2.

Article 101 TFEU

Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the
European Union to horizontal co-operation agreements.
2.1. First paragraph
For the prohibition to apply the following must be established:
Collusion or joint conduct: This article contains the core prohibition of collusive
arrangements between separate undertakings which restrict competition, and the third para.
provides the legal exception for agreements achieving some benefits. It prohibits jointly, not
individual conduct.
Collusion which appreciably restricts competition: which has as its object or effect the
prevention, restriction or distortion of competition. An illustrative but not exhaustive list of
examples of such restrictions is set out.
An appreciable effect on trade between MS.
The burden is on the authority claiming the infringement and of the one alleging the
exception.
2.1.1. Collusion
Collusion is a meeting of the minds: a genuine concurrence of wills among the parties.
According to the CJEU “it is sufficient that the undertakings in question should have
expressed their joint intention to conduct themselves on the market in a specific way. As
regards the form in which that common intention is expressed, it is sufficient for a stipulation
to be the expression of the parties' intention to behave on the market in accordance with its
terms, without its having to constitute a valid and binding contract under national law”. The
concept of agreement “centres around the existence of a concurrence of wills between at
least two parties, the form in which it is manifested being unimportant so long as it
constitutes the faithful expression of the parties' intention”. The proof of an agreement
between undertakings “must be founded upon the direct or indirect finding of the existence of
the subjective element that characterises the very concept of an agreement, that is to say a
concurrence of wills between economic operators on the implementation of a policy, the
pursuit of an objective, or the adoption of a given line of conduct on the market, irrespective
of the manner in which the parties' intention to behave on the market in accordance with the
terms of that agreement is expressed”.
Therefore, we have an agreement regardless:
 The “form”. Not need of formalities, the form of the agreement is important for
proving agreement, but it is not important for applicability of Art. 101. Art. 101 will
apply regardless of what type of agreement, being it an enforceable contract,
gentleman´s agreement or a simple understanding, oral or written… This notion of
agreement is really broad, so to prevent firms from eluding it. The agreement can be
explicit or tacit. It covers horizontal and vertical agreements. An agreement may also

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 be found when an offer to collude is accepted tacitly, for example, where an
undertaking participates in meetings at which anti-competitive agreements are
concluded, without manifestly opposing them.
 The specific practices endorsed in compliance with the meeting of minds – whether
they are consistent with it or not.
 The effectiveness of these practices

This article applies to agreements concluded between two or more undertakings (bilateral or
multilateral agreements), whether or not they are actual or potential competitors.
The word “agreement” catches terms and conditions even if imposed by one party on another.
If the terms are accepted the fact that one of the parties was unwilling to accept them does not
prevent the agreement from being formed, although fines may be reserved for the principal
beneficiaries of the activities involved.
Example: Asus: the EC fined electronic and computer hardware manufacturer Asus 63
million for imposing fixed or minimum resale prices on its online retailers. To ensure the
alignment of prices by its online retailers, the undertaking used sophisticated monitoring tools
to track resale price setting in the distribution network and to intervene swiftly in case of
price reductions. Asus proactively, systematically and continuously monitored the resale
prices of its online retailers. It also established a bonus program which rewarded retailers on
condition that they followed the RRP. It also threatened online retailers that it would
withdraw its authorisation to use the Asus online logo should they not adhere to its pricing
policies.
Example: HRS Hotel Reservation Service: the German Competition Agency use of broad
parity clauses by the hotel portal HRS. the broad parity clauses required hotel partners to
guarantee that the price offered on HRS website was no greater than the cheapest rate offered
on other online booking and travel platforms, or on the hotel´s own webpages and offline sale
channels. The agreements in question governed room availability, booking conditions and
mobile applications. MFNs directly restricted the price-setting freedom of hotels, removed
the economic incentives for online travel agents to lower commissions they charge and made
market entry difficult.
Example:
Although cartels normally take place between competitors, this does not preclude a third
party from being liable as a participant or facilitator. This will be the case where the third
party contributes actively and intentionally to the cartel/ this article catches agreements
between undertakings, even where the purpose of the agreement is to restrict competition on
a market on which one of the undertakings is not active. Then, it applies generally to all
collusion which distorts competition “irrespective of the market on which the parties
operate”.
In finding a third party liable, the Commission applies the following criteria:

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  the third party, through its own conduct, contributed to the common objectives
pursued by the participants;
 and it was aware of the substantive conduct planned or implemented by other
undertakings in pursuance of those objectives, or that it could reasonably have
foreseen that conduct and that it was ready to accept the risk

