Distribution and Supply Agreements

Provisions on prices, territories, online sales, non-compete obligations and exclusivity in agreements with dealers, distributors and suppliers are among the most common grounds for competition law infringements. We review your manufacturing, supply, sales and distribution agreements from a competition law perspective, draft new ones and structure your distribution system so that it stays within the block exemption.

What is a vertical agreement?

A vertical agreement is an agreement between companies operating at different levels of the production or distribution chain, such as a manufacturer and a distributor or a supplier and a retailer. Such agreements are exempt from the prohibition on restrictive agreements under the Block Exemption Communiqué on Vertical Agreements if the parties’ share of the relevant market does not exceed thirty per cent and the agreement contains no hardcore restrictions.

The foremost hardcore restriction is fixing the buyer’s resale price. Setting maximum prices and recommending prices are allowed; setting minimum or fixed prices is prohibited. Territorial and customer restrictions and preventing online sales are also hardcore restrictions, subject to certain exceptions.

What are non-compete obligations and exclusivity?

A non-compete obligation is a provision requiring the buyer not to sell competing products, or to purchase most of its requirements from a single supplier. To benefit from the block exemption, its duration must not exceed five years; obligations of indefinite duration or that renew automatically are deemed to exceed five years. A post-term non-compete obligation is possible only in limited circumstances and for no more than one year.

Scope

Reviewing and drafting manufacturing, supply, sales and distribution agreements from a competition law perspective
Identifying non-compete obligations and exclusivity terms
Assessing dealer network, pricing and online sales policies
Individual exemption assessments for agreements falling outside the block exemption

How We Work

Gathering existing distribution and supply agreements and the sales policies applied in practice
Assessing the parties’ market shares and whether the block exemption is available
Reviewing provisions on pricing, territories, online sales, non-compete obligations and exclusivity
Revising risky provisions and preparing new agreement templates
A short guide for the sales team on the rules to follow when dealing with dealers

Team

Hasan Çakan Partner

Frequently Asked Questions

Can we give our dealers recommended resale prices?

Yes, as long as the recommended price is not binding. However, practices such as refusing to supply dealers who do not follow the recommended price, withdrawing discounts or constantly monitoring and pressuring on prices turn the recommended price into a minimum price in practice and constitute an infringement.

Can we prohibit our dealers from selling online?

A general ban is a hardcore restriction. Depending on the nature of the product, it is possible to set quality and presentation criteria for online sales; what matters is that these criteria are not designed in a way that in practice prevents online selling.

What happens if our market share exceeds thirty per cent?

The block exemption is not available, but that does not mean the agreement is automatically prohibited. The agreement's effects on competition and the efficiencies it brings are assessed individually; if necessary, an individual exemption can be requested from the Board.

What should be done when the five-year non-compete period expires?

The parties may set a new period through an express decision to renew. An automatic renewal clause, by contrast, makes the obligation indefinite and causes the exemption to be lost; the renewal mechanism therefore needs to be drafted carefully.

Would you like to discuss this service? Schedule a meeting with us — the first meeting is free of charge.

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