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Exemption

If an agreement does not fall within Article 101(1) TFEU, it is immune from intervention based on EU competition law. If an agreement falls within Article 101(1), its compatibility with EU law depends on its compliance with Article 101(3), which gives scope for exemption. So a sale of rights to broadcast sports events on an exclusive basis could conceivably fall within Article 101(1), yet secure an exemption pursuant to Article 101(3).

Article 101(3) TFEU contains two positive and two negative criteria that must be satisfied by an agreement in order to secure entitlement to exemption. The practice must ‘contribute to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit’; and it must not ‘impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives’, nor ‘afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question’.

In the case of the sale of rights to broadcast sports events on an exclusive basis in circumstances where the matter is found to fall within the scope of Article 101(1) TFEU, one could readily imagine that the deal could be presented as a contribution to improving the production or distribution of goods or to promoting technical or economic progress because of the incentives created by the grant of exclusivity to penetrate new markets and to improve the quality of the product in order to increase market share—all of which is perfectly conceivably in the interest of consumers. The precise conditions of the deal would need to be scrutinized in order to be satisfied that it is not marred by restrictions which are not indispensable to the attainment of its objectives. It would also be necessary to ensure that the parties to the deal are not afforded the possibility of eliminating competition in respect of a substantial part of the products in question, which plainly requires careful examination of the structure of the particular market in question. The Commission’s

Notice on market definition is helpful and influential on this point.[1] None of this is sports-specific. In all cases careful examination of the prevailing market structure is essential in determining the application of not only Article 101(1) but also Article 101(3).

In law the key text is the Block Exemption Regulation on Vertical Restraints. The currently applicable text is Commission Regulation 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.[2] [3] It entered into force at the beginning of June 2010 and will expire at the end of May 2022. And it is usefully supplemented by the 2010 Guidelines on Vertical Restraints, which were mentioned earlier.41

The Regulation is based on an assumption, amplified in its Preamble, that vertical agreements are apt to improve economic efficiency by facilitating better coordination between the participating undertakings. Article 1(1)(a) defines the ‘vertical agreement’ as an agreement or concerted practice entered into between two or more undertakings each of which operates, for the purposes of the agreement or the concerted practice, at a different level of the production or distribution chain, and relating to the conditions under which the parties may purchase, sell, or resell certain goods or services; and Article 1(1)(b) adds that ‘vertical restraint’ means a restriction of competition in a vertical agreement falling within the scope of Article 101(1) TFEU. The disposition to take a favourable view of vertical agreements is captured by Recital 6 of the Regulation, which declares that ‘certain types of vertical agreements can improve economic efficiency within a chain of production or distribution by facilitating better coordination between the participating undertakings’; so too ‘they can lead to a reduction in the transaction and distribution costs of the parties and to an optimisation of their sales and investment levels’.

The purpose here is not to provide a nuts-and-bolts inspection of the precise detail of the shape and size of the ‘window’ through which agreements may pass in order to secure exemption: reading Regulation 330/2010 itself is quite enough to meet that need, and it is important in practice. The most revealing aspect of the scheme is its limit: the circumstances in which exemption pursuant to the Regulation is not available reveal the underlying fears that the enhancement in patterns of supply created by the sale of rights on an exclusive basis may be outweighed in some circumstances by potentially serious anti-competitive consequences.

The calculation is heavily affected by the market power of the undertakings concerned: to what extent is their commercial freedom of action confined by competition from other suppliers? The Regulation therefore establishes a threshold based on market share. Its Article 3 directs that exemption is conditional on falling below defined market share thresholds. The supplier’s market share shall not exceed 30 per cent of the relevant market on which it sells the contract goods or services and the market share held by the buyer shall not exceed 30 per cent of the relevant market on which it purchases the contract goods or services. Calculation of the market share is the subject of careful elaboration in Article 7 of the Regulation. Article 8 does the same job in relation to turnover. So where the market share held by each of the undertakings party to the agreement on the relevant market does not exceed 30 per cent the assumption is that, in short, the vertical agreement leads to an improvement in production or distribution and allows consumers a fair share of the resulting benefits, and so deserves exemption—a green light. Above the 30 per cent market share threshold, there is no such assumption that (in short) the benefits exceed the costs. This does not mean the deal is forbidden. The point is only that it lies outwith the safe harbour created by Regulation 330/2010 and so it needs individual examination.

Articles 4 and 5 of the Regulation are crucial in negotiating the tension between preserving, on the one hand, contractual autonomy and, on the other, protecting the interest in a competitive market which is moreover an internal market. Article 4 lists restrictions that remove the benefit of the block exemption—so-called hardcore restrictions which are not to be tolerated irrespective of the undertakings’ market share. The target is ‘restrictions which are likely to restrict competition and harm consumers or which are not indispensable to the attainment of the efficiencyenhancing effects’.42 Article 4 directs that exemption shall not apply to vertical agreements which, directly or indirectly, in isolation or in combination with other factors under the control of the parties, have as their object one or more of a list of five matters. Those matters focus on restrictions associated with the price of goods and services and certain types of territorial protection. So exemption is not on offer where a vertical agreement restricts the territory into which, or of the customers to whom, a buyer may sell goods or services, except where, of the highest significance, the restriction applies to active sales into the exclusive territory or to an exclusive customer group reserved to the supplier or allocated by the supplier to another buyer, where such a restriction does not limit sales by the customers of the buyer.43 There is, then, a decisive break between restriction of active selling into an exclusive territory (which is not allowed) and restrictions of more passive behaviour (which may be exempted). This, which has a long pedigree in the Court’s case law,44 is the attempt to manage the tension between preserving the integrity of the EU’s internal market and the virtuous effect of granting territorial exclusivity as an inducement to intensified commercial activity.

Article 5 of the Regulation then adds a set of ‘Excluded restrictions’, where exemption is not on offer. These cover any direct or indirect non-compete obligation, the [4] [5] [6]

duration of which is indefinite or exceeds five years; any direct or indirect obligation causing the buyer, after termination of the agreement, not to manufacture, purchase, sell, or resell goods or services; any direct or indirect obligation causing the members of a selective distribution system not to sell the brands of particular competing suppliers. The broad concern is to preclude the possibility that participating undertakings may eliminate competition in respect of a substantial part of the products in question, which is a concern written into Article 101(3) TFEU itself.

  • [1] [1997] OJ C372/5.
  • [2] Regulation (EU) 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treatyon the Functioning of the European Union to categories of vertical agreements and concerted practices [2010] OJ L102/1 (Block Exemption Regulation). It replaced, but did not significantly alter,Regulation 2790/99 [1999] OJ L336/21.
  • [3] Guidelines on Vertical Restraints (n 38).
  • [4] Block Exemption Regulation (n 40) Recital 10.
  • [5] ibid Art 4(b)(i). There is also special provision in Art 4(b) for (in particular) restriction of sales ina selective distribution system.
  • [6] eg Case 258/78 Nungesser v Commission [1982] ECR 2015. For detailed exploration, seeR Whish and D Bailey, Competition Law (8th edn, OUP 2015) ch 16.
 
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