Hub and spoke arrangements: the undertakings do not directly pass information to each other
but disclose information which is nonetheless received by competitors. It needs to be assessed
whether or not the undertaking have acted independently, adapting their conduct to that of
their competitors, or whether they have engaged in indirect contact designed to influence the
conduct of the their competitors.
Examples: AC Teuhand AG: The EC found a number of companies to infringe Art. 101
TFEU by forming a cartel in the European market for organic peroxides. A consultant firm
was not active in the market for organic peroxides, but facilitated the cartel activity. It
organised meetings and covered up evidence of the infringement,
Example: AC-Treuhand AG 2: the EC found a number of companies to infringe Art. 101
TFEU by participating in a set of anti-competitive agreements and concerted practices
relating to heat stabilisers. AC-Treuhand, a consultancy firm not active on the relevant
markets, was found to have played an essential role in the infringements by organising
meetings, collecting and supplying data, and offering to act as a moderator between the
parties.
Example: Eturas and others: the administrator of the online travel booking system posted a
notice on its system declaring a newly implemented technical restriction that affected
discount rates offered by travel agents using the system. One contentious issue was whether
the mere dispatch of a message through the system constituted sufficient evidence to establish
that its addressees were aware, or ought to have been aware, of its content. The question is
whether the mere dispatch of a message constitute sufficient evidence to establish the
awareness of its addresses. A number of coincidences and indicia which, taken together, may,
in the absence of another plausible explanation, constitute evidence to establish the awareness
of the addresses. Presumption of innocence constitute a general principle. It precludes the
referring court from inferring from the mere dispatch of the message at issue in the main
proceedings that the travel agencies concerned ought to have been aware of the content of the
message. It does not preclude the referring court from considering that the dispatch of the
message at issue in the main proceedings may, in the light of other objective and consistent
indicia, justify the presumption that the travel agencies concerned were aware of the content.
As regard the participation of the travel in a concerted practice, to the extent that the
economic operators were aware of that message they tacitly assented to a common
anticompetitive practice and may be presumed to have participated in a concerted practice.
However, that will not be the case if the economic operators show that they publicly
distanced themselves from a practice by sending clear and express objection to the
administrator of Eturas. Other means to rebut the presumption is report the communication to
the administrative authorities. If it cannot be established that a travel agency was aware of the

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message, its participation in a concentration cannot be inferred from the mere existence of a
technical restriction implemented in the system at issue in the main proceedings, unless it is
established on the basis of other objective and consistent indica that it tacitly assented to an
anticompetitive action.

2.1.2 Algorithm Collusion.

“We are shifting from the world where executives expressly collude in smoke-filled rooms to
a world where pricing algorithms continually monitor and adjust to each other’s prices and
market data”.

It has been stated that algorithms make coordination among suppliers, both implicit or tacit,
much easier and quicker than ever before. “Coordination can be sustained at lower levels of
concentration; and firms can more quickly and easily detect and punish deviations from the
coordinated equilibrium, thereby reducing incentives for shirking”.

There are four types of agreements that must led to coordinated prices:

 Messenger: computers are used to execute the will of humans in their quest to collude.
Humans agree to the cartel and use their computer to assist in implementing,
monitoring, and policing the cartel.
 Hub and Spoke: a single algorithm is used to determine the market price charged by
numerous users. It may not produce anticompetitive effects.
 Predictable Agent: each company develop its own system, which react in a given way
to the market condition´s changes, being aware of likely developments of other
similar systems by its competitors. To facilitate the use of the price algorithms, the
firms increase transparency, which makes the market more susceptible to tacit
collusion/conscious parallelism.
 Digital Eye: the competitors unilaterally create algorithms to achieve a goal, like
profit maximization. The machines, through self-learning, independently determine
the means to optimize profit, executing whichever strategy it deems optimal.

2.1.3. Decisions of association of undertakings

The reference to decisions by associations of undertakings facilitates holding associations
liable for the anti-competitive behaviour of their members.
Institutionalised forms of cooperation: situations in which economic operators act through a
collective structure or a common body.
This concept has been interpreted broadly, so to catch recommendations and other schemes
designed to coordinate the members´ behaviour on the market and to exclude competitors.
Coordination among firms may be achieved via the medium of trade associations.
Associations may conceive and promote illegal agreements via meetings and exchanges of
information among its associates. They organize its enforcement and control that the firms

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part of the agreement comply with the collusive rules. The association is the veil under which
the real promoters hide. A decision is any act of the association is anticompetitive, antitrust
enforcers hold and fine the trade association itself as well as each of its members, unless
individual undertakings succeed in showing that they were not involved in the
anticompetitive project.
Example: IAZ International: an agreement between association of producers and national
associations of water supplies according to which member of the latter will only connect
washing machines and dishwashers which have conformity label issues by the former. The
EC found that the agreement and the use of conformity label foreclose the market. On appeal
the association argued that as an association of undertakings which do not carry any
economic activity, it is not subjected to Art. 101 TFEU. The Court held that the
recommendations determined the conduct of a large number of members and consequently
exerted appreciable effect of competition.
2.1.4. Concerted practices.
Concerted practice is the situation, where there is no contract, there is no agreement and
nevertheless there is collusion. They are practices in which there is coordination of the
activity of a number of companies without there being an agreement that could show that
there is a decision or anything of the sort.
It catches looser forms of collusion. It does not require agreement or even a plan or a meeting
of minds, but catches reciprocal coordination which knowingly substitutes practical
cooperation between the undertakings for the risk of competition, so precluding any direct or
indirect contact between such operators, the object or effect is to influence the conduct on the
market of an actual or potential competitor, or to disclose to such a competitor the course of
conduct which they themselves have decided to adopt or contemplate adopting on the market.
Parallel behaviour alone cannot be relied upon to furnish proof of a concerted practice
between suppliers to fix prices unless concentration is the only plausible explanation for the
conduct.

