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Print articleVertical agreements, part one
March, 2009 - Elisabeth Legnerfält and Helene Andersson
Antitrust law
1 What are the legal sources that set out the antitrust law applicable to vertical restraints?
The national competition legislation applicable in
Further guidance on assessment of vertical restraints in
Types of vertical restraint
2 List and describe the types of vertical restraints that are subject to antitrust law. Is the concept of vertical restraint defined in the antitrust law?
According to chapter 2, section 1 of the Act, agreements between undertakings shall be prohibited if they have as their object or effect to prevent, restrict or distort competition in the market to an appreciable extent.
Vertical agreements are defined in section 1 of the Swedish Block Exemption as agreements entered into between two or several undertakings which, within the framework of the agreement, are active at different levels in the production or distribution chain and which regulates the conditions for the parties’ purchase, sales or resale of certain goods or services. Vertical restrains are defined (section 2) as vertical agreements containing restraints on competition. Vertical agreements that may be subject to competition rules include distribution, franchise, purchase, licensing and subcontractor agreements.
Legal objective
3 Is the only objective pursued by the law on vertical restraints economic, or does it also seek to protect other interests?
The aim of the Competition Act (chapter 1, section 1) is to eliminate and counteract obstacles to effective competition in the field of production of and trade in goods, services and other products, meaning that there is a consumer protection perspective.
Responsible agencies
4 What agency is responsible for enforcing prohibitions on anticompetitive vertical restraints? Where there are multiple responsible agencies, how are cases allocated? Do governments or ministers have a role?
The competition authorities in
The government and the ministers do not have a role in the enforcement of the competition rules but only in the legislative process.
Jurisdiction
5 What is the test for determining whether a vertical restraint will be subject to antitrust law in your jurisdiction? Has the law in your jurisdiction regarding vertical restraints been applied extraterritorially?
The prohibition on anti-competitive agreements in chapter 2, section 1 of the Act applies where an agreement has an effect on trade within
Agreements concluded by public entities
6 To what extent does antitrust law apply to vertical restraints in agreements concluded by public entities?
The prohibition on anti-competitive agreements in chapter 2, section 1 of the Act applies to ‘undertakings’. The term ‘undertaking’ can cover any kind of entity, regardless of its legal status or the way in which it is financed, provided such entity is engaged in an ‘economic activity’ when carrying out the activity in question. Thus, public entities may qualify as undertakings when carrying out certain of their more commercial functions. It is, however, rovided that public undertakings are not considered as undertakings when fulfilling their public tasks; see chapter 1, section 5 of the Act.
Sector-specific rules
There is a specific block exemption relating to vertical agreements in the motor vehicle sector (the Act (2008:584)). This block exemption does not contain any material differences as compared with the corresponding EC block exemption (1400/2002). Other industry-specific block exemption regulations exist but none of these is targeted specifically at vertical restraints.
General exceptions
8 Are there any general exceptions from antitrust law for certain types of vertical restraints? If so, please describe.
The guidelines refer to the de minimis rules laid down by the European Commission. For further information on the Swedish guidelines, see question 13.
Agreements
9 Is there a definition of ‘agreement’ – or its equivalent – in the antitrust law of your jurisdiction? When assessing vertical restraints under antitrust law does the agency take into account that some agreements may form part of a larger, interrelated network of agreements or is each agreement assessed in isolation?
There is no definition of agreement in the legislation, but EC case law on the definition of agreement applies.
Parent and related-company agreements
The principle on economic entity is applicable in accordance with EC case law, and thus intra-group transactions are as a general rule not subject to the competition rules. The decisive factor is the parent company’s level of control over its subsidiary. If the parent company has such control over the subsidiary that it is not able to act ndependently the principle on economic entity applies. However, if the subsidiary is able to act independently, the competition rules apply.
Agent–principal agreements
In general, the prohibition in chapter 2, section 1 of the Competition Act will not apply to any agreement between a ‘principal’ and its ‘genuine agent’ (ie, one who bears no substantial financial risk in respect of the transactions in which it acts as agent) insofar as the agreement relates to contracts negotiated or concluded by the agent for its principal. In this regard, the application of the prohibition mirrors that of article 81 (see EU chapter).
Intellectual property rights
12 Is antitrust law applied differently when the agreement containing the vertical restraint also contains provisions granting intellectual property rights (IPRs)?
The Swedish Block Exemption refers to the EC Vertical Block Exemption, providing that agreements which have as their ‘centre of gravity’ the licensing of IPRs will fall outside the Vertical Block Exemption. In such cases, the antitrust analysis is different. The relevant considerations include the application of the European Commission’s Technology Transfer Block Exemption (Regulation 772/2004).
Analytical framework for assessment
13 Explain the analytical framework that applies when assessing vertical restraints under antitrust law.
A vertical agreement must be assessed in its legal and economic context. It is thereby assessed whether it is aimed at, or will result in, an appreciable prevention, restriction or distortion of competition on the Swedish market or a substantial part of it. Both intrabrand and inter-brand competition is taken into consideration and the agreement is assessed from a short-term as well as a long-term perspective.
