In competition law, agreements between different suppliers on the market fall mainly into two categories: vertical agreements are concluded between traders at different levels of the supply chain such as those between a manufacturer and a retailer. On the other hand, agreements between traders operating at the same level in the market are referred to as horizontal agreements.
Certain types of vertical agreements can improve economic efficiency within a production or distribution chain and to this extent they are not considered to fall foul of competition law rules. Others, however, are caught by the competition rules and are considered as having the object of harming competition.
The case law of the Court of Justice distinguishes between agreements which are capable of restricting competition by their very nature and those agreements which have the effect of restricting competition. In the case of object restrictions, a competition authority does not need to establish any actual effect on competition to find infringement of competition rules. For all other types of agreements, the burden lies with the competition authority to carry out a detailed analysis to show that competition has in fact been restricted.
The Court of Justice of the European Union (CJEU) was recently called upon to examine one such vertical agreement concluded between insurance companies and repair shops in Hungary. Once a year, two Hungarian insurers – Allianz and Generali – established with car repair shops the conditions and rates applicable to repair services payable by the insurer in the case of accidents involving insured vehicles. The agreements concluded between the insurers and the dealers provided that the dealers’ remuneration for car repairs increased according to the number and percentage of insurance policies sold for the insurer concerned.
The agreements linked two activities which are in principle independent
The dealers thus became connected with the insurers in two ways: through the repairs of cars insured by the insurers and by acting as intermediaries on behalf of the insurers by offering car insurance to their customers on the occasion of the sale or repair of vehicles.
The Hungarian Competition Authority found that these agreements qualified as a restriction of competition by object and imposed high fines on the undertakings concerned. The Hungarian Supreme Court referred to the Court of Justice for guidance on whether the agreements in question could indeed be regarded as being anti-competitive by object.
The Advocate General in his opinion advised the Luxembourg Court that these agreements are not restrictive by object. He explained that while certain forms of collusion between undertakings can be regarded as harmful to competition by their very nature due to their high potential of negative effects on competition, others may not so be. He considered that the vertical agreements in question fell within the latter category.
The Court of Justice begged to differ in this case and moved away from the opinion of its Advocate General. The CJEU observed that the hourly repair charge increased proportionately with the number and percentage of insurance contracts that the dealer sold for that company. Thus, the agreements linked two activities which are in principle independent. Despite the fact that these agreements are concluded vertically, between traders not competing with each other and with normally independent activities, their link could in this case be regarded as a threat for the competitiveness of the market. Furthermore, it was noted that the insurance companies aimed to maintain or increase their market shares.
In its ruling, the CJEU emphasised that in order to determine whether an agreement involves a restriction of competition by object, the content of the clauses of an agreement, its objectives and the economic and legal context of which it forms part must be analysed. The Court asserted that it will now be up to the Hungarian jurisdiction to verify the degree of threat that the concluded agreements can pose to the competition of the market.
In requiring an extensive analysis, the ECJ appears to blur the distinction between object restrictions, where an effect on competition is presumed, and other restrictions, for which it is necessary for a competition authority to show an actual effect on competition.
Josette Grech is an adviser with Guido de Marco & Associates and heads its European Law division.