1. Paul Hughes Brussels 30 th March 2005 Article 81

2. Presentation Overview Article 81(1) - its width Horizontal agreements Vertical agreements Article 81(2) – nullity sanction Article 81(3)- capable of exemption?

3. Article 81(1) - structure Agreements between, concerted practices and decisions by associations of Undertakings Which may affect trade between member states Having as their object or effect Prevention restriction or distortion of competition in EU

4. Article 81(1) Agreements: ACF Chemiefarma NV; BP Kemi; Sandoz; Ford Europe; Adalat Concerted practice: Dyestuffs; Suiker Unie; Polypropylene; Wood Pulp Decisions of associations: Vereeniging van Cementhandelaren; EPI Code of Conduct

5. Article 81(1) - Undertakings Public sector: Aeroports de Paris; Bodson; Hofner & Elser; Fenin Employees/self employed: Becu; Reuter/BASF; Albany; Share ownership: Viho; Hydrotherm/Andreoli Professions: Wouters; EPI Code of Conduct

6. Article 81(1) – Effect on Trade Consten & Grundig – concept defines boundary between national and EU law; Key issue is capacity to affect imports/exports; Dutch Electro-technical Fittings Equipment; BNIC v Clair; Fire Insurance Bagnasco; Dutch Banks Javico v Yves St Laurent Commission Guidelines 2004/C 101/07

7. Article 81(1) – Object or Effect Object: price fixing, allocation of markets or customers, output or sales limitations Effect: requires economic analysis Delimitis v Henninger Brau European Night Services Van den Bergh

8. Article 81(1) – Restriction of Competition Commission Notice on Agreements of Minor Importance - where parties are: –Competitors – aggregate market share cap of 10% –Not actual/potential competitors - individual market share cap 15% –Classification difficult – 10% cap applicable Parallel networks of restrictive agreements cumulatively affecting competition in relevant market – caps reduced to 5%

9. Article 81(2) - Nullity English blue pencil test – agreement may be invalid Passmore v Morland plc: market shares may rise Right of damages: Courage Limited v Crehan

10. Article 81(1) infringed? SLT v Maschinenbau Ulm; Metro; Pronuptia; Nungesser; Remia & Nutricia; Gottrup Klim Rule of Reason: Metropole v Commission Commission Guidelines on application of Article 81(3) 2004/C 101/08 Article 81(3) requirements: –Improve production/distribution or promote technical/economic progress –Confer fair share of benefits on consumers –Restrictions imposed indispensable to these objectives –Do not substantially eliminate competition Block exemptions: legal certainty Relationship of Articles 81(1) and 81(3)

11. Concerted Practice/ Information Exchanges Corporate JV Merger Collaborative Agreement Behavioural arrangements Structural arrangements ECMRArt 81(3) Horizontal Arrangements

12. Concerted Practice/ Information Exchanges Corporate JV Merger Collaborative Agreement NB: Between Competitors Hard core cartel criminal offence UK Behavioural arrangements Structural arrangements Art 81(3)ECMR Horizontal Arrangements

13. R & D Block Exemption Regulation (Reg 2659/00) NB: –Competing undertakings - 25% market share cap –Parties must have access to results for research/exploitation (research bodies/universities can be confined to research) –Parties must be free to conduct R&D in unconnected fields and to challenge other partys IP (however right to terminate R&D agreement) Specialisation Block Exemption Regulation (Reg. 2658/00) NB: –Competing undertakings –20% market share cap Article 81(3) and Commission Guidelines(2001/C 3/02): UEFA; Premier League; Veronica/Endemol; Television par Satellite; Ford/VW

14. Vertical Agreements IP Owner(s) (R&D <25% Share) Supply Agreement MANUFACTURER/SUPPLIER <30% Share Licence RESELLER

15. RPM Export bans NB Agency Price/Geog Supply Agreement EFFECT Licence RESELLER OBJECT IP Owner(s) (R&D <25% Share) MANUFACTURER/SUPPLIER <30% Share Vertical Agreements

16. RPM Export bans NB Agency Price/Geog Supply Agreement EFFECT Licence RESELLER OBJECT Price/Geog RRP Exclusive territory IP Owner(s) (R&D <25% Share) MANUFACTURER/SUPPLIER <30% Share Vertical Agreements

17. RPM Export bans NB Agency Price/Geog Supply Agreement EFFECT Licence RESELLER OBJECT Selective Franchising QualityPrice/Geog RRP Exclusive territory IP Owner(s) (R&D <25% Share) MANUFACTURER/SUPPLIER <30% Share Vertical Agreements

18. RPM Export bans NB Agency Price/Geog Supply Agreement EFFECT Licence RESELLER OBJECT Selective Franchising QualitySegmentation Customers Product categories Price/Geog RRP Exclusive territory IP Owner(s) (R&D <25% Share) MANUFACTURER/SUPPLIER <30% Share Vertical Agreements

