Hard core restrictions

 

Author Definition

 

Definition

The concept of “hardcore restrictions” is relevant for the purpose of the application of block exemption regulations implementing Article 101(3) TFEU. It refers to severe restrictions, which are likely to restrict competition and harm consumers or are not indispensable to the attainment of efficiency-enhancing effects. Agreements containing hardcore restrictions are excluded from the benefit of the block exemption, irrespective of the parties’ market shares. Examples of hardcore restrictions include the imposition of fixed or minimum resale prices or certain territorial or customer sales restrictions in vertical agreements and market allocations, quantity restrictions or price fixing in horizontal agreements.

 

Commentary

Each block exemption regulation includes a closed list of hardcore restrictions. This list provides some legal certainty to undertakings, which as part of the self-assessment of their agreements, can identify measures likely to raise concerns regarding their compatibility with Article 101 TFEU.

Hardcore restrictions can be direct, for instance through an express contractual provision, or result from indirect measures aimed at inducing the other party to comply with a certain restriction, such as threats of contract termination or financial incentives made conditional upon the other party’s compliance with a certain obligation. Hardcore restrictions can be adopted in isolation or in combination with other factors under the control of the parties.

The inclusion of a hardcore restriction in an agreement entails the loss of the benefit of the block exemption for the whole agreement. This means that undertakings would have to carry out a thorough self-examination of both the hardcore restriction and all other restrictions that may be included in their agreement, to try to demonstrate that their agreement complies with Article 101 TFEU.

In addition, agreements containing restrictions listed as hardcore restrictions in block exemption regulations cannot benefit from the safe harbour set out in the De Minimis Notice for agreements between undertakings which the European Commission considers to have non-appreciable effects on competition.

Despite the above, an agreement containing a hardcore restriction does not necessarily infringe Article 101 TFEU. More specifically, a hardcore restriction does not necessarily amount to a restriction by object under Article 101 TFEU. In Coty, Advocate General Wahl emphasized that the concept of “hardcore restriction” should be distinguished from the concept of “restrictions of competition by object”, although they both refer to restrictions presumed to be particularly harmful for competition.

Undertakings can hence try to demonstrate that a given hardcore restriction, examined in its economic and legal context, is objectively justified and does not fall within the prohibition laid down in Article 101(1) TFEU. This will however be a very difficult endeavor in practice.

In the European Commission’s view, hardcore restrictions generally constitute restrictions by object when assessed individually and, as a matter of fact, the hardcore restrictions listed in the various block exemption regulations usually correspond to restrictions which were identified in past decisions as restrictions by object in the category of agreements covered by each regulation. The Commission further considers that there is a presumption that an agreement containing a hardcore restriction has actual or likely negative effects and falls within Article 101(1) TFEU.

This presumption has however been called into question. In Pedro IV Servicios, the Court of Justice clarified that, where an agreement does not meet all the conditions provided for by a block exemption regulation, it will be caught by the prohibition laid down in Article 101(1) TFEU only if its object or effect is perceptibly to restrict competition within the internal market and it is capable of affecting trade between Member States. Building on this decision, Advocate General Mazák stated, in his Opinion delivered in Pierre Fabre, that, in his view, there was no ‘legal presumption’ that an agreement including an hardcore restriction infringes Article 101(1) TFEU. He added that an individual examination is therefore required in order to assess whether an agreement has an anticompetitive object, even where it contains a hardcore restriction and is ineligible for a block exemption.

The Vertical Guidelines also acknowledge that, in exceptional cases, hardcore restrictions may be objectively necessary for the existence of an agreement of a particular type or nature and fall outside Article 101(1) TFEU. The Vertical Guidelines give the examples of hardcore sales restrictions necessary to ensure public safety or health, to encourage investments undertaken to develop a new market or to test or introduce a new product.

As another defense, undertakings can argue that a specific agreement containing a hardcore restriction should benefit from an individual exemption under Article 101(3). In Pierre Fabre, the Court of Justice held that an undertaking has the option, in all circumstances, to assert, on an individual basis, the applicability of the exception provided for in Article 101(3) TFEU.

The Commission considers that there is a presumption that agreements containing a hardcore restriction are unlikely to fulfill the conditions of Article 101(3), which is why they do not benefit from the block exemption. This presumption is rebuttable and undertakings may demonstrate that likely efficiencies result from including the hardcore restriction in the agreement and that all the conditions of Article 101(3) are fulfilled. However, this has proven to be very difficult in practice, with some commentaries indicating that for the past fifteen years, no undertaking has successfully invoked Article 101(3) TFEU in cases in which the European Commission had significant competition concerns.

 

Bibliography

Guidance and communications

Notice on agreements of minor importance which do not appreciably restrict competition under Article 101(1) of the Treaty on the Functioning of the European Union (De Minimis Notice).

Guidance on restrictions of competition "by object" for the purpose of defining which agreements may benefit from the De Minimis Notice.

Guidelines on the application of Article 81(3) of the Treaty (2004/C 101/08).

Commission Staff Working Document on the Evaluation of the Vertical Block Exemption Regulation, SWD(2020) 172 final.

Books

Vertical Agreements in EU Competition Law, 3rd Edition, F. Tuytschaever, and F. Wijckmans.

Bellamy & Child European: Union Law of Competition Oxford University Press, 2018, 8th Edition, edited by David Bailey and Laura Elizabeth John.

Faull & Nikpay: The EU Law of Competition, Oxford Competition law, 2014, 3rd Edition, edited by J. Faull and A. Nikpay

Competition Law, Oxford University Press, 2018, R. Whish D. Bailey.

Comments

Selective Distribution in the Age of E-Commerce: An overview of EU and national developments, e-Competitions Selective Distribution, 24 March 2021, Anne Witt.

Defining “by object” restrictions, e-Competitions, N° 3-2015, Luc Peeperkorn

Vertical Restrictions in the Online Commerce: An overview of EU and national case law, 2021, P. Gonzaga and G. Erdei.

Luxury (by) object and the effects of silence of the Court of Justice in Coty, 2018, Keti Zukakishvili.

This article is being reviewed by the Editors of the Dictionary.

Authors

  • Reed Smith (Paris)
  • Reed Smith (Paris)

Quotation

Natasha Tardif, Marc Levy, Hardcore restriction, Global Dictionary of Competition Law, Concurrences, Art. N° 12360

Visites 27070

Publisher Concurrences

Date 1 January 1900

Number of pages 500

 

Institution Definition

Refers to restrictions of competition by agreements or business practices, which are seen by most jurisdictions as being particularly serious and normally do not produce any beneficial effects. They therefore almost always infringe competition law. Under EU law, the most prominent examples on the horizontal level include agreements between competitors that fix prices, allocate markets or restrict the quantities of goods or services to be produced, bought or supplied. Examples of hardcore restrictions in vertical relationships (i.e. between undertakings operating at different levels of the production or distribution chain) are resale price maintenance and certain territorial restrictions. Provisions of an agreement which contain such restrictions are also referred to as black clauses and prevent the agreement from benefiting from a block exemption. Furthermore, agreements containing black clauses can only exceptionally be exempted on the basis of an individual assessment. European Commission

See also Block exemption (regulation) and Absolute territorial protection

 
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