Articles 101(1) and 102 TFEU respectively prohibit concerted and abusive practices that restrict competition and “may affect trade between Member States”, making restrictions on cross-border trade within the EU prima facie unlawful, regardless of their effects. “Agreements aimed at partitioning national markets according to national borders or making the interpenetration of national markets more difficult, in particular those aimed at preventing or restricting parallel exports” must be considered restrictive by object because they “frustrate the Treaty’s objective of achieving the integration of national markets through the establishment of a single market” (Consten, p. 340; Sot. Lélos, § 65; GlaxoSmithKline, § 61).
According to Article 4 of the Vertical Block Exemption Regulation (VBER) 2022/720, vertical agreements having as their object “the restriction of the territory into which [the distributor(s)] may actively or passively sell the contract goods or services” are presumed to restrict competition and are therefore excluded from the VBER safe harbour unless one of the exceptions listed in paragraphs 202-244 of the European Commission (EC) 2022 Guidelines on Vertical Restraints applies. In such a case, a manufacturer may legitimately restrict parallel trade, for example to protect the integrity of a selective or exclusive distribution system against unauthorised distributors free-riding on its investments or those of its authorised resellers.
While unilateral measures restricting parallel trade may infringe Article 102 TFEU if implemented by a dominant undertaking, they are not agreements and therefore cannot infringe Article 101(1) TFEU. However, the threshold for finding an “agreement” or “concerted practice” under this provision is rather low.
In its Bayer judgment subsequently upheld by the Court of Justice (ECJ), the General Court (formerly the Court of First Instance (CFI)) found that there was no “agreement” between Bayer and its distributors. After recalling that a manufacturer’s unilateral decision “escapes the prohibition” of Article 101(1) TFEU (§ 66), the CFI held that the existence of an agreement can only be established where undertakings “have expressed their joint intention to conduct themselves on the market in a specific way” (§ 67), regardless of “the form in which [their concurrence of wills] is manifested (…) so long as it constitutes the faithful expression of the parties’ intention” (§ 69). The CFI explained that “measures adopted or imposed in an apparently unilateral manner by a manufacturer in the context of his continuing relations with his distributors [may be] regarded as constituting an agreement” if they are not “genuinely unilateral” and “receive at least the tacit acquiescence of those dealers” (§§ 70-71).
Since the wholesalers did not acquiesce in Bayer’s policy of restricting exports in view of their “conduct demonstrating a firm and persistent intention to react against a policy that was fundamentally contrary to their interests” (§ 129), the CFI concluded that “provided he does so without abusing a dominant position, and there is no concurrence of wills between him and his wholesalers, a manufacturer may adopt the supply policy which he considers necessary, even if, by the very nature of its aim, for example, to hinder parallel imports, the implementation of that policy may entail restrictions on competition and affect trade between Member States” (§ 176).
This important judgment highlights the risks for manufacturers of unilaterally announcing supply reductions in order to prevent parallel trade, as the mere acquiescence of their distributors to such a unilateral announcement (by reducing orders or ceasing parallel trade) may be sufficient to constitute an agreement or concerted practice. The CFI noted that tacit acquiescence may be inferred from coercive measures such as “systematic monitoring of the actual final destination” of the product(s) whose distribution is restricted, implementing “a policy of threats and sanctions against exporting wholesalers” or making the supply of the product(s) “conditional on compliance with the alleged export ban” (§ 109).
Balancing the benefits and drawbacks of parallel trade, Articles 101(3) and 102 TFEU recognise that restrictions on parallel trade resulting from concerted practices or abusive exclusionary conduct, while in principle illegal, may be compensated or justified in certain circumstances. However, in practice, European and national courts have rarely accepted them. In any event, the assessment of objective justifications and efficiencies that may outweigh anti-competitive effects must be based on the specific circumstances of each case, including the nature of the agreement and/or practice, the relevant market(s), and the competitive environment.
The EC 2004 Guidelines on criteria for exemption under Article 101(3) TFEU from the prohibition under Article 101(1) TFEU state that four cumulative conditions must be fulfilled: (i) the claimed efficiencies must generate benefits, whether direct or indirect, economic or non-economic, (ii) of which consumers receive a fair share, (iii) without imposing restrictions that are not indispensable to obtain those benefits, and (iv) without eliminating competition in respect of a substantial part of the products whose distribution is restricted. To meet these conditions, the claims must, inter alia, be based on “objective factors” (§§ 18 and 31), be “substantiated so that they can be verified” (§§ 51 and 55) and have “a sufficient causal link” to the restrictive agreement (§§ 53-54).
Paragraph 181 of the EC 2022 Guidelines on Vertical Restraints adds that “an undertaking may demonstrate pro-competitive effects” by showing that “efficiencies are likely and (…) likely to result from including the hardcore restriction in the agreement” and by “demonstrating that the other conditions of Article 101(3) of the Treaty are fulfilled.”
In GlaxoSmithKline, the ECJ clarified that efficiency arguments under Article 101(3) TFEU must also be properly assessed in cases involving hardcore restrictions of parallel trade. To determine whether a restrictive agreement may “contribute to improving the production or distribution of goods or to promoting technical or economic progress (…) with appreciable objective advantages of such a kind as to compensate for the resulting disadvantages for competition” (§§ 92 and 102; see also Consten pp. 348-349), it is necessary to ascertain “whether, in the light of the factual arguments and the evidence provided, it seems more likely [than not] that the agreement in question must make it possible to obtain appreciable advantages” (§§ 94 and 102). The required “prospective analysis” (§ 105) must aim at balancing the negative effects of the restriction on parallel trade and intra-brand competition on consumer choice against its positive effects on R&D funding and inter-brand competition.
Pursuant to paragraphs 28-31 of the EC 2009 Guidance on its enforcement priorities in applying Article 102 TFEU, a dominant undertaking may be able to legitimise a restriction on parallel trade by providing an “objective justification” for the need for the restriction or by satisfying four conditions (similar to those in Article 101(3) TFEU) to demonstrate “substantial efficiencies which outweigh any anti-competitive effects on consumers”.
In Sot. Lelos, the ECJ held that a dominant company’s refusal to meet orders in full in order to restrict parallel trade is not per se abusive. Although a dominant undertaking may not refuse to fulfil ordinary orders from an existing customer simply because some of those orders are likely to be resold in another EU Member State, it is entitled “to counter in a reasonable and proportionate way the threat to its own commercial interests potentially posed by” orders of “significant quantities of products that are essentially destined for parallel export” (§ 71). The ECJ clarified that whether orders “are out of the ordinary in terms of quantity” (§ 76) depends on “the size of those orders in relation to the requirements of the market (…) and the previous business relations between [the supplier] and the wholesalers” (§ 77).