Vertical agreements concern agreements or cooperation between different levels in the production or distribution chain. For example between a manufacturer and a retailer.
Vertical agreements can sometimes contain provisions that prevent, restrict or distort competition, known as vertical restraints.
Common examples of vertical restraints are:
- Exclusivity clauses – Provisions that restrict the ability of the buyer or seller to buy or sell to anyone other than the contracting partner.
- Selective distribution – Distribution systems that limit the number of authorised distributors of a certain product. The opportunities for the distributor to sell the product to non-authorised distributors is usually also restricted.
Vertical restraints may be prohibited pursuant to chapter 2 article 1 of the Swedish Competition Act and the corresponding prohibition in Article 101 of the Treaty on the Functioning of the European Union, but in many cases they are permitted.
Vertical restraints are generally less harmful than horizontal restraints on competition, and may provide opportunities for positive effects for competition and consumers. Vertical restraints are usually only problematic from a competition perspective if one of the parties to the agreement faces insufficient competition, i.e. if one of the parties has a strong position in the market.
The European Commission has therefore decided on a block exemption for vertical restraints that also applies to Swedish law. The block exemption applies to vertical agreements covered by the prohibition on anticompetitive agreements in Article 101 (1) of the Treaty on the Functioning of the European Union, but which normally satisfy the conditions for exemption under Article 101 (3).
Vertical restraints covered by the block exemption are allowed. A prerequisite for this is that none of the parties have a market share exceeding 30 per cent in the markets covered by the contract and that the contract does not contain any hardcore restrictions. Examples of hardcore restrictions are when a supplier and a distributor agree on mandatory minimum prices, or absolute territorial protection. An absolute territorial protection prohibits both active and passive sales outside a certain assigned territory, for example a prohibition on selling products online. These types of restrictions are not covered by the block exemption even if the contract parties’ market share is below 30 per cent.
Certain restrictions are never covered by the block exemption and must be assessed individually. This is the case, for example, for non-compete clauses that have a duration of more than five years during a contract term, and non-compete clauses that remain in effect for more than a year after a contract has expired. Such restrictions must be assessed on a case-by-case basis to determine whether they are allowed or not.
For further guidance on vertical restraints, see the Commission guidelines on vertical restraints that provide guidance in Swedish law.
Is competition affected in an appreciable way?
For cooperation to be prohibited, it must have as its object or effect the restriction of competition in an appreciable way. The question of whether a restriction of competition is appreciable depends among other things, on the type of restriction and the market shares of the cooperating companies.
The Commission has issued a notice on agreements of minor importance (De Minimis Notice). In this notice, the Commission describes what is meant by an appreciable restriction of competition. The Swedish Competition Authority has given similar general guidance on agreements of minor importance.
Vertical agreements will usually not affect competition in an appreciable way if the parties’ combined market share is below 15 per cent in all relevant markets. Exceptions apply, however, for hardcore restrictions that may be covered by the prohibition even at lower market shares.