Use the European Commission’s New Informal Guidance Procedure to Ensure Your Agreements Comply with Competition Law

by | Jan 23, 2023 | Antitrust

EU competition law strives to protect competition. The law which says what terms an agreement may contain, Article 101 TFEU, therefore prohibits any restriction which harms competition. Yet while some restrictions, such as an agreement to fix prices, clearly harms competition, other restrictions, such as a selective distribution system, may offer a benefit to companies, allowing them to do business better and thus enhancing competition.

To provide legal certainty the European Commission has, regarding many subjects, issued an appropriate block exemption. A block exemption contains a list what it calls a hardcore restriction, a restriction which Article 101 TFEU will never allow. It also identifies a restriction which undertakings (as EU competition law calls companies) can, most probably, include in an agreement without violating the competition act. If undertakings include such a restriction in an agreement the block exemption will provide an exemption—and exemption to competition law—in effect saying that the restriction does not violate the competition act.

The European Commission has issued a different block exemption for many different areas of business. One block exemption will cover, for example an RD agreement. Another block exemption, commonly called the vertical guidelines, covers a vertical agreement (relating to distribution). And what is commonly called the horizontal guidelines will cover horizontal agreements (a cooperation agreement between competitors).

To protect competition throughout the European Union the article 101 TFEU self-assessment provision makes every block exemption directly enforceable. Regulation 12003 requires every company throughout the European Union to decide for itself if it is complying with a block exemption. But it is not always easy to know, for example, if a joint venture can benefit from the RD BER.

To provide more legal certainty the European Commission announced on 3 October 2022 its informal guidance notice. The European Commission will now provide informal guidance to undertakings. It will provide legal certainty by issuing what it calls guidance letters. This is technically informal guidance which the European Commission will issue when companies ask questions the Commission deems to be economically important and relevant to many businesses throughout the European Union.

For example, since many companies enter into horizontal cooperation agreements the Commission may be inclined to offer guidance as to whether a provision in such an agreement violates EU competition law.
The Commission can impose harsh measures, even criminal penalties, on those who break the law. It can impose fines of 10% of global turnover, disqualify directors, and can impose those criminal sanctions. Companies should therefore not violate the law. Just fighting Commission allegations consumes time, money, and harms a company’s brand.

This guidance system is therefore crucially important. The guidance the Commission offers will most probably help a company comply with the law. But if a company follows the guidance, and a European court, or the court of a member state, later says the guidance was wrong, the company is unlikely face the serious consequences it would otherwise face. These are called comfort letters for a reason.