Vertical agreements

An agreement that gives an agent the power to negotiate and/or conclude contracts on the purchase or sales of a principal’s products or services on behalf of the principal is not considered a vertical agreement. A prerequisite is that the agent does not bear any financial or commercial risk for the activities covered by the agency agreement.

Only agreements that appreciably restrict competition are prohibited. If the market share of any of the parties to the vertical agreement does not exceed 15 per cent, the competition rules do not apply to the agreement.

• PLEASE NOTE: If suppliers and distributors use similar vertical agreements more extensively on the market, these agreements will have a cumulative effect on competition. In such cases, the competition rules do not apply to a vertical agreement if the market share of the parties is less than 5 per cent or the similar agreements cover less than 30 per cent of the market.
• PLEASE NOTE: Agreements that include any of the hardcore restrictions cannot be considered agreements of minor importance regardless of the market share of the parties.

If a vertical agreement does not have as its object or effect a restriction of competition, the competition rules do not apply to it. If a vertical agreement contains vertical restraints, the prohibitions provided in the competition rules may apply to the agreement.

The block exemption protects all purchase and distribution contracts regarding end or intermediate products or services. Terms and conditions other than those regarding the purchase, sale or resale fall outside the block exemption.

• PLEASE NOTE:  Terms and conditions relating to, for example, the transfer or use of intellectual property rights are not covered by the block exemption, unless such terms are directly related to the use, sale or resale of the products or services covered by the vertical agreement.

The vertical elements of contractual relationships between competitors are considered vertical agreements. The vertical elements of agreements between competitors are not covered by the block exemption.

• PLEASE NOTE: However, the vertical elements of agreements between competitors are covered by the block exemption if the agreement is not reciprocal and involves a situation of dual distribution. In dual distribution, a company both manufactures and distributes its own products, while the other party acts solely as a distributor.

Vertical agreements between parties with a market share of under 30 per cent are presumed to be more beneficial than harmful to competition and, therefore, the prohibitions laid down in the competition rules do not apply to them. This condition applies to all parties to the vertical agreement.

• PLEASE NOTE: If one company both purchases products and sells them within the framework of a single agreement, the company’s market share must be less than 30 per cent on both the purchase and the sales market. Otherwise, the market share limit of 30 per cent is exceeded, and the agreement is not covered by the block exemption.

Hardcore restrictions of competition are restraints that are likely to restrict competition and cause harm to consumers. If a vertical agreement contains any one of them, it is not covered by the block exemption.

The distributor must have the right to determine the resale price of the product or service it sells

The use of maximum resale prices or recommended prices is not prohibited if they do not actually amount to a minimum resale price

Case examples

In a case involving Iittala, the Market Court found that, among other things, the terms and conditions on the resale prices of Iittala products that were included in the distribution agreements amounted to a minimum resale price for the products.

In its decisions on consumer electronics, the Commission found that suppliers had imposed minimum resale prices on their distributors when the suppliers had limited the possibility of their online distributors to set their resale prices independently. The suppliers had, among other things, threatened retailers with penalties and suspended deliveries of their products to distributors who did not comply with the minimum resale price requirements.

Distributors must have the right to determine independently where and to whom they sell the supplier’s products. However, such restrictions are permitted in the following cases:

1. A restriction of active sales imposed on a seller into the exclusive region or to a customer group reserved for another seller.
   • PLEASE NOTE: In active sales, the seller approaches the customer. In passive sales, the seller responds to customer contacts. For example, online sales via a private website are generally considered as passive sales.
2. A restriction imposed on a wholesaler on selling to end-users.
3. A restriction imposed on a member of a selective distribution system on selling to unauthorised distributors within the area of the distribution system.
   • PLEASE NOTE: In a selective distribution system, the supplier undertakes to deliver products only to distributors that meet certain criteria. Accordingly, authorised distributors undertake not to sell products to unauthorised distributors in areas where the distribution system is used.
4. A restriction imposed on the buyer of a component on selling the components to another party for the same purpose for which the buyer has purchased the components.

Case example: In its decision involving Sanrio, the Commission found that limiting the active and passive sales of licensed products outside a certain geographical area restricted competition.

Authorised distributors must be allowed to sell the supplier’s products to all end users, whether they are consumers or other companies. However, the supplier may require the authorised seller to operate only at a location authorised by the supplier.

Case examples

In the case of Lastentarvike Oy, the Market Court found that the requirement included in a selective distribution system to not sell products to end users outside the operating area reserved for the distributor and the commitment not to sell products online constituted a forbidden restriction of active and passive sales in a selective distribution system.

In its decision involving Guess, the Commission found that the restrictions imposed on authorised distributors against advertising and selling the supplier’s products online without the supplier’s prior permission constituted a restriction of competition. In addition, the terms and conditions and other restrictions that prevented authorised distributors from selling to end users, meaning consumers residing in another Member State, also constituted a prohibited restriction of active and passive sales in a selective distribution system.

Authorised distributors must be allowed to purchase products from other authorised distributors. Authorised distributors cannot be obligated to purchase products sold in a distribution system only from a single supplier.

Case example

In its decision regarding Guess, the Commission found that the terms and conditions concerning the authorised distributor that restricted the sales of the supplier’s products to other authorised distributors within the selective distribution system constituted a restriction of competition.

Component manufacturers shall have the right to also sell components directly to, for example, end users or repair and maintenance companies.

The buyer focuses its purchases on one supplier.

Case example:

In the Van den Bergh Foods case it was found that the clause in a distribution agreement that enabled an ice cream supplier to obligate its ice cream distributors to use the freezer boxes delivered by the supplier for free or in return for a nominal rent only to store ice cream produced by the supplier constituted single branding. Due to the specific characteristics of the case, such a contractual clause was considered to impede the supplier’s competitors’ access to the market and, thus, to restrict competition.

The supplier sells its products in a specific area to only one distributor.

The supplier determines that the distributor may only sell the supplier’s products to jointly agreed upon specific customers.

Authorised retailers are restricted from selling to customers who are not other authorised retailers or end customers.

Case example:

In the Pierre Fabre case, it was found that selective distribution systems are permitted if the retailers are selected on the basis of objective and qualitative criteria and the criteria apply in an equal manner to all potential retailers, if the characteristics of the product to be distributed require a selective distribution system in order to maintain the quality of the product, and if the established criteria do not exceed what is necessary to achieve these goals. A clause in a distribution agreement which effectively prevented the online sales of a supplier’s products and thus limited its distributors’ active and passive sales to end customers could not be considered necessary in terms of maintaining a selective distribution system. The contractual clause was, therefore, prohibited.

The buyer is granted the right to use the supplier’s business model and related intellectual property rights in exchange for a payment.

Case example:

It was found in the Pronuptia de Paris case that franchising contracts are permitted if they are necessary to protect the supplier’s know-how. However, the terms and conditions of a franchising contract may restrict competition and be prohibited if they restrict competition between members of the franchise network by, for example, preventing them from competing with prices.

The supplier supplies products only or primarily to one buyer or for a specific purpose.