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Compliance with Regulation 2022/720 – road map

For all of the EEA jurisdictions, compliance with competition law is of particular importance to ensure the enforceability of vertical agreements and to avoid financial sanctions. With regard to vertical agreements, Regulation 2022/720 is of critical importance. It provides the block exemption regime that applies to vertical agreements. Below you will find a road map that helps you to conduct the appropriate analysis to ensure compliance with Article 101 TFEU and Regulation 2022/720. This road map is based on Chapter 2 of the upcoming fourth edition of “Vertical Agreements in EU Competition Law”, authored by Frank Wijckmans and Filip Tuytschaever.

At a glance

The objective of this overview document is to provide the practitioner with a road map covering the various steps and questions to assess whether a given vertical agreement benefits from Regulation 2022/720. Experience teaches us that one must not conclude too hastily that a vertical agreement falls within the scope of application of Regulation 2022/720 or meets the conditions to be block exempted. A step-by-step assessment is called for to avoid the risk of inaccurate conclusions.

There are various ways to conduct such an assessment. The approach proposed in this road map follows the sequence of Regulation 2022/720. For each step, the questions that must be resolved to arrive at reliable conclusions are outlined. If the analysis in the context of a particular step results in a finding that Regulation 2022/720 is not applicable, the road map outlines the legal consequences and, where relevant, points at the available options. It is important to stress in this context that a block exemption, such as Regulation 2022/720, is not mandatory law. Instead, it creates a rebuttable presumption of compliance with the conditions of Article 101(3) TFEU.

Accordingly, the failure to meet the conditions of Regulation 2022/720 does not automatically imply that the agreement runs afoul of EU competition law. As the road map indicates, there are other ways to secure compliance with EU competition law.

The road map consists of five blocks. Each block consists of one or more steps. Each step can be broken down in a number of questions.

The first block addresses the general scope of application of Regulation 2022/720 and reflects the requirements of Article 2(1) of Regulation 2022/720. In order to conclude that an agreement or concerted practice falls within the general scope of application, the following steps must be completed:

  • First step: two or more undertakings must be involved;
  • Second step: the agreement must qualify as a vertical agreement;
  • Third step: the vertical agreement must affect trade between Member States; and
  • Fourth step: the vertical agreement must contain vertical restraints.

The second block deals with subject matter related limitations to the general scope of application. The steps included in this block pertain to the limitations of Articles 2(2) to 2(7) of Regulation 2022/720. The relevant steps cover limitations related to the following subject matters:

  • Fifth step: the involvement of associations as a party to the vertical agreement;
  • Sixth step: the inclusion of intellectual property rights (‘IPR’) in the vertical agreement;
  • Seventh step: the involvement of competitors as parties to the vertical agreement; and
  • Eighth step: the subject matter of the vertical agreement being covered by another block exemption regulation (‘BER’).

The third block addresses the market share limits of Article 3 of Regulation 2022/720. For purposes of calculating these limits account must be taken of the methodology in Article 8 of Regulation 2022/720. Checking the market share limits requires completion of the following steps:

  • Ninth step: definition of the relevant market; and
  • Tenth step: calculation of the market shares.

With the fourth block we are leaving the assessment of the applicability of Regulation 2022/720 and enter into the substantive evaluation of the vertical agreement. This evaluation is split into two steps so as to take account of the different legal consequences attached to the inclusion in a vertical agreement of:

  • Eleventh step: hardcore restrictions (Article 4 of Regulation 2022/720); and/or
  • Twelfth step: excluded restrictions (Article 5 of Regulation 2022/720).

The fifth block consists of a sanity check that the vertical agreement, in whole or in part, is not excluded from the safe harbour of the block exemption as a result of:

  • Thirteenth step:  a withdrawal decision of the Commission or a competent national competition authority (‘NCA’) (Article 6 of Regulation 2022/720); and
  • Fourteenth step: a Commission regulation declaring the block exemption inapplicable (Article 7 of Regulation 2022/720).

FIRST BLOCK: GENERAL SCOPE OF APPLICATION

In order to ensure that certain market conduct meets the requirements of Article 2(1) of Regulation 2022/720 and is covered by the general scope of application of the block exemption, the following steps must be completed. These steps coincide to a considerable extent with the steps required to assess whether Article 101(1) TFEU applies.

