The Court of Justice provided further guidance on long-term exclusivity clauses in distribution agreements

In an Order of 4 December 2014, the Court of Justice provided guidance on the compliance of long-term exclusive purchasing or "single branding" clauses in distribution agreements on the basis of preliminary questions from a Spanish civil court. The Court of Justice decided that long-term exclusivity clauses may not have the effect of restricting competition if the parties to the agreement have a limited market share and the duration of the exclusivity clause is not manifestly excessive of what is common in the relevant market.

The case concerned a supply agreement between oil supplier Galp and gas station operator Estación de Servicio Pozuelo, which included a single branding clause on the basis of which Estación de Servicio Pozuelo was bound to exclusively purchase oil products from Galp for a period of at least 30 years.

As already established in previous case law, the court noted that exclusive purchasing clauses cannot have the object to restrict competition but that the effects of the clauses need to be verified. The effects of the clause should not be assessed in isolation but account has to be taken of the legal and economic context, including similar contracts in the relevant market. If the market is not easily accessible as a result of a cumulation of long-term exclusivity clauses in the relevant market, it should be assessed whether the contract at stake significantly contributes to this foreclosure effect, taking into account the market position of the contract parties and the duration of the exclusivity. If the duration of the exclusivity is manifestly excessive of what is common on the relevant market, the clause will in principle be in violation of Article 101 TFEU. This will be a question to be decided by the referring court.

The Court of Justice continued and made an interesting addition by also considering that if the market share of GALP was only 3%, as stated by the referring court, it would be contrary to the purpose of free competition to declare a long-term exclusivity clause void, as this would make it more difficult for GALP to penetrate the market in favor of other parties with a stronger market position (in the case at hand 70% of the market was controlled by three competitors).

The case confirms that exclusive purchasing clauses with a duration that extends beyond the five year exemption for parties with a market share of 30% or less under Article 5 of the Block Exemption Regulation for vertical agreements, may very well still comply with competition law. Such clauses should be assessed on the basis of an effects-based approach, taking into account particularly the market position and relative duration of the clauses in the market context.

See for a more extensive analysis of the legal framework for exclusivity clauses in distribution agreements (in Dutch) S. Tuinenga, "Gas terug bij exclusiviteitsbedingen in de brandstofsector", M&M 2014-4.