Introduction
This essay examines whether the distribution agreement between Your Health Germany GmbH and Health for Greece EPE contravenes European Union (EU) competition law. Specifically, it focuses on the terms of the agreement that limit distribution, restrict exports, fix prices, and prohibit online sales to consumers in Greece. EU competition law, primarily governed by Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU), aims to prevent anti-competitive practices that hinder the internal market. This analysis will assess the agreement’s compatibility with these provisions, particularly in light of Your Health Germany’s significant market share in the EU antiviral herbal medicines sector (39%). By evaluating the key terms of the agreement, this essay will advise Michael, a director of Your Health Inc, on potential legal risks and implications.
EU Competition Law Framework
EU competition law seeks to maintain a level playing field within the internal market by prohibiting agreements that restrict competition. Article 101 TFEU bans agreements between undertakings that have as their object or effect the prevention, restriction, or distortion of competition. This includes practices such as price-fixing, market-sharing, and restrictions on trade (Craig and de Búrca, 2020). Additionally, Article 102 TFEU addresses abuses of a dominant position, which may apply given Your Health Germany’s substantial market share. The European Commission and the Court of Justice of the European Union (CJEU) have consistently ruled that agreements imposing territorial restrictions or limiting parallel trade are particularly problematic, as they undermine the single market (Whish and Bailey, 2018).
Analysis of the Distribution Agreement Terms
The distribution agreement includes four contentious terms that require scrutiny under Article 101 TFEU. First, granting Health for Greece exclusivity by not appointing other distributors in Greece could be seen as a restriction on competition. While exclusive distribution agreements are not inherently illegal, they may violate Article 101 if they significantly foreclose market access for competitors, especially given Your Health Germany’s strong EU market position (Jones and Sufrin, 2016). Second, the prohibition on Health for Greece exporting products from Greece is problematic. Such export bans are generally considered a hardcore restriction under EU law, as they prevent parallel trade and fragment the internal market (Whish and Bailey, 2018). The CJEU has ruled in cases like Consten and Grundig (1966) that such restrictions are likely to have an anti-competitive object.
Third, the provision allowing Your Health Germany to fix prices for Health for Greece’s sales raises serious concerns. Price-fixing is explicitly prohibited under Article 101(1)(a) TFEU as a hardcore restriction, with no need to prove anti-competitive effects (Craig and de Búrca, 2020). Finally, the ban on online sales to consumers by Health for Greece may also be anti-competitive. The European Commission’s Vertical Agreements Block Exemption Regulation (VBER) and accompanying guidelines generally permit restrictions on online sales only under specific conditions, which do not appear to be met here (European Commission, 2010). Therefore, this term likely restricts competition by limiting consumer access to products.
Potential Abuse of Dominance Under Article 102 TFEU
Given Your Health Germany’s 39% market share in the EU antiviral herbal medicines market, there is a possibility that it holds a dominant position. Dominance is often presumed at around 40–50% market share, though other factors like barriers to entry are also considered (Jones and Sufrin, 2016). If deemed dominant, imposing terms like export bans or price-fixing could constitute an abuse under Article 102 TFEU, as they exploit market power to the detriment of competition and consumers. However, further market analysis would be necessary to confirm dominance, which is beyond the scope of this essay.
Conclusion
In conclusion, the distribution agreement between Your Health Germany and Health for Greece likely violates EU competition law under Article 101 TFEU due to its restrictive terms, particularly the export ban and price-fixing provisions, which are considered hardcore restrictions. Furthermore, the exclusivity and online sales ban may also limit competition, especially given Your Health Germany’s significant market share. There is also a risk of breaching Article 102 TFEU if dominance is established. Michael should be advised to seek legal counsel to renegotiate the agreement, potentially aligning it with the VBER safe harbour provisions or restructuring terms to avoid anti-competitive effects. Failure to address these issues could result in substantial fines from the European Commission and reputational damage for Your Health Inc.
References
- Craig, P. and de Búrca, G. (2020) EU Law: Text, Cases, and Materials. 7th ed. Oxford University Press.
- European Commission (2010) Commission Regulation (EU) No 330/2010 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. Official Journal of the European Union.
- Jones, A. and Sufrin, B. (2016) EU Competition Law: Text, Cases, and Materials. 6th ed. Oxford University Press.
- Whish, R. and Bailey, D. (2018) Competition Law. 9th ed. Oxford University Press.
