This article aims to explore key aspects of Regulation (EU) 2022/720 (Regulation), which governs the block exemption of specific vertical agreements in the European Union market, with a focus on its implications within the Bulgarian market, particularly for its dynamic IT sector, which had a 26% growth in 2022 and reached 4.5% of the country’s GDP. Further to that, Bulgaria has seen even more foreign investments by VCs and big corporations alike, therefore such antitrust legislations are closely followed by the business ecosystem. Some of the world’s biggest automotive giants also have software and engineering development centers here, with new leading players expected to enter soon.
The government has always aimed to strike a balance between encouraging entrepreneurialism and safeguarding broader economic welfare by enforcing competition law. By scrutinizing M&As, imposing restrictions on market concentration, and regulating dominant players, antitrust legislation seeks to maintain a level playing field and protect the interests of smaller market participants. But that was hard in the past couple of years as Bulgaria was not able to form a stable government and, therefore, implement new principles. Against this background, Regulation (EU) 2022/720, which establishes revised regulations governing the block exemption of specific vertical agreements in the EU, enters the stage. The Bulgarian market, recently recognized for its vibrant IT and BPO sectors, presents unique challenges and opportunities for fair competition. Under the regulation, a vertical agreement refers to an agreement or concerted practice between undertakings that operate at different levels of the production or distribution chain. These agreements regulate the conditions for purchasing, selling, or reselling specific goods or services. In Bulgaria, the IT sector plays a critical role in the economy, with numerous tech companies driving innovation and contributing to market competition. Understanding the implications of vertical agreements within the Bulgarian IT sector is essential for businesses and legal professionals to ensure compliance with antitrust legislation.
Market Share Thresholds and Exemptions
The regulation establishes market share thresholds for the application of exemptions. The supplier’s market share should not exceed 30% of the relevant market for the contract goods or services, and the buyer’s market share should also remain below 30% in the relevant market. Exemptions provided under Article 2 apply to vertical agreements containing vertical restraints, subject to certain conditions.
The exemptions cover vertical agreements between associations of undertakings and individual members or suppliers, provided all association members are retailers of goods and if no individual member of the association, together with its connected undertakings, has a total annual turnover exceeding EUR 50 million. The exemptions also extend to vertical agreements involving intellectual property rights if these provisions are not the primary objective and are directly related to the use, sale, or resale of goods or services.
Exceptions and Hardcore Restrictions
The regulation identifies certain hardcore restrictions that remove the benefit of the block exemption. These restrictions include those on (1) resale price – while suppliers can impose maximum sale prices or recommend prices, fixed or minimum sale prices resulting from pressure or incentives are not permitted; (2) active and passive sales – exclusive and selective distribution systems face restrictions on territories, customers, and end users, though some limited exceptions apply to ensure fair competition; (3) online sales – preventing the effective use of the internet by buyers or customers for selling contracted goods or services is considered anti-competitive unless specific conditions are met; and (4) spare parts and repairs – agreements that limit a supplier’s ability to sell components as spare parts or restrict repairs by unauthorized service providers are prohibited.
Challenges for Bulgarian Digital Business
While antitrust legislation has proven effective in maintaining competition, it faces certain challenges in the digital age. The rise of dominant global tech giants presents a unique challenge due to the disparity in scale between Bulgarian tech companies and these industry giants. Complex cross-border transactions and emerging technologies further complicate the enforcement of antitrust laws in Bulgaria’s evolving digital landscape. Regulatory bodies and antitrust authorities in Bulgaria must adapt to these challenges by employing innovative approaches, fostering collaboration, and staying vigilant against emerging anti-competitive trends.
The regulation plays a crucial role in promoting fair competition. As Bulgaria is becoming more and more interesting for foreign investments, understanding the definitions, exemptions, market share thresholds, and hardcore restrictions outlined in the regulation is essential to avoid anti-competitive practices and contribute to a level playing field for all participants in the marketplace.
By Yoanna Ivanova, IP and Data Protection Head, and Tsvetelina Paskova, Attorney at Law, Gugushev & Partners