19. RPM Export bans NB Agency Price/Geog Supply Agreement EFFECT Licence RESELLER OBJECT Selective Franchising QualitySegmentation Volumes/foreclosure Purchase obligations Non-compete Price/Geog RRP Exclusive territory Customers Product categories IP Owner(s) (R&D <25% Share) MANUFACTURER/SUPPLIER <30% Share Vertical Agreements

20. IP Owner(s) (R&D <25% Share) MANUFACTURER/SUPPLIER < 30%Share Licence RESELLER Supply Agreement Vertical Agreements

21. Export Bans RPM OBJECT IP Owner(s) (R&D <25% Share) MANUFACTURER/SUPPLIER < 30%Share Licence RESELLER Supply Agreement Vertical Agreements

22. Export Bans RPM 30%40% Market Share EFFECTOBJECT 20% IP Owner(s) (R&D <25% Share) MANUFACTURER/SUPPLIER < 30%Share Licence RESELLER Supply Agreement Vertical Agreements

23. Export Bans RPM 30%40% Market Share Territorial exclusivity Selective Networks Franchising EFFECTOBJECT 20% IP Owner(s) (R&D <25% Share) MANUFACTURER/SUPPLIER < 30%Share Licence RESELLER Supply Agreement Vertical Agreements

24. Export Bans RPM 30%40%50%70%X Loyalty rebates Exclusive purchase (80%+) Bundling/Tying Pricing Discrimination Refusal to deal Market Share Territorial exclusivity Selective Networks Franchising EFFECTOBJECT 20% IP Owner(s) (R&D <25% Share) MANUFACTURER/SUPPLIER < 30%Share Licence RESELLER Supply Agreement Vertical Agreements

25. Vertical Agreement Block Exemption Regulation 279/99 (VABER) Covers agreements between 2 or more undertakings at different levels in distribution chain Supplier Retailer Wholesaler

26. Non-Competitors Parties must not be actual or potential competitors unless resellers total annual turnover < 100 million OR Supplier of Services Service Provider (not competing upstream with supplier) Direct Supply Supplier of Goods Direct Sales Distributor (where not a competing – manufacturer) Where agreement is non-reciprocal

27. Market Share Cap Supplier Reseller Non-exclusive Supplier Reseller Exclusive < 30%

28. Hardcore Restrictions – Price Supplier Reseller NB. Indirect RPM/fixed prices: price monitoring, discount fixing, margin fixing, delivery and suspensions, pre- printed prices. Maximum or recommended prices permissible Minimum/fixed prices impermissible

29. Hardcore Restrictions – Customers and Territory (1) Can allocate Exclusive territory Exclusive customer segment Reseller Supplier Reseller(s) Where exclusive territories are reserved to supplier or conferred on other resellers

30. Hardcore Restrictions – Customers and Territory (2) Supplier Reseller 1 Reseller 2 Exclusive Territory A Exclusive Territory B Can prevent active but not passive sales (NB. Internet)

31. Hardcore Restrictions – Selective Networks Supplier Selective Wholesaler I Selective Wholesaler 2 Selective Wholesaler 3 Selective Retailer 1 Selective Retailer 2 Selective Retailer 3 End Users Cannot ban end user sales; can require to operate from authorised premises Must allow cross sales within the selective network Can ban sales

32. Vulnerable Restrictions (1) – Spare Parts Supplier Reseller Competitors of supplier for incorporation Can Restrict Spare Parts End User/Repairer Cannot restrict Components

33. Vulnerable Restrictions (2) – Non Compete Obligations Supplier Reseller 5 years only 80%+ exclusive purchase obligation Except where lease conferred when duration = period of lease NB. Cannot prohibit selective dealers from selling specified competitive brands

34. Vulnerable Restrictions (3) Post Termination Restrictions Limited to:- Competing goods/services Premises from which reseller operated One year (know how unlimited whilst remains secret) and must be indispensable to protect know how

35. Motor Vehicle Block Exemption Regulation 1400/2002 (MVBER) Previous BERs conferred high degree of intra-brand protection to safeguard dealer investments in sales/servicing However price differentials between Member States have persisted Frequent violations of Article 81 by manufacturers, e.g. BMW, Ford, Peugeot, Citroen, VW, Opel and DaimlerChrysler

36. MVBER - Outline Follows a similar pattern to VABER Applies to agreements at all levels of vehicle distribution in respect of: –Sale of new motor cars and commercial vehicles –After-sale servicing –Spare part supply Parties must be non-competitors save for non-reciprocal vertical agreements: – between reseller with annual sales <100m; or –where manufacturer competes in direct sales and reseller not a manufacturer

37. MVBER – Market Shares As with VABER a 30% cap (measured by reference to reseller for exclusive distribution) Selective distribution: –Qualitative selective distribution – no limit on market share (case law reliant) –Quantitative selective distribution 40% cap Different markets for (and consequent shares of): – new vehicles –new parts –service/repair

38. MVBER – Conditions (1) Agreement must: –be for a minimum of 5 years; or –if indefinite be terminable on 2 years notice or one year if supplier pays compensation (mandated by law or special agreement) or whole/substantial part of network being reorganised Disputes to be remitted to arbitration Termination notices must be in writing giving detailed objective and transparent reasons Reseller must have right to assign to another approved dealer

