Introduction
This essay examines whether the distribution agreement between Your Health Germany and Health for Greece EPE violates European Union (EU) competition law. Specifically, it evaluates the four terms of the agreement—exclusive distribution, export ban, price fixing, and online sales restriction—in the context of Article 101 of the Treaty on the Functioning of the European Union (TFEU), which prohibits anti-competitive agreements. With Your Health Germany holding a 16% market share in herbal antiviral medicines in Greece, the potential impact on competition must be assessed. The analysis will consider relevant legal principles, case law, and regulations to advise Michael on the legality of the agreement. The essay argues that certain terms, particularly price fixing and online sales restrictions, are likely to breach EU law, while others may be permissible under specific conditions.
Legal Framework: Article 101 TFEU
Article 101(1) TFEU prohibits agreements between undertakings that may affect trade between Member States and have as their object or effect the prevention, restriction, or distortion of competition within the internal market (Craig and de Búrca, 2020). However, Article 101(3) allows exemptions if the agreement contributes to improving production or distribution, or promotes technical or economic progress, provided consumers receive a fair share of the benefits and competition is not substantially eliminated. The terms of the agreement must be scrutinised under this framework. Given Your Health Germany’s 16% market share, it is unlikely to hold a dominant position under Article 102 TFEU; thus, the focus remains on Article 101.
Analysis of Agreement Terms
Exclusive Distribution (Term i)
The agreement stipulates that Your Health Germany will not appoint other businesses to sell its products in Greece, establishing an exclusive distribution arrangement with Health for Greece. Exclusive distribution is not inherently anti-competitive and may be justified under EU law if it enhances efficiency in distribution (Whish and Bailey, 2021). The Vertical Agreements Block Exemption Regulation (VBER) (Regulation 330/2010) generally exempts such agreements if the supplier’s market share does not exceed 30%. With Your Health Germany’s 16% market share, this term likely qualifies for exemption under VBER, provided other conditions are met. However, if the exclusivity unduly restricts parallel imports or competition, it could still raise concerns.
Export Ban (Term ii)
The prohibition on Health for Greece exporting Your Health Germany’s products outside Greece is problematic. EU law prioritises the free movement of goods and prohibits absolute territorial restrictions that hinder parallel trade between Member States (Jones and Sufrin, 2016). Case law, such as Consten and Grundig v Commission (1966), establishes that export bans often constitute a restriction by object under Article 101(1). While limited exceptions may apply under VBER for active sales restrictions, a total export ban is likely to violate EU law unless significant pro-competitive benefits can be demonstrated.
Price Fixing (Term iii)
The term requiring Health for Greece to sell at prices fixed by Your Health Germany amounts to resale price maintenance (RPM). RPM is considered a hardcore restriction under Article 4(a) of VBER and is generally deemed to restrict competition by object (Whish and Bailey, 2021). The European Court of Justice (ECJ) has consistently ruled against RPM, as seen in cases like Binon v AMP (1985), due to its potential to eliminate intra-brand price competition. Given this precedent, this term almost certainly breaches Article 101(1) and is unlikely to qualify for exemption under Article 101(3).
Online Sales Restriction (Term iv)
The prohibition on Health for Greece selling online to consumers is also contentious. The ECJ in Pierre Fabre Dermo-Cosmétique (2011) ruled that outright bans on online sales in distribution agreements typically restrict competition by object under Article 101(1), as they limit market access and consumer choice. Although certain restrictions on online sales may be permissible under VBER if justified by product-specific requirements, a complete ban is difficult to defend. This term, therefore, likely violates EU law unless Your Health Germany can provide substantial evidence of necessity, which seems improbable for herbal antiviral medicines.
Conclusion
In advising Michael, it is evident that the distribution agreement between Your Health Germany and Health for Greece contains several problematic terms under EU competition law. While the exclusive distribution arrangement (Term i) may be permissible under VBER due to the supplier’s modest 16% market share, the export ban (Term ii), price fixing (Term iii), and online sales restriction (Term iv) are highly likely to infringe Article 101(1) TFEU. Price fixing and the online sales ban, in particular, are hardcore restrictions with limited scope for exemption. These terms risk distorting competition and hindering the internal market. Michael should advise renegotiation of the agreement to remove or amend the offending clauses, ensuring compliance with EU law. Failure to do so could result in legal challenges, fines, or voiding of the agreement by the European Commission or national competition authorities. Further analysis of market impact and consumer benefits might be necessary to explore potential exemptions under Article 101(3), though success appears unlikely for the most restrictive terms.
References
- Craig, P. and de Búrca, G. (2020) EU Law: Text, Cases, and Materials. 7th ed. Oxford University Press.
- Jones, A. and Sufrin, B. (2016) EU Competition Law: Text, Cases, and Materials. 6th ed. Oxford University Press.
- Whish, R. and Bailey, D. (2021) Competition Law. 10th ed. Oxford University Press.