According to the Commission, “when a company receives strategic data from a competitor
(be it in a meeting, by mail or electronically), it will be presumed to have accepted the
information and adapted its market conduct accordingly unless it responds with a clear
statement that it does not wish to receive such data”. How would you escape from the
Commission saying that you are doing concerted practices?
 Public distance from it. To show that firms do not undertake the same conduct on the
market is not enough to rebut the presumption.
 To reverse the presumption (to rebut).

Participation in meetings: the CE could, without unduly reversing the burden of proof,
establish that participation in an agreement by relying on a finding that an undertaking was
present at a meeting at which prices initiatives had been decided on, planned, and monitored.
It is then for the undertaking to adduce evidence that it had not subscribed to those initiatives.

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Participation in a meeting at which an anti-competitive agreement is concluded will be
presumed to have taken part in it, and to tacitly approve or accept it, if it does not publicly
distance itself from the agreement or report it to the authorities, even if it did not go with anti-
competitive intent and did not put the initiatives into effect.
2.1.5. Object or effect
The object of an agreement is its purpose/rationale that has to be assessed in the economic
context in which the agreement has to take place. An agreement restricts competition by
object when it does not admit any procompetitive justification. If it is a restriction by object,
it is wrong in itself. If you wonder about its existence, you realize that the agreement exists
only to harm competition. The hardcore cartels; fixing end prices, minimum prices, carving
up markets, they are restrictions by object. Accordingly, where the anti-competitive object of
the agreement is established, it is not necessary to examine its effects on competition.
“As regards the concept of restriction of competition ‘by object’, the Court has held that it
must be interpreted restrictively and can be applied only to certain types of coordination
between undertakings which reveal a sufficient degree of harm to competition that it may be
found that there is no need to examine their effects”. It’s really a non- definition.
So, if it’s a restriction in effect, need to check what the effects on the market are. And maybe
the restrictive agreement has led to lower prices and in that case, there are no negative effects.
In particular, you have to look at:

 the economic context in which the firms operate;

 the products/services covered; and
 the structure of the market.

Restrictive effects must be demonstrated by empirical facts. Anticompetitive effects must

therefore be supported not only by a theory of harm but also by robust empirical facts, by
considering the counterfactual, which is the position that the firms would have had absent the
agreement.

2.1.6. De Minimis
Communication from the Commission — 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).
Agreements between undertakings which may have as their effect the restriction of
competition do not appreciably restrict competition within the meaning of Article 101(1) of
the Treaty if:
 the aggregate Market share held by the parties to the agreement ≤ 10% on any of the
relevant markets affected by the agreement, where the agreement is made between
undertakings which are actual or potential competitors on any of those markets
(agreements between competitors); or

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  the Market share held by each of the parties to the agreement ≤ 15% on any of the
relevant markets affected by the agreement, where the agreement is made between
undertakings which are not actual or potential competitors on any of those markets
(agreements between non-competitors).
 Where, in a relevant market, competition is restricted by the cumulative effect of
agreements for the sale of goods entered into by different suppliers or distributors
(cumulative foreclosure effect of parallel networks of agreements having similar
effects on the market), the market share thresholds are reduced to 5%.
- A cumulative foreclosure effect is unlikely to exist if less than 30% of the relevant
market is covered by parallel (networks of) agreements having similar effects.
2.1.7. The ancillary restraints.
Lawful agreements may include restrictions of competition. If the restrictions at stake are
indispensable and strictly necessary for the pursuit of the procompetitive purpose of the
agreement, the agreement remains lawful. This kind of restrictions are indispensable and
strictly necessary if, absent them, the agreement under scrutiny would not take place at all.
The idea is, if they are by-products, they will follow the status of the main agreement. So, if
the main agreement is allowed, the ancillary restraint will also be okay. The essential
question is: would I have entered into the main agreement without the ancillary restraint? If
the answer is yes, then the ancillary restraint is not necessary. If the answer is no, then it is
necessary. And if it is directly related and necessary, then it is to follow the status of the main
agreement.
Where the absence of these restrictions make the agreement in question more difficult to
implement or even less profitable, the restrictions are not indispensable and strictly necessary.
Then, the overall agreement becomes a restriction by effect and must be subject to analysis
under Art. 101.3. If the overall procompetitive effects of the agreement overcome the
anticompetitive effects of the restrictions, the agreement will be saved. If no, the agreement
will be forbidden, unless the non-competition clauses are narrowed down.
Example: Metropole Television (M6): TV Par Satellite (TPS) was set up as a partnership by
six major companies active in the TV sector. Its aim was to devise, develop and broadcast a
range of TV programmes, against payment, to French-speaking TV viewers in Europe. With
reference to the non-competition clause with formed part of the agreement, the CE held that
there were no grounds for a period of 3 years. With regard to an exclusivity clause which
formed part of the agreement, and the clause relating to special interest channels, the EC held
that those provisions could benefit from an exemption under Art. 101.3 for a period of 3
years. The Court accepted that the exclusivity clause and the clause relating to the special
interest channel were not ancillary to the creation of TPS. The Court noted that even when
the clause is directly related to the main operation it needs to be objectively necessary for that
operation and proportionate to it.
2.2. Second paragraph

