Grant of sale

Competition and online trade: navigating dual distribution and hybrid intermediaries in antitrust law

Dual distribution' and 'hybrid intermediaries' emerge as salient concepts in the context of vertical agreements and antitrust law.

Dual distribution occurs when an entity chooses to market its products both directly and through external distributors, thus creating a situation of even potential competition with the latter. This phenomenon requires a careful analysis of market dynamics, especially with regard to the exchange of information between the parties involved. This is particularly relevant in the context of online sales, where it is imperative to prevent possible antitrust violations.

In parallel, hybrid intermediaries emerge in the context of online commerce when a platform simultaneously acts as a reseller for a supplier's products and as a seller of its own articles. In this scenario, a dynamic of potential competition develops between the two entities, given that, in this context, intermediaries may have an interest in furthering their own sales, as they also have the ability to influence the competitive landscape among the companies using their online intermediary services.

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1. Regulatory context and legal framework.

L'Article 101 of the Treaty on the Functioning of the European Union (TFEU) prohibits agreements between undertakings which may adversely affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market.

However, the third paragraph of Article 101 provides for an exemption to this principle: agreements which, although restricting competition, contribute to improving the production or distribution of goods, or to technical or economic progress, remain valid, provided that a fair share of the resulting benefit is reserved for consumers.

Applying these principles to vertical agreements, i.e. contracts aimed at restricting competition, is far from easy. To assist practitioners in the complex analysis of compliance with Article 101(3) TFEU, the European Commission has issued specific regulations[1] - the last of which is the Regulation (EU) 2022/720). These regulatory documents aim to clearly delineate the boundaries within which vertical agreements, while restricting competition, may be considered lawful, ensuring that they actually contribute to the improvement of production, the distribution of products and technical and economic progress, consistent with Article 101.

Against this background, Article 2(1) of the regulation provides that, subject to specific exceptions detailed in the regulation itself, vertical agreements are automatically exempted. This premise is based on the assumption that, generally, such agreements are likely to generate positive economic impacts by optimising the production or distribution of products and stimulating technical or economic progress, while ensuring that an appropriate share of the benefits achieved is passed on to consumers.

As already explored in a previous article, Article 3 of the Regulation generally preserves the exemption for all those agreements in which both supplier and buyer do not exceed the 30% of shares in the relevant market; thus, all vertical agreements between entities that do not exceed these thresholds benefit from a presumption of legality, provided that the contracts do not incorporate hardcore restrictions (the so-called hard-core restrictionsoutlined in Article 4 of the regulation). These, essentially, in an exclusive distribution system, include the prohibition of resale price maintenance to the distributor, the prohibition of passive sales outside the exclusive territory and customer base, and the categorical ban on Internet use.

It is essential to stress that vertical agreements between competing undertakings, which do not benefit from the automatic exemption, are not subject to a presumption of illegality. Therefore, they should not be considered incompatible with the internal market, and consequently, prohibited, without a prior examination of their effects on competition. From a practical point of view, they will have to be assessed individually in order to verify their compliance with Article 101 of the Treaty.[2]

Read also: Market share above 30% and impacts on distribution contracts.

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2. Vertical agreements between competing undertakings.

2.1. Effective competition and dual distribution.

In this context, Article 2(4) of the Regulation excludes vertical agreements concluded between competing undertakings from the exemption.

However, the Regulation emphasises the need to examine effective competition in the specific context of the individual vertical agreement. In this perspective, Article 2(4)(a) and (b) grant exemption to vertical agreements between entities which, although competing on a horizontal level, do not compete directly at the precise levels of production or distribution involved in the vertical agreement in question.

The intention is to grant the exemption to those links between entities that, while competing at a certain stage of distribution, are not so at the levels for which the vertical agreement is configured, thereby focusing on the specific effect each agreement has on the market, irrespective of competition between the parties at other distribution levels.

With a view to a careful analysis of the actual competitive situation, irrespective of the roles played by the contracting parties in the market, recitals 12 and 13 of the regulation introduce a complementary principle called 'dual distribution'. This phenomenon occurs when the supplier markets goods or services both upstream and downstream, thereby competing with its independent distributors.

For example, dual distribution occurs when a shoe manufacturer, which initially distributed its products exclusively through distributors, decides to sell directly to shops, thus effectively entering into competition with its distributors, acting on the same level of the distribution chain.

In such a scenario, the vertical agreement would not automatically enjoy exemption as it would, in fact, become a relationship between competing parties.