(1) First step: two or more undertakings

Similar to Article 101 TFEU, the applicability of Regulation 2022/720 is dependent on the involvement of at least two undertakings. In order to determine whether this requirement is met, the following questions must be addressed:

Do the parties qualify as 'undertakings'?

The concept of ‘undertaking’ is not defined in the TFEU. In accordance with settled case law, ‘undertaking’ for the purposes of EU competition law means ‘any entity engaged in an economic activity, regardless of its legal status and the way in which it is financed’. The functional test developed in the case law can cover legal entities, unincorporated entities as well as physical persons. Hence, the nature or legal form of the party is not important. It is the nature of its activities that is decisive.

The vast majority of vertical agreements involve commercial companies that, by definition, qualify as undertakings. A more careful review is needed where public bodies or organizations acting in the context of social solidarity are involved. Consumers purchasing for private use do not qualify as undertakings.

If the parties involved in a given practice do not qualify as undertakings, the legal consequences are quite straightforward. Such practice will not be covered by Article 101 TFEU and similarly falls outside the scope of Article 102 TFEU. As a result, Regulation 2022/720, which grants an exemption from the prohibition included in Article 101(1) TFEU, does not apply.

Are there at least two parties meeting this qualification? 

It is not sufficient for the application of Regulation 2022/720 that at least one of the parties involved qualifies as an undertaking. Similar to Article 101 TFEU, Article 2(1) Regulation 2022/720 requires that at least two of the parties are undertakings that are independent from each other.

Most vertical agreements are typically concluded between two independent commercial companies. There are however scenarios that require particular attention. The most important of such scenarios concerns vertical agreements entered into between related companies. If the relationship between these companies is such that the so-called intra-group theory applies, they do not qualify as two independent undertakings but form a single undertaking. The same may apply in certain agency scenarios where the agent is considered part of the same undertaking as its principal.

In case only a single undertaking is involved (for example, on account of the intra-group theory), Article 101 TFEU does not enter into play. By the same token, Regulation 2022/720 does not apply. This does not mean that the conduct is completely immune from competition law scrutiny. The conduct may still run counter to Article 102 TFEU (abuse of dominant position) or stricter national competition rules governing unilateral conduct.

See road map: first step

(2) Second step: vertical agreement

Article 2(1) of Regulation 2022/720 specifies that the block exemption applies only if two or more undertakings have entered into a vertical agreement. Article 1(1)(a) of Regulation 2022/720 defines a ‘vertical agreement’ as ‘an agreement or concerted practice entered into between two or more undertakings, each of which operates, for the purposes of the agreement or the concerted practice, at a different level of the production or distribution chain, and relating to the conditions under which the parties may purchase, sell or resell certain goods or services’. In order to check whether a given practice meets this definition, the following questions have to be answered:

Does the conduct amount to an agreement or concerted practice or is it unilateral conduct?

In most cases the answer to this question will be easy. If two commercial companies enter into a distribution agreement, it is obvious that an agreement within the meaning of Article 1(1)(a) of Regulation 2022/720 is involved. It is only in borderline cases that a more in-depth review will be called for. A typical example is where a supplier decides to limit the quantities it delivers to its national importers in order to reduce cross-border trade. While at least two undertakings are involved, it remains to be assessed whether the decision of the supplier qualifies as a vertical agreement or amounts to no more than unilateral conduct.

If unilateral conduct is involved which does not qualify as an agreement or concerted practice, Article 101 TFEU and Regulation 2022/720 do not apply. Such conduct must be assessed only on the basis of Article 102 TFEU or stricter rules of national competition law governing unilateral conduct.

Is the agreement 'vertical'?

Competition law distinguishes between horizontal and vertical practices. The differentiating factor is whether the undertakings involved act at the same or at different levels of the production, supply or distribution chain. If they act at the same level, the practice is characterized as horizontal. If they operate at different levels, the practice is considered vertical.

Article 2(1) of Regulation 2022/720 requires that the agreement is ‘vertical’ in order for Regulation 2022/720 to apply. Article 1(1)(a) of Regulation 2022/720 adds however that the vertical nature of the relationship must only exist ‘for the purposes of the agreement’. This addition is important. It means that undertakings that are active at the same level of the production, supply or distribution chain can still qualify for the block exemption provided that they are acting at different levels for the agreement under review. More concretely, an agreement (or concerted practice) between two competing producers qualifies as a ‘vertical agreement’ in the sense of Article 2(1) of Regulation 2022/720 if, in the context of that agreement, the first producer acts as the supplier and the second as the buyer. The fact that they act at the same level in other contexts does not deprive that specific agreement of its vertical character.