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2. Any agreements or decisions prohibited pursuant to this Article shall be automatically
void.
2.3. Third paragraph
3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of:
- any agreement or category of agreements between undertakings,
- any decision or category of decisions by associations of undertakings,
- any concerted practice or category of concerted practices,
which contributes to improving the production or distribution of goods or to
promoting technical or economic progress, while allowing consumers a fair share of
the resulting benefit, and which does not:
(a) impose on the undertakings concerned restrictions which are not indispensable to the
attainment of these objectives;
(b) afford such undertakings the possibility of eliminating competition in respect of a
substantial part of the products in question.
Art. 101(3) provides that the prohibition of Art. 101(1) could be declared inapplicable both in
relation to single agreements and to categories of agreements if the 4 conditions mentioned
are met:

 I have to show that there is an improvement in the production/distribution cycle, from

an economic point of view.
 The benefit gained by the deviation must be shared with the consumers.
 Pass the proportionality test
 The restriction should not eliminate all competition.

They are cumulative requirements, i.e. all of them must be fulfilled or the exception will not
be granted. The analysis is carried out in two stages. In the first phase, it is assessed whether
the agreement between companies that may affect trade has as its object or effect the actual or
potential restriction of competition. In the event that it is concluded in the affirmative, Art.
101.1 TFEU is applicable. Then, the second phase begins, in which it is analysed whether the
agreement produces beneficial effects for competition capable of compensating for the
restrictive effects, within the framework of the application of art. 101.3 TFEU.

There are individual and block exemptions. Individual exemptions are currently considered to
be the residual exceptions:

 Individual: this is a statutory exemption. Art. 1 of Regulation (EC) No 1/2003

establishes a system of legal exemptions in which it becomes necessary for economic
operators and their advisors to determine whether agreements, decisions of
associations of undertakings or concerted practices can be found among the
agreements prohibited by Art 101. The new regime imposes a greater responsibility
8
 on undertakings to ensure that their agreements do not restrict competition or, if they
do, that they can rely on the legal exemption in paragraph 3. The burden of proof in
relation to Art. 101(1) is on the party or authority alleging an infringement, and in the
case of Art. 101(3) TFEU, it will be the undertaking wishing to benefit from that
provision that will have to prove that it meets the four conditions.
 By category: certain categories of agreements that meet certain conditions are
automatically exempted. They are established by means of regulations laid down by
the Commission. They involve a prior assessment of the conditions under which a
given agreement would fulfil the conditions of Art. 101(3) TFEU. Only if the
companies exceed a certain market threshold is it likely that the clauses of their
contracts could affect free competition. The economic approach to the agreements is
thus emphasised: if the undertakings do not exceed a certain market share, the
agreements are automatically exempted, as long as they do not contain certain clauses
that are considered to be particularly restrictive. If such restrictive effects are
demonstrated, undertakings will have the burden of proving that the beneficial effects
of the agreement nevertheless outweigh the restrictive effects under Art. 101(3)
TFEU. Vertical agreements have one umbrella block exemption with a threshold of
30%. Horizontal agreements are however regulated in sectoral block exemptions, with
lower thresholds (20-25%).

Regulation (EU) No330/2010 of 20 April 2010 on the application of Article 101(3) of the
Treaty on the Functioning of the European Union to categories of vertical agreements
and concerted practices.

Regulation (EU) No 461/2010 of 27 May 2010 on the application of Article 101(3) of the
Treaty on the Functioning of the European Union to categories of vertical agreements
and concerted practices in the motor vehicle sector.

Regulation (EU) No 316/2014 of 21 March 2014 on the application of Article 101(3) of

the Treaty on the Functioning of the European Union to categories of technology
transfer agreements.

Regulation (EU) No 1217/2010 of 14 December 2010 on the application of Article 101(3)

of the Treaty on the Functioning of the European Union to certain categories of
research and development agreements

Regulation (EU) No 1218/2010 of 14 December 2010 on the application of Article 101(3)

of the Treaty on the Functioning of the European Union to certain categories of
specialisation agreements.

