Recent changes to EU competition rules, which often determine what terms such agreements can contain, mean that now could be the time to review existing contracts to ensure enforceability or benefit from newly relaxed provisions.
Companies have until 1 June 2011 to ensure compliance under existing agreements.
Competition law goes to the heart of building the brand. More often than not, a reseller may be looking to secure an exclusive appointment for a specific area or customer group and a supplier may wish to ensure that the reseller does not buy or sell products which compete with his own. While such provisions may restrict competition, they may be permitted in cases where the market share is modest.
The market share of the supplier has always been crucial in determining whether a particular arrangement raises competition concerns, with 30 per cent being the cut-off for automatic exemption. But in the future, the share of the reseller/distributor will also be relevant. Where the market share of both parties is below 30 per cent, restrictions of competition in the agreement will generally be enforceable. However, assessing the actual share is easier said than done, as resellers/distributors may simply not know. Therefore, a standard exclusive distribution agreement with the same reseller, but in different countries, could present a problem. The agreement could be enforceable in one EU country, but not in another, because the reseller has a different market share in each geographical area.
The new rules offer extensive guidance on internet sales. Banning resellers from selling online is not permitted, even though sales may go beyond the territory allocated to the reseller. However, they may lawfully be prevented from actively targeting customers in other resellers' exclusive territories. Offering a website in a different language is not seen as ‘active targeting’ and must be allowed. Suppliers cannot force resellers to stop transactions once the customer’s credit card reveals a foreign address, nor can they automatically re-route customers to websites in their own country. This means exclusive resellers will continue to face competition from online sales from outside their assigned territory.
A further aspect of the new rules is the role of suppliers in influencing pricing. Setting the reseller’s resale price is a practice most suppliers would recognise as illegal, regardless of market share. It is an area where extreme caution is advised. However, it may now be permissible to influence a reseller's price in some very limited circumstances, such as when introducing a new product.
The latest changes could present an opportunity for some brand owners to review existing channels and agreements. Keeping on top of these new developments will safeguard the supply chain and may even help provide that all-important competitive edge.
Catriona Munro is a partner in the EU, Competition and Regulatory practice of Maclay Murray & Spens LLP Catriona.Munro@mms.co.uk
Companies have until 1 June 2011 to ensure compliance under existing agreements.
Competition law goes to the heart of building the brand. More often than not, a reseller may be looking to secure an exclusive appointment for a specific area or customer group and a supplier may wish to ensure that the reseller does not buy or sell products which compete with his own. While such provisions may restrict competition, they may be permitted in cases where the market share is modest.
The market share of the supplier has always been crucial in determining whether a particular arrangement raises competition concerns, with 30 per cent being the cut-off for automatic exemption. But in the future, the share of the reseller/distributor will also be relevant. Where the market share of both parties is below 30 per cent, restrictions of competition in the agreement will generally be enforceable. However, assessing the actual share is easier said than done, as resellers/distributors may simply not know. Therefore, a standard exclusive distribution agreement with the same reseller, but in different countries, could present a problem. The agreement could be enforceable in one EU country, but not in another, because the reseller has a different market share in each geographical area.
The new rules offer extensive guidance on internet sales. Banning resellers from selling online is not permitted, even though sales may go beyond the territory allocated to the reseller. However, they may lawfully be prevented from actively targeting customers in other resellers' exclusive territories. Offering a website in a different language is not seen as ‘active targeting’ and must be allowed. Suppliers cannot force resellers to stop transactions once the customer’s credit card reveals a foreign address, nor can they automatically re-route customers to websites in their own country. This means exclusive resellers will continue to face competition from online sales from outside their assigned territory.
A further aspect of the new rules is the role of suppliers in influencing pricing. Setting the reseller’s resale price is a practice most suppliers would recognise as illegal, regardless of market share. It is an area where extreme caution is advised. However, it may now be permissible to influence a reseller's price in some very limited circumstances, such as when introducing a new product.
The latest changes could present an opportunity for some brand owners to review existing channels and agreements. Keeping on top of these new developments will safeguard the supply chain and may even help provide that all-important competitive edge.
Catriona Munro is a partner in the EU, Competition and Regulatory practice of Maclay Murray & Spens LLP Catriona.Munro@mms.co.uk