If the agreement is horizontal, Article 101 TFEU remains relevant. However, the parties will not be able to rely on Regulation 2022/720 to secure an exemption in accordance with Article 101(3) TFEU. The parties can still turn to two other BER that govern horizontal relationships, notably Regulation 2023/1066 (R&D agreements) and Regulation 2023/1067 (specialization agreements). If these BER are inapplicable, the parties can conduct a self-assessment on the basis of Article 101 TFEU.

Does the vertical agreement relate to the purchase, sale or resale of goods and/or services? 

In addition to being ‘vertical’, the agreement must also relate to the purchase, sale or resale of goods and/or services. This requirement poses problems for rental or lease agreements, as well as for licensing agreements that do not include the purchase, sale or resale of goods and/or services.

If the vertical agreement does not relate to the purchase, sale or resale of goods and/or services, it may still be covered by Article 101 TFEU, but cannot benefit from Regulation 2022/720. Depending on its exact nature, it may qualify for a block exemption under Regulation 316/2014 (technology transfer agreements), Regulation 2023/1066 (R&D agreements) or Regulation 2023/1067 (specialization agreements). In case of the inapplicability of these BER, a self-assessment on the basis of Article 101 TFEU will be required to check whether the vertical agreement qualifies for an individual exemption from the prohibition of Article 101(1) TFEU.

See road map: step 2

(3) Third step: effect on trade between Member States

The effect on trade between Member States that is needed for the applicability of Article 101 TFEU is likewise required for the applicability of Regulation 2022/720. While this is not stated in Article 2(1) of Regulation 2022/720, it follows naturally from the references in that provision to Article 101(1) and 101(3) TFEU.

It is logical to take this condition as a third step in the assessment process. The effect on trade requirement does not have to be measured at the level of the individual restrictions of competition, but at the level of the vertical agreement as a whole. This implies that the condition is met if the agreement as a whole has the required effect on trade between Member States, even though the restrictions of competition individually do not meet the test.

If there is no or insufficient effect on trade between Member States, Article 101 TFEU does not apply, and Regulation 2022/720 is not directly relevant. However, this does not exclude national competition law from providing that the vertical agreement may benefit from a (national) exemption if the other conditions of Regulation 2022/720 are met – that is, save for the effect on trade requirement. In addition to the national competition law of the Member States, the parties must take account of the competition laws of third countries if the vertical agreement has the effects required for the national competition laws of such countries to apply.

See road map: step 3

(4) Fourth step: vertical restraints

The final step in the assessment of the general scope of application of Regulation 2022/720 consists in checking whether the vertical agreement contains vertical restraints. The concept of vertical restraint is defined in Article 1(1)(b) of Regulation 2022/720 as ‘a restriction of competition in a vertical agreement falling within the scope of Article 101(1) TFEU’.

The need for vertical restraints is directly related to the fact that Regulation 2022/720 is a block exemption, that is an automatic exemption in accordance with Article 101(3) TFEU. In case there are no restrictions of competition (here: no vertical restraints), there is no need for an exemption and hence no need to make use of Regulation 2022/720.

In order to assess whether a vertical agreement contains vertical restraints, the following questions must be addressed:

Does the vertical agreement include restrictions by object and/or restrictions by effect?

A vertical restraint can take the form of a restriction by object or a restriction by effect. In the case of an object restriction, there is no need to prove that the restriction results in restrictive effects. For restrictions that do not qualify as an object restriction, the effects must be established.

The distinction is of great importance when establishing whether vertical restraints are involved (put differently, whether Article 101(1) TFEU is infringed). Case law devotes quite some attention to the distinction between restrictions by object and restrictions by effect. The lessons from that case law are very relevant for making the necessary assessment under Article 101(1) TFEU and hence for the decision whether the vertical agreement concerned may need an exemption, either based on Regulation 2022/720 or individually.

Once it is established that Article 101(1) TFEU is applicable, the distinction between the two types of restrictions plays a very limited role for the applicability of Regulation 2022/720. Regulation 2022/720 covers all object restrictions, with the exception of the hardcore restrictions listed in its Article 4, and all effects restrictions, with the exception of the so-called excluded restrictions contained in its Article 5.

In the case of restrictions by effect, do they meet the standard of appreciability?