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2.2. The exchange of information in dual distribution.

Within the context of dual distribution, a context in which situations of potential competition are greater than in 'traditional' markets is certainly to be found in online sales. Take the case, which is far from unusual, in which the manufacturer combines sales through distributors with direct online sales, whether through its own site or, for example, through the use of an application specially developed by it.

Although the manufacturer will make every effort to harmonise sales channels, it may not always succeed in this endeavour and may find itself in actual or potential (see section 4 below) competition with its distributors.

Regardless of the manufacturer's efforts to manage the two channels, one element that may be of significant practical relevance is the one introduced by Art. 2(5) of the regulation, which imposes an important limitation regarding any exchange of information between supplier and buyer.

Based on what is outlined in recitals 12 and 13 and Article 2(4), Article 2(5) of the regulation provides that in situations of agreements between competitors (irrespective of the circumstances that led to that circumstance), exchanges of information between supplier and buyer that are not directly related to the implementation of the vertical agreement or that are not indispensable to optimise the production or distribution of the contract goods or services are never exempted and, therefore, may potentially infringe antitrust law.

For the interpretation of Article 2(5) of the Regulation, one may consider the Commission guidelines.[3] Although they have no binding force, they are of crucial importance in decision-making practice and the interpretation of rules.

In particular, paras. 99 and 100 provide examples of information that may or may not meet the requirements of Art. 2(5), thus outlining which information is arguably legitimate and which may not be legitimate from an antitrust perspective.

The point 99 lists information that, by its nature, is directly related to the implementation of the vertical agreement and necessary to improve production or distribution. These include:

• Technical Informationrelated to the goods or services covered by the contract, necessary for compliance with regulatory measures and to adapt the goods or services to the customer's needs.
• Logistical informationrelated to the production and distribution of goods or services in upstream or downstream markets.
• Customer informationconcerning customers' purchases, preferences and reactions, provided they do not limit the territory or the customers to whom the buyer may sell.
• Information on sales prices: charged by the supplier/manufacturer to the buyer for the contract goods or services.
• Information on resale prices: concerning recommended or maximum resale prices and the prices at which the buyer resells the goods or services, provided that they do not restrict the buyer's ability to determine its own selling price.
• Marketing informationrelating to the marketing of the goods or services covered by the contract.
• Information on resultsrelating to the marketing and sales activities of other purchasers of the contract goods or services.

The point 100 lists information that is generally unlikely to fulfil these conditions. Namely:

• Information on future pricesconcerning the future prices at which the supplier or buyer intends to sell the goods or services on the downstream market.
• Information on identified end-usersunless they are necessary to meet the requirements of a particular end user or to implement or monitor compliance with a selective or exclusive distribution agreement.
• Information on own-brand goods sold by a buyerexchanged between the buyer and a manufacturer of competing branded goods, unless the manufacturer is also the producer of those own-brand goods.

The above-mentioned points should be used by practitioners as a tool to understand the limits within which exchanges of information can take place without incurring antitrust violations in the context of vertical agreements between even potentially competing parties.

Although the illustrations provided by the Commission may offer a partially useful guide for the supplier wishing to comply with the requirements laid down in Article 2(5), the distinction between information that may be shared and information that may not be shared needs to be assessed on a case-by-case basis. In principle, the latter can be said to be those data that, once shared, give a party, potentially in competition with its contractor, the ability to penetrate the market by exploiting a competitive advantage not in line with European competition principles.

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3. Online intermediaries performing a hybrid function.

A further aspect, explored in the context of competition between players operating at different market levels and which is specifically related to online sales, concerns vertical relationships with online intermediary service providers.

Concretely, this refers to the dynamics between a supplier and an online service intermediary, i.e. a platform that facilitates the sale of products or services.

