An Update on European Competition Law

The year 2000 was one of change in European competition law, and there is more on the horizon. Changes in the regime governing distribution and purchasing agreements, new regulations on research and development and on specialisation agreements mean that few companies doing business in Europe are unaffected by change and many may need to review their present agreements. Agreements which do not meet the requirements of the new rules run the risk of being void and unenforceable. In certain cases companies may be exposed to fines.

Article 81(1) of the Treaty of Rome. Under Article 81(1) of the Treaty of Rome, the Treaty which establishes the European Community, any provision of an agreement or any concerted practice which affects trade between member states and which has as its object or effect the prevention, restriction or distortion of competition within the European Union will be automatically void. However certain agreements which are deemed by the Commission to have a beneficial effect may survive by taking the benefit of an exemption, either individually or by meeting the requirements of the various block exemption regulations in force covering areas as diverse as airport slot allocations and motor vehicle dealerships.

Traditionally block exemptions set out a prescriptive list of provisions which agreements could include to gain exemption and a "blacklist" of provisions, such as resale price maintenance which would always be unacceptable. However in its last round of revised block exemptions, the Commission has moved away from a legalistic approach to competition law towards an economic approach based on analysis of markets and the market impact of agreements. It is this change in approach which means that existing agreements may well need to be reviewed to ensure compliance.

New Block Exemption on Vertical Agreements. The most significant change came in June last year with the new block exemption regulation for "vertical agreements". These are, effectively, agreements between parties that operate at different levels of the supply chain, for example supplier and distributor or distributor and retailer.

The new block exemption replaces previous block exemptions for exclusive purchasing and exclusive distribution and creates a unified set of competition rules which looks primarily at market shares in determining whether anti-competitive contractual provisions can be lawful. Subject to certain exceptions, agreements where the parties' market share does not exceed 10 percent of the relevant market are deemed not to be significant enough to affect competition between member states, whilst agreements made by parties with a market share of more than 30% cannot benefit from the block exemption. New rules are also created limiting "non-compete" obligations covered by the block exemption to 5 years and revised provisions are set out defining those "hardcore" or "blacklisted" provisions which will prevent agreements taking the benefit of the exemption.

Another very significant change is that agreements which fall outside the block exemption and which may need to be individually notified to the Commission for exemption no longer need to be notified on a "just in case" basis. Companies are actively encouraged to take a sensible view on whether an agreement needs to be notified. If there is subsequently a dispute then a late notification can be made and an agreement retrospectively exempted by the Commission. This pragmatic approach is designed to prevent unnecessary paperwork for the Commission and to cut the need for companies to incur superfluous legal fees.

New Block Exemptions for Research and Development Agreements and Specialisation Agreements. New Year's Day 2001 also saw the coming into force of new block exemption regulations for R&D agreements and specialisation agreements. Like the new regulation on vertical agreements, the new arrangements for these types of contract emphasise an economic approach to competition law and less the type of legal clauses that agreements include.

In broad terms the new R&D regulation provides that any agreement between two or more parties for the joint research and development of a product or process with or without joint the exploitation of its results can be exempted from the effect of Article 81(1) for the period of the R&D plus 7 additional years for the exploitation of the results. Where the parties to the agreement are competing undertakings the exemption will only last for the period of the research and development and will only be available where the parties have a combined market share of less than 25 percent.

The new specialisation block exemption regulation follows closely the language of the R&D regulation. Specialisation is effectively where one party agrees to another to stop production either on a reciprocal on a unilateral basis or where both parties agree jointly to produce a product. The Commission considers that, provided there are certain safeguards, specialisation can benefit consumers in Europe by improving production processes. In broad terms again, specialisation agreements can take the benefit of the block exemption provided that the combined market share of parties is less than 20 percent.

Updating Existing Agreements. The changes in the law governing distribution, purchasing and supply , R&D and specialisation agreements in the European Union mean that it is well worth and in some cases essential to review existing agreements to check that they comply with new requirements.

If you would like more information, please contact the author in our London office.