1. Vertical agreements, Art. 101 TFEU

Facts

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X specialises in the design, marketing and distribution of apparel and accessories for men,
women and children in all the EU MS. It implemented practices aimed at restricting
authorised distributors in its selective distribution system:

 From using the X brand names and trademarks for the purposes of online search
advertising;
 from selling online without first obtaining a specific authorisation from Guess which
Guess had full discretion to either grant or refuse and where no quality criteria had
been specified for deciding whether or not to grant an authorisation;
 from selling to end users located outside the authorised distributors' allocated
territory;
 from cross-selling among authorised wholesalers and retailers;
 from determining resale prices independently.

Scheme

 Does Art. 101 TFEU apply?

Article 101(1) of the Treaty applies to undertakings and associations of undertakings. The
notion of an "undertaking" covers any entity engaged in an economic activity, regardless of
its legal status or the way in which it is financed.
 Is Art. Art. 101 TFEU applicable?

Article 101(1) of the Treaty prohibits as incompatible with the internal market agreements
between undertakings, decisions by associations of undertakings and concerted practices that
(i) may affect trade between Member States and (ii) have as their object or effect the
prevention, restriction or distortion of competition within the internal market, unless they
meet the conditions for an exemption set out in Article 101(3) of the Treaty.
The agreements and concerted practices referred to in this Decision concerned the territory of
the Union and the EEA. Insofar as the conduct affected trade between Member States, Article
101 of the Treaty is applicable. In this case, the Commission is the competent authority to
apply Article 101 of the Treaty, since the conduct had an appreciable effect on trade between
Member States or EEA countries.
o Relevant market?
 Product market? “The products concerned by this Decision are the
apparel and accessories lines marketed by Guess Europe at wholesale
and retail level under numerous trademarks.”
 Geographical market? The EU (all the MS).
o Agreements and concerted practices?

For the purposes of Article 101(1) of the Treaty, in order for there to be an agreement
between undertakings, it is sufficient that at least two undertakings have expressed their joint
intention to conduct themselves on the market in a specific way. According to settled case-
law, general sales terms and conditions, even if accepted tacitly, and even if they are
allegedly "imposed", amount to an agreement for the purposes of the application of Article
101(1) of the Treaty. Likewise, measures or practices that are adopted or imposed in an

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apparently unilateral manner by a supplier, in contrast with genuinely unilateral measures,
can constitute an agreement or a concerted practice within the meaning of Article 101(1) of
the Treaty if, at the very least, tacit acquiescence of the other party is established (in the
context of vertical relationships the acquiescence of the dealer to a measure adopted by the
supplier).

Also, in addition to cases where measures are explicitly contained in a contract, a

concurrence of wills may also be said to occur where a contract authorises the supplier to
adopt measures, even though the measures were not explicitly provided for in the contract.

“All those three types of agreements entered into by Guess Europe amount to an agreement
within the meaning of Article 101(1) of the Treaty.”

o Restriction of competition by object or effect?

It is settled case-law that certain types of conduct reveal a sufficient degree of harm to
competition that it may be found that there is no need to examine their effects. This arises
from the fact that certain types of coordination between undertakings can be regarded, by
their very nature, as being harmful to the proper functioning of normal competition.
Consequently, certain collusive behaviour may be considered so likely to have negative
effects on competition that it may be considered redundant, for the purposes of applying
Article 101(1) of the Treaty, to prove that this behaviour has actual or potential effects on the
market.

To determine whether an agreement reveals such a sufficient degree of harm to competition

regard must be had inter alia to: (a) the content of its provisions; (b) the objectives it seeks to
attain; and (c) the economic and legal context of which it forms a part. When determining
that context, it is also necessary to take into consideration the nature of the goods or services
affected, as well as the real conditions of the functioning and structure of the market or
markets in question.

The Court of Justice has ruled that the organisation of a selective distribution network is not
prohibited by Article 101(1) of the Treaty, to the extent that resellers are chosen on the basis
of objective criteria of a qualitative nature, laid down uniformly for all potential resellers and
not applied in a discriminatory fashion, that the characteristics of the product in question
necessitate such a network in order to preserve its quality and ensure its proper use and,
finally, that the criteria laid down do not go beyond what is necessary.

However, it is settled case-law that an agreement which might tend to restore the divisions
between national markets is liable to frustrate the Treaty's objective of achieving the
integration of those markets through the establishment of an internal market. Thus,
agreements which are aimed at partitioning national markets according to national borders or
make the interpenetration of national markets more difficult must be regarded, in principle, as
agreements whose object is to restrict competition within the meaning of Article 101(1) of the
Treaty.

