Resale price maintenance not automatically a per se infringement of EU competition law
On 29 June 2023, the European Court of Justice (“ECJ”) issued its judgment in Super Bock Bebidas (C-211/22), clarifying some key notions of EU competition law in the context of vertical price fixing agreements. The judgment clarifies that a hardcore restriction under the Vertical Block Exemption Regulation (“VBER”) cannot be equated with the category of “by object” infringements of competition law. Competition authorities will rather have to take into account the specific circumstances of the case irrespective of the conduct in question. However, the judgment should not be seen as a free pass for resale price maintenance (“RPM”) which is and will remain an enforcement priority of many competition authorities in the European Union.
Super Bock Bebidas SA, a Portuguese producer of alcoholic and non-alcoholic beverages relied on exclusive distribution agreements with independent distributors for distributing its beverages to hotels, restaurants and cafés. From 2006 to 2017, Super Bock imposed minimum resale prices on all distributors in essentially the whole of Portugal. Super Bock established a monitoring and tracking system and required its distributors to report relevant resale data to it. The distributors generally adhered to Super Bock’s prices because of the retaliatory measures in the event of non-compliance, such as the removal of discounts on the purchase of products or a refusal to supply and replenish stocks.
In 2019, Super Bock was fined EUR 24 million by the Portuguese competition authority. The authority held that Super Bock’s practices, infringed Portuguese and EU competition rules. After the Portuguese Competition, Regulation and Supervision Court upheld the decision, Super Bock appealed and the Lisbon Court of Appeal referred the case to the ECJ.
Judgment untangles hardcore restriction and “by object” restriction categories
Among other things, the ECJ had to answer the question: Does a vertical agreement fixing minimum resale prices constitute a restriction of competition by object without first examining whether that agreement raises a sufficient level of harm to competition? The ECJ held that the finding that a vertical agreement fixing minimum resale prices entails a ‘restriction of competition by object’ may only be made after having determined that that agreement presents a sufficient degree of harm to competition.
No safe harbour for hardcore restrictions: The VBER provides a “safe harbour”, in other words a block exemption from the cartel prohibition, for many vertical agreements. It relieves companies of the often-burdensome self-assessment of the competitive implications of such agreements. This is justified because vertical agreements “by their nature, [are] often less damaging to competition than horizontal agreements.” However, they “can also, in some cases, have particularly significant restrictive potential.” In order to capture agreements with restrictive potential, the legislator decided on a list of agreements for which the safe harbour (block exemption) does not apply. The agreements on this list are referred to as hardcore restrictions and include vertical price fixing.
By object restrictions: The ECJ judgment untangles the category of the aforementioned hardcore restrictions under the VBER from by object restrictions under the cartel prohibition. If an agreement is a by object infringement, a competition authority does not have to prove that there are detrimental effects in order to find an infringement of the cartel prohibition. In other words, the by object concept greatly reduces the investigative effort required by competition authorities. However, the ECJ made clear that this can only be justified in exceptional circumstances. The concept of a by object restriction must be interpreted narrowly in as much as it only applies to conduct that shows a sufficient degree of harm to competition. This requires an assessment of the nature of the agreement’s terms, the objectives that it seeks to attain and all the factors that characterise the economic and legal context of which it forms part. The ECJ further clarifies that this approach must be applied irrespective of the conduct in question, thus also to vertical price fixing.
In other words, the fact that vertical price fixing constitutes a hardcore restriction and therefore cannot benefit from the safe harbour of the VBER does not release a competition authority from its duty to demonstrate that the agreement infringes EU competition law. It is still necessary to examine restrictions falling outside the VBER block exemption on a case-by-case basis.
Judgment calls notions in some of the Commission’s guidance documents into question
The judgement also calls shortcuts outlined in certain important guidance documents into question.
EU cartel provisions are not applicable where the impact of the agreement on trade between Member States or on competition is not appreciable. The ECJ held in the past that a by object restrictions [not necessarily a hardcore restriction!] always qualify as an appreciable restriction. In light of this, the Commission amended its notice on when agreements do not appreciably restrict competition. Unlike the ECJ, the Commission does not only include by object restrictions but goes further by postulating that “hardcore restrictions in any current or future Commission block exemption regulation […] are considered by the Commission to generally constitute restrictions by object.” This now seems unwarranted in light of the Super Bock judgment.
Similarly, in its vertical guidelines, the Commission states that it will apply the following principles when assessing vertical agreements: “where a hardcore restriction […] is included in a vertical agreement, that agreement is likely to fall within the scope of the [cartel prohibition]” and “an agreement that includes a hardcore restriction […] is unlikely to fulfil the conditions of the [individual exemption from the prohibition]. This approach also appears too broad in light of the current judgment.
RPM is likely to continue to be an enforcement priority of competition authorities
However, the judgment should not be seen as a free pass for RPM. Given the significant consequences of incorrectly assessing whether RPM may (exceptionally) be compatible with competition law, every company is well advised to thoroughly check their sales and distribution practices and seek legal advice when assessing the compatibility of such practices with competition law.
Over the last few years, the German Federal Cartel Office (“FCO”) has taken a strict approach to vertical agreements fixing minimum resale prices (see for example here and here). The adoption of these decisions suggests that RPM enforcement will remain one of the FCO’s enforcement priorities.