Vertical agreements are an important aspect of business transactions, particularly in the European Union, where the vertical agreements block exemption order is in place. This exemption order is a legal framework designed to promote fair competition and ensure that small businesses are not pushed out of markets by larger players.

In this article, we will discuss what the vertical agreements block exemption order entails, its purpose, and how it affects businesses in the European Union.

What are vertical agreements?

Vertical agreements involve the relationships between businesses at different levels of the supply chain. They are called vertical because they involve businesses at different levels of the production and distribution chain. An example of a vertical agreement is a manufacturer and a distributor agreeing on the price and terms of distribution of a product.

What is the vertical agreements block exemption order?

The vertical agreements block exemption order (VABEO) is a legal framework that exempts some vertical agreements from the application of Article 101(1) of the Treaty on the Functioning of the European Union (TFEU). Article 101(1) of the TFEU prohibits agreements between companies that restrict competition. The VABEO allows for some vertical agreements to be exempted from this prohibition if they meet specific criteria.

The purpose of the VABEO is to promote fair competition, ensure that small businesses are not pushed out of markets by larger players, and provide clarity and legal certainty for businesses operating within the European Union.

What are the criteria for exemption?

The VABEO sets out specific criteria that must be met for a vertical agreement to be exempted from the prohibition on restrictive agreements. These criteria are as follows:

– The two parties involved do not have a combined market share of more than 30% in the relevant market.

– The agreement does not contain any hardcore restrictions, such as price-fixing or territorial restrictions.

– The agreement contributes to improving the production or distribution of goods or the promotion of technical or economic progress.

How does the VABEO affect businesses in the European Union?

Businesses in the European Union must be aware of the VABEO when entering into vertical agreements. If a vertical agreement meets the criteria for exemption, it will not be subject to the prohibition on restrictive agreements. However, if an agreement does not meet these criteria, it may be subject to scrutiny by the European Commission or national competition authorities.

In conclusion, the vertical agreements block exemption order is an important legal framework for promoting fair competition and providing legal clarity for businesses operating in the European Union. Businesses must ensure that their vertical agreements meet the criteria for exemption to avoid any potential legal consequences.