{"id":84,"date":"2015-07-15T11:36:55","date_gmt":"2015-07-15T10:36:55","guid":{"rendered":"http:\/\/www.utelier.com\/blog\/?post_type=toolkit&p=61"},"modified":"2019-07-16T08:52:06","modified_gmt":"2019-07-16T07:52:06","slug":"anti-competitive-arrangements-explained-part-2","status":"publish","type":"post","link":"https:\/\/fashioninsiders.co\/toolkit\/legal-corner\/anti-competitive-arrangements-explained-part-2\/","title":{"rendered":"Anti-Competitive Arrangements Explained – Part 2"},"content":{"rendered":"

In his last article<\/a>,\u00a0Tahir Basheer\u00a0of law firm Sheridans\u00a0explained what anti-competitive arrangements mean for you.\u00a0This week he explains vertical agreements and how fashion businesses can be affected by them.<\/p>\n

In this article I will focus on vertical agreements \u2013 where it is probably easier for an unsuspecting business to fall foul of the rules, especially in the fashion industry where most businesses have arrangements with a large number of suppliers and distributors.<\/p>\n

Avoiding infringements<\/h3>\n

The main types of vertical agreement that commonly face competition issues are distribution agreements. Competition issues will NOT arise where the agreement is within the same group, or where the agreement is with an authorised agent.<\/p>\n

This is one of the main benefits of appointing an agent rather than a distributor; however, there are also associated downsides such as the ability to be bound by the agent\u2019s actions.\u00a0No doubt you are thinking that this legislation could catch a lot of your agreements. However, the way around many of the restrictions is by use of one of the following techniques:<\/p>\n

Agreements not capable of appreciably affecting trade (\u201cNAAT\u201d)<\/h3>\n

If an agreement is so small that there is no appreciable effect on trade in the UK or EU, there will be no breach of the law. This applies to when the combined market share of parties to the agreement is less than 5% of the relevant market, and the seller\u2019s turnover is below \u20ac40 million.<\/p>\n

Vertical Restrictions Block Exemption<\/h3>\n

It is recognised that some vertical agreements – although they are technically anti-competitive – should be exempt as the pro-competitive effects of the arrangement outweigh the anti-competitive effects.<\/p>\n

It applies to vertical agreements where no party has an annual turnover exceeding \u20ac50 million, and the market share of the supplier or buyer does not exceed 30% – of the market in which they sell or buy their goods. However, it does not apply to \u2018hard-core\u2019 restrictions such as price-fixing agreements and territorial restrictions.<\/p>\n

In addition, if you have any hard-core restrictions in your agreement, the WHOLE agreement is deemed to be unenforceable.
\nAn important principle is that you can give a distributor an exclusive territory and prevent them from actively finding customers in other territories, but you cannot stop them from accepting customers who come from other territories to them of their own accord \u2013 this is known as \u2018passive selling\u2019.<\/p>\n

\u2018NAOMI\u2019 \u2013 Agreements of Minor Importance<\/h3>\n

This acronym can apply to any agreement which does NOT contain hard-core restrictions and where the market share held by each party does not exceed 15%.<\/p>\n

This is similar to NAAT\u00a0and basically says that an agreement may be small enough not to matter. However, businesses must be careful not to go over the market share threshold as they grow.<\/p>\n

An exemption will apply to agreements if it can be said that the benefits outweigh the anti-competitive effects – and consumers get a fair share of that benefit.<\/p>\n

Applying the law to contractual terms<\/h3>\n

Below are some examples of contractual terms in distribution agreements which may infringe competition law. This is not exhaustive so I would recommend that you seek legal advice if you do think you may have a competition law issue.<\/p>\n

Price fixing<\/h3>\n

Artificially fixing a price that a distributor can charge is a hard-core restriction, and such a term should be removed from the agreement. Note that \u2018Recommended Retail Price\u2019 could also be infringing.<\/p>\n

Awarding a distributor an exclusive territory<\/h3>\n

This will not be anti-competitive arrangements per se. But, coupling exclusive distribution with further territorial protection (from another agreement i.e. between supplier and different distributor) is normally anti-competitive. However, the vertical exemption can apply.<\/p>\n

Preventing a distributor exporting beyond their territory (export ban)<\/h3>\n

This would be prohibited as a hard-core restriction. A distributor can only be prevented from active selling to other countries (see above). Similar terms such as a restriction on internet sales could be interpreted as a type of export ban.
\nPreventing the distributor from buying from other suppliers<\/p>\n

This would be prohibited if it is indefinite or exceeds five years.<\/p>\n

What happens if you are caught?<\/p>\n

If you are found to have engaged in anti-competitive behaviour<\/strong> you may be liable for a fine of up to 10%<\/strong> of your worldwide turnover, but this does not apply in the UK if you are a small company with a turnover under \u00a320 million. You may also be ordered to stop the behaviour immediately, and be liable to third parties for damages, and you may be disqualified if you are a director.<\/p>\n

In addition, the clause or agreement – depending on the type of infringement – will be deemed unenforceable by the courts.<\/p>\n

That last point is quite a key point to consider if your business has an agreement with let\u2019s say, a supplier, and you want to terminate it for whatever reason. You may want to investigate whether the agreement is anti-competitive, in which case it will not be enforceable and furthermore, you have the power to report the other side to competition authorities.<\/p>\n","protected":false},"excerpt":{"rendered":"

In his last article, Tahir Basheer of law firm Sheridans explained what anti-competitive arrangements mean for you. This week he explains vertical agreements and how fashion businesses can be affected by them.<\/p>\n","protected":false},"author":51,"featured_media":394,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3928],"tags":[4877],"_links":{"self":[{"href":"https:\/\/fashioninsiders.co\/wp-json\/wp\/v2\/posts\/84"}],"collection":[{"href":"https:\/\/fashioninsiders.co\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fashioninsiders.co\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fashioninsiders.co\/wp-json\/wp\/v2\/users\/51"}],"replies":[{"embeddable":true,"href":"https:\/\/fashioninsiders.co\/wp-json\/wp\/v2\/comments?post=84"}],"version-history":[{"count":0,"href":"https:\/\/fashioninsiders.co\/wp-json\/wp\/v2\/posts\/84\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/fashioninsiders.co\/wp-json\/wp\/v2\/media\/394"}],"wp:attachment":[{"href":"https:\/\/fashioninsiders.co\/wp-json\/wp\/v2\/media?parent=84"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fashioninsiders.co\/wp-json\/wp\/v2\/categories?post=84"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fashioninsiders.co\/wp-json\/wp\/v2\/tags?post=84"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}