In these relationships, which are categorised as vertical agreements since the platform acts as a mediator of the manufacturer's products, Article 2(6) of the regulation states:

"the exemptions in paragraph 4(a) and (b) do not apply to vertical agreements relating to the provision of online brokering services where the provider of such services is an undertaking competing on the relevant market for the sale of the goods or services being brokered. "

In essence, the legislation identifies a situation in which an online platform exercises a so-called 'hybrid function',[4] by acting both as an intermediary for the supplier's sales and by promoting the sale of its own products or services, which compete with the intermediated products. In this context, the exemptions provided for in subparagraphs (a) and (b) of Article 2(4) of the regulation are not applicable, considering that one finds oneself in a situation in which intermediaries may have an interest in promoting their own sales, as well as the ability to influence the outcome of competition between undertakings using their online intermediary services.[5]

Although the quoted legal text is not easy to read, we can try to simplify it, far from trivialising it, by emphasising that, once again, it is essential to examine the actual competitive relationship established between the contracting parties. In particular, if the online intermediary plays not only the role of intermediary, but also that of potential competitor on the same platform that it provides as a space for the sale of the contracting parties' products, we would clearly find ourselves in a situation of effective competition between subjects operating on the same distribution level and therefore of a relationship that is not exempt from the regulation under consideration.

As will be examined in more detail in the following section, in the context of hybrid brokering (analogous to dual distribution), competition from the platform does not necessarily have to manifest itself effectively; even potentially perceptible competition is sufficient. In this sense, it is sufficient that the provider of the online intermediation services, within a relatively short period of time (usually not exceeding one year), undertakes the necessary additional investments or incurs other indispensable costs in order to gain access to the relevant market for the sale of the goods or services being intermediated.[6]

It is essential to emphasise that the application of Article 2(6) of Regulation (EU) 2022/720 presupposes that the vertical agreement entered into by the online intermediary service provider performing a hybrid function cannot be classified as a commercial agency agreement, which does not fall within the scope of Article 101.[7]

Read also: But are online platforms commercial agents?

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4. Risks associated with potential competition.

It is important to emphasise that competition does not necessarily have to be actual, but it is sufficient that it is also only potential. Article 1(c) of the regulation defines a 'competing undertaking' as an entity that competes both actually and potentially. An actual competitor is an undertaking which is active on the same relevant market, whereas a potential competitor is an undertaking which, in the absence of the vertical agreement, would realistically have the possibility of entering the relevant market within a short period of time and incurring the necessary investments and costs.

The Guidelines further decline this definition.[8] They emphasise that the assessment of potential competition must be based on realistic considerations, taking into account the market structure and the economic and legal environment. A mere theoretical possibility of entering a market is not sufficient; there must be a real and concrete possibility, without insurmountable barriers to entry. In any event, it is not necessary to demonstrate with certainty that the undertaking will actually enter the relevant market and maintain its position.

In order to assess whether an undertaking, absent from a market, is in potential competition with undertakings present on that market, it is necessary to examine whether there are real and concrete possibilities for that undertaking to integrate the market and compete with the others. This criterion excludes the possibility of establishing potential competition based on mere assumptions or intentions not supported by concrete, preparatory actions.[9]

The assessment of the existence of potential competition must be made in the light of the market structure and the economic and legal framework governing its operation. Assessing potential competition involves a careful examination of the structure and context of the market, considering several key factors and operational dynamics. Below is a list of some key areas and points to explore during such an assessment:

• Market structure and context: The first phase of the assessment involves a careful analysis of the market and its functioning, observing not only the current distribution of companies and their market share, but also the prevailing dynamics, trends and business models.
• Regulatory constraints and intellectual property: The presence of regulatory barriers and intellectual property rights, such as patents and trademarks, need careful scrutiny, as they may create barriers to entry or otherwise affect the ability of new entrants to compete effectively in the marketplace. Indeed, intellectual property may restrict access to crucial technologies or knowledge and thus alter competitive dynamics.
• Determination and ability to enter the market: the assessment must extend to an enterprise's willingness and ability to penetrate the market. This involves analysing the resources, skills and strategies that the company can mobilise to enter the market, as well as its resolve to overcome any barriers. The firm's strategic decisions, investments and assets are therefore crucial in assessing the potential competitive impact.
• Preparatory measures and entry strategies: it is also crucial to observe what concrete steps the company has taken to prepare for entering the market. This could include developing or purchasing products, applying for relevant certifications or authorisations, and developing marketing and distribution plans. A detailed analysis of planned or already ongoing initiatives and operations can provide insight into the real intentions and capabilities of the company.
• Additional elements corroborating competition Potential: Other factors may offer additional indications of a firm's determination to be a competitive force. For example, the formation of agreements with other firms, especially if they were not previously active in the market of interest, may indicate the feasibility of their intentions and potential to compete effectively.

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5. Fines, sanctions and procedural initiatives

Non-compliance with antitrust law may be established not only by the Commission and the national antitrust authority, either on their own initiative or on the recommendation of third parties, but may also be brought to the attention of the ordinary courts by the other contracting party or by third parties who consider that they have suffered harm as a result of anti-competitive conduct.