39. MVBER – Conditions (2) Cannot require reseller to purchase 30%+ of requirements for goods/services from supplier Prohibition of sales of competing brands goods/services impermissible Post-termination restrictions on provision of goods/services impermissible

40. MVBER – Hardcore Restrictions (1) Follows a similar pattern to VABER Setting fixed/minimum prices Territory/customer restrictions save for prohibition of: –Active sales to reserved customers/territories –Wholesale sales to end users –Sales to dealers outside selective network –Sales of components for incorporation by competitor Prohibition on cross supplies within selective network Prohibition on retail sales by selective dealers (subject to authorised establishment requirement)

41. MVBER – Hardcore Restrictions (2) Prohibition on selling new model within contract range Restricting resellers ability to subcontract repair/services to authorised repairers Linking vehicle sales and servicing/sale of spare parts Limits on sales of OEM products Refusing access by independent operators to manufacturers technical information, diagnostic tools and software needed for repair/maintenance

42. Licensor Licensee Not multiparty, although guidelines indicate that multiparty licences will be judged according to their effects under Art.s 81(1) and 81(3) Technology Transfer Block Exemption Regulation

43. Licensor Licensee Patents, includes: utility models design rights (registered and unregistered) topographies of semiconductor products supplementary certificates for medicinal products plant breeders rights The IP rights

44. Licensor Licensee Know-how: package of non patented practical information secret (not generally known) substantial: information indispensable for the manufacture or provision of the contract products identifiable in a manner which enables verification of criteria of secrecy and substantiality

45. The IP rights Licensor Licensee Software copyright

46. Licensor Licensee Licence of each or a mixture of: 1) patents 2) know-how 3) software copyright and other ancillary IP rights necessary for the manufacture or provision of the contract products/services The IP rights

47. The technology market - actual competitors The product market – actual OR potential competitors Difficult to ascertain markets Technology markets based on downstream sales of product NB: Market share volatility The Concept of Competitors

48. The Market Share Caps Licensor Licensee Non-Competitors each partys share < 30% Competitors - parties shares in aggregate < 20% NB. Para 131 Guidelines – 4 competing technologies

49. The technology market Licensor A (has separate market shares of 100%+15%) Licensor B (45%) Licensor D (20%) Licensor C (30%) The product market Licensee A (100%) market share in specialist safety gloves Licensee A (15%), Licensee B (45%), Licensee C (30%), Licensee D (20%) in general non-specialist market for safety apparel End Users Market Shares

50. Restriction on either licensor or licensee prices Output/sales limitations (save for limitations on a licensee in a non-reciprocal agreement or on only one licensee in a reciprocal agreement) Restriction on licensees exploitation of own technology or on parties R&D unless indispensable to protect know-how The Hardcore Restrictions where licensor and licensee are competitors

51. Market/customer restrictions save for: Field of use restriction on licensee In a non-reciprocal agreement restriction on either/both parties relating to reserved field of use or exclusive territory Licensor obligation not to license another licensee in a particular territory Restriction in a non-reciprocal agreement of active and/or passive sales to territory/customer group of other party Restriction in a non-reciprocal agreement of active sales by licensee to exclusive territory/customer group of a licensee (which was non-competing on grant of licence) Restriction on licensee to produce for own use (no active/passive restrictions on sale of spare parts for own products) Restriction in a non-reciprocal agreement to produce as alternative source of supply for designated customer The Hardcore Restrictions where licensor and licensee are competitors

52. Minimum/fixed resale prices Restrictions on parties R&D unless indispensable to protect know- how Restriction on territories/customers (save for certain permissible restrictions - see next slide) The Hardcore Restrictions where licensor and licensee are not competitors And save for:- Own use (and spare parts sale rights) Alternative source of customer supply Restrictions on wholesales to end users Prohibition of sales to unauthorised distributors by members of a selective network

53. Licensor Licensee 1 Non-competitors Can allocate: Exclusive territories Customer segments and restrict passive sales into licensor territories/customers and passive sales into other licensee territory/customers for initial 2 years Licensee 2 Non- competitors Territory 1 Sub-distributor 1 Territory 2 Sub-distributor 2 Territory 3 Sub-distributor 3 Cannot ban sales The Permissible Territorial and Customer Restrictions (1)

54. Licensor Licensee 1 Non-competitors Licensee 2 Non- competitors Selective Wholesaler 1 Selective Wholesaler 2 Selective Wholesaler 3 Selective Retailer 1 Selective Retailer 2 Selective Retailer 3 Must allow cross sales in network End Users Cannot ban sales The Permissible Territorial and Customer Restrictions (2)

55. Excluded Restrictions Grant back of exclusive licence or assignment by licensee of severable improvements Prohibition on challenging licensors intellectual property (NB licensor right of termination) Where licensor and licensee are not competitors, limitation on licensees ability to exploit own technology or engage in independent R&D (unless indispensible to protect licensor known how)