Portugal: ECJ Restates The ABCs Of Resale Price Maintenance

On 29 June 2023, in 'Super Bock Bebidas,SA, AN, BQ v Autoridade da Concorrência', the European Court of Justice (''ECJ'') reconfirmed that the mere inclusion of a resale price maintenance clause in vertical agreements is not enough to automatically conclude that this amounts to a restriction of competition by object. Rather, an analysis must be carried out to establish whether the agreement presents a sufficient degree of harm to competition.

Background

By way of background, the case concerned Super Bock Bebidas (''Super Bock'') a Portuguese undertaking active in the manufacturing and marketing of several beverages, mainly beer and bottled water. Part of Super Bock's commercial activities include the supply of beers to hotels, cafés and restaurants. To allow for an efficient distribution of its products, Super Bock had negotiated and concluded several exclusive distribution agreements with independent distributors (the ''Distribution Agreements'') that covered a good part of the territory of Portugal.

Besides setting out the general terms governing the contractual relationship between Super Bock and the distributors, the Distribution Agreements further included an obligation on the distributors to sell beer at prices set exclusively by Super Bock (the ''Resale Price Maintenance Clause''). Super Bock informed its distributors monthly of the prices at which beer was to be resold. To ensure that distributors toe the line and adhere to the Resale Price Maintenance Clause, a monitoring system was implemented, requiring distributors to keep Super Bock informed of their sales. Super Bock could impose retaliatory measures (including refusal to further supply the distributors with products) in case of non-compliance with the Resale Price Maintenance Clause. This practice was in place for around 11 years.

The Portuguese national competition authority took issue with these practices and imposed a fine of 24 million on Super Bock on the basis that the Resale Price Maintenance Clause amounted to a restriction of competition by object, in breach of Article 101(1) TFEU and Portuguese competition law. The finding of this infringement was in turn confirmed by the Portuguese Competition, Regulation and Supervision Court.

Feeling aggrieved by these decisions, Super Bock filed an appeal before the Portuguese Court of Appeal (the ''Referring Court''). Amongst other questions, the Referring Court asked the ECJ to clarify whether a vertical agreement fixing minimum resale prices, such as the Resale Price Maintenance Clause, must be characterised as a restriction of competition by object without assessing and having due regard as to whether the agreement gives rise to a sufficient degree of harm to competition.

Restriction by object

At the crux of the Referring Court's question was the interpretation of the by object element in terms of Article 101(1) TFEU.

Before diving into the ECJ's considerations and analysis, a few clarifications are in order.

Under Article 101(1) TFEU, agreements, concerted practices and decisions of trade associations which have the object or effect of restricting competition are prohibited and deemed to be incompatible with the internal market. Both a literal interpretation of Article 101(1) TFEU as well as case law have confirmed that 'object or effect' are to be read disjunctively and they are alternative, rather than cumulative requirements for a breach of Article 101(1) TFEU to arise.

For an agreement to be deemed to fall under a 'by object' classification, the restriction on competition that is being imposed must be such that presents a sufficient degree of harm to competition. Object restrictions are practices which through their very nature are harmful to competition. Where this arises, it is now settled case law of the ECJ (C-345/ 14 Maxima Latvija) that the practice in question would not need to be analysed at length or too deeply, to arrive to the conclusion that it is an infringement of Article 101(1) TFEU. Having said that, case law has also made it clear that some analysis would still be required. In carrying out this assessment, regard must be had to the agreement's provisions, objectives and the economic and legal context of which it forms part of, as well as the nature of the goods or services affected and the structure of the market or markets in question (C67/13 P Groupement des cartes bancaires, para 53).

Keeping this in mind, the ECJ reconfirmed the position that notwithstanding that a vertical agreement may contain a clause fixing the minimum resale price, this does not automatically give rise to an infringement of Article 101(1) TFEU. Rather, an analysis as set out above must be carried out. A by object classification cannot be used by national courts and national competition authorities as a shortcut in proving that an infringement has taken place.

The relationship between Hardcore restrictions under the VEBR and Article 101 TFEU

The ECJ also offered a much-needed reminder on the distinction between hardcore restrictions and 'by object' restrictions.

Under the Vertical Block Exemption Regulation¹(the ''VEBR''), certain vertical agreements are presumed to have no anti-competitive effects, provided that the market shares held by both the supplier and the buyer on the relevant markets do not exceed certain thresholds and the agreement is free from hardcore restrictions.

Hardcore restrictions are measures considered to be serious restrictions to competition due to the harm that they can cause to consumers. Resale price maintenance has traditionally been regarded as a hardcore restriction, both under the 2010 vertical block exemption guidelines², as well as the revised guidelines which came into effect in May 2022, because of the harm that such a practice can present to intra-brand competition. Where an agreement contains hardcore restrictions, the safe harbour provided by VEBR ceases to exist, irrespective of the relevant parties' market shares. The ECJ, however, made it clear that this does not mean that the agreement automatically infringes Article 101(1) TFEU, but rather that an individual assessment is needed.

In this respect, the ECJ held that notwithstanding that resale price maintenance is a hardcore restriction under VEBR and the inclusion of such a measure prevents agreements from enjoying the safe harbour, it does not automatically amount to a restriction by object. A hardcore restriction is not equivalent to a restriction by object and national competition authorities as well as national courts cannot simply use them interchangeably. The two concepts are distinct and do not necessarily overlap. Where vertical agreements contain hardcore restrictions, their compliance must be assessed against Article 101(1) TFEU.

Concluding remarks

Time and time again the ECJ has reconfirmed that a formalistic approach is not the way to go in determining whether an agreement presents anti-competitive effects. The ECJ builds on past case law that a substantive analysis is needed and favours substance over form.

Concurrently, it also serves as a timely reminder for suppliers to take particular care in how their distribution agreements are drafted, allowing their distributors to independently be able to set their own prices at which products are sold. Resale price maintenance, whilst not considered to be an automatic infringement of Article 101(1) TFEU, remains a high-risk practice under EU competition law which can lead to the imposition of hefty fines. Not to mention that it also remains a top enforcement priority for the European Commission and national competition authorities alike.

Footnotes

1. Commission Regulation (EU) 2022/720 of 10 May 2022 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices (Text with EEA relevance).

2. Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices.

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