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The Court of Justice has noted in several judgements that the fact that parallel trade
restrictions are not implemented does not disqualify them from being anticompetitive. In
addition, although the parties’ intention is not a necessary factor in determining whether an
agreement is restrictive, there is nothing preventing the Commission from taking that aspect
into account.
It is also settled case-law that certain collusive behaviour, such as resale price maintenance,
may be considered so likely to have negative effects, in particular on the price, choice,
quantity or quality of the goods and services, that it may be considered redundant, for the
purposes of applying Article 101(1) of the Treaty, to prove that it has actual effects on the
market.

Article 1(1)(e) of Commission Regulation (EU) No 330/2010 (referred to in this Decision as

the Vertical Block Exemption Regulation or VBER) defines a selective distribution system as
“a distribution system where the supplier undertakes to sell the contract goods or services,
either directly or indirectly, only to distributors selected on the basis of specified criteria and
where these distributors undertake not to sell such goods or services to unauthorised
distributors within the territory reserved by the supplier to operate that system”.

“Article 1(1)(e) of Commission Regulation (EU) No 330/2010 (referred to in this Decision as

the Vertical Block Exemption Regulation or VBER) defines a selective distribution system as
“a distribution system where the supplier undertakes to sell the contract goods or services,
either directly or indirectly, only to distributors selected on the basis of specified criteria and
where these distributors undertake not to sell such goods or services to unauthorised
distributors within the territory reserved by the supplier to operate that system”.”

“Thus, selective distribution has two distinctive features: (a) the supplier undertakes to sell
the contract products only to distributors selected on the basis of specified quantitative or
qualitative selection criteria; and (b) the selected distributors are prohibited from selling the
contract products to other distributors not belonging to the authorised distribution network.”

“Guess Europe's distribution network fulfils both those criteria to qualify as a selective
distribution system. First, Guess Europe sells the contract products only to distributors
selected on the basis of specified selection criteria and, second, the selected distributors are
prohibited from selling the contract products to other distributors not belonging to the
selective distribution network.”

Online search advertising restrictions :

In Hasselblad, the Court of Justice found that a clause in a selective distribution agreement
which prevented dealers from advertising their prices was contrary to Article 101(1) of the
Treaty.

The Court of Justice held in Coty that a specific contractual clause within a selective
distribution agreement was lawful under Article 101(1) of the Treaty provided that it had a
legitimate objective, was laid down uniformly for all potential resellers, applied in a non-
discriminatory fashion, and did not go beyond what was necessary.

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Furthermore, according to settled case-law, Union trademark law entitles the proprietor of a
trademark to prohibit an advertiser from advertising goods or services identical to those for
which the trademark is registered using a keyword identical to that trademark and selected by
the advertiser without the proprietor’s consent in connection with an internet referencing
service, in circumstances where the advertisement does not allow an average internet user, or
makes it difficult for an average internet user, to ascertain whether the goods or services
originate from the trademark proprietor or an undertaking economically connected to it or,
conversely, from a third party. That case-law concerns potential trademark infringements
through a search engine. It cannot be relied on to justify a restriction of the ability of
authorised retailers in selective distribution systems, who sell genuine Guess products, to use
or bid on Guess’ brand names and trademarks, as in this case there is no risk of confusion as
to the origin of the products.

The objective of the online search advertising restriction was to reduce competitive pressure
by authorised retailers on Guess’ own online retail activities and to keep down its own
advertising costs. Therefore, the online search advertising restrictions cannot be said to serve
the legitimate objective of Guess’ selective distribution system claimed by Guess, namely to
protect the brand image.

By severely curtailing the use of online search advertising by its authorised retailers, Guess
limited the “findability” and ultimately the viability of retailers selling its products online.
While Guess’ retailers were – subject to the authorisation requirement – in principle able to
sell online, they were deprived of the ability to effectively generate traffic to their own
websites by means of online search advertising. This restricted their ability to sell the
contractual products to customers, in particular outside the contractual territory or area of
activity.

An exclusive right reserved for Guess Europe to use the Guess brand names and trademarks
in online search advertising provided Guess with a considerable competitive advantage over
its retailers with whom it competed online and restricted intra-brand competition.

Another aim of the policy was to reduce advertising costs. In this regard the Court of Justice
has held, in a judgement related to trademarks, that internet advertising using a referencing
service on the basis of keywords corresponding to another person’s trademark(s) constitutes a
practice inherent to competition as it offers internet users alternatives to the trademark
proprietor’s goods or services even if it leads to the trademark proprietor having to intensify
its advertising in order to maintain or enhance its profile with consumers.

In the light of this reasoning, it cannot be said that the online search advertising restriction
constitutes an aspect of competition that is compatible with Article 101(1) of the Treaty.

It is necessary to determine, however, whether the online search advertising restriction

reveals a sufficient degree of harm to competition that it may be considered a restriction of
competition "by object" within the meaning of Article 101(1) of the Treaty or whether its
effects need to be examined.

