Blacksmiths plc ('Blacksmiths'), a Maltese horseshoes manufacturer, has agreed to supply horseshoes to Marnier SA ('Marnier'), a French wholesaler, for resale. The agreement between them provides that Blacksmiths will supply its horseshoes only to Marnier in France and that Marnier, for a period of three years from the date of the agreement, will not sell goods which compete with the contract goods.

It has already been established that Blacksmiths has a 24% share of the relevant market and that Marnier has a 20% share of the relevant market.

Does this agreement fall within Article 101(1) TFEU and, if so, does it benefit from the block exemption under Regulation 330/2010?

Introduction

• EU competition law aims to root out anti-competitive business behaviour that threatens the effective operation of the internal market, harms consumers and reduces business efficiency

Article 101 TFEU

• Article 101 TFEU prohibits, as incompatible with the internal market, all agreements between undertakings which may affect trade between Member States and which have as their object or effect the prevention, restriction, or distortion of competition within the internal market.
• Article 101(3) provides for exeptions for agreements and categories of agreement. Article 101(1) may be declared inapplicable if certain conditions are satisfied. The block exemptions, including Regulation 330/2010, cover categories of agreement that are regarded as normally satisfying these conditions.

Blacksmiths/Marnier agreement: a breach of Article 101 TFEU?

• For a breach to be established, all three elements of Article 101(1) must be satisfied.

Agreement between undertakings

• 'Undertaking' has been interpreted broadly to include both natural and legal persons engaged in commercial activity, in other words, both individuals and companies running businesses, for the provision of goods or services (Höfner and Elser). Blacksmiths and Marnier, respectively a manufacturer and a wholesaler, are clearly undertakings.
• Article 101 applies to both horizontal and vertical agreements (Consten).
• The agreement between Blacksmiths and Marnier is a vertical agreement between undertakings and satisfies the first element of Article 101(1).

Which may affect trade between Member States

• There is no breach of Article 101(1) unless the agreement may affect trade between Member States. The Court of Justice has adopted a broad interpretation of this requirement. There is an effect on trade between Member States wherever it is 'possible to foresee with a sufficient degree of probability on the basis of a set of objective factors of law or of fact that the agreement in question may have an influence, direct or indirect, actual or potential, on the pattern of trade between Member States' (STM).
• Blacksmiths is to supply its widgets only to Marnier in France. As Blacksmiths operates in Malta, this obligation will have an actual and direct effect on trade between Malta and France.
• According to Commission Notice: guidelines on the effect on trade concept contained in Articles 81 and 82 of the Treaty, 2004 a vertical agreement will not be capable of affecting trade between Member States where the aggregate market share of the parties on any relevant market affected by the agreement does not exceed 5% and the aggregate EU turnover of the supplier does not exceed €40 million.
• Blacksmiths' and Marnier's share of the relevant markets are 24% and 20% respectively, exceeding the market share threshold in the Commission guidelines. The size of Blacksmiths turnover is not known. This answer proceeds on the assumption that the €40 million turnover threshold is exceeded.
• It is likely that the agreement will affect trade between Member States.

Which has as its object or effect the prevention, restriction, or distortion of competition within the common market

• De minimis: An agreement is caught by Article 101(1) only if it has an 'appreciable' effect on the market (Volk). Agreements of minor importance (de minimis agreements) are not prohibited.
• According to Commission Notice on agreements of minor importance, 2014, vertical agreements affecting trade between Member States do not appreciably affect competition if the market share of each of the parties does not exceed 15%. Since both parties' market shares exceed the threshold, the agreement is not de minimis.
• Article 101(1) provides that the agreement must have as its 'object or effect' the prevention, restriction, or distortion of competition. It is not necessary to establish both. Either an anti-competitive object or effect will suffice (STM).
• The Blacksmiths/Marnier agreement will restrict Blacksmiths' ability to compete for sales in France. The non-compete clause restricts Marnier's sales activity. The agreement will and is intended to restrict competition. As such, regardless of market share, the agreement could not benefit from the 2014 notice.
• Conclusion on breach: it is likely that the agreement breaches Article 101(1).

Exemption

Application of Article 101(3)

• Article 101(1) may be declared inapplicable to agreements satisfying the conditions set out in Article 101(3).
• Block exemptions provide for the automatic exemption of categories of agreement which are regarded as normally satisfying the conditions laid down in Article 81(3).
• The vertical restraints block exemption contained in Regulation 330/2010 covers exclusive distribution arrangements and is relevant to the Blacksmiths/Marnier agreement.

Application of Regulation 330/2010

• Article 2 provides that Article 101(1) does not apply to agreements between undertakings operating at different levels of the production/distribution chain relating to the conditions under which the parties may sell or resell certain goods. The Blacksmiths/Marnier agreement falls into this category.
• The block exemption applies to the extent that an agreement contains restrictions falling within Article 101(1) (Article 2). It has been established that the Blacksmiths/Marnier agreement is likely to breach Article 101(1).
• Article 3 provides that Article 2 applies on condition that market share of both the supplier and the buyer do not exceed 30% on their respective relevant markets.
• At 24% and 20% respectively, Blacksmiths' and Marner's market shares are within the market share threshold and the block exemption can apply.
• Neither of the restrictions in the agreement comprises a blacklisted restriction. The Regulation does not blacklist obligations to supply to only one buyer in a particular Member State, or non-compete clauses of no more than five years' duration.

Conclusion

The Blacksmiths/Marnier agreement is likely to fall within Article 101(1) TFEU but benefits from the block exemption in Regulation 330/2010.