Restrictions of competition must be appreciable before coming within the scope of the prohibition of Article 101(1) TFEU. The same applies for vertical restraints within the meaning of Article 1(1)(b) and Article 2(1) of Regulation 2022/720.

Case law confirms that restrictions by object are presumed to meet the standard of appreciability, so there is no need to conduct any further appreciability check for object restrictions. This is different for restrictions by effect. Such restrictions qualify only as a vertical restraint if they are proven to be appreciable. The most important tool to conduct an appreciability check is the so-called De Minimis Notice, which links the appreciability of the effects restriction to the market shares of the parties on the relevant market.

Do any of the escape routes apply to the vertical agreement or the vertical restraints?

Even if the vertical agreement contains restrictions by object or appreciable restrictions by effect, either one of the following three escape routes may render the prohibition of Article 101(1) TFEU inapplicable: government compulsion, ancillary restraints or objective justifications.

If any of these escape routes applies, the vertical agreement or the vertical restraint to which the escape route applies, is not caught by the prohibition of Article 101(1) TFEU and hence needs no exemption on the basis of Regulation 2022/720.

See road map: step 4​​​​​​​

(5) Conclusion

The completion of these four steps establishes whether a vertical agreement is covered by Article 101(1) TFEU and falls within the general scope of application of Regulation 2022/720. This first block is not the end of the assessment. Whether the vertical agreement effectively falls within the scope of application of Regulation 2022/720 depends on the outcome of the second and third blocks of the assessment.

SECOND BLOCK: LIMITATIONS TO THE GENERAL SCOPE OF APPLICATION

The following steps must be taken to determine whether one of the limitations to the general scope of application of Regulation 2022/720, resulting from Articles 2(2) to 2(7) of Regulation 2022/720, applies.

(1) Fifth step: associations of undertakings

Pursuant to Article 2(2) of Regulation 2022/720, the block exemption, as a rule, only applies to agreements between an association of undertakings and an individual member, or to agreements between such an association and an individual supplier, if all the members of the association are retailers and none of the individual members, together with its connected undertakings, exceeds a total annual turnover of EUR 50 million. Article 9 of Regulation 2022/720 provides details on the calculation of the turnover limit.

If these conditions are not met, Regulation 2022/720 cannot be relied upon for securing an exemption. A self-assessment is required to establish whether the prohibition of Article 101(1) TFEU applies or whether the practice meets the conditions of Article 101(3) TFEU so as to benefit from an individual exemption.

See road map: step 5

(2) Sixth step: IPR

Vertical agreements with IPR provisions are not automatically within the scope of application of Regulation 2022/720. Article 2(3) of Regulation 2022/720 contains limits to the applicability of the block exemption to such agreements. Four questions must be addressed to find out whether any of such limits applies:

Are the IPR assigned to, or licensed for use by, the buyer?

Regulation 2022/720 applies only if the IPR are provided by the supplier to the buyer and not vice versa. A typical case where the buyer and not the supplier provides the IPR is an industrial supply agreement whereby the supplier manufactures and supplies components that are integrated in machines produced by the buyer. Regulation 2022/720 does not apply to such cases where the buyer provides IPR to the supplier to enable the supplier to produce the components.

Scenarios in which the buyer provides IPR to the supplier can usefully be checked under the Subcontracting Notice. If they fall within the prohibition of Article 101(1) TFEU, a block exemption may be available through Regulation 316/2014 (technology transfer agreements), Regulation 2023/1066 (R&D agreements) or Regulation 2023/1067 (specialization agreements). If none of these BER applies, a self-assessment on the basis of Article 101 TFEU is required to check whether the vertical agreement qualifies for an individual exemption from the prohibition of Article 101(1) TFEU.

Do the IPR not constitute the primary object of the vertical agreement?

Regulation 2022/720 applies only if the primary object of the vertical agreement is the supply, purchase or resale of goods and/or services. The application of Regulation 2022/720 is not excluded if the vertical agreement includes the provision of IPR to the buyer as long as such IPR support the supply, purchase or resale of goods and/or services without being the primary object of the vertical agreement.   

Cases where the IPR constitute the primary object of the vertical agreement may qualify for an exemption pursuant to Regulation 316/2014 (technology transfer agreements). Otherwise, a self-assessment will be called for to establish the compatibility of the vertical agreement with Article 101 TFEU.

Are the IPR directly related to the use, sale or resale of goods and/or services by the buyer or its customers?

