The notion of vertical and horizontal cartels in competition law

Competition law aims to ensure healthy and undistorted competition in the market, to the benefit of consumers and economic efficiency. At the heart of this system, both in European Union law and in French law, is the prohibition of anti-competitive agreements. The reference text is Article 101 of the Treaty on the Functioning of the European Union (TFEU), which lays down a principle prohibiting agreements between undertakings that restrict competition.

An agreement is a coordination between several economic actors who decide to adjust their behaviors instead of determining their commercial strategy independently. The regulation mainly distinguishes two types of cartels according to the nature of the relationship between the companies concerned: horizontal cartels and vertical cartels. Although both are subject to the same prohibition principle, their analysis and the exemption regimes applicable to them differ significantly due to their distinct effects on the market.

The purpose of this note is to define these two concepts, to set out the legal framework applicable to them and to present the derogation regimes allowing, under conditions, to validate such agreements.

The general framework for the prohibition of cartels

Article 101 of the TFEU prohibits “all agreements between undertakings, decisions by associations of undertakings and concerted practices which are likely to affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market“.

The notion of agreement

The agreement may take various forms, whether written or oral, express or tacit. It covers three types of behaviour:

1. The agreement between companies : a contest of wills between at least two autonomous entities. The concept of enterprise is broad and encompasses any entity carrying out an economic activity, regardless of its legal form or its method of financing;
2. Concerted practice : a form of coordination which, without having reached the stage of concluding a formal agreement, knowingly substitutes practical cooperation for the risks of competition;
3. Business association decisions : decisions taken by professional groups or trade unions that bind their members.

The fundamental distinction: restriction by object or effect

To fall under the prohibition, a cartel must have an anti-competitive purpose or effect .

• Restriction by object : These are agreements that, by their very nature, present a “sufficient degree of harmfulness” to competition so that it is not necessary to analyze their concrete effects. Case law considers that certain practices, such as price fixing or market allocation, are so harmful that they are presumed to be unlawful;
• Restriction by effect : If the agreement does not have an anti-competitive purpose, then it must be demonstrated that it produces actual or potential restrictive effects of competition on the market concerned. This analysis requires a thorough examination of the economic and legal context.

Effect on trade between Member States:

The cartel must be likely to affect trade between Member States. This condition makes it possible to distinguish the scope of European Union competition law from that of national laws. The allocation of trade is established when such an allocation could undermine the achievement of the objectives of a single market between States.

Horizontal agreements: cooperation between competitors

An agreement is qualified as horizontal when it is concluded between competing companies, i.e. operating at the same level of the production or distribution chain.

The most serious practices: cartels

Horizontal cartels are viewed with particular distrust by competition authorities, as they are most likely to cause serious harm to the market. The most characteristic examples, often referred to as “cartels”, include:

• Joint fixing of selling prices;
• The distribution of markets or customers;
• the limitation of output or sales;
• The exchange of strategic information (future prices, quantities, etc.).

For example, the Competition Authority sanctioned a horizontal cartel in the food containers sector, where companies and professional bodies had put in place a “collective strategy to prevent manufacturers in the sector from competing” on the presence or absence of bisphenol A (BPA) in their products (Decision No.23-D-15 of 29 December 2023).

The Exemption Regime for Horizontal Agreements

Despite the prohibition principle, Article 101 §3 TFEU allows certain agreements to be exempted (and therefore declared compatible with the internal market) if they generate efficiency gains (improvement of production, promotion of technical or economic progress) that benefit consumers, without eliminating competition.

To facilitate this analysis, the European Commission has adopted Block Exemption Regulations (BERs). On 1 June 2023, new versions of these regulations entered into force for horizontal agreements, in particular for:

• Research and development agreements
• Specialization agreements.

These regulations create a “safe zone” for agreements that meet their conditions, including thresholds for the cumulative market shares of participating companies. However, they explicitly exclude from the exemption agreements containing “hardcore restrictions” (or “black clauses”), such as price fixing or production limitation.

Vertical agreements: the organisation of commercial relations

An agreement is said to be vertical when it binds companies operating at different levels of the production or distribution chain, for example between a supplier and its distributor. These agreements, such as franchise, exclusive or selective distribution agreements, are ubiquitous and structure many markets.

A more nuanced analysis

Vertical agreements are generally perceived as less dangerous than horizontal agreements, as they can generate significant efficiency gains (better coordination, cost reduction, brand promotion). However, they can also restrict competition, including intra-brand (between distributors of the same brand) or inter-brand (between different brands) competition.

The most common vertical restraints include:

• Resale price maintenance
• Territorial exclusivity or customer clauses;
• Non-competition clauses
• Buy On Line

The Vertical Agreements Exemption Regulations

The main tool for assessing the legality of vertical agreements is the Regulation (EU) No 2022/720 ‘ on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices “, entered into force on 1 June 2022, which replaces the former Regulation No. 330/2010.

This Regulation exempts vertical agreements from the prohibition of Article 101 (1) provided that:

1. The market share of the supplier and that of the buyer do not exceed, each, 30% in their respective markets;
2. The agreement does not contain any hardcore restrictions (black clauses).

Among the hardcore restrictions that deprive the agreement of the benefit of the exemption as of right, we find in particular:

• The imposition of a fixed or minimum resale price;
• Territory or customer restrictions (with certain exceptions, for example to protect an exclusive distributor);
• Restrictions to prevent members of a selective distribution system from selling to unlicensed distributors;
• Restrictions on online sales, although the new regulation has clarified and adapted the rules to the era of e-commerce and online platforms.

The new regulation also introduced specific rules for dual distribution: a provider of online intermediation services that also sells goods or services in competition with business users of its platform is now treated as a provider in a dual distribution situation. The new regulation has tightened the exemption conditions for this practice, mainly with regard to the exchange of information between the supplier and its distributors.

The main novelty is that the block exemption no longer covers the exchange of information between the supplier and its distributor when their combined market share in the retail market exceeds 10%. In this case, the exchange of information must be assessed individually with regard to the rules applicable to horizontal agreements (between competitors), which are stricter.

• Types of information allowed: Exchanges of information necessary for the implementation of the vertical agreement (e.g. technical product information, sales price recommendations, aggregated sales data) generally remain allowed;
• Information at risk: The exchange of strategic information, which is not essential for the execution of the distribution contract, is likely to be considered as an illegal cartel. This includes, for example, information on future prices, business strategies or specific customers.

Conclusion

The distinction between horizontal and vertical cartels is fundamental in competition law. While agreements between competitors are presumed dangerous and heavily sanctioned, vertical agreements benefit from a more flexible approach, recognizing their pro-competitive potential.

However, this distinction is not always watertight, especially in “dual distribution” situations where a supplier is also in competition with its own distributors. The complexity of the analyses, the severity of the sanctions in case of infringement and the constant evolution of the rules, as evidenced by the recent reforms of the exemption regulations, make it essential to regularly audit practices and contracts. The advice of a specialist lawyer is therefore crucial to secure trade agreements, ensure their compliance with competition law and allow companies to benefit from the exemptions provided for by the texts.