The European Commission has published the draft of a new notice on agreements whose effect on competition are "de minimis", in other words so inappreciable in their effect on competition that they do not fall within the prohibition on restrictive agreements contained in Article 81 of the EC Treaty. This will replace an existing notice of 1997.
The market share thresholds for there to be no appreciable effect are higher than those contained in the existing notice. Where the parties are actual or potential competitors, there will not be an appreciable effect on competition where the aggregate market share of the parties does not exceed 10% on any relevant markets (up from 5% in the previously). On the other hand, where the parties are not competitors, a 15% threshold applies (up from 10% previously). In cases where it is difficult to say whether or not the parties are competitors, the 10% threshold is the relevant one. Where competition is restricted by parallel networks of agreements, established by several suppliers or distributors, the market share threshold for any particular agreement is 5%. Agreements which do not exceed this limit are not taken to contribute significantly to any cumulative foreclosure effect. Agreements will also be seen as having an inappreciable effect where any of these thresholds are exceeded by no more than 1% during two successive calendar years.
As in the previous notice, the market share thresholds do not apply in the case where agreements contain certain types of restrictive clause. Apparently, there is no lower market share threshold for there to be an effect on competition where agreements contain such "hardcore" clauses, although Article 81 may in some circumstances not apply where the effect on trade is insignificant. For Horizontal agreements, between those operating at the same level of the production or distribution chain, the hardcore clauses include price fixing, limitation of output or sales and the allocation of markets or customers will have that effect. For vertical agreements, between undertakings operating, for the purposes of the agreement at a different level of the production or distribution chain, the forbidden clauses are the "hard core restrictions" set out in the vertical agreements block exemption. These include:
- minimum or fixed resale pricing restrictions
- restriction of the territory into which, or customers to whom, the buyer can sell the contract goods or services except:
- a restriction of active sales into the exclusive territory or an exclusive customer group reserved to the supplier or another buyer
- restriction of sales to end users by a buyer operating at the wholesale level of trade
- restriction of sales to unauthorised distributors by the members of a selective distribution system
- restriction of a buyer's ability to sell components supplied for incorporation to customers who would use them to manufacture the same type of goods as those produced by the supplier
- the restriction of active or passive sales to end users by members of a selective distribution system operating at the retail level of trade
- restriction of cross supplies between distributors within a selective distribution system
- restriction agreed between a supplier of components and a buyer who incorporates those components, which limits the supplier's ability to sell the components as spare parts to end users or to repairers or other service providers not entrusted by the buyer with the repair or servicing of its goods
The notice suggests that the quite separate exception for agreements between Small- and Medium-sized enterprises as defined in Recommendation 96/280 also continues to apply, such agreements being "rarely capable of affecting trade between Member States". Small- and Medium-sized enterprises are those which have fewer than 250 employees and either a turnover not exceeding Euro40 million or an annual balance-sheet total not exceeding Euro27 million, and which are not owned as to more than 25% of there share capital or voting rights by one undertaking on jointly by several undertakings falling outside of the definition of an SME.
The raising of the market share thresholds will generally be seen as a step in the right direction by most companies. On the other hand, it must not be forgotten that the requirements of the notice must continue to be satisfied throughout the agreement in order to be able to rely on it. As soon as the market shares rise above the relevant percentages, Article 81 may apply, giving rise to the often difficult task of needing to monitor the agreement throughout its course. This means that it may be a better idea to make sure that the agreement conforms with a block exemption or could obtain an individual exemption in the first place.
While there is now more clarity about the type of hardcore clauses which will exclude the application of this de minimis exception, it is clear that the hardcore list has very much been formulated with vertical agreements between a buyer and seller of goods or services in mind. In fact, the hardcore list is basically that contained in the vertical agreements block exemption. As so often happens, intellectual property agreements have been forgotten, or are just too awkward to fit in. The result is unclear. If the parties to a licensing agreement operate "at the same level of the production or distribution chain", then the hardcore list includes only price fixing, limitation of output or sales, and allocation of markets or customers. If they don't then it appears that there may in many cases be no hardcore list which will exclude the exception, since the hardcore list is formulated in terms of "buyers" and "suppliers" which does not appear to automatically apply to licensors and licensees (unless the licensor is supplying a raw material or service under the licence). If this list did apply to licensing agreements, then the effect would be to subject such licensing agreements to the hardcore list contained in the vertical agreements block exemption, which may not be entirely appropriate. It is desirable that the Commission should clarify how the notice applies to IP licensing agreements, before it is definitively adopted.