There must be a direct link between the IPR and the use, sale or resale of goods and/or services by the buyer or its customers. For example, IPR (such as the right to use the supplier’s trademarks) that are made available to enhance the marketing of the goods or services covered by a distribution agreement normally meet this test.

If the direct link does not exist, the vertical agreement (or at least the part of the agreement dealing with the IPR) does not qualify for an exemption pursuant to Regulation 2022/720. Regulation 316/2014 (technology transfer agreements) may present a useful alternative. Otherwise, a self-assessment on the basis of Article 101 TFEU will be required.

Do the IPR provisions not contain restrictions of competition having the same object as vertical restraints that are not exempted under Regulation 2022/720?

The rationale of this question is to avoid that parties use IPR provisions to incorporate in their vertical agreements restrictions which are not exempted under Regulation 2022/720. More specifically, the restrictions linked to the IPR must be tested against the hardcore list of Article 4 of Regulation 2022/720.

If the restrictions related to the IPR present a problem for the applicability of Regulation 2022/720, Regulation 316/2014 (technology transfer agreements) may apply. The more likely scenario is that the parties will need to conduct a self-assessment on the basis of Article 101 TFEU.

​​​​​​​See road map: step 6

(3) Seventh step: involvement of competitors

As a rule, Regulation 2022/720 does not apply to vertical agreements concluded between competing undertakings. The concept of ‘competing undertaking’ is defined in Article 1(1)(c) of Regulation 2022/720. Article 2(4) of Regulation 2022/720 contains certain exceptions to this rule for non-reciprocal vertical agreements. In order to determine the applicability of these exceptions, the following questions must be addressed:

Is the vertical agreement non-reciprocal?

Reciprocal agreements between competing undertakings are excluded from the scope of application of Regulation 2022/720. This is so even if the test addressed in the next question is met.

Reciprocal agreements in most cases require a self-assessment. Exceptionally, Regulation 316/2014 (technology transfer agreements), Regulation 2023/1066 (R&D agreements) or Regulation 2023/1067 (specialization agreements) may apply.

Is a case of dual distribution involved?

Non-reciprocal vertical agreements between competing undertakings can only benefit from the block exemption in the case of dual distribution. This means that the undertakings must meet each other as competing undertakings at the downstream level and not upstream. If this requirement is not met, a vertical agreement entered into between competing undertakings is not eligible for the block exemption.

The scenarios where dual distribution may qualify for an exemption on the basis of Regulation 2022/720 differ depending on whether goods or services are involved. In the case of goods, a broader concept of dual distribution may be eligible for such exemption. Dual distribution covers in that case any situation where the supplier is a manufacturer, importer or wholesaler at the upstream level and an importer, wholesaler or retailer of goods at the downstream level, and the buyer is an importer, wholesaler, or retailer at the downstream level. It is critical that they are not competing undertakings at the upstream level. In the case of services, dual distribution may only qualify for an automatic exemption where the supplier is a provider of services at several levels and the buyer provides its services at the retail level. Also here, the parties may not be competing undertakings at the upstream level.

Can the information exchanges between the parties in a dual distribution scenario also benefit from the block exemption?

Information exchanges between the parties involved in a dual distribution scenario that falls within the scope of application of Regulation 2022/720 do not always benefit from an automatic exemption. Article 2(5) of Regulation 2022/720 provides that this will only be the case if such information exchanges are directly related to the implementation of the vertical agreement and are necessary to improve the production or distribution of the relevant goods or services. If these requirements are not met, the relevant information exchanges are not covered by the block exemption and will require a self-assessment on the basis of Article 101 TFEU. The dual distribution relationship itself remains eligible for the block exemption.

Are online intermediation services involved?

A specific exception to the coverage of dual distribution scenarios by the block exemption concerns online intermediation services and is addressed in Article 2(6) of Regulation 2022/720. The concept of online intermediation services is defined in Article 1(1)(e) of Regulation 2022/720 and covers essentially online platform services facilitating the initiation of direct transactions between undertakings or with final consumers. Vertical agreements with regard to the provision of such services fall outside the scope of Regulation 2022/720 if the provider of the services is a competing undertaking on the relevant market for the sale of the intermediated goods or services. This particular dual distribution scenario cannot benefit from the exception contained in Article 2(4) of Regulation 2022/720.

What if the dual distribution exception is not applicable?

Non-reciprocal agreements that do not fit within an eligible dual distribution scenario fall outside the scope of application of Regulation 2022/720. While in most cases a self-assessment will be required, Regulation 316/2014 (technology transfer agreements), Regulation 2023/1066 (R&D agreements) or Regulation 2023/1067 (specialization agreements) may apply.