With regard to fines, the Commission has set a significant threshold of up to 10% of annual turnover total realised in the last business year by the undertaking fined. This is due to the fact that the fine must have a 'sufficiently deterrent effect, in order not only to sanction the undertakings concerned (specific deterrent effect), but also to deter other undertakings from engaging in or continuing conduct contrary to Articles 101 and 102'.[10]

Similarly, national legislation[11] confers on the Authority the power to impose pecuniary sanctions in the presence of particularly serious unlawful conduct, which do not have "the nature of a civil asset measure (...) but of an administrative sanction with punitive connotations (akin to those of a criminal sanction)."[12]

As to the procedural steps that may be taken by the other contracting party or third parties, these include the ascertainment of a breach, the declaration of the nullity of the contractual relationship, actions for damages and the adoption of precautionary measures. In these cases, there are no predetermined upper limits for compensation; rather, the quantification of damages will be determined on a case-by-case basis, according to the general principles of compensation established by the law applicable to the individual situation.

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[1] Regulation (EU) 2022/720; Regulation (EC) No 330/2010: Regulation (EC) No 2790/1999.

[2] Point (48) and (91) of the Guidelines on Vertical Restraints.

[3] Guidelines on Vertical Restraints (2022/C 248/01).

[4] Point (104) of the Guidelines.

[5] Point (105) of the Guidelines.

[6] Point (106) of the Guidelines.

[7] Point (72) Commission guidelines.

[8] Point (90) of the Guidelines.

[9] Judgments of 30 January 2020, Generics (UK) and others/Competition and Markets AuthorityCase C-307/18, EU:C:2020:52, paragraphs 36-45;

[10] See Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation (EC) No 1/2003.

[11] (Art. 15 Law 287/1990).

[12] Council of State, Judgment No. 1671 of 2001.

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Market share above 30% and impacts on distribution contracts.

1. Framing.

As is well known, within the European market, the free market principle applies.

Article 101 of the Treaty on the Functioning of the EU deems incompatible with the internal market and prohibits all agreements between undertakings which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market.

The third paragraph of Art. 101 does, however, provide for an exemption to this principle: agreements which, although restricting competition, contribute to improving the production/distribution of goods, or technical or economic progress, remain valid, provided that a fair share of the resulting benefit is reserved for consumers.

In order to decline these principles and provide operators with more clarity, so as to prevent the free market from de facto blocking the structuring of trade through the conclusion of agreements between private parties, the Commission has over the years issued the so-called regulations on vertical agreements, most recently the vertical sales regulation entered into force in June 2022, which aims to exempt, within certain limits, agreements between companies operating at different levels of the distribution chain (which fully includes the distribution contract) from a general non-compete clause.

In order to clarify the scope and content of the exemption regulation, the Commission published, concurrently with the entry into force of Reg. 720/2022, the "Guidelines on Vertical Restraints" so-called "Guidelines on Vertical Restraints".Orientations". Although this is an extremely authoritative text, which plays a key role in the interpretation of European legislation, it is not binding on the decision-making bodies. [1]

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2. The threshold of 30% and the safety zone of the regulation.

The new regulation maintains in Article 3 the exemption for all agreements in which both supplier and buyer do not exceed 30% of the shares in the relevant market; of which they enjoy a presumption of lawfulness all those vertical agreements between parties that do not exceed the above-mentioned thresholds, provided that the contracts do not contain hardcore restrictions prohibited by the regulation (the so-called hard-core restrictions of Article 4 of the regulation, which are essentially, in an exclusive distribution system, a prohibition on imposing the resale price on the distributor, a prohibition on passive sales outside the exclusive territory and customers, an absolute ban on the use of the Internet).

It is very important to emphasise that exceeding the 30% threshold does not create a presumption of illegality.

The purpose of the threshold imposed by Article 3 of the regulation is to establish a "security zone"and distinguish those agreements that enjoy a presumption of legality from those that require individual assessment. The fact that a vertical agreement does not fall within the 'safe harbour', therefore, does not mean that it is incompatible with the internal market and therefore prohibited.[2]

With the introduction of the 'safe harbour', the Commission wanted to prevent potentially more dangerous agreements (due to the greater market power of the undertakings concerned) from automatically benefiting from the exemption and escaping scrutiny as to their actual effects on the market. It is therefore crucial to ascertain whether individual agreements exceed that market share, an assessment that is far from easy, given the difficulty of identifying the relevant market (product and geographic) on which to calculate that market share and the actual impact of the agreement on that market.

