NEW PAPER | Vertical restraints after Generics and Budapest Bank
I have just uploaded on ssrn a new paper (see here) on the legal status of vertical restraints following Generics and Budapest Bank. It is part of a series of short contributions on the topic that is forthcoming in Concurrences and that has been coordinated by Mario Marques Mendes (thanks very much for the invitation to contribute!).
I have already discussed the implications of these two landmark rulings on the blog (for instance here). The key conclusion I draw from them is that, as a rule, an agreement that is capable of having pro-competitive effects is not restrictive of competition by object.
This conclusion is consistent with the legal treatment of vertical restraints in the Court’s case law over the years. My paper focuses on two traditional pro-competitive justifications for vertical restraints: brand protection and the fight against free riding.
Free riding considerations are particularly relevant in the context of MFN clauses. As evidenced in the Support studies for the evaluation of the VBER prepared for the Commission (see here), this pro-competitive justification is valid both in relation to the ‘wide’ and ‘narrow’ varieties of the restraint.
Accordingly, there seems to be little support for treating MFN clauses as ‘by object’ infringements and/or hardcore restrictions within the meaning of the Block Exemption Regulation. One can imagine, however, ways in which the future Regulation could provide for some bright lines in relation to ‘wide’ MFNs (for instance, by treating them as excluded Article 5 restrictions above the 30% threshold).
As far as brand protection is concerned, the paper focuses on online selective distribution. Some clauses, such as a ban on the use of online marketplaces and/or of price comparison sites serve a brand protection purpose. In this sense, they are not different from other restraints typically found in selective distribution systems.
Accordingly, there seems to be no reason to give such clauses (specifically tailored to the needs of online distribution) a different (stricter) legal treatment. The conclusion would be the same irrespective of whether the good is a luxury or a non-luxury one (experience and economic analysis show that brand protection can be relevant also in relation to the latter).
I very much look forward to your thoughts. I am happy to clarify, as ever, that I have nothing to disclose.
Chillin'Competition 
All very sensible.
Generally speaking, we should be wary about creating new hard-core restrictions in the VBER, as doing so risks undermining the basic concept of a (modern) block exemption, ie a broad and reasonably predictable safe harbour that is not overly prescriptive. On the other hand, authorities probably need to be more prepared to remove the benefit of VBER in individual cases, as otherwise the balance between creating a predictable safe harbour and not protecting agreements that are restrictive in their particular circumstances is lost. If this is done, we may be able to avoid using Article 5, which I tend to think is a bit of a fudge (while it makes pragmatic sense to sever less restrictive clauses, compared with sinking the whole agreement, it’s hard to square this with the underlying structure of Article 101).
Becket McGrath
1 September 2020 at 2:51 pm
Thanks very much for the comment, Becket!
Pablo Ibanez Colomo
2 September 2020 at 10:26 am