See road map: step 7

(4) Eighth step: other block exemptions

A vertical agreement is outside the scope of application of Regulation 2022/720 if its subject matter falls within the scope of any other BER unless otherwise provided. It is irrelevant in this context whether the agreement is actually exempted pursuant to such other regulation. From the moment that the agreement is within the scope of application of another BER, even if it contains one or more hardcore restrictions so that the other BER is not available, Regulation 2022/720 no longer applies.

At the time of writing, the following other BER are available:

  • Regulation 461/2010 (motor vehicles);
  • Regulation 316/2014 (technology transfer agreements);
  • Regulation 2023/1066 (R&D agreements);
  • Regulation 2023/1067 (specialization agreements).

If Regulation 2022/720 does not apply for the reason mentioned here, the solution is obviously the application of the relevant other BER. If the vertical agreement is within the scope of application of such other regulation, but does not benefit from its safe harbour, a self-assessment of the agreement on the basis of Article 101 TFEU is required.

​​​​​​​See road map: step 8​​​​​​​

(5) Conclusion

In case none of the above limits applies, the subject matter of the vertical agreement falls within the scope of application of Regulation 2022/720. The only remaining step before assessing the vertical restraints included in the vertical agreement is the application of the market share limits included in Article 3 of Regulation 2022/720.

THIRD BLOCK: MARKET SHARE LIMITS

The application of Regulation 2022/720 is subject to the double cumulative market share limit of 30 per cent of Article 3 of Regulation 2022/720, one applying to the supplier and the other to the buyer.

In order to determine whether the market share limits are met, the following questions must be addressed:

(1) Ninth step: what is (are) the relevant product and geographic market(s)?

Market shares must be measured on a properly defined relevant market. Such market has a product dimension and a geographic dimension. Guidance on the definition of relevant markets can be found in the Relevant Market Notice. Useful input can also be found in past (merger) cases in the relevant sector.

See road map: ninth step

(2) Tenth step: do the relevant market shares exceed 30 per cent?

The market share of the supplier is calculated on the downstream market on which it sells the goods or services. The market share of the buyer is calculated on the corresponding upstream market where it purchases the goods or services (and hence not on the downstream market on which the buyer, in turn, sells the goods or services). Guidance on the calculation of the market shares can be found in Article 8 of Regulation 2022/720.

Article 8(d) of Regulation 2022/720 specifies that if the market share limit of 30 per cent is initially not exceeded, but subsequently rises above the 30 per cent limit, the block exemption continues to apply for two consecutive calendar years following the year in which the limit was first exceeded. In case the limit of 30 per cent is exceeded and the transitional regime no longer applies, a self-assessment on the basis of Article 101 TFEU is called for.

See road map: tenth step​​​​​​​

FOURTH BLOCK: SUBSTANTIVE ASSESSMENT

The successful completion of the first three blocks means that the vertical agreement falls within the scope of application of Regulation 2022/720, and that it is useful to conduct a substantive assessment of the vertical restraints involved on the basis of Articles 4 and 5 of Regulation 2022/720. The distinction between these two provisions is important because the failure to comply attracts different legal consequences. The substantive assessment can therefore usefully be split in two steps, based on the following questions:

(1) Eleventh step: does the vertical agreement contain hardcore restrictions?

The hardcore restrictions are listed in Article 4 of Regulation 2022/720. The list is exhaustive. This implies that restrictions that are not listed do not qualify as hardcore restrictions for the purposes of Regulation 2022/720 and therefore can benefit from the block exemption.

The first of the hardcore restrictions listed in Article 4 of Regulation 2022/720 is vertical price fixing (also known as resale price maintenance or RPM). This hardcore restriction applies irrespective of the chosen distribution system. It distinguishes between the imposition on the buyer of fixed or minimum resale prices (which are hardcore restrictions) and the imposition of maximum resale prices and the communication of recommended resale prices (which do not qualify as hardcore restrictions).

