This is the second part of the article “Regulation for horizontal agreements in accordance with Competition Law”.
This part covers the rest of the following prohibited conducts of the Article 101 of the Treaty on the Functioning of the European Union: limitation and control of the market, discrimination and subordination agreements.
III.- LIMITING OR CONTROLING PRODUCTION, MARKET, TECHNICAL DEVELOPMENT OR INVESTMENTS
In Article 101.1, Point b, these conducts are banned as they are considered restrictive to competition. However, when they contribute to the improvement of production (without eliminating competitors from the market) they can enjoy an exemption to Article 101.3. Nevertheless, this exemption will not be conceded when the agreement is included within a established agreement of a cartel of fixed prices or division of market.
1.- Production Specialization
Specialization agreements assume a form of co-operation between competitors. The parties commit to limiting production in various fields so as to concentrate resources and increase quality or improve technology.
Although any company is free to limit their activities, an infringement of Article 101.1 can exist in the following cases;
– Production restriction; one of the parties is obliged to stop producing a product manufactured by a competitor or not innovate their product range
– Purchasing restrictions; one of the parties stops producing a product and approaches a competitor in order to acquire it.
– Distribution restrictions; certain categories of products are only distributed by one of the parties of the agreement.
1.1. Fundamentally there are four categories of specialization agreements:
a) Reciprocal specialization; Parties commit to not be the source of certain products, respectively.
b) Specialization limited to basic or intermediate products; Agreements relating exclusively to intermediate products, leaving the production and end product distribution in the hands of each company.
c) Joint ventures specialized in new products; several firms channel their experience and investment in the production of a new product through a joint venture company, leaving their usual activities intact.
d) Restructuring already existing companies.
1.2.- Regulation (1218/2010) on specialization agreements
This ruling considers three different types of agreements; unilateral specialization, reciprocal specialization and joint production
1.3.- Specialization pacts submitted to the Merger Control Regulation
The creation of a joint venture, running as a new company, to all effects, constitutes a concentration.
2.- Investment or Production Capacity Restriction
These types of restrictions, so long as they correspond to the confidential and strategic environment of the company, are not usually permitted by the EC.
3.- Agreements for Establishing rules and types of products
These agreements can usually have access to exemption from the Treaty’s Article 101.3. In fact, the Commission is authorized to dictate an exemption en bloc for the ‘application of rules and types’.
4.- Industrial Restructuring Agreements (‘Crisis Cartels’)
A special exemption for these operations in the Treaty does not exist. In fact, the Commission does generally not consider the argument of a crisis in a sector as an exemption to the Treaty’s Article 101; it only admits it in order to reduce fines.
Restructuring agreements can take on different forms;
– Multilateral agreements; these are pacts reached between the majority or all of the producers of a certain market.
– Bilateral agreements; this is the most rational way of reducing capacity and increasing productivity between parties. Their main problem is the decrease in the number of independent competitors.
– Private agreements for voluntary restriction; these are usually agreed between Community country suppliers. These pacts, through not undertaking a real company restructuring, have a similar character to a cartel. They do not imply any benefit and tend towards maintaining the existing situation of overcapacity, which is why the Commission rejects its exemption.
– Restructuring agreements subjected to Regulation 4064/2000 of Merger Control; a company restructuring operation which involves the total permanent transfer of assets to a new company.
5.- Consortiums and Strategic Alliances
Consortiums are agreements of a joint implementation of orders where the parties are incapable of implementing them individually.
6.- Other ways of co-operating in marketing
a) Quality Labels; Establishing a system of labels, guaranteeing quality of certain products is not anti- competitiue. Products of third-party companies who comply with the requirements should have access to this label so as to obtain it.
b) Factoring; Factoring associations whose business is limited to this function do not affect free competition.
c) Joint brands; Companies who use their own brand to distribute their products in their national market but share a brand with other competitors for the distribution in other markets can restrict competition by compartmentalizing the market by countries.
d) Joint Publicity; these agreements do not usually restrict competition except that they do not allow the companies involved to advertise in an autonomous way. In this case, the need for an agreement should be justified.
e) Auction and Assets Markets; Conduction of Auction and Assets agreements are usually allowed as they are not against competition but they should not discriminate third parties.
7.- Free market Agreements
Free market agreements can result in being restrictive to competition when they exclude certain producers or importers.
IV. DISCRIMINATION
The rules of competition prohibit discrimination when it is the object, means or effect of an anti-competitive agreement or represents abuse of a dominant position.
Agreements and practices which discriminate purchasers or sellers like any other operator in the market are expressly forbidden by Article 101.1.d
Boycotting is a way of discrimination which consists of unilateral or concerted cessation of supplies or purchases from a client or supplier.
V.- OBLIGATION TO ACCEPT SUPPLEMENTARY PRODUCTS OR SERVICES; SUBORDINATE AGREEMENTS
Contracts which incorporate clauses in which the parties contract supplementary obligations without any connection to the subject matter of a contract are prohibited. They affect the freedom of the purchaser to look for a better substitute or obtain better purchasing conditions for the subordinate product.
Santiago Nadal
