Vertical Agreements 2012

Author:Ms Helen Kelly and Bonnie Costelloe
Profession:Matheson Ormsby Prentice
 
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Previously published by Getting the Deal Through

ANTITRUST LAW

1 What are the legal sources that set out the antitrust law applicable to vertical restraints?

Section 4(1) of the Competition Act, 2002 (as amended) (the Act) (available at www.tca.ie) prohibits anti-competitive agreements between undertakings and is equivalent at national level to article 101(1) of the Treaty on the Functioning of the European Union (TFEU). Section 4(3) of the Act allows the Competition Authority (the Authority) to make written declarations that, in its opinion, specified categories of agreement comply with the efficiency criteria in section 4(5) of the Act (equivalent to the power of the European Commission (the Commission) to grant block exemptions for categories of agreement that comply with the conditions in article 101(3) TFEU). In addition, section 30(1)(d) of the Act allows the Authority to publish notices giving practical guidance as to the operation of provisions of the Act. The Authority has published a notice and two declarations (each of which is available at www.tca. ie) applicable to vertical restraints, as follows:

Declaration in respect of vertical agreements and concerted practices (Decision No. D/10/001) (the Declaration); Notice in respect of vertical agreements and concerted practices (Decision No. N/10/001) (the Notice); and Declaration in respect of exclusive purchasing agreements for cylinder liquefied petroleum gas (Decision No. D/05/001) (the Cylinder LPG Declaration). The Notice and the Declaration were introduced by the Competition Authority following a review of the competition rules applicable to vertical agreements further to the introduction by the Commission of Regulation No. 330/2010 (the Vertical Block Exemption Regulation (VBER)).

The Notice provides practical guidance as to the application of the Act and the Declaration. The Notice expressly provides that reference may be had to the Commission's Guidelines on Vertical Restraints (the Commission Guidelines) for guidance as to whether an agreement is likely to fall outside of section 4(1) of the Act. However, two exceptions are noted in this regard. First, the exemption provided for in the VBER in respect of retailer buyer pools where no individual member (or its connected undertakings) has an annual turnover in excess of €250 million does not apply under the Declaration. In separate guidance (specifically, the Authority's notice on activities of trade associations and compliance with competition law, N/09/002 dated 9 November 2009) the Authority confirmed that it would follow the approach indicated by the Commission in its Guidelines on Horizontal Cooperation Agreements that group purchasing arrangements where the parties have a combined market share of less than 15 per cent in both the purchasing and selling markets are unlikely to raise competition concerns. Second, paragraphs 8 to 11 of the Commission Guidelines in respect of agreements of minor importance do not apply since there is no equivalent to the Commission's De Minimis Notice under Irish law.

The Declaration and Notice expire on 1 December 2020. The Cylinder LPG Declaration expires on 14 April 2015. Types of vertical restraint

2 List and describe the types of vertical restraints that are subject to antitrust law. Is the concept of vertical restraint defined in the antitrust law?

The Declaration is closely modelled on the VBER and the alignment with EU law is a deliberate policy of the Authority designed to facilitate self-assessment and to minimise compliance costs to businesses. 'Vertical agreements' are defined in article 1 of the Declaration as agreements or concerted practices between undertakings 'each of which operates, for the purposes of the agreement, 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'.

The types of vertical restraint covered by the Declaration include:

non-compete obligations: any direct or indirect obligation causing the buyer not to manufacture, purchase, sell or resell goods or services which compete with the contract goods or services, or any direct or indirect obligation on the buyer to purchase from the supplier or from another undertaking designated by the supplier more than 80 per cent of the buyer's total purchases of the contract goods or services and their substitutes on the relevant market, calculated on the basis of the value of its purchases in the preceding calendar year; exclusivity provisions: including exclusive purchasing agreements, exclusive supply obligations, and exclusive distribution agreements in respect of a given territory or customer group; and selective distribution systems: a distribution system whereby the supplier undertakes to sell the contract goods or services, either directly or indirectly, only to distributors selected on the basis of specified criteria, and where these distributors undertake not to sell such goods or services to unauthorised distributors. Legal objective 3 Is the only objective pursued by the law on vertical restraints economic, or does it also seek to promote or protect other interests?

