In the context of distribution relationships, antitrust issues arise whenever the grantor engages in activities that, even potentially, compete with the dealer. This situation, referred to in Regulation (EU) 2022/720 as 'dual distribution', raises particularly sensitive legal issues regarding the legality of information exchanged between the parties.

This article examines, also using the European Commission Guidelines, the concept of dual distribution, potential competition and information exchanged between potentially competing contractors.

Finally, it should be noted that information frequently exchanged between the dealer and the grantor, such as future prices and customer data, may fall into the category of unlawful information. Similarly, the acquisition of such information by the grantor may lead to civil law implications once the relationship is terminated, with particular reference to the right of the dealer to payment of a termination indemnity.

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1. Regulatory context and legal framework.

Article 101 of the Treaty on the Functioning of the European Union (TFEU) prohibits 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. However, Regulation (EU) 2022/720 introduces exceptions for vertical agreements, exempting, within the specified limits, all agreements of this nature (including, of course, exclusive sales or distribution agreements).

This is done on the assumption that such agreements, while restricting competition, may improve production efficiency, distribution or technological progress. In practice, this regulation recognises that although vertical agreements restrict European competition, they contribute to improving the production or distribution of products or to promoting technical or economic progress. By reserving for consumers a fair share of the resulting benefit, these agreements are to be regarded as legitimate, albeit within certain limits that are specified in the regulation itself, in particular in Article 2.

Against this background, Article 2(4) of the Regulation precludes the application of the antitrust exemption to vertical agreements entered into between competing undertakings, except in two circumstances: where such undertakings, although competitors, operate at different levels of the production or distribution chain and are not in direct competition in their respective fields. The underlying rationale is to grant the exemption to those relationships between parties that, although competitors at a certain level of distribution, are not competitors at the levels for which the vertical agreement was concluded.

Thus, if the parties compete both upstream and downstream, the vertical relationship does not automatically enjoy exemption; whereas if the parties compete only downstream, the exemption of the agreement extends to all its elements, including exchanges of information between the parties, provided that they are directly related to the implementation of the vertical agreement or necessary to improve the distribution of the goods and services covered by the agreement (Article 2.5).

The rationale is to prevent situations in which one of the parties may use information that is not strictly necessary, in order to obtain undue competitive advantages, with a view to entering the market in which the other party operates.

In this context, recitals 12 and 13 of the Regulation introduce the principle known as 'dual distribution', which occurs whenever a supplier markets goods or services both upstream and downstream, thereby competing with its independent distributors. Dual distribution typically occurs when a supplier sells its goods or services both directly to final consumers and through independent distributors. In doing so, the supplier competes with its own downstream customers, which may create potential conflicts of interest or market distortions. Dual distribution may also occur, for instance, when the manufacturer sells both to an importer and to distributors, in this case competing with its own importer.

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2. 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.

Recital 90 of the Commission guidelines (which, although they have no binding force, are of crucial importance in decision-making practice and in the interpretation of the rules), emphasises that the assessment of potential competition must be based on realistic considerations, taking into account the market structure and the economic and legal context. An undertaking is treated as a potential competitor of another undertaking if, in the absence of the vertical agreement between the undertakings, it is likely that the first undertaking, within a short period of time (normally not exceeding one year), would make the necessary additional investments or incur other necessary costs to enter the relevant market in which the other undertaking is active.

This assessment must be based on realistic grounds, taking into account the market structure and the economic and legal environment. The mere theoretical possibility of entering a market is not sufficient, but there must be a real and concrete possibility that the undertaking will enter the market without encountering insurmountable barriers to entry. Conversely, it is not necessary to demonstrate with certainty that the undertaking will actually enter the relevant market and that it will subsequently be able to maintain its position.[1]

Thus, where an agreement has the effect of temporarily keeping an undertaking off the market, it is necessary to determine whether there would have existed, in the absence of that agreement, real and concrete possibilities for that undertaking to enter that market and compete with the undertakings established there.[2]

Proof of a situation of potential competition must be supported by a set of concordant factual elements taking into account the structure of the market and the economic and legal context governing its functioning, aimed at demonstrating that the undertaking concerned would, in the absence of the agreement, have had real and concrete possibilities of gaining access to the market in question.[3]

In this context, reference is made to a significant ruling by the Court of Justice, published on 26 October 2023, which is useful for a correct interpretation of the legislation in question.[4]

The subject matter of the dispute concerned the assessment of the compatibilitỳ, with the principles of Article 101 TFEU, of an agreement concluded between two companies: one active in the food distribution sector and the other active in the energy distribution and production sectors. The parties had entered into a partnership agreement to cooperate in distribution, offering discounts to customers of supermarkets operated by the first company for the supply of energy at the second company's outlets. This agreement included a non-compete clause, whereby the company active in the food sector undertook not to enter the energy market.