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Assessed in its context, the online search advertising restriction had as its object to reduce the
ability of authorised retailers to advertise and ultimately to sell the contract products to
customers, in particular outside the contractual territory or area of activity and to limit intra-
brand competition. Therefore, the restriction, as described in Section 5.2.2, had the object of
restricting competition within the meaning of Article 101(1) of the Treaty.

Online sales restrictions

The Commission set out its position with regard to restrictions of online sales in its
Guidelines on Vertical Restraints ("Vertical Guidelines”): “The internet is a powerful tool to
reach a greater number and variety of customers than by more traditional sales methods […].
In principle, every distributor must be allowed to use the internet to sell products. In general,
where a distributor uses a website to sell products that is considered a form of passive selling,
since it is a reasonable way to allow customers to reach the distributor.”

This position has been confirmed by the Court of Justice in Pierre Fabre. In this judgement,
the Court held that a contractual provision prohibiting de facto the internet as a method of
marketing amounts to a restriction of competition by object within the meaning of Article
101(1) of the Treaty.135 It has at the very least as its object the restriction of passive sales to
end users wishing to purchase online and located outside the physical trading area of the
relevant member of the selective distribution system.

A supplier operating a selective distribution system may legitimately require quality

standards for the use of websites that resell its goods, just as the supplier may require quality
standards for a brick-and-mortar shop or for selling by catalogue or for advertising and
promotion in general.
In Coty, the Court of Justice held that a specific contractual clause within a selective
distribution agreement which pursues a legitimate objective is lawful under Article 101(1) of
the Treaty only if the quality criteria are laid down “uniformly” and “not applied in a
discriminatory fashion”.

In this case, as set out in Section 5.2.3, the written authorisation requirement was not linked
to any specified quality criteria. In line with Guess’ e-commerce strategy, which aimed at
promoting its own website (online shop), that requirement had as its main object to restrict
sales on authorised retailers' websites. It protected Guess’ own online sales activities from
intra-brand competition by its authorised retailers and facilitated market partitioning as it
limited the authorised retailers' ability to sell the contract products to customers, in particular
outside their authorised area of activity. Therefore, the written authorisation requirement
which was not linked to any specified quality criteria constitutes a restriction of competition
by object within the meaning of Article 101(1) of the Treaty.

Restrictions on cross-selling among members of the selective distribution network (wholesale

and retail:

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The contractual provisions listed in Section 5.2.4 aimed at restricting sales of Guess products
among members of the selective distribution network, albeit in different ways. Some of the
provisions prevented solicitation of customers outside the allocated territory (active sales
restrictions). Other provisions restricted unsolicited sales to other network members and
prevented or provided disincentives for purchases from other network members (passive sales
restrictions). All cross-selling restrictions aimed at ensuring that only Guess Europe and/or
the appointed national wholesaler could supply the retailers operating on a national market
and that wholesalers purchased only from Guess Europe and did not resell the contract
products to other wholesalers or retailers outside their allocated territory. These restrictions
mutually reinforced each other.

It is settled case-law that a restriction of sales between authorised distributors within a

selective distribution network constitutes a restriction of competition by object within the
meaning of Article 101(1) of the Treaty.

Therefore, the provisions described in Section 5.2.4, which restrict cross-supplies between
members of a selective distributions system, restrict competition by object with the meaning
of Article 101(1) of the Treaty.

Restrictions on cross-border sales to end users:

The provisions listed in Section 5.2.6 individually and in combination restrict active and
passive sales by members of a selective distributions system to end users located outside the
allocated territory of those members and, therefore, are capable of creating, maintaining or
restoring national divisions in trade between Member States so as to frustrate the Treaty’s
objective of achieving the integration of national markets through the establishment of an
internal market. In accordance with established case-law, those provisions restrict
competition by object with the meaning of Article 101(1) of the Treaty.
Resale price maintenance:

The Court of Justice has held on several occasions that agreements that impose upon retailers'
minimum or fixed retail prices, thereby restricting the ability of those retailers to determine
their resale prices independently, restrict competition by object within the meaning of Article
101(1) of the Treaty. More specifically, with regard to selective distribution agreements, the
Court has held that in a selective distribution system, which by its very nature inherently
restricts price competition, the imposition of fixed or minimum sales prices goes beyond the
requirements of such a distribution system.

Therefore, the provisions listed in Section 5.2.6, which restricted the ability of Guess’
retailers to determine their resale prices, restrict competition by object with the meaning of
Article 101(1) of the Treaty.

Conclusion.

By means of the contractual provisions and practices referred to in Section 5.2, Guess Europe
effectively restricted intra-brand competition and partitioned national markets for its products

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contrary to Article 101(1) of the Treaty. There are no circumstances in the economic or legal
context of those provisions and practices to support a finding that they were not liable to
impair competition or did not have an anticompetitive object within the meaning of Article
101(1) of the Treaty.

o Effect on trade between Member States ?