Irish competition law follows purely economic objectives.

RESPONSIBLE AUTHORITIES

4 Which authority is responsible for enforcing prohibitions on anticompetitive vertical restraints? Where there are multiple responsible authorities, how are cases allocated? Do governments or ministers have a role?

The Authority (with the aid of the Irish courts) is responsible for enforcing prohibitions on anti-competitive vertical restraints.

JURISDICTION

5 What is the test for determining whether a vertical restraint will be subject to antitrust law in your jurisdiction? Has the law in your jurisdiction regarding vertical restraints been applied extraterritorially? Has it been applied in a pure internet context and if so what factors were deemed relevant when considering jurisdiction?

In order to be subject to antitrust law in Ireland, the object or effect of the restraint in question must be to prevent, restrict or distort competition in trade in any goods or services in Ireland (or any part of Ireland), irrespective of the location or domicile of the undertakings involved.

The Irish courts have not previously considered vertical restraints in an extraterritorial context.

Neither the Authority nor the Irish courts have as yet applied competition law in a pure internet context.

AGREEMENTS CONCLUDED BY PUBLIC ENTITIES

6 To what extent does antitrust law apply to vertical restraints in agreements concluded by public entities?

Irish competition law applies to agreements concluded by public or state-owned entities insofar as they constitute 'undertakings' for the purposes of the Act. An 'undertaking' is defined in section 3 of the Act as 'a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service'. An activity may be carried on 'for gain' irrespective of whether the undertaking is profit-making or not; the key criterion is that the undertaking charges for the product or service supplied. However, public bodies may not be considered to be 'undertakings' when they exercise certain functions involving the exercise of official authority or where the functions in question operate on the basis of 'solidarity'. On this basis the Authority determined that the Health Service Executive was not an undertaking where it administered certain drug distribution schemes (Decision No. E/08/01). This approach was confirmed by the High Court in Greenstar Limited v Dublin City Council and Ors (2009 [IEHC] 589).

SECTOR-SPECIFIC RULES

7 Do particular laws or regulations apply to the assessment of vertical restraints in specific sectors of industry (motor cars, insurance, etc)? Please identify the rules and the sectors they cover.

The Authority has issued a specific declaration in respect of agreements for supply to independent retailers (or dealers) of liquefied petroleum gas (LPG) in cylinders. The Cylinder LPG Declaration limits exclusive purchasing agreements in the cylinder LPG sector to a duration of two years. This declaration entered into force on 1 April 2005 and expires on 31 March 2015.

The Competition (Amendment) Act 2006 introduced certain sector-specific prohibitions in respect of agreements between suppliers and retailers in the grocery goods sector. The Department of Jobs, Enterprise and Innovation has also published a draft Code of Practice for the grocery sector. It is proposed that the new Consumer and Competition Bill, which is expected to be introduced in 2012, will make the new Code binding on certain designated 'grocery goods undertakings'.

GENERAL EXCEPTIONS

8 Are there any general exceptions from antitrust law for certain types of agreement containing vertical restraints? If so, please describe.

Where a restraint satisfies the efficiency conditions set out in section 4(5) of the Act, it will be exempt from the section 4(1) prohibition. These conditions effectively mirror article 101(3) TFEU. As noted above, agreements containing vertical restraints which comply with terms of an Authority declaration or notice are also exempt from the general prohibition in section 4(1).

AGREEMENTS

9 Is there a definition of 'agreement' – or its equivalent – in the antitrust law of your jurisdiction?

The Act does not provide a definition of 'agreement'. However, the Authority and the Irish courts generally follow the approach of the Commission and the EU courts in applying a broad definition to the concept.

10 In order to engage the antitrust law in relation to vertical restraints, is it necessary for there to be a formal written agreement or can the relevant rules be engaged by an informal or unwritten understanding?

No. Section 4 of the Act covers agreements between undertakings, decisions...

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