One important issue, which the guidelines should cover,
is the treatment of agreements falling outside the scope of the block
exemption. It should be clearly spelled out that such agreements are not
necessarily excluded from an individual exemption under Article 85 (3).
It will be essential to provide meaningful guidance on the application
of Article 85 (3) outside the scope of the block exemption as part of
the Commission’s stated goal of reforming its policy in the area
of vertical restraints. In particular, such guidelines would be very useful
to indicate what criteria the Commission will use to make an economic
analysis of market power for individual exemptions. Individual enterprises,
domestic courts and national competition authorities will need this guidance.
As the Commission recognizes that there will inevitably
be a degree of uncertainty created by the market share cap – which,
as the Commission itself admits, is not the best indicator of market power
– we believe that other economic criteria should also be taken into
account. Even when a company is over the required market share threshold,
we recommend that an agreement should be covered by the block exemption
in the case where both the market share of its direct competitor, and
the market power of the distributor with whom the agreement is made, are
substantial.
We also wish to underline the importance of ensuring consistency
in the enforcement of the future guidelines in the various member states.
It would be unacceptable to the business community if an agreement were
to be prohibited in one member state and authorized in others.
We would also recommend that the relationship between
long term investments and duration limits be taken into account in the
guidelines.
b) Transitional period
We note that the Commission already foresees providing a transitional
period for the agreements covered by an existing block exemption. It is
our view that this period should be of at least five years duration. We
are extremely concerned as to the effects on contracts which would have
been previously valid under local civil laws, in particular in the case
of long-term contracts.
c) Market share thres
holds
We would like to restate our concerns about the implementation of the
market share test, which could lead to greater, rather than less, legal
uncertainty. This may in turn lead to more agreements being notified,
contrary to the Commission’s objective. As stated in our previous
comments on this issue, market share thresholds are difficult to apply
in practice and can create discrimination between undertakings, depending
upon the vagaries of their market success for different products. This
is particularly true for companies dealing in innovative products for
which their market share is volatile. We also bring to the Commission’s
attention the risk, if parties are forced to terminate their contracts
because their market shares exceed the required thresholds, that this
may lead to conflicts with national laws of contract in member states.
Despite these concerns, the proposal in the Communication
retains market share criteria and proposes two alternative options: a
single market share threshold yet to be fixed, or a two-threshold system
with a main market share cap of 20% and a higher cap for certain vertical
restraints of 40%.
Between the two options proposed by the Commission, we
consider that a single market share would result in a clearer and simpler
system for companies. We feel, however, that a higher single threshold
of 40% should be retained to provide companies with more certainty for
their operations.
With respect to the proposal for a two-tier system of
market share limits, we consider that the exemption proposed for market
shares between 20% and 40 % is far too narrow. Contrary to the exemption
applying to a market share of below 20 %, the exemption covering market
shares between 20% and 40 % covers only specifically designated vertical
restraints, so that above a 20 % market share, only a limited group of
clauses will benefit from the exemption.
d) Exclusive purchasing and protection of investment
We suggest that vertical restraints and their combinations should be exempted
altogether, irrespective of market share, in all cases where the goods
and services are sold by the buyer from the premises of the supplier.
Similarly, in cases where substantial investment has been
made by either the supplier or reseller ICC believes that the regulation
should provide for proportionality between the duration of the exemption
and the investment made by the parties.
If suppliers and distributors are not able to fashion
their contractual relationship in a way which would allow them to protect
their investment in their commercial relationship, this may have the effect
of driving suppliers away from the use of independent distributors and
towards agents or wholly- owned subsidiaries. This may have the unwanted
effect of running counter to the Commission’s aim to promote the
development of SMEs. This may also have a discriminatory effect against
companies which are unable to vertically integrate their sales, as companies
which use distributors will have less flexibility for their distribution
arrangements than competitors which sell through wholly-owned subsidiaries
or agents.
e) Black clauses
ICC has strong concerns that the breadth and complexity of the list of
black clau
ses will exclude many economically sensible distribution systems
from the block exemption and cause great legal uncertainty for companies
operating distribution systems in Europe.
