Commercial Practice - Distribution agreements & Competition Law Flashcards
How can a manufacturer distribute its products to customers? (4)
- Marketing directly to customers.
- Appointing an agent to sell its products.
- Licensing another party to manufacture and sell its products.
- Appointing a distributor to purchase goods for resale.
How does a distributor work? (1)
Buy goods from manufacturer under one contract and sells the goods on at a profit to the ultimate customer under another separate contract.
What is a distribution agreement? (1)
A contract under which a distributor buys goods from a manufacturer in order to sell goods on at a profit under another separate contract.
What is an exclusive distribution agreement? (2)
A supplier agrees to sell its products to just one distributor in a defined territory, in which territory it also agrees not to appoint any other distributors and not itself to sell the same products directly to customers.
What is a sole distribution agreement? (2)
A supplier agrees to sell its products to just one distributor in a defined territory but reserves the right to sell products itself directly to the customers within that territory.
What is a non-exclusive distribution agreement? (2)
A supplier may appoint more than one distributor in a defined territory and may sell products itself directly to customers within that territory.
What is the rationale of Competition Law? (1)
To facilitate a trading environment where there is a high level of competition between parties to help keep prices low so that customers receive a good deal.
What is a vertical agreement? (1)
An agreement between companies which are at different levels of the supply chain.
Is a distribution agreement a vertical agreement? (1)
Yes.
What is the prohibition in S2 Competition Act 1998 against anti-competitive conduct? (1)
Chapter 1 prohibition.
What is step 1 of considering if a proposed distribution agreement contravenes the competition law regime? (3)
Diagnose whether or not a proposed agreement is at risk of breaching the Chapter 1 prohibition in the first place. If it is then you will need to see if there is an escape route. The escape route that is most likely to assist is the VABEO.
What is step 2 of considering if a proposed distribution agreement contravenes the competition law regime? (4)
Consider whether the VABEO will apply to your particular agreement by checking the terms of the agreement. There are various conditions that will need to be satisfied for the VABE to apply. If the VABEO applies then the distribution agreement will not infringe competition law. If the VABEO does not apply, owing to certain provisions of the distribution agreement, the agreement will infringe competition law, and the infringing party will be liable to sanctions.
What is step 3 of considering if a proposed distribution agreement contravenes the competition law regime? (1)
Consider the specific sanctions that may be relevant.
What is the key case for step 1 chapter 1 prohibition? (1)
Hasbro UK Limited.
What do we have to consider for step 1 chapter 1 prohibition? (3)
- Is there an agreement / decision / concerted practice?
- Is there prevention / restriction / distortion of competition?
- Is there effect on UK trade if implemented in the UK?
Where can you find a non-exhaustive list of common types of activity that prima facie restrict competition and what are they? (5)
Section 2 (2) CA - price fixing, ban on passive sales, ban on active sales and territorial restriction.
Are distribution agreement likely to fall within the Chapter 1 prohibition? (1)
Yes.
What does the VABEO enable? (1)
A distribution agreement to be exempt from Chapter 1 prohibition as long as the agreement complies with the VABE requirements.
What does VABE stand for? (1)
vertical agreements block exemption order’
What is a block exemption? (2)
A piece of legislation which exempts a whole category of agreements from the general competition law prohibition and will provide an ‘escape route’ for any agreement which complies with the terms of that legislation.
When will the VABE apply? (3)
- The agreement must be a vertical agreement;
- The parties must comply with market share threshold requirements; and
- The agreement must not contain any hardcore restrictions.
What is the market share threshold requirement? (2)
The exemption will apply if the market share of the supplier does not exceed 30% of the relevant market on which it sells goods or services AND the market share of the distributor does not exceed 30% of the relevant market on which it purchases goods or service.
Where are hardcore restrictions listed and what are they? (3)
Hardcore restrictions are listed in Article 8(2) and these are terms which are so anti-competitive that an agreement containing any of them does not deserve exemption from the Chapter 1 prohibition. If the distribution agreement contains any one of the hardcore restrictions the VABEO will not apply and cannot benefit from the escape route – article 9.
Why should the supplier not impose fixed or minimum prices at which the distributor must sell on the contract goods to its own customers? (1)
This would harm customers by keeping pricing artificially high.
