The purpose of this article is to try to understand whether the agency contract can be considered a vertical agreement within the meaning of European Regulation 330/2010 on vertical agreements and, as such, be subject to the prohibition under Article 101(1) TFEU and antitrust law.
As has already been analysed (cf. exclusivity clauses and vertical economic agreements), the Regulation No 330/2010 provides that vertical agreements between undertakings may not have as their object or effect the prevention, restriction or distortion of competition within the common market and that such agreements, if any, are void pursuant to Article 101(1) TFEU.
In this blog, the applicability of the regulation to the exclusive distributors and to the retailers using e-commerce to distribute contractual products. The purpose of this article is to analyse (albeit briefly) an equally complex and interesting topic, namely whether the agency contracts can be considered vertical agreements within the meaning of the Regulation and, as such, be subject to the prohibition under Article 101(1) TFEU; this question is of particular relevance, given that agency agreements normally contain a number of restrictive covenants such as limitations on the determination of price, territory and clientele.
These restrictions are expressly among those defined fundamentals by Article 4 of the Regulation and the presence of which means that the agreement as a whole loses the benefit of the block exemption provided for by the Regulation[1]. The vertical restrictions that would have the greatest impact on an agency contract would certainly be those relating to the prohibition of:
- determination by the purchaser of the resale price;
- determination by the purchaser of the territory or customers to whom the buyer may sell the contract goods or services;
- restriction of sales (active or passive) to end users;
Hence the importance of understanding when an agency contract is to be considered (under the antitrust) as true and when fakeIf the brokerage contract were to be considered (within the meaning of the antitrust) an agency contract fakethe same would fall under the prohibition of Art. 101, with the result that the principal would not be able to impose limits on the agent with respect to the determination of price (or at least reserve to him the right to grant discounts on his commission), territory, customers and inhibit him from passive sales to customers outside their area. [11]
The first assessment as to whether agreements concerning commercial representation are subject to the prohibition formerly art 101, § 1, goes back to the "Communication Christmas"of 1962[2]The Commission had excluded, in principle, the sales representative from this prohibition, provided that he did not assume '...'.in the performance of his duties (...) no other contractual risk, except the usual guarantee of the star del credere."[3] The Commission considered that the trade representation agreements,
"have neither the object nor the effect of preventing, restricting or distorting competition", since the representative performs in the market ".merely an auxiliary function [acting] in accordance with the instructions and in the interest of the undertaking on whose behalf it carries on business'.
Over the years, jurisprudential orientations have emerged[4] on the basis of which one can basically state[5] that the principle laid down in Art. 101(1) does not apply to commercial agency contracts where:
- the agent does not assume the risks commercial and financial typical of a distributor/dealer;
- the agent is integrated within the structure distribution of the principal;
- the agency contract is not part of a broader framework of contracts falling under Art. 101.
Similarly, in the Guidelines on Vertical Restraints,[6] the characterising element, in order to be able to understand whether or not an agency agreement is subject to the prohibition, is characterised by the risks assumed by the party qualified (correctly or not) as agent:[7] if the risks are substantially borne by the principal, we are in the presence of a true agency agreement, otherwise an agreement liable to incur the prohibition formerly Art. 101, § 1.
The same Orientations Point 16 states that:
"an agreement will generally be considered [...] agency [...] if ownership of the contract goods [...] does not pass to the agent or if the agent does not himself provide the contract services."
In Orientations several examples of risks outside the typical activity of the agent (in the strict sense) are then enumerated, which occur when the agent:
- acquires ownership of the contract goods[8];
- contributes to the costs related to the supply/purchase of goods covered by the contract;
- maintains, at its own cost or risk, stocks of the contract goods;
- assumes liability towards third parties for any damage;
- assumes liability for non-performance of the contract by customers;
- is obliged to invest in sales promotion;
- makes investments in equipment, premises or staff training;
- carries out other activities in the same product market as the one requested by the principal.
The best doctrine[9] (to which we refer for a more in-depth study of the issue briefly reported here) notes that the Commission's considerations in the Orientations regarding the criteria for distinguishing between agents real e fakes are often "misleading"This is partly due to the fact that the general criteria set out in the Orientations have been taken up (mostly) by a series of case law precedents of the European Court of Justice of a very particular character and this has not allowed the Commission to "consider the way in which 'normal' agents operate, of which [the Commission] was not aware [...]; the Commission has identified a number of criteria that are difficult to apply to the reality of 'normal' cross-border agency relationships'. [10]
Hence a situation of grave uncertaintydistinctive criteria indicated in the Orientations may mislead the reader (e.g. judges and national competition authorities) who relies on them, leading them to qualify as fakes agents, intermediaries who de facto (at least from a civil law point of view) perform a typical agency activity.
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[1] The regulation defines categories of agreements for which, even if there is a restriction of competition within the meaning of Article 101(1), they may be presumed to be exempt from its application.
[2] OJ, No. 139, 24.12.1962, p. 2912 ff.
[3] Id. p. 2922.
[4] Case SugarCommission decision of 2.1.1973, case Vlaamse Reisbureaus decision of the Court of Justice of 1.10.1987, case Vag Leasing decision of the Court of Justice of 24.10.1995.
[5] See on this point Bortolotti, Distribution Contracts, p. 674., Wolters Kluwer, 2016
[6] Point 13) of the Orientations: "The determining factor in defining a commercial agency agreement for the application of Art. 101(1) is the financial or commercial risk assumed by the agent in relation to the activities for which it has been appointed as agent by the principal.
[7] See on this point Pappalardo, The Competition Law of the European Union, p. 321 ff. UTET, 2018.
[8] On this point see the case Mercedes Benz decided by the commission in its decision of 10.10.2001, in which the Court of First Instance held that the purchase of demonstration cars and spare parts was not a sufficient element for the agent to be considered a distributor in its own right.
[9] Bortolotti, Distribution Contracts, p. 675 ff., Wolters Kluwer, 2016
[10] Id. p. 675
[11] The Guidelines, point 51, define passive sales as: "the response to unsolicited orders from individual customers, including the delivery of goods or the provision of services to such customers. Passive sales are advertising or promotions of a general nature that reach customers within the (exclusive) territories or customer groups of other distributors, but which are a reasonable way to reach customers outside those territories or customer groups, for instance to reach customers within one's own territory.
General advertising or promotions are considered a reasonable way to reach these customers if it is attractive for the buyer to make such investments even if they do not reach customers within the (exclusive) territory or (exclusive) customer group of other distributors'..