The EU Court’s Ruling in Super Bock – Hard Core Restrictions Not Necessarily Restrictions of Competition by Object
On 29 June 2023, the Court of Justice of the European Union delivered a preliminary ruling in the Super Bock case on the legality of resale price maintenance in distribution agreements. It appears that the last bastion of the ‘formalistic approach’ once adopted by the EU Courts has now fallen. In its ruling, the Court of Justice declares that hard core restrictions under the EU Vertical Block Exemption Regulation (the VBER) are not necessarily restrictions of competition by object and can therefore not automatically be deemed contrary to Article 101 TFEU.
The case before the national court concerned the Portuguese beer manufacturer Super Bock’s sales of beverages to the Portuguese market. Super Bock had concluded distribution agreements with independent distributors throughout Portugal granting them each an exclusive right to sell its products to hotels, restaurants, bars and cafés within a certain geographic area.
During a period of at least ten years Super Bock regularly fixed and imposed on all distributors the terms of business which they were required to comply with when reselling Super Bock products. Minimum resale prices were fixed with the aim of ensuring a stable and consistent minimum price level throughout Portugal. Distributors were required to report relevant sales data, for example in terms of quantities and prices, and Super Bock adopted retaliatory measures against those who sold below set prices or otherwise deviated from the terms of sale imposed by Super Bock.
This led the Portuguese Competition Authority to carry out an investigation. Finding that the Portuguese beer manufacturer had infringed Article 101 TFEU and the prohibition on anti-competitive agreements contained therein, it imposed fines on both Super Bock and two of its representatives. The decision was appealed to the Competition Court which confirmed the authority’s decision. When Super Bock appealed to the Court of Appeal, it decided to stay the proceedings and turn to Luxembourg. In its request, it asked the Court of Justice to provide guidance on the interpretation of the Treaty Article and, more specifically, whether it could be established that an agreement fixing minimum resale prices constitutes a restriction of competition by object without examining the context of which it forms part.
The Court’s View
Declaring that the concept of ‘restriction of competition by object’ must be interpreted restrictively, it declared that if a restriction qualified as ‘hard-core restriction’ under the VBER, this only meant that the parties to the agreement were unable to rely on the safe harbor created by the regulation, not that the hard-core restriction was automatically prohibited. Instead it was then up to the parties to carry out an assessment of the agreement to determine whether it led to any efficiencies and could be exempted. Thus, a court or competition authority can find that a vertical agreement fixing minimum resale prices entails a ‘restriction by object’ only after having determined that the actual agreement presents a sufficient degree of harm to competition. When doing this one must consider the nature of its terms, the objectives that it seeks to attain and all the factors that characterize the economic and legal context of which it forms part, the Court concluded, leaving it to the referring Portuguese court to make such assessment.
Comment on the Ruling
Over the years, the European Commission and national competition authorities have gradually had to abandon the formalistic approach that used to apply to certain types of conduct under both Articles 101 and 102 TFEU. Through this ruling yet another bastion falls. It may seem unlikely that the Portuguese courts will reach the conclusion that a network of exclusive distribution agreements fixing minimum resale prices to ensure a ‘stable and consistent minimum price level throughout Portugal’ qualifies for an exemption under Article 101(3) TFEU. However, it is welcome that both the European Commission and national competition authorities and courts are now required to consider any arguments presented by the parties why a certain ‘hard core restriction’ does actually lead to efficiencies and should therefore be exempted. That way, the competition rules will be agile and target those restrictions that are actually harmful to consumers.