Vertical Agreements and Competition Law: A Comparative Study of the EU and US Regimes
In today`s global economy, trade is no longer limited to national borders. Businesses all over the world are entering into agreements with each other, both vertically and horizontally, to enhance their competitive position and improve their profits. However, competition law, which aims to ensure that competition in the market is not unfairly distorted, can pose a challenge to such agreements.
This article compares the EU and US regimes regarding vertical agreements and competition law, highlighting the similarities and differences between the two.
What are Vertical Agreements?
Vertical agreements are agreements between two or more companies operating at different levels of the supply chain. For example, a manufacturer may enter into an agreement with a distributor or retailer. Such agreements can take various forms, such as exclusive dealing, resale price maintenance, or territorial restrictions.
Vertical agreements can have both harmful and beneficial effects on competition. On the one hand, they can increase efficiency, lower costs, and improve access to distribution channels. On the other hand, they can limit competition, raise prices, and hinder market entry by smaller competitors.
The EU Regime
The EU competition law framework is based on Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU). Article 101 prohibits agreements between undertakings that restrict competition, while Article 102 prohibits abuse of a dominant position in the market.
The EU`s approach to vertical agreements is governed by the Vertical Block Exemption Regulation (VBER), which exempts certain vertical agreements from the prohibition of Article 101. The VBER applies to agreements that do not contain hardcore restrictions, such as price fixing or market sharing, and do not exceed certain market share thresholds.
Under the VBER, vertical agreements are presumed to have pro-competitive effects, such as promoting inter-brand competition and improving consumer welfare. However, the European Commission may still prohibit or fine such agreements if they have anti-competitive effects that outweigh their pro-competitive benefits.
The US Regime
The US competition law framework is based on the Sherman Act, which prohibits agreements in restraint of trade, and the Clayton Act, which prohibits mergers and other anticompetitive conduct. The Federal Trade Commission (FTC) and the Department of Justice (DOJ) are responsible for enforcing these laws.
The US approach to vertical agreements is governed by the Vertical Guidelines, which provide a framework for analyzing the potential anti-competitive effects of such agreements. The guidelines recognize that vertical agreements can have both pro-competitive and anti-competitive effects, depending on the circumstances.
Under the guidelines, vertical agreements are not presumed to be anti-competitive or pro-competitive. Instead, they are assessed on a case-by-case basis, taking into account factors such as market power, foreclosure effects, and efficiencies. The FTC and DOJ may challenge vertical agreements that harm competition, but they may also issue business review letters that provide guidance on the legality of particular agreements.
Comparison and Conclusion
The EU and US regimes share some similarities in their treatment of vertical agreements, such as the recognition that such agreements can have both pro-competitive and anti-competitive effects. However, they also have some differences, such as the EU`s use of a block exemption regulation and the US`s case-by-case approach.
Overall, the EU and US regimes aim to ensure that vertical agreements do not harm competition or consumers. Companies operating in both jurisdictions should be aware of the legal framework and seek legal advice when entering into such agreements. As trade becomes increasingly global, it is more important than ever to understand the different competition law regimes and their implications for vertical agreements.