Article 101(1) of the Treaty is aimed at agreements and concerted practices which might
harm the attainment of an internal market between the Member States, whether by
partitioning national markets or by affecting the structure of competition within the internal
market. The Court of Justice has also found that agreements constituting a selective
distribution system are capable of affecting competition in the internal market.

The Court of Justice held that an agreement affecting trade between Member States and
having an anticompetitive object, “by its nature” constitutes an appreciable restriction of
competition in violation of Article 101(1) of the Treaty, independently of any concrete effect
that it may have.

“The Court of Justice has also found that agreements constituting a selective distribution
system are capable of affecting competition in the internal market.

“Guess’ distribution agreements covered a large part of the EEA. Since the agreements
contained, in particular, internet sales restrictions and cross-border sales restrictions, they
were liable to affect trade between Member States. The very purpose of these types of
restrictions is to prevent trade between Member States”.

“The conduct described restricted competition by object. Therefore, those restrictions, by

their nature, appreciably affected competition.”
 Is there an objective justification?
Article 101(3) of the Treaty (149) Article 101(1) of the Treaty may be declared inapplicable
pursuant to Article 101(3) of the Treaty where an agreement or concerted practice contributes
to improving the production or distribution of goods or to promoting technical or economic
progress, while allowing consumers a fair share of the resulting benefit, and which does not
(a) impose on the undertakings concerned restrictions which are not indispensable to the
attainment of these objectives; and
(b) afford such undertakings the possibility of eliminating competition in respect of a
substantial part of the products in question.
The Commission is empowered to apply Article 101(3) of the Treaty by regulation to certain
categories of vertical agreements falling within Article 101(1) of the Treaty, which can be
regarded as normally satisfying all the conditions laid down in Article 101(3) of the Treaty.
The Vertical Block Exemption Regulation was adopted under that empowerment. Even
where a restriction by object pursuant to Article 101(1) of the Treaty is established and the
VBER is not applicable, there is in principle the possibility of an exemption from the
prohibition in Article 101(1) if the parties prove that the agreement fulfils the four conditions
for exemption set out in Article 101(3) of the Treaty.
The Vertical Block Exemption Regulation.

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Pursuant to Article 101(3) of the Treaty, the VBER exempts, under certain conditions,
categories of vertical agreements from the application of Article 101(1) of the Treaty.
Under Articles 2 and 3 of the VBER, in the context of a selective distribution system, a
supplier may, in principle, benefit from the block exemption where each its market share and
the buyer’s market share does not exceed 30% in the relevant markets. The VBER excludes
certain types of restrictions that have severely anticompetitive effects (“hard-core
restrictions”), irrespective of the market share of the undertakings concerned.
Article 4 of the VBER lists the types of restrictions that are excluded irrespective of the
markets shares of the supplier or the buyers.
Pursuant to point (c) of Article 4 of the VBER, the exemption does not apply to vertical
agreements which directly or indirectly, in isolation or in combination with other factors
under the control of the parties, have as their object the restriction of active or passive sales to
end users by members of a selective distribution system operating at the retail level of trade,
without prejudice to the possibility of prohibiting a member of the system from operating out
of an unauthorised place of establishment.

o Block Exemption? No.

“The Commission concludes that the object of the online search advertising restrictions was
to restrict the ability of authorised retailers to advertise and ultimately to sell the contractual
products to customers, in particular outside the contractual territory or area of activity. Their
object was therefore to partition the market since they limited the ability of the authorised
retailers̕ to sell the contract products actively or passively (depending on the targeted
audience or territory).”

“Pursuant to point (c) of Article 4 of the VBER, those restrictions cannot therefore benefit
from the block exemption. The object of the online sales restrictions was to partition the
market since they restricted authorised retailers from actively or passively selling the contract
products to customers, in particular outside the contractual territory or area of activity, by
restricting their ability to effectively sell the products online on their website.“

“The same reasoning applies to the restrictions on cross-border sales to end users. Guess
Europe’s selective distributors (retailers and wholesalers) were contractually limited from
sourcing from or selling to, actively or passively, other authorised members of the selective
distribution system, including in other EEA countries. Therefore, pursuant to point (d) of
Article 4 of the VBER, the restrictions on cross-selling among members of the selective
distribution network (wholesale and retail) cannot benefit from the block exemption.”

“The resale price maintenance by Guess Europe cannot be exempted pursuant to point (a) of
Article 4 of the VBER, because it had as its object to restrict the ability of retailers to
independently determine their sale price.”

“In conclusion, the conduct described does not qualify for an exemption under the VBER.”

o Art.101.3 TFEU applicable? No.

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“Guess’ conduct does not meet the conditions for an exemption under Article 101(3) of the
Treaty either. In particular, there are no indications that the conduct contributed to improving
the production or distribution of Guess’ products, or to promoting technical or economic
progress, while allowing consumers a fair share of the potential benefits resulting from
Guess’ restrictive practices. In addition, there are no indications either that the conduct was
indispensable, for example to address free-riding, or to protect Guess’ brand image”

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