Super Bock is the leading beer manufacturer in Portugal. The Portuguese Competition Authority considered that it implemented a rather tight control over its distributors from 2006 to 2017 by approving minimum resale prices on a monthly basis and circulating them to distributors. The Portuguese Competition Authority considered that distributors were then required to report their sales pricing data to Super Bock and, in case of failure to comply, could be deprived from rebates and discounts.
The Portuguese Competition Authority considered that such conducts could amount to RPM and imposed a 24 million euros fine on Super Bock and two managers for infringing Article 101 TFEU and corresponding provisions of national law.
The Lisbon Appeal Tribunal however referred the case to the ECJ to seek guidance on the notion of restriction of competition by object in the context of RPM.
With Super Bock, the ECJ clarifies the treatment of RPM under EU competition law. The judgment calls competition authorities, companies and practitioners to observe the following principles:
- Prove it: RPM is deemed to exist where a supplier issues recommended resale prices, monitors actual prices, and where distributors actually comply.
- Do not rush: RPM is a hardcore restriction in the meaning of the Vertical Block Exemption Regulation (“VBER”), which means that the agreement loses the benefit of the block exemption. However, it is still necessary to assess its compliance with Article 101 TFEU.
- Know your classics: RPM may be a restriction by object, which should be evidenced on the basis of the formal content and purpose of the agreement, while taking into account the overall economic and legal context.
- Do not think you are in the US: Under EU law, assessment of RPM does not involve any “rule of reason” or any detailed balancing of pro and anticompetitive effects.
Prove it: The standard of proof for RPM
Vertical restraints may be directly provided for in distribution agreements, in such case there is not much debate as to their existence. However, they may also result from formal or informal requests, orders and prohibitions, that the supplier communicates to its distribution network, without distributors expressly consenting to it.
In Super Bock, the ECJ rules that RPM, to which distributors agreed, may be established on the basis of the following criteria: (i) the supplier shares retail prices (whether mandatory or recommended) with its distributors; (ii) the supplier monitors compliance of its distributors and implements retaliatory measures as the case may be, and (iii) in practice, distributors follow the resale prices recommended / imposed by the supplier (para. 52). It may also be the case that distributors actively seek indications from the supplier as to their appropriate price level.
Proof of the above may result from direct evidence but also from consistent coincidences and indicia (para. 57).
Do not rush: The interplay between VBER and Article 101 TFEU
The status of RPM in EU competition law recently attracted much attention as part of the European Commission’s initiative to review the VBER. VBER sets the conditions for distribution agreements to be considered exempted from Article 101 (1) TFEU, which prohibits anticompetitive agreements.
Under the 1999 and 2010 VBERs, RPM was treated as a hardcore restriction, meaning that any distribution agreement including RPM provisions would lose the benefit of the block exemption. Many stakeholders advocated for a more relaxed approach of RPM under VBER over the recent years. Nevertheless, the European Commission maintained its firm stance on this matter and RPM is still a hardcore restriction under the 2022 VBER. The Vertical Guidelines of the European Commission recall that RPM is harmful to competition (as it prevents intra-brand competition among distributors) although it may have in some cases pro-competitive effects.
In the Super Bock judgment, the ECJ acknowledges that VBER may very well be relevant for an assessment of RPM. However, mere finding that an agreement contains a hardcore restriction (such as RPM) does not allow to jump to the conclusion that this agreement should be automatically prohibited under Article 101 (1) TFEU: “the concepts of ‘hardcore restrictions’ and of ‘restriction by object’ are not conceptually interchangeable and do not necessarily overlap. It is therefore necessary to examine restrictions falling outside that exemption, on a case by case basis, with regard to Article 101 (1) TFEU” (para. 41).
Know your classics: Assessing RPM under Article 101 (1) TFEU
A restriction by object under Article 101 (1) TFEU is a conduct which is so obviously restricting competition that it is not even necessary to assess its detailed and concrete effects on the market (for instance price fixing or customer allocation). However, knowing whether a given conduct may be characterized as restriction by object still requires some analysis.
The anticompetitive object of an agreement needs to be demonstrated taking into account (i) a formal assessment of the agreement and of its purpose, which should evidence that it is quite commonly admitted to restrict competition in view of the existing experience and knowledge; and (ii) the economic and legal context. If this test is not met, the agreement may still be anticompetitive based on its effects on competition. The notion of restriction by object is therefore purely procedural as it merely sets the standard of proof for a competition authority to find a violation of Article 101 TFEU.
Although the first limb of the test is quite easy to understand (especially when it comes to a distribution agreement whose provisions are usually formalized in a precise manner), the analysis of the economic and legal context is unfortunately often overlooked.
A restriction by object is not a purely formal infringement. On the contrary, it is necessary to assess whether the context of the agreement confirms or casts doubt as to its anticompetitive purpose. Assessment of the context of an agreement may even go as far as taking into account the alleged pro-competitive effects of the agreement, if those are sufficient to question the nature of the agreement. The ECJ has repeatedly recalled the importance of context over the recent years: Allianz Hungaria (2013),Cartes Bancaires (2014), Generics (UK) (2020), or Budapest Bank (2020) are all recent examples in that respect and have quickly turned into classics. Yet, relevance of context appeared in case law as early as 1966 with the Société Technique Minière and Consten and Gruding judgments.
