Vertical Agreements

A vertical agreement is an agreement between undertakings operating at different levels of the production or distribution chain relating to the conditions under which they purchase, sell or resell certain goods or services. Agreements between manufacturer and distributor, supplier and retailer, brand owner and dealer, or franchisor and franchisee are typical examples.

Difference from Horizontal Agreements

Horizontal agreements between competitors, especially cartels, are the most serious competition infringements. Vertical agreements, by contrast, often create efficiencies: they reduce distribution costs, increase inter-brand competition and help products reach the market. They are therefore treated more flexibly, but are not outside the prohibition on anti-competitive agreements.

Risky Clauses

The clauses that most often cause problems in vertical agreements are:

• Resale price maintenance: imposing minimum or fixed resale prices,
• Territorial and customer restrictions: especially preventing passive sales,
• De facto bans on online sales,
• Long or indefinite non-compete obligations,
• Disproportionate exclusive distribution arrangements.

Exemption

Vertical agreements meeting certain conditions are automatically exempt under the Block Exemption Communiqué on Vertical Agreements; see Block Exemption. Agreements not meeting these conditions are not automatically prohibited; their effects and efficiencies are assessed under individual exemption. Agreements with very low market shares may fall under de minimis.