In the February legal circular, we will address competition, specifically so-called vertical agreements. These arise as agreements between competitors which occur at different levels of the market, typically in the relationship between manufacturer (or supplier) – further distributor (including final sellers), and which relate to the purchase or sale of goods or services. The approach to vertical agreements is highly topical primarily with regard to the impact this may have on the practice of internet traders as final sellers of goods.

Vertical agreements form a group of agreements which are provided for in Act No. 143/2001 Coll. on the Protection of Competition, as amended (hereinafter “the Act on the Protection of Competition”) in the provision of Section 5(2). These are a type of agreement in respect of which it is generally accepted that they do not normally restrict competition under conditions where one of the parties does not have significant market power or the agreement does not contain any of the so-called hard core restraints.

In this legal circular, we will focus on those agreements in which the parties have agreed the selling price for further distribution. This essentially includes the following four types of agreements: (i) the distributor is obliged or motivated to sell goods at a certain fixed price, (ii) the distributor is obliged or motivated to sell goods not below a certain minimum price, (iii) the distributor is obliged or motivated to sell goods not above a certain maximum price, (iv) the distributor is merely recommended a price.

Agreements on fixed determination or on determination of a minimum permissible distribution price are assessed precisely as the above-mentioned hard core restraints. Any arrangements on fixed determination of prices or minimum permissible price are considered to be arrangements whose primary purpose is to prevent competition and as such are unlawful and thereby invalid. This determination of price may be established both directly and indirectly. The indirect method may consist, for example, in limiting margins, discount promotion possibilities or other various methods of calculating the price of goods.

Agreements containing arrangements on recommended prices or establishment of a price ceiling, on the other hand, will restrict competition only if the consequence of these agreements were a uniform price level of goods on the market and thereby the functioning of traditional market mechanisms were excluded. When assessing arrangements on recommended prices or establishment of a price ceiling, the following indicators will be taken into account: (i) the position of the supplier on the market, (ii) the position of the buyer on the market, (iii) the market position of competitors, (iv) the nature of the product, (v) individual specific circumstances of the case.

Somewhat more complex, however, will be the establishment of recommended prices. These must not under any circumstances be enforced by any party to the agreement, for example by monetary sanctions, the possibility of withdrawing from the supply contract and the like. In such a case, it would not be a matter of recommended prices, but of indirect establishment of fixed prices, which are, as mentioned above, unlawful.

In the Czech Republic, compliance with competition rules and protection of the competitive environment is the responsibility of the Office for the Protection of Competition (Úřad pro ochranu hospodářské soutěže). This office is vested with the power to investigate possible violations of the law and subsequently to sanction such violations.

Mgr. Lukáš Barnet

Law Firm Mašek, Kočí, Aujezdský www.e-Advokacie.cz – on-line legal advice

This text was originally prepared by the law firm Mašek, Kočí, Aujezdský in cooperation with the Association for Electronic Commerce (APEK) as legal circular No. 2/2013 intended for members of this association.

This text was translated from Czech to English using an AI translator.