In order to understand how the relevant marketI refer to what has already been written in the previous article. Briefly, in order to make this analysis operational and more organic, the relevant market is one in which:

• "all products and/or services are regarded as interchangeable or substitutable by the consumer, by reason of the products' characteristics, their prices and their intended use";
• "the undertakings concerned supply or purchase goods or services, [where] the conditions of competition are sufficiently homogeneous and [where] it can be distinguished from neighbouring geographic areas because the conditions of competition are appreciably different in those areas. "

Thus, the reference market on which the market share is to be calculated does not necessarily coincide with a single territory, but may be higher or lower; for this purpose, it must be ascertained whether companies located in areas other than the one in which the distributor makes its sales actually constitute an alternative source of supply.

As for the method of calculation of market shares (of the supplier and the buyer), Article 8 of the Regulation provides that they are to be assessed on the basis of the previous year's data on the value of sales and purchases, or, if not available, on the basis of reliable estimates.

If a market share does not initially exceed the 30% threshold, but subsequently exceeds it, the exemption continues to apply for a period of two consecutive financial years beginning with the year in which the 30% threshold was first exceeded.[3]

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3. Restrictions by object and effect.

As mentioned at the beginning of the article, Article 101 of the Treaty qualifies as incompatible with the internal market all agreements between undertakings which have 'as their object' or 'as their effect' the prevention, restriction or distortion of competition within the internal market.

There is thus a clear distinction between the notions of 'restriction by object' and 'restriction by effect', each subject to a different evidentiary regime.[4]

Indeed, there are agreements between undertakings that can be considered, by their very nature, harmful to the proper functioning of competition,[5] so much so that where they present 'restrictions by object", negative effects on competition need neither be sought nor proved in order to qualify them as unlawful, since they lead to reductions in production and price increases, to the detriment, in particular, of consumers.[6]

So-called 'restrictions of competition by object' are of an exceptional nature, of which they must be interpreted restrictively and thus applied to a very limited number, reserved precisely for those agreements that are so damaging to competition that it is unnecessary to examine their effects on the internal market.[7]

For cases relating to "restrictions as a result of', individual cases must be assessed on a case-by-case basis, taking into account the nature and quantity, whether limited or not, of the products covered by the agreement, the position and importance of the parties on the market for the products in question, the stand-alone character of the agreement or, on the contrary, its position in a complex of agreements.[8]

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4. Evaluation of individual clauses.

For the assessment of a possible withdrawal of the benefit of the exemption, it is necessary to determine the foreclosure and anti-competitive effects that individual agreements may have on consumers, leading to higher prices, limited choice of goods, lower quality of goods and reduced innovation or services at the level of the supplier.[9] The negative market effects that may result from vertical restraints and that EU competition law aims to prevent are:[10]

• anticompetitive foreclosure of the market against other suppliers or other buyers, as a result of the creation of barriers to entry or expansion;
• the weakening of competition between the supplier and its competitors (so-called competition inter-brand);
• weakening of competition between the buyer and its competitors (d. intra-brand competition).

From a very brief analysis, it can be deduced that agreements may contain contractual clauses that lead to a reduction in either intra-brand competition (i.e. competition between distributors of goods or services from the same supplier), or inter-brand competition (i.e. competition between distributors of goods or services from different suppliers).

In principle, the Commission considers it to be more "dangerous"agreements affecting inter-brand competition, as opposed to those affecting intra-brand competition: it is considered to be unlikely that a reduction in intra-brand competition (i.e. intra-brand) may in itself lead to negative effects for consumers if inter-brand competition (i.e. inter-brand) is strong.^[11]

This must certainly be taken into account when assessing the individual clauses normally contained within a distribution contract that have an impact on competition. The most important of these can be listed below:

• monarchism;
• exclusive supply;
• exclusive allocation of customers;
• ban on online sales.

Monarchism.

Monarchism (this is a translation of the phrase "single branding"), is a category in which numerous clauses affecting free competition fall, including:

• exclusive sourcing (whereby the buyer is obliged to purchase only contractual products from the supplier);
• non-compete obligation during the course of the relationship (where the purchaser undertakes not to resell products that compete with the contractual products);
• imposition of minimum purchase volumes.

