On 29 June 2023, the European Court of Justice ruled on preliminary questions pertaining to a vertical price-fixing practice, by which a producer obliges its distributors to apply minimum resale prices. Such a practice is generally considered as a hardcore restriction of competition law and, being a “by object infringement”, is/was considered to be prohibited per se. In its judgement, the Court clarifies that the fact that price-fixing is an object infringement does not mean that a thorough analysis of the economic and legal circumstances of a distribution agreement containing a vertical price-fixing clause is not required (Case C-211/22).
• The national dispute leading up to the referral
The conduct at issue relates to the conclusion of exclusive distribution agreements between Super Bock – a Portuguese manufacturer mainly known for its beers and bottled waters – and its independent distributors. As part of these distribution agreements, Super Bock fixed minimum resales prices. These were communicated every month by Super Bock to its distributors through a price list. A monitoring mechanism was set in place to ensure compliance and distributors risked retaliatory measures, such as removal of trade discounts or refusal to replenish stocks, for non-compliance.
This conduct was identified by the Portuguese competition authority (the “PCA”) as amounting to price-fixing, by direct and indirect means, which constitutes an infringement of the prohibition of anticompetitive agreements, under article 101 of the TFEU. In the context of the proceedings that followed the adoption of this decision by the PCA, the Portuguese Supreme Court referred five questions to the European Court of Justice (the “Court”): two concerned the concept of “by object” infringement, two concerned the notion of “agreement” and the last one concerned the requirement that the illegal practice affect trade between Member States.
• The Court’s answer provides an important clarification: Vertical price-fixing agreements are not automatically by object infringements…
The questions raised by the Portuguese court asked whether it could consider that a vertical agreement fixing minimum resale prices constitutes a by object infringement without examining whether that agreement raises a sufficient level of harm to competition or by merely assuming that such agreement presents that degree of harm.
This question essentially asks the Court to reconcile the Binon case law (1985) – in which the Court held that a vertical price-fixing arrangement is automatically restrictive of competition by object – with the Court’s more recent case law according to which an agreement must present a sufficient level of harm to competition in order to constitute a by object infringement. This is determined by looking at the content of the agreement, its objectives as well as the legal and economic context that it forms a part of. In other words, do vertical price-fixing agreements constitute such a specific conduct that they are per se anticompetitive by object, without the need for an assessment of the legal and economic context? Or is the Court’s more recent case law also applicable to vertical price-fixing agreements?
In its judgment, the Court unequivocally clarified that the finding that a vertical price-fixing agreement entails a by object infringement may only be made after having determined that that agreement presents a sufficient degree of harm to competition, taking into account its content, objectives and the economic and legal context of which it forms part. It is thus not possible to establish that such an agreement constitutes a restriction by object merely on the basis of the text of the agreement.
• …and hardcore restrictions and by object infringements are not mutually interchangeable concepts
The Court then clarifies how the fact that the vertical agreement at stake constitutes a hardcore restriction, within the meaning of article 4(a) of Regulation No 330/2010 (the Vertical Block Exemption Regulation – the “VBER”), which can never be exempted from application of article 101 TFEU, should impact the assessment of whether that agreement constitutes an infringement by object. The Court states that, while this fact should be taken into account as part of the assessment of the legal context, it cannot exempt the national court from carrying out the full assessment of whether the practice at hand is sufficiently harmful to competition.
The Court reasons that the purpose of article 4 of the VBER is to exclude some practices from benefitting from a block exemption that applies automatically. Logically, that exemption can only benefit agreements that are, in the abstract, deemed not to be harmful to competition. Other agreements, such as hardcore restrictions, cannot be block exempted and must be examined on a case-by-case basis. The fact that an agreement is listed as a hardcore restriction in the VBER does not contain any indication, however, that it amounts to a by object restriction.
• The importance of this clarification should be qualified…
The fact that the Court established that the formalistic Binon case law approach has effectively been abandoned when it comes to vertical price-fixing agreements is a useful clarification. It can, however, not be considered ground-breaking in our opinion.
Although some still defended the position that certain clauses in distribution agreements, such as vertical price-fixing clauses, are problematic per se, it is our view that the Court has already in previous case law, notably in its judgments in CB v Commission (2014), Generics (2020) and Budapest Bank (2020), abandoned a purely formalistic approach to the concept of by object infringement to the benefit of an assessment of the substance of the agreement, whatever its form.
We also do not believe that this approach leads to a confusion between the concept of infringement by object versus by effect. The Court has been affirming for years that the finding that an agreement has as its object the restriction of competition must be based in an analysis of the legal and the economic context. However, finding what the agreement pursues is not the same as assessing its concrete impact on competition.
• … but not underestimated
However, given that some national competition authorities and courts still considered that hardcore restrictions in agreements, such as vertical price-fixing, automatically amount to by object infringements, the Court’s decision may have an important impact on national practices in the EU.
For further information about this case and/or for general legal advice relating to European and Belgian competition law, please contact Pierre de Bandt, Raluca Gherghinaru or Jeroen Dewispelaere.