are some qualifications in both the VBER and as a result of recent case-law (such as the "Coty" judgment of the Court of Justice on the legality of certain online platform bans in selective distribution systems), the following are the key "hardcore" restrictions on competition which should be avoided by parties in drafting their vertical agreements:
- retail price maintenance
- restricting the territories into which, or the customers to whom, a buyer may sell (e.g. internet sales bans and restricting retailers from online advertising and selling cross-border to consumers in other Member States)
- restricting the members of a selective distribution system, operating at a retail level, from making active or passive sales to end users
For more information in relation to this topic, please contact Alan McCarthy, Partner, or any member of A&L Goodbody's EU, Competition & Procurement team.
Date published: 25 February 2019