The case law of the Court states that the analysis must focus not so much on subjective elements, such as the presence or absence of an intention to compete in the absence of the agreement, but rather on factual elements. This includes the actual structure of the relevant market and contractual aspects, such as, for example, the inclusion of a non-compete agreement in the agreement under review. Such elements may provide a clear indicator of the existence of potential competition. With regard to the latter, it is noted that if the parties to a non-compete agreement did not consider themselves to be potential competitors, they would in principle have no valid reason to enter into such an agreement.[5] This last element, i.e. the inclusion of a non-compete covenant within the vertical agreement under consideration, is of significant importance, since it is far from rare for the grantor to undertake not to sell in the territory assigned to the dealer.

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3. Orientamenti della Commissione e loro rilevanza.

In interpreting the regulation, the Commission's Guidelines again come to the aid of the Commission. Paragraphs 99 and 100 of the Guidelines, in particular, provide examples of information that may or may not meet the requirements of Article 2(5), thus outlining which information is presumably legitimate and which may not be legitimate from an antitrust perspective.

Section 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:

  1. (a) Technical information: relating to the goods or services covered by the contract, necessary for compliance with regulatory measures and for adapting the goods or services to the customer's needs.
  2. b) Logistical information: related to the production and distribution of goods or services in upstream or downstream markets.
  3. (c) Customer information: concerning customers' purchases, preferences and reactions, provided it does not limit the territory or customers to whom the buyer may sell.
  4. (d) Information on selling prices: charged by the supplier/manufacturer to the buyer for the contract goods or services.
  5. (e) Resale price information: 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.
  6. (f) Marketing information: relating to the marketing of the contract goods or services.
  7. (g) Performance information: relating to the marketing and sales activities of other purchasers of the contract goods or services.

Point 100 lists information that is generally unlikely to meet these conditions. Namely:

  1. (a) Information on future prices: concerning the future prices at which the supplier or buyer intends to sell the goods or services on the downstream market.
  2. (b) Information on identified end users: unless it is necessary to fulfil the requests of a particular end user or to implement or monitor compliance with a selective or exclusive distribution agreement.
  3. (c) Information on own-brand goods sold by a buyer: exchanged between the buyer and a manufacturer of competing branded goods, unless the manufacturer is also the producer of those own-brand goods.

In summary, paragraphs 99 and 100 of the Commission's Guidelines 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 players.

Among the information certainly most commonly collected and exchanged between dealer and licensor are those relating to prices and end customers.

As has been seen, paragraph 100 of the Guidelines makes it clear that information on future prices is unlikely to be considered legitimate from an antitrust point of view, unlike past prices, which may instead be considered legitimate. The distinction lies in the Community legislator's desire to prevent the grantor, being in a position of (even potential) competition with the dealer, from using information on future prices to his own advantage in the market covered by his intermediary.

Similarly, the collection of information on end customers is only considered legitimate if it is necessary for the fulfilment of the vertical agreement (e.g. for the handling of warranties). It should also be noted that, from a civil law point of view, knowledge of end-customer data becomes relevant once the relationship is terminated, especially if the distributor or importer asserts its right to a severance payment. This is particularly important in some foreign jurisdictions, such as Germany, where knowledge of end-customer data is crucial for claims for indemnity.

- Read alsoThe Dealer's Indemnity in German Law

Recently, also in Italy, following the introduction of legislation in the automotive sector with the January 2023 law, the right to severance pay for dealers in the automotive sector was recognised, with a possible analogous extension to other sectors.

- Read also - The dealer's allowance in the automotive sector..

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4. Fines, penalties and procedural initiatives.

Non-compliance with antitrust law may be established not only by the Commission and the national antitrust authority, either on its 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.

As far as fines are concerned, the Commission has set a significant threshold of up to 10% of the total annual turnover in the last business year of 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'.[6]

Similarly, national legislation[7] 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)."[8]

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.

Section 100(b) makes it explicitly clear that the acquisition of information relating to identified end users is hardly considered to be closely related to the performance of the vertical agreement unless such information is essential to optimise the production or distribution of the contract goods or services.

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[1] See Judgment of 30 January 2020, Generics (UK) and Others, C-307/18, EU:C:2020:52.

[2] Judgment of 30 January 2020, Generics (UK) and Others, C-307/18, EU:C:2020:52, paragraph 37. 3 Judgment of 30 January 2020, Generics (UK) and Others, C-307/18, EU:C:2020:52, paragraph 39.

[3] Judgment of 30 January 2020, Generics (UK) and Others, C-307/18, EU:C:2020:52, paragraph 39.

[4] Judgment of 26 October 2023, EDP - Energias de Portugal SA, C-331/21.

[5] Judgment of 26 October 2023, EDP - Energias de Portugal SA, C-331/21, paragraph 71.

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

[7] Art. 15 Law 287/1990.

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