A new Automotive Block Exemption
came into force

As from the 1st of June a new Automotive Block Exemption Regulation 461/2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union (TFEU) to categories of vertical agreements and concerted practices in the motor vehicle sector replaced the original Automotive Block Exemption Regulation 1400/2002.

Through a block exemption Regulation, vertical agreements meeting specific conditions fall outside the scope of the cartel prohibition of Art. 101 of the TFEU, formerly Article 81 of the EEC Treaty. Vertical agreements are agreements between suppliers and buyers trading in goods and services such as distribution agreements. These vertical agreements may contain restrictive practices who have to be reviewed in the light of the prohibition described above.

The new Automotive Block Exemption Regulation 461/2010 envisages different approaches for the purchase, sale or resale of new vehicles (the primary market) and the market of repair and maintenance of vehicles and spare parts markets (the after market).

When and how the rules will change:

The primary market (Purchase, sale or resale of new cars): In relation to the purchase, sale or resale of new motor vehicles:
The current Automotive Block Exemption Regulation 1400/2002 will be prolonged from the 1st of June 2010 until 31 May 2013. As from the 1st of June 2013 the sale of new vehicles will be subject to the new general Vertical Block Exemption Regulation 330/2010. This means that after an additional period of 3 years under the current rules, the sale of new motor vehicles will cease to be subject to sector specific legislation and will become subject to the general European competition rules that apply to almost all other sectors of the economy.

After market (repair and maintenance services for motor vehicles and the purchase, sale or resale of spare parts for motor vehicles):
In relation to the After Market, as of the 1st of June 2010 the New Automotive Block Exemption Regulation 461/2010 will come into force and the current Automotive Block Exemption Regulation 1400/2002 will cease to apply. The new general Vertical Block Exemption Regulation 330/2010 will also apply in addition to the new Automotive Block Exemption Regulation 461/2010 for the After Market.

The Commission issued supplementary guidelines that provide clarification of issues that are relevant for the motor vehicle sector, including the interpretation of Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) of the TFEU. Parties from the motor vehicle sector should use these Guidelines as a supplement to and in conjunction with the General Vertical Guidelines.

What's new:

- Multi-branding no longer obligatory: Manufacturers will now be covered by the block exemption if they agree exclusive purchasing obligations with distributors as to over 80% of their requirements. This means that multi-branding will no longer be obligatory for application of the exemption as a distributor could agree to take one brand only. Any non-compete obligations must be limited to 5 years after which point the distributor must be free, if they wish, to change brands or to take another brand.

- Combination of selective and exclusive distribution system: Under the new legislation both the selective and the exclusive distribution system can be combined, however under the condition that active sale outside the territory is being allowed.

- Possibility of linking sales of new cars and after sales: Under the new regulation, manufacturers can impose to their distributors to also carry out after sales services.

- Market shares sale of new cars (Primary market): To apply the new regime it will be necessary to understand the market shares of two different markets. Indeed, the market shares of both the supplier and the distributor must be below 30% on their respective markets, where under the old regime only the manufacturer’s market share was to be considered. The guidelines also point out that quantitative systems are likely to be compliant with the competition rules where the manufacturer’s market share is up to 40% even if they cannot use the block exemption.

- Market shares after market: It is important to note that with the market share threshold set at 30% the agreements relating to most authorized after sales networks are unlikely to benefit from the block exemptions.  This is because these markets tend to be brand specific and therefore manufacturers will necessarily have higher market shares. Therefore it will be necessary to assess their compatibility with the competition rules on an individual basis. As the new automotive guidance notes most authorised after sales networks will need to operate as qualitative rather than quantitative.

- Location clause: As long as the market share threshold of 30% is met it will be possible to impose clauses preventing distributors from opening new branches.

- Hardcore restrictions for the After Market:  The new Automotive Block Exemption Regulation 461/2010 contains three hardcore restrictions, which must not be included in agreements if the parties wish to benefit from the block exemption.  The three restrictions are as follows:

The restriction of members of a selective distribution system from selling spare parts to independent repairers which use these spare parts for the repair and maintenance of a motor vehicle.

The Restriction of a supplier of spare parts, repair tools or diagnostic or other equipment from selling these goods or services to authorised or independent distributors or to authorised or independent repairers or end users.

A manufacturer restriction of a supplier of components for the initial assembly of motor vehicles from placing its trade mark or logo effectively and in an easily visible manner on the components supplied or on spare parts.

Conclusion :

Under the new Block Exemption Regulation, and its further guidance, it is more difficult to review distribution agreements in the light of the cartel prohibition. It is not as easy as before, where only one Block Exemption Regulation was in force, i.e. only the sector-specific Motor Vehicle Block exemption Regulation with exclusion of the General Block exemption Regulation. In addition, the requirement that market shares of both parties don’t exceed 30% can play tricks. Nevertheless it remains essential that the review also will be effectively done by all parties wishing to close or have to face distribution agreements or other vertical agreements.

17 June 2010

Griet Verfaillie - Ann Vranken