The bulk of the hardcore restrictions consists of territorial and customer restrictions imposed on the buyer. These restrictions are sometimes referred to as “where” and “to whom” restrictions. The nature of the chosen distribution system has a considerable impact on the territorial and customer restrictions that are permissible. Essentially for presentational reasons, Regulation 2022/720 distinguishes between selective, exclusive, and free distribution and lists for each of these the territorial and customer restrictions that escape the hardcore list. These lists confirm that the key distinction for characterising a territorial or customer restriction as a hardcore restriction is the distinction between selective and non-selective distribution. The level of the supply chain at which the buyer is active (wholesale as opposed to retail) also influences the characterization of customer restrictions as hardcore restrictions. A further relevant distinction is that between online sales and online advertising which are given specific treatment in the context of Article 4 of Regulation 2022/720.

It is important to record that, as opposed to “where” and “to whom” restrictions, so-called “how” restrictions in principle do not qualify as hardcore restrictions. “How” restrictions concern the manner in which goods or services are to be sold, purchased, or resold.

Restrictions imposed on the supplier are generally not hardcore restrictions and are exempted. There is one limited exception, namely customer restrictions imposed on a supplier of components wishing to sell the components as spare parts in the aftermarket (Article 4(f)). Ordinarily, however, restrictions imposed on the supplier in a standard distribution agreement will never be hardcore restrictions and may benefit from the block exemption.

If the parties include a hardcore restriction in their vertical agreement, the block exemption is no longer applicable to the agreement as a whole. Put differently, the benefit of the block exemption is completely lost as a result of the inclusion of a single hardcore restriction in the vertical agreement. In addition, the Commission advances in the Vertical Guidelines (paragraph 180(b)) a presumption that an agreement with a hardcore restriction ‘is unlikely to fulfil the conditions of Article 101(3) TFEU’. This implies that a hardcore restriction considerably complicates any self-assessment of the vertical agreement on the basis of Article 101 TFEU due to this (rebuttable) negative presumption. Such a self-assessment will however be needed to establish the compatibility of the vertical agreement with Article 101 TFEU.

See road map: eleventh step

(2) Twelfth step: does the vertical agreement include excluded restrictions?

The excluded restrictions are listed in Article 5 of Regulation 2022/720. Like the list of hardcore restrictions, the list of excluded restrictions is exhaustive. This implies that restrictions that are not listed do not qualify as excluded restrictions for the purposes of Regulation 2022/720 and can benefit from the block exemption (unless they fall within the list of the hardcore restrictions).

The excluded restrictions concern the following restrictions imposed on the buyer: certain non-compete obligations, certain post-term non-compete obligations, a boycott of particular competing suppliers in a selective distribution system and across-platform retail parity obligations.

With the exception of boycotts in a selective distribution context, the compatibility of such restrictions with Article 5 of Regulation 2022/720 does not depend on the applicable distribution system.

The concept of ‘non-compete obligation’ is defined in Article 1(1)(f) of Regulation 2022/720 and is not confined to single branding. It also encompasses cases where the buyer is obliged to source more than 80 per cent of its requirements of certain goods or services from a given supplier, thereby leaving the buyer only with the freedom to source up to 20 per cent of its needs from suppliers of competing goods or services. Non-compete and post-term non-compete obligations do not always qualify as excluded restrictions. They escape such qualification, for instance, by being subject to certain time limits (for example, in the case of single branding) or certain additional geographic and product scope limits (for example, in the case of post-term non-compete obligations).

The excluded restriction covering across-platform retail parity obligations is a newcomer. The precise content of the excluded restriction is rather complex and requires a careful assessment.

Different from the regime applicable to hardcore restrictions, the inclusion of an excluded restriction in principle does not lead to the inapplicability of the block exemption to the vertical agreement as a whole. Only the excluded restriction will not benefit from the block exemption. There is no negative impact on the applicability of the block exemption to the remainder of the vertical agreement unless the restriction cannot be severed from the remainder. In order to determine whether the excluded restriction is compatible with Article 101 TFEU, a self-assessment of that restriction is required.

See road map: twelfth step​​​​​​​

FIFTH BLOCK: NON-APPLICATION AND WITHDRAWAL

A final check to be made is whether the Commission or an NCA adopted a measure resulting in the inapplicability of Regulation 2022/720 to the vertical agreement under investigation. To follow the sequence of Regulation 2022/720, we put this check at the back end of the proposed methodology. Given that such measures are specific and highly exceptional, companies that may be affected by them should normally be aware of their existence. For that reason, such measures will typically be considered earlier in the assessment process.

The following questions are relevant in this context:

(1) Thirteenth step: has the Commission or an NCA withdrawn the benefit of the block exemption from the vertical agreement?

