Vertical Agreements in Motor Vehicles: What You Need to Know
Vertical agreements are a type of contract between two or more parties wherein one entity agrees to purchase goods or services from another entity. In the motor vehicle industry, vertical agreements are common, particularly between manufacturers and dealers.
Vertical agreements serve the purpose of regulating the terms of trade between manufacturers and dealers. In the motor vehicle industry, these agreements are an essential tool for manufacturers to expand their reach and maintain a competitive edge.
In Europe, vertical agreements in the motor vehicle industry are governed by the European Commission`s Vertical Block Exemption Regulation. This regulation outlines the rules and guidelines for vertical agreements in the European Union.
One of the essential requirements of the Vertical Block Exemption Regulation is that vertical agreements must not have an anti-competitive effect. In other words, the agreement should not prevent, restrict or distort competition.
The European Commission has identified some of the common practices in vertical agreements that may be anticompetitive. These practices include:
– Price fixing: An agreement between a manufacturer and a dealer to fix the resale price of a vehicle or set a minimum price.
– Restricting parallel imports: An agreement that prevents parallel imports of motor vehicles.
– Minimum purchase requirements: An agreement that requires a dealer to purchase a minimum quantity of vehicles from the manufacturer.
Vertical agreements must also meet other requirements outlined in the Vertical Block Exemption Regulation. For example, the agreement must not limit the buyer`s freedom to determine which products to sell or to whom to sell them. Additionally, the agreement must not contain any clauses that restrict the buyer from purchasing similar products from a competitor.
Vertical agreements in the motor vehicle industry are subject to scrutiny by competition authorities, and manufacturers and dealers must ensure that their agreements comply with all relevant regulations. Failure to comply with regulations can result in fines and penalties.
In the United States, vertical agreements in the motor vehicle industry are governed by the Sherman Antitrust Act. This act prohibits agreements that restrain trade, including vertical agreements that have an anti-competitive effect.
The Federal Trade Commission is responsible for enforcing the Sherman Antitrust Act, and they have taken actions against manufacturers and dealers who have engaged in anticompetitive practices.
In conclusion, vertical agreements in the motor vehicle industry are essential for regulating the terms of trade between manufacturers and dealers. While these agreements can provide benefits for both parties, they must comply with all relevant regulations to ensure they do not have an anti-competitive effect. Manufacturers and dealers should seek legal advice to ensure their vertical agreements are compliant with all relevant regulations.