In practice, this is a category that groups together agreements whose main characteristic is to induce the buyer to concentrate orders for a particular type of product with a single supplier.[12]

Of the above clauses, only the one relating to the de facto non-compete obligation impacts on competition inter-brand which, when combined with exclusive sourcing, will have an even greater impact, both on the market inter-brandthat on that intra-brand. In such a case, the distributor will be a single-brand distributor, which is obliged to purchase products only from the supplier, thereby impacting competition both within the contract market and on the competing market.

4.2. Exclusive supply.

Exclusive supply refers to restrictions that oblige or induce the supplier to sell the contract product only or primarily to a single buyer.

It is therefore the mirror image of the exclusive supply clause, since in the former, the supplier/dealer undertakes to supply (in a given market) only one buyer, and in the latter, it is the distributor who undertakes to obtain supplies only from the supplier, without the latter necessarily being granted exclusivity within the market where it operates.

Very often (but not always), the two clauses go hand in hand, so that an exclusive distribution relationship is coupled with an exclusive supply relationship.

In particular, in markets where the distribution of a brand is granted on an exclusive basis to one or more distributors, there will be a reduction in intra-brand competition, which does not necessarily reflect negatively on competition between distributors in general.^[13]

Where a supplier allocates a very large territory (e.g. that of an entire state) to a buyer/distributor without restricting the sale of the downstream market, anti-competitive effects are unlikely. Where appropriate, the same may be offset by advantages (ex Art. 101(3)) in terms of logistics and promotion, the buyer being particularly inclined to invest in the licensed trade mark.[14]

4.3. Exclusive allocation of customers.

This clause recognises exclusive sales of the contract products to a single buyer/distributor for the purpose of resale to a certain category or group of customers. Similarly, the distributor is often prohibited from active sales to other exclusively recognised purchasers.

This clause is also among those that have an intra-brand impact, provided that it is not included in combination with other clauses that actually impact competition between competing brands.

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5. Relevant Factors for the Evaluation of Agreements that Exceed the Threshold.

Now, in the case of a distribution relationship, the parties to which exceed the so-called 'safe harbour threshold' of 30%, understanding whether such clauses can benefit from the exemption must be thoroughly assessed on a case-by-case basis taking into account different elements, as well as the impact of such agreements on competition, with the understanding that the combination of the individual clauses with each other has a greater impact on competition.

The following factors are particularly relevant in determining whether a vertical agreement involves an appreciable restriction of competition:[15]

• the nature of the agreement;
• the market position of the parties;
• the market position of competitors (upstream and downstream);
• the market position of the buyers of the contract goods or services;
• barriers to entry;
• the level of the production or distribution chain concerned;
• the nature of the product;
• market dynamics.

Clearly, the greater the market share of contractors (supplier and buyer) on the relevant (upstream and downstream) markets, the greater the likelihood that their market power is high. This is particularly true when the market share reflects cost or other competitive advantages over competitors.[16]

Also relevant is the market position of competitors. Again, the stronger the competitive position of competitors and the greater their number, the lower the risk of foreclosing the market to competitors or weakening competition.[17]

If, for instance, the agreement includes single branding and/or exclusive supply clauses, but the competitors are sufficiently numerous and strong, the Commission considers that significant anti-competitive effects are unlikely: competitors are unlikely to be foreclosed if they have similar market positions and can offer similar products of equivalent quality. Foreclosure of potential entrants could possibly occur if several major suppliers also enter into single-branding agreements with a significant number of buyers in the relevant market.[18]

As for the barriers to entryat the level of the suppliers, these are commensurate with the ability of companies already established in the market to raise their price above the competitive price without causing new competitors to enter the market.

What is certain is that, insofar as it is relatively easy for competing suppliers to set up their own integrated distribution network or find alternative distributors for their product, it is again unlikely that there will be a real problem of foreclosure by having single branding clauses,[19] i.e. clauses that also impact on competition inter-brand. Similarly, even in the case of exclusive supply agreements, the presence of entry barriers at supplier level should not create problems insofar as competing purchasers are contractually recognised as being able to source from alternative sources and this is also easily realisable.[20]

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6. Concluding remarks.

In practice, there is no mathematical formula that makes it possible to identify a priori whether a distribution agreement, which exceeds the 30% quota, is actually exempt from the block exemption, since this depends on numerous factors, including the type and content of the competition-restricting contractual clauses within it and the impact these have on the reference market, which may be more or less competitive.

