National Competition Law Report – Q3 2006

POLICY AND PROCEDURE

Draft amendment to the Notice on Vertical Agreements.

On September 5, the FCC issued a draft amendment on the Notice on Vertical Agreements of February 18, 2002.

The purpose of the Notice on Vertical Agreements is to identify vertical agreements that are presumed to eliminate or appreciably restrict competition and those that are considered as appreciably restricting competition and therefore unlawful in the absence of economic efficiency justifications. The FCC intends to adapt the Notice on Vertical Agreements of February 18, 2002 to come in line with the amendments to the Competition Act of June 20, 2003 and to the Swiss De Minimis Notice of December 21, 2005, ensuring harmonization with EC competition law (in particular, the EC Block Exemption Regulation).

The draft amendment to the Notice sets forth the following principles:

Elimination of competition. Pursuant to Section 5 par. 4 of the Competition Act, vertical agreements that determine minimum or fixed resale prices or absolute territorial protection are presumed to eliminate competition. The presumption of a restriction eliminating competition cannot be rebutted by evidence of the existence of inter-brand competition and cannot be justified on grounds of economic efficiency.

Appreciable restriction of competition. The following agreements (qualified restrictions) are generally considered as appreciably restricting competition and therefore are unlawful:

the direct or indirect determination of resale prices or minimum resale prices;

direct or indirect territorial or customer allocation;

limits on members of a selective distribution system making active and passive sales to end users;

the restriction on cross-supplies between distributors within a selective distribution system;

the restriction on selling spare parts to third parties;

a non-compete obligation, the duration of which exceeds five years or one year after the termination of the agreement; or

the restriction on selling other brands within a selective distribution system.

However, when the market share held by the supplier (or purchaser, as the case may be) does not exceed 30% of the relevant market, vertical agreements are presumed to be justified by economic efficiencies, except those vertical agreements which contain restrictions presumed to restrict competition appreciably. Nonetheless, where the relevant market share is not in excess of 30%, even agreements containing restrictions presumed to restrict competition appreciably can be justified (upon an individual analysis) on the grounds of economic efficiency, provided that:

the fixing of...