Under EU competition law, it is allowed in most vertical agreements to grant distributors exclusivity for a territory or customer group. Selective distribution is the well-known exception, where no geographic restrictions may be imposed on any level in the selective network. The EU’s Vertical Block Exemption Regulation (VBER) allows suppliers to restrict active sales by a distributor as to the territories of exclusive customers reserved by the principal or allocated to other exclusive distributors (provided this does not restrict the customers of such distributors).
Passive sales may not be restricted. The Guidelines on Vertical Restraints of the European Commission (the Guidelines) define passive sales as follows
[R]esponding to unsolicited requests from individual customers including delivery of goods or services to such customers. General advertising or promotion that reaches customers in other distributors’ (exclusive) territories or customer groups but which is a reasonable way to reach customers outside those territories or customer groups, for instance to reach customers in one’s own territory, are considered passive selling.
Sales over the internet are included in the Guidelines’ definition of passive sales.
The qualification of a passive sale was recently expanded in an interesting Austrian case, which may have an impact on procurement in the other EU countries.
The Austrian National Competition Authority (NCA) received a complaint from a public hospital operator with respect to difficulties procuring surgical instruments from distributors abroad through an EU-wide public procurement process. Other distributors in the EU were allegedly unable to sell the medical devices due to exclusive distribution rights granted by the supplier to an Austrian distributor.
The NCA found that participation in a public procurement procedure amounts to a passive sale, which cannot be subject to restrictions in distribution agreements. In response to the concerns raised by the NCA, the parties have offered to eliminate the restrictions identified and clarify distribution agreements in accordance with EU competition law. On 22 May 2018, the NCA requested that the Austrian cartel court make the commitments binding. Such a decision by the cartel court would make no determination as to the existence of a competition law infringement, but the underlying definition of a passive sale may be a compelling precedent.
Given the implications of restricting passive sales, which is clearly prohibited under EU law and many national competition laws, parties should consider amending their existing distribution contracts.