In case there is a restriction on competition it is thereafter assessed whether the agreement is covered by the Swedish Block Exemption. The Swedish Block Exemption applies if the supplier does not have a market share exceeding 30 per cent on the relevant market (if it is question of an exclusive supply agreement the market share of the buyer is instead considered) and provided that the agreement does not contain any hard-core restrictions. If the agreement is covered by the Swedish Block Exemption, it is automatically exempted from the prohibition in chapter 2, section 1 of the Act and no further assessment is required.
If the agreement is not covered by the Swedish Block Exemption it is assessed whether the exemption regarding agreements of minor importance (KKVFS 2009:1) is applicable to the agreement. This is in particular of relevance in relation to non-compete obligations exceeding five years or of an interminable duration, which are allowed for under the de minimis rules. These rules apply if neither party has a market share above 15 per cent, provided that the greement does not contain any hard-core restrictions. The hard-core restrictions are the same as under the EC de minims notice. If neither the Swedish Block Exemption nor the de minimis rules are applicable the agreement or the clause is not per se illegal but it must be assessed whether the vertical restraint is in breach of chapter 2, section 1 of the Act. Chapter 2, section 1 of the Act, which corresponds to article 81(1) EC, provides that agreements etween undertakings shall be prohibited if they have as their object or effect, to prevent, restrict or distort competition in the market to an appreciable extent. Even if a vertical agreement is considered to fall under the prohibition in chapter 2, section 1 of the Act, it may be exempted according to the ‘legal exemption’ in chapter 2, section 2 of the Act, which corresponds to article 81(3) EC.
Chapter 2, section 2 of the Act may be considered as a kind of rule of reason, ie, a balancing between the positive and the negative effects of a restrictive agreement. The economic advantages of the agreement must objectively outweigh the negative effects on competition in order for the exemption to apply. It is the undertakings concerned that must prove that the conditions for exemption are fulfilled. In case the supplier or the buyer under the greement may be considered to hold a dominant position an assessment has to be made whether the dominant party acts in breach of the prohibition in chapter 2, section 7 of the Act, which prohibits abuse of dominant position, see Getting the Deal Through - Dominance.
14 To what extent does the agency consider market shares, market structures and other economic factors when assessing the legality of individual restraints? Does it consider the market positions and conduct of other suppliers and buyers in its analysis?
The following circumstances are taken into consideration in the assessment of vertical agreements:
• market shares and market influence of the relevant undertakings, also over time;
• market shares and market influence by competitors, also over time;
• structure of the market (eg concentration) and the maturity of the market;
• the occurrence of entry barriers including similar cooperations (network effect) and brand loyalty;
• characteristics of the products, extent of the cooperation and levels of the distribution chain; and
• duration of the relevant vertical restraint.
Block exemption and safe harbour
15 Is there a block exemption or safe harbour that provides certainty to companies as to the legality of vertical restraints under certain conditions? If so, please explain how this block exemption or safe harbour functions.
The Swedish Block Exemption, the Act (2008:581) on block exemption for anti-competitive vertical agreements refers back to the EC Block Exemption for vertical agreements (Regulation 2790/1999). The hard-core restrictions are the same as in Regulation 2790/1999. The Swedish Block Exemption corresponds in most respects to Regulation 2790/1999. The Competition Authority has not issued any guidelines as regards vertical agreements but takes guidance from the guidelines issued by the EC Commission (2000/C291/01).
Agreements that fall under the Swedish Block Exemption are automatically exempted. Vertical agreements that are not covered by the Swedish Block Exemption are not presumed to be illegal, but instead subject to an individual assessment.
Types of restraint
16 How is restricting the buyer’s ability to determine its resale price assessed under antitrust law?
As under EC law retail price maintenance is not covered by the Block Exemption, including minimum prices and fixed prices. In addition it is not permissible for the supplier to either encourage (through discounts, etc) or discourage (through refusal of supply, withdrawal of discounts, etc) the buyer to stick to the recommended prices or maximum prices. However, maximum or recommended prices are permissible.
In case MD 2002:5 , Svenska bokhandlareföreningen v Månadens
Bok et al, the Market Court found that a recommended retail price on paperbacks was considered to constitute an outflow of a cooperation or concerted practice between various publishers, in breach of section 6 (now chapter 2, section 1) of the Competition Act. The Market Court ordered Månadens Bok et al, under penalty of a fine of 500,000 Swedish kronor, to cease printing recommended retail prices or other price information on paperbacks in the Månpocket series. The relevant market was defined as publishing of paperbacks in
In 1993, the Competition Authority granted an exemption for retail price maintenance for a retail store franchise agreement (dnr 646/93). The Authority based its decision on the fact that it was a question of the establishment of a low-price chain and that it was possible for the franchisees to change the prices on the advertising material and the shelf price tags.
17 Have there been any developments in your jurisdiction in relation to resale price maintenance restrictions in light of the landmark US Supreme Court judgment in Leegin Creative Leather Products Inc v PSKS Inc. If not, is any development in this area anticipated? Has there been any more general discussion by the relevant agency (or any other influential stakeholder) of the policy in your jurisdiction regarding resale price maintenance?
There has not been any particular development in
