Vertical Agreements Casework Elisa Holmes Monckton Chambers London

Vertical Agreements Casework Elisa Holmes Monckton Chambers London eholmes@monckton. com 1 -2 Raymond Buildings, Gray’s Inn, London, WC 1 R 5 NR, UK +44 (0)20 7405 7211

The scenario • Comp. Co wants to manufacturer own brand computers (and accessories) and supply computers within the country Techland. • There are very few computers on the market in Techland. Those computers that there are generally either imported by very wealthy residents or are of very poor quality, put together but individual operators who have no significant presence in the market. • Comp. Co is considering two different alternative ways of setting up its business. Its ultimate aim is to obtain as strong a market position as possible and to obtain this position in order to limit the ability of competitors to set up business. Comp. Co intends to manufacture good quality products which are more accessible than expensive imports and better quality than the computers currently supplied by small individual operators.

Alternative 1 1. Manufacturing the computers itself from components acquired from various component manufacturers and selling these units to various retailers. This could be achieved using: a. b. c. Selective distribution (pursuant to various criteria). Distributors might or might not be allowed to sell other brands. Exclusive distribution, so that Techland is divided up into a number of territories, and one supplier is granted exclusive supply in each territory. Transport facilities are not great in Techland, and so it is very unlikely that consumers will be able to travel to alternative territories in order to purchase a computer. Further, distributors are not allowed to sell to each other. Exclusive customer allocation, so that Comp. Co agrees to sell its computers to particular retailers to sell to particular classes of customer. For example, educational institutions, government organisations, private individuals and companies will each be supplied by one separate retailer. Consider the possibility also that new entrants to the market adopt similar approaches.

Alternative 2 2. Creating a franchise network. Franchise agreements would impose conditions as to such things as store layout, advertising, items to be sold, minimum, actual or maximum prices etc. They might also include a non-complete clause. Further, two different models could be adopted: a. b. c. Franchises could sell only Comp. Co brand products, all of which must be acquired from Comp. Co. Franchises could sell Comp. Co brand products, but also other brand products which can be used with Comp. Co brand computers, such as printers, paper and other accessories. All Comp. Co brand products must be purchased from Comp. Co, and other brand products can be purchased from Comp. Co or such other suppliers as Comp. Co might nominate (although it does not have to nominate any other suppliers). Franchises could be required to put together the computers themselves, acquiring component parts from specified manufacturers. This could be carried out in combination with either a. or b. above.

Considerations In considering these scenarios, consider: • The advantages of each possibility for Comp. Co • The advantages of each possibility for the promotion of inter or intra-brand competition • The competition concerns given the current market conditions • The competition concerns if more competitors entered the market • Ways of avoiding competition concerns within the relevant structure