Article 6 of Regulation 2022/720 grants the Commission the authority to withdraw the benefit of the block exemption in any particular case where a vertical agreement has certain effects that are incompatible with Article 101(3) TFEU. NCA have the same powers if the negative effects occur in the territory of their Member State, or in a part thereof, which has all the characteristics of a distinct geographic market. The withdrawal decision of the NCA must be confined to that distinct market. 

Also in this case, a self-assessment is the way forward to establish whether the vertical agreement is consistent with Article 101 TFEU.

See road map: thirteenth step

(2) Fourteenth step: has the Commission adopted a regulation declaring the block exemption inapplicable to the vertical agreement?

Article 7 of Regulation 2022/720 provides that the Commission may by regulation declare the block exemption inapplicable where parallel networks of similar vertical restraints cover more than 50 per cent of a relevant market. The regulation of the Commission shall specify the vertical agreements that are affected because they contain these specific restraints relating to the market concerned. It is important to note that this regulation causing the non-applicability of the block exemption is not addressed to individual companies but concerns a defined group of vertical agreements.

Vertical agreements covered by a non-application regulation issued by the Commission must be the subject of a self-assessment to establish their compatibility with Article 101 TFEU.

See road map: fourteenth step

Practical conclusions

This road map provides a high-level introduction to all of the steps that are required to apply Regulation 2022/720 correctly.

Practitioners with experience in the application of Regulation 2022/720 will be able to deal very quickly with many of the steps and questions outlined above. This does however not do away with the fact that each of the steps and questions is important. As the road map shows, an omission in checking one or more of the questions related to IPR or an incorrect assessment of the exception that applies to vertical agreements between competing undertakings, may be sufficient to arrive at incorrect conclusions regarding the applicability of Regulation 2022/720. The road map therefore contains a checklist of points which must all be addressed.

Behind many of the steps and questions, there are a number of detailed issues that may play a role in the final outcome of the assessment. Hence, unless it is truly obvious that a particular step or question does not present a problem for the applicability of Regulation 2022/720, it is recommended to consult the more detailed description that is cross-referenced above. Such description contains both the necessary legal explanations and practical examples, many from our own practice, that illustrate how such issues are best analysed and handled.

Summary overview

At a glance FIRST BLOCK: GENERAL SCOPE OF APPLICATION (1) First step: two or more undertakings Do the parties qualify as 'undertakings'? Are there at least two parties meeting this qualification?  (2) Second step: vertical agreement Does the conduct amount to an agreement or concerted practice or is it unilateral conduct? Is the agreement 'vertical'? Does the vertical agreement relate to the purchase, sale or resale of goods and/or services?  (3) Third step: effect on trade between Member States (4) Fourth step: vertical restraints Does the vertical agreement include restrictions by object and/or restrictions by effect? In the case of restrictions by effect, do they meet the standard of appreciability? Do any of the escape routes apply to the vertical agreement or the vertical restraints? (5) Conclusion SECOND BLOCK: LIMITATIONS TO THE GENERAL SCOPE OF APPLICATION (1) Fifth step: associations of undertakings (2) Sixth step: IPR Are the IPR assigned to, or licensed for use by, the buyer? Do the IPR not constitute the primary object of the vertical agreement? Are the IPR directly related to the use, sale or resale of goods and/or services by the buyer or its customers? Do the IPR provisions not contain restrictions of competition having the same object as vertical restraints that are not exempted under Regulation 2022/720? (3) Seventh step: involvement of competitors Is the vertical agreement non-reciprocal? Is a case of dual distribution involved? Can the information exchanges between the parties in a dual distribution scenario also benefit from the block exemption? Are online intermediation services involved? What if the dual distribution exception is not applicable? (4) Eighth step: other block exemptions (5) Conclusion THIRD BLOCK: MARKET SHARE LIMITS (1) Ninth step: what is (are) the relevant product and geographic market(s)? (2) Tenth step: do the relevant market shares exceed 30 per cent? FOURTH BLOCK: SUBSTANTIVE ASSESSMENT (1) Eleventh step: does the vertical agreement contain hardcore restrictions? (2) Twelfth step: does the vertical agreement include excluded restrictions? FIFTH BLOCK: NON-APPLICATION AND WITHDRAWAL (1) Thirteenth step: has the Commission or an NCA withdrawn the benefit of the block exemption from the vertical agreement? (2) Fourteenth step: has the Commission adopted a regulation declaring the block exemption inapplicable to the vertical agreement? Practical conclusions

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