Glossary of competition terms

This Glossary is based on definitions from DG COMP’s Glossary of terms used in EU competition policy (© European Union, 2002) and the OECD’s Glossary of industrial organisation economics and competition law (© OECD, 1993). Each term is enriched with references of national case laws from the e-Competitions Bulletin and Concurrences Review.

Agency agreement

An agent is a legal or physical person vested with the power to negotiate and/or conclude contracts on behalf of another person (the principal), either in the agent’s own name or in the name of the principal, for the:

– purchase of goods or services by the principal, or

– sale of goods or services supplied by the principal.

The determining factor in defining an agency agreement for the application of Article 101 is the financial or commercial risk borne by the agent in relation to the activities for which he has been appointed as an agent by the principal (See judgments in Case T-325/01, 15 September 2005, Daimler Chrysler v. Commission; Case C- 217/05, 14 December 2006, Confederación Espanola de Empresarios de Estaciones de Servicio v CEPSA and Case C-279/06, 11 September 2008, CEPSA Estaciones de Servicio SA v. LV Tobar e Hijos SL.). In this respect it is not material for the assessment whether the agent acts for one or several principals. Neither is material for this assessment the qualification given to their agreement by the parties or national legislation.

There are three types of financial or commercial risk that are material to the definition of an agency agreement for the application of Article 101(1). First there are the contract-specific risks which are directly related to the contracts concluded and/or negotiated by the agent on behalf of the principal, such as financing of stocks. Secondly, there are the risks related to market-specific investments. These are investments specifically required for the type of activity for which the agent has been appointed by the principal, i.e. which are required to enable the agent to conclude and/or negotiate this type of contract. Such investments are usually sunk, which means that upon leaving that particular field of activity the investment cannot be used for other activities or sold other than at a significant loss. Thirdly, there are the risks related to other activities undertaken in the same product market, to the extent that the principal requires the agent to undertake such activities, but not as an agent on behalf of the principal but for its own risk.

For the purposes of applying Article 101(1) the agreement will be qualified as an agency agreement if the agent does not bear any, or bears only insignificant, risks in relation to the contracts concluded and/or negotiated on behalf of the principal, in relation to market-specific investments for that field of activity, and in relation to other activities required by the principal to be undertaken in the same product market. However, risks that are related to the activity of providing agency services in general, such as the risk of the agent’s income being dependent upon his success as an agent or general investments in for instance premises or personnel, are not material to this assessment. For the purpose of applying Article 101(1) an agreement will thus generally be considered an agency agreement where property in the contract goods bought or sold does not vest in the agent, or the agent does not himself supply the contract services and where the agent:

– does not contribute to the costs relating to the supply/purchase of the contract goods or services, including the costs of transporting the goods. This does not preclude the agent from carrying out the transport service, provided that the costs are covered by the principal;

– does not maintain at his own cost or risk stocks of the contract goods, including the costs of financing the stocks and the costs of loss of stocks and can return unsold goods to the principal without charge, unless the agent is liable for fault (for example, by failing to comply with reasonable security measures to avoid loss of stocks);

– does not undertake responsibility towards third parties for damage caused by the product sold (product liability), unless, as agent, he is liable for fault in this respect;

– does not take responsibility for customers’ non-performance of the contract, with the exception of the loss of the agent’s commission, unless the agent is liable for fault (for example, by failing to comply with reasonable security or anti-theft measures or failing to comply with reasonable measures to report theft to the principal or police or to communicate to the principal all necessary information available to him on the customer’s financial reliability);

– is not, directly or indirectly, obliged to invest in sales promotion, such as contributions to the advertising budgets of the principal;

– does not make market-specific investments in equipment, premises or training of personnel, such as for example the petrol storage tank in the case of petrol retailing or specific software to sell insurance policies in case of insurance agents, unless these costs are fully reimbursed by the principal;

– does not undertake other activities within the same product market required by the principal, unless these activities are fully reimbursed by the principal.

This list is not exhaustive. However, where the agent incurs one or more of the above risks or costs, the agreement between agent and principal will not be qualified as an agency agreement. The question of risk must be assessed on a case-by-case basis, and with regard to the economic reality of the situation rather than the legal form. For practical reasons, the risk analysis may start with the assessment of the contract-specific risks. If contract-specific risks are incurred by the agent, this will be enough to conclude that the agent is an independent distributor. On the contrary, if the agent does not incur contract-specific risks, then it will be necessary to continue further the analysis by assessing the risks related to market-specific investments. Finally, if the agent does not incur any contract-specific risks and risks related to market-specific investments, the risks related to other required activities within the same product market may have to be considered.

© European Commission

Glossary