The combination of exclusive distribution with exclusive
purchasing, for example, is an arrangement which promotes the legal security
of both supplier and distributor, and justifies each party’s investment
in each other. The supplier would not provide the distributor with his
know-how if he believed the distributor would be using this to the benefit
of competitor companies.
ICC believes that the inclusion on the black list of such
arrangements will drive manufacturers away from the use of independent
distributors towards agents or wholly-owned subsidiaries for the purposes
of their European distribution. This is in contradiction with the Commission’s
stated aim to avoid " a policy bias in the choice companies make
concerning their formats of distribution" so that "the company's
choice [is] based on commercial merit and not on unjustified difference
in exemptability". (see also paragraph (d) above)
To reduce this uncertainty, ICC recommends that the Commission
reconsider its proposal not to apply the rule of severability. ICC believes
that the validity of contracts containing black clauses should not be
affected unless the black clause is judged to be essential to the agreement.
f) Retroactive application of individual exemptions
ICC welcomes the Commission’s proposal that undertakings should be
permitted to apply for an exemption with retroactive effect as from the
start of the agreement in order to mitigate the legal uncertainty resulting
from the use of market share limits. This measure will only be effective
in reducing legal uncertainty however if:
a) the possibility of obtaining a retroactive exemption
for vertical restraints is unqualified. A notifying party should not
have to explain why the arrangement was not notified earlier or be denied
a retroactive exemption if it did not notify for a particular reason;
and
b) DG IV commits itself to deal with such notifications
expeditiously as notifications of agreements are likely to occur in
the context of a litigation and national judges may not be prepared
to wait for a Commission determination.
g) Agency agreements
ICC wishes to remind the Commission that commercial agencies - widely
used in some countries - remain properly outside the scope of Article
85(1).
h) Prevention or restriction of active or passive sales
Upon review of the hard-core restrictions listed in the Communication,
it would appear that only restrictions on active sales competition within
the territory of an exclusive distributor will be permitted. This represents
a significant change compared to the present state of the law contained
in Regulation n1983/83 which allows bans on active sales outside the
exclusive distributor’s contract territory.
This ban can be imposed irrespective of whether the supplier
has appointed exclusive distributors in other territories. There is no
reason to change this policy which is justified by the legitimate interest
of the supplier to have the distributor focus its sal
es activities on
the allocated territory.
i) Selective distribution
ICC notes the Commission’s proposal to include selective distribution
under the umbrella of the block exemption. We also note the recognition
by the Commission that quantitative restrictions imposed on distributors
may be justified. We question, however, the constraints under which selective
distribution systems would be required to operate in order to benefit
from the block exemption.
In the event that a two threshold system is retained,
we object to the proposal made in previous drafts of the Communication
to exclude individual selective distribution systems from the automatic
exemption if the supplier has a market share in excess of 20 %. The Commission’s
ability to withdraw the benefit of the exemption should be sufficient
to deal with possible cases of abuse of the selective distribution system.
The market share limit of 20 % would introduce unacceptable discrimination
among undertakings.
With respect to parallel networks of selective distribution
agreements, ICC considers that competing companies and brands should be
treated equally, and that the size of a company does not justify the application
of a more favourable regime or of more stringent rules. There is a risk
that inequality of treatment between companies or between brands will
result in inequality of competition in a market where there is no foreclosure.
As the Commission recognizes, the conditions governing
selective distribution under the block exemption should remain as close
as possible to the policy formulated in established European Community
law. Current jurisprudence does not support the condition that the nature
of the good or service must "require" this type of distribution,
as stated in the Communication. It is more correct and in keeping with
economic reality to look at what is appropriate for the proper distribution
of the product or service.
ICC thanks the Commission for its consideration of the
above points, and looks forward to contributing its views on the draft
guidelines and other texts prepared by the Commission in the context of
the reform of its policy on vertical restraints.