In Super Bock, the ECJ recalls that these very principles apply in the same way to vertical agreements, in particular for RPM:
“When determining that context, it is also necessary to take into consideration the nature of the goods or services affected, as well as the actual conditions of the functioning and structure of the market or markets in question […]. In addition, where the parties to the agreement rely on its procompetitive effects, those effects must, as elements of the context of that agreement, be taken into account. Provided that they are demonstrated, relevant, intrinsic to the agreement concerned and sufficiently significant, those effects may give rise to reasonable doubt as to whether the agreement concerned caused a sufficient degree of harm to competition”. Emphasis added (para. 35-36).
In fact, the ECJ could not comment much more on the case. Indeed, the Lisbon Appeal Tribunal did not provide sufficient details for the ECJ to provide detailed guidance. It is therefore relevant to note that the Super Bock judgment leaves to the Lisbon Appeal Tribunal the decision to rule whether RPM in this specific case amounts to a restriction by object or not.
However, in the case of RPM, one may imagine circumstances that may cast doubt as to the anticompetitive purpose of an agreement. As mentioned in the European Commission’s own Vertical Guidelines, RPM may be pro-competitive. For instance, it may be pro-competitive to prevent a specific distributor from selling below the wholesale price if, by repeatedly doing so, this distributor uses the product as a loss leader and ultimately damages brand image.
Do not think you are in the US: RPM under EU law is not treated as in the US
The fact that the Super Bock judgment includes such insistence on the overall context made some commentators consider that the ECJ had opened the door to a fully-fledged assessment of the effects of RPM on competition under Article 101 TFEU. In that respect, some have even perceived it as an alignment on the “rule of reason” doctrine in the US.
In the US, since 2007 and the Supreme Court case Leegin Creative Leather Products v. PSKS Inc., the rule of reason commands to assess RPM with regard to the overall balance between pro-competitive and anti-competitive effects. Until then, RPM was treated as a per se infringement of Section 1 of the Sherman Act case under case Dr. Miles Medical Co. v. John D. Park & Sons Co.
The Super Bock judgment does not go as far as Leegin and merely recalls that pro-competitive effects may validly cast doubt as to the anticompetitive purpose of the agreement. However, a detailed assessment of the effects would only be required if such doubt is substantiated (or if any other aspect of the overall context is sufficient to plausibly challenge the anticompetitive purpose of the agreement).
The ECJ is very clear that the acknowledgement of pro-competitive effects as part of the context assessment is not the same as a fully-fledged “rule of reason” under US law. In Generics (UK), which is referred to in Super Bock (para. 36), the ECJ clearly mentioned that:
“Since taking account of those pro-competitive effects is intended not to undermine characterisation as a ‘restriction of competition’ within the meaning of Article 101(1) TFEU, but merely to appreciate the objective seriousness of the practice concerned and, consequently, to determine the means of proving it, that is in no way in conflict with the Court’s settled case-law that EU competition law does not recognise a ‘rule of reason’, by virtue of which there should be undertaken a weighing of the pro- and anticompetitive effects of an agreement when it is to be characterised as a ‘restriction of competition’ under Article 101(1) TFEU” (para. 104).
The rationale for maintaining such a firm stance relates to the fundamental difference between Section 1 of the Sherman Act and Article 101 TFEU. Article 101 TFEU provides for the possibility of an exemption (whether individual or block) under Article 101 (3) TFEU. On the contrary, Section 1 of the Sherman Act does not include any such redeeming provision. The “rule of reason” is therefore necessary to counter-balance the strength of the blanket prohibition. The ECJ made this very clear in the 2001 Métropole Télévision case:
“[The requirement to take into account the economic and legal context of an agreement], while observing the substantive scheme of Article [101] of the Treaty and, in particular, preserving the effectiveness of Article [101 (3)], makes it possible to prevent the prohibition in Article [101 (1)] from extending wholly abstractly and without distinction to all agreements whose effect is to restrict the freedom of action of one or more of the parties. It must, however, be emphasised that such an approach does not mean that it is necessary to weigh the pro and anti-competitive effects of an agreement when determining whether the prohibition laid down in [Article 101 (1)] of the Treaty applies.” (para. 77).
Super Bock: A landmark case for a common antitrust infringement
RPM remains an enforcement priority of competition authorities, both for the European Commission and national competition authorities in Bulgaria (July 2023), Czech Republic (May 2023), Greece (April 2023), France (April 2023), Belgium (January 2023), Spain (December 2022), Poland (December 2022), Austria (December 2022) or Portugal (December 2022).
Super Bock therefore comes as a very useful guidance to recall the standards and principles that should govern RPM proceedings.
Authored by Victor Levy and Pierre Chellet.