Thus, in order to understand whether a distribution agreement that exceeds the market threshold of 30% may nevertheless benefit from the exemption, it is necessary to analyse the individual case, also using the tools provided by the Commission and briefly referred to and summarised above. Simplifying (but far from trivialising), the most important elements that should prompt contractors to raise the threshold are:

• market shares held by them;[21]
• the assessment of the individual clauses contained within the agreement, their combination and their effects on the market, taking into account those that impact on competition inter-brand are riskier than those affecting the competition intra-brand;
• the actual competitive state of the market and the position of the major player.

In conclusion, it may reasonably be argued that distribution contracts that do not contain the hardcore restrictions set out in Article 4 of the Regulation, let alone those set out in Article 5, may be exempted, despite being concluded between parties with a market share quite relevant, if the market appears to be sufficiently competitive.

Indeed, if one analyses clauses which have an impact on inter-brand competition (i.e. exclusive purchasing obligation and non-compete agreement), even if these clauses prevent competitors from entering the market (i.e. the dealer is forbidden from supplying and reselling products other than those covered by the contract), in principle they may have a negative impact on competition if it can be shown that there are not enough players within the relevant market of reference who can perform similar services (and thus other dealers who can resell competing products).

On the other hand, as regards sales exclusivity, it essentially affects competition intra-brandwhere there is sufficient competition in the relevant market inter-brandthe clause should not create any particular antitrust problems, for the reasons stated above.

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7. Fines and ordinary actions.

Any non-compliance with antitrust law may not only be ascertained by the Commission and the relevant national authority - either at its own instance or at the instance of third parties - but may also be brought before the ordinary courts at the instance of the other contracting party or third parties who complain that anti-competitive conduct leads to an impairment of their interests.

With regard to fines, the threshold set by the Commission is particularly high, and is equal to up to 10% of the total annual turnover achieved in the previous business year by the undertaking fined. This is because the fine must have a 'sufficiently deterrent effect, in order not only to penalise the undertakings concerned (specific deterrent effect), but also to dissuade other undertakings from engaging in or continuing conduct contrary to Articles 101 and 102".[22]

Likewise, the domestic legislation,[23] recognises the Authority's power to impose fines where the unlawful conduct is characterised by seriousness, which have not '.nature of a civil asset measure (...) but of an administrative sanction with punitive connotations (akin to a criminal sanction)."[24]

As to ordinary actions, these are the typical ones, i.e. those seeking to ascertain a breach, those seeking to ascertain the nullity of the contractual relationship, those seeking to obtain damages, as well as those seeking to obtain a precautionary measure. In this case, no maximum thresholds are envisaged, but the quantification of damages will have to be calculated and assessed from time to time on the basis of the general principles of compensation provided for by the legislation applicable to the individual case.

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[1] Bortolotti, Distribution Contracts, Wolters Kluwer, 2022, p. 775.

[2] Point 48, Guidelines.

[3] Art. 8(d) of Regulation 2022/720.

[4] Judgment of 30 January 2020, Generics (UK) and Others, C-307/18, EU:C:2020:52, paragraph 63

[5] Judgment of 2 April 2020, Budapest Bank and Others, C-228/18, EU:C:2020:265, paragraph 35 and case law cited therein.

[6] In this sense, judgment of 30 January 2020, Generics (UK) and Others, C-307/18, EU:C:2020:52, paragraph 64.

[7] In this sense, Budapest Bank and Others, C-228/18, 2 April 2020, EU:C:2020:265, paragraph 54 and case law cited therein.

[8] In this sense, judgment 18.11.20221, Visma Enterprise, C-306/20, no. 75.

[9] Point 19, Guidelines.

[10] Point 18, Guidelines.

^[11] Point 21, Guidelines.

[12] Point 298, Guidelines.

^[13] Point 21, Guidelines.

[14] Point 135, Guidelines.

[15] Point 278, Guidelines.

[16] Point 282, Guidelines.

[17] Point 283, Guidelines.

[18] Point 303 and 328, Guidelines.

[19] Point 305, Guidelines.

[20] Point 326, Guidelines.

[21] I would point out that, if very high and in the presence of a market that is not particularly competitive, this could even constitute a dominant position hypothesis under Article 102, which I reserve the right to investigate further if requested.

[22] Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation (EC) No 1/2003.

[23] Art. 15 Law 287/1990.

[24] Council of State, Judgment No. 1671 of 2001.

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