Commercial Agency and EU Competition Law

Why a genuine agency escapes Article 101

Competition law prohibits agreements between undertakings that restrict competition — Article 101 of the Treaty on the Functioning of the European Union (TFEU), and, in domestic law, Article L 420-1 of the French Commercial Code (Code de commerce). A commercial agency sits in a special position under that prohibition. Because the genuine agent acts in the name and on behalf of its principal, it is regarded, for competition purposes, as the prolongation of the principal's undertaking, and not as an autonomous undertaking in its own right. Two entities that form, in economic substance, a single undertaking cannot conspire with each other; there is no agreement "between undertakings" to catch.

This is not a mere technicality; it is a large part of what makes the agency model commercially attractive, and also what makes it demanding. Because the shelter depends on the principal keeping the commercial risk, a principal that wants the freedom to direct the agent's prices and customers must accept the burdens that go with it — financing the stock, bearing the market-specific investments, carrying the risk of the transactions. Some principals are unwilling to take that risk, which is one reason the category of genuine agents is narrower in practice than the frequency of the "agent" label suggests: an arrangement drafted as an agency but structured so that the operator carries the trading risk will be treated, for competition purposes, as ordinary distribution.

The Court of Justice drew the crucial line early, distinguishing the producer that is bound by an exclusivity agreement to an independent distributor of its products — a relationship fully subject to Article 101 — from the producer that integrates the distribution of its own products through some form of commercial representation, such as an agent. In the second case the agent does not determine its own conduct on the market autonomously; it depends entirely on the principal, who bears the financial and commercial risks of the activity. That absence of autonomy, not the label on the contract, is what places a genuine agency outside the reach of the prohibition on restrictive agreements.

The risk test: genuine versus non-genuine agents

Everything therefore depends on whether the agency is "genuine", and the current test is set out in the Commission's Guidelines on vertical restraints of 30 June 2022 (OJ C 248/1), which accompany Regulation (EU) 2022/720 of 10 May 2022 on vertical agreements. The Guidelines state that an agency contract falls outside Article 101(1) where the agent bears no significant financial or commercial risk in relation to the contracts it concludes or negotiates on behalf of the principal (point 30). The question is economic, not formal: who carries the risk of the transactions?

The Guidelines identify three categories of relevant risk that the agent must not bear — other than negligibly — for the agreement to stay outside Article 101(1) (point 31):

Where the agent bears these risks to a material degree, it is a non-genuine agent: economically an independent operator, and its arrangements with the principal fall to be assessed under Article 101 like any vertical agreement. Where it bears none of them beyond the negligible, it is a genuine agent, and the shelter applies. The Guidelines add refinements — the mere charging back to the agent of a discount it granted the customer is not a relevant risk (a point confirmed in the Daimler-Chrysler case, T-235/01), and the fact that the agent's income depends on its success as an agent is not, in itself, a disqualifying risk.

Del credere and other risk-shifting

A recurring point of difficulty is the del credere undertaking, by which the agent guarantees the customer's performance — typically payment. Assuming a del credere obligation is, in principle, the taking on of a risk that justifies the application of competition law (Vertical Guidelines, point 33), because the agent then bears the consequences of the customer's default on the transaction concluded for the principal. There is, however, a threshold: the agency contract should still escape competition law where the del credere is limited to a reasonable fraction of the unpaid amounts, so that the agent has not, in substance, taken over the principal's commercial risk.

A careful distinction must be drawn here. Where the agent merely loses its own commission if the customer does not perform, that is not a del credere and not a relevant risk: it is simply an arrangement of the basis or the triggering event of the agent's commission — the risk of the success of the agent's own intervention, not the risk of the underlying sale. The line between adjusting how the agent is paid and shifting the principal's transactional risk onto the agent is exactly the line the risk test polices.

What the principal may lawfully control in a genuine agency

Once an agency is genuine and outside Article 101(1), the principal enjoys a wide freedom that would be impermissible with an independent distributor. The clauses that fix the terms of the contracts the agent must propose or conclude in the principal's name — the subject matter of the transaction, the price of the goods, and the obligations attaching to the sale such as warranty, delivery and services — and that thereby limit the agent's freedom of action, do not fall under competition law, because of the agent's auxiliary function. The principal, bearing the commercial risk, is entitled to determine the agent's commercial strategy, including the prices at which the agent sells and the customers it may or may not approach.

Concretely, the principal that bears the commercial risk may lawfully determine the strategy the agent is to follow: it may confine the agent to a defined territory or a defined group of customers, fix the price and the conditions at which the agent is to sell the contract goods, and settle the terms of the transactions the agent proposes or concludes in its name. These stipulations, which would be scrutinised heavily in an agreement between independent undertakings, are unobjectionable in a genuine agency because they are simply the principal organising the marketing of its own products through an auxiliary. The historical position of the European competition authorities was to the same effect long before the current Guidelines: the prohibition on restrictive agreements does not, in principle, apply to the agent who is invested with the power to negotiate or conclude contracts for the account of another, in that other's interest.

This is a striking difference from independent distribution, where fixing the reseller's price (resale price maintenance) is a serious restriction. With a genuine agent there is no "resale": the sale is the principal's own, made through the agent, so setting the price the agent must quote is not price-fixing between undertakings at all. The Commission analyses these permissible controls as obligations inherent in the agency contract, tied to the principal's ability to define the field of the agent's activity for the contract goods or services — essential if the principal is to bear the risks of the contracts negotiated on its behalf (Vertical Guidelines, point 41). The mechanism is close to what antitrust theory calls "ancillary restraints": restrictions permissible because they are indispensable to a legitimate main transaction.

The clauses that still attract scrutiny

The shelter is not total. The Guidelines are explicit that clauses concerning the agent's activity as a service provider — as distinct from clauses that strictly govern its mission as the principal's auxiliary mandatary — may fall under competition law (point 41). Three provisions are chiefly in view.

The non-compete (single-branding) obligation. An obligation on the agent not to act for competing suppliers restricts inter-brand competition — competition between different brands. The Commission notes that such an obligation, particularly where it extends beyond the expiry of the contract, can infringe Article 101(1) if it leads to foreclosure of the market on which the contract goods or services are sold (Vertical Guidelines, point 43). This is the clause most exposed, and it is why post-contractual non-compete undertakings must be drafted narrowly — a concern that dovetails with the strict statutory limits on such clauses under French agency law.

The exclusivity obligation. An obligation on the principal not to appoint other agents for the same type of transaction or customers in the contract territory could, in theory, affect competition by eliminating rival agents on the market for agency services. The Commission's assessment, however, is that this obligation generally does not produce anti-competitive effects (point 43); it can be justified as a consequence of the reciprocal duty of the exclusive agent and its principal to protect each other's interests, though it is not immune if it produces appreciable anti-competitive effects.

Dual-role agents: the resale-price and cross-subsidy concerns

A particular complication arises where the same operator is both an agent for the principal and, at its own risk, an independent distributor — a "dual-role" agent, whether for the same supplier or for others. The Guidelines (points 36 and following) warn that the conditions imposed for the agency activity can spill over and influence the operator's incentives and freedom of decision in its independent business. There is, in particular, a risk of resale price maintenance where the products handled in the two capacities are on the same market and are not objectively distinct, and a risk of "cross-subsidisation" of investments, because the double role blurs which investments belong to the agency activity and which to the independent one.

To address these concerns, the Guidelines confine the category of acceptable dual-role agents by reference to who bears the market-specific investments. An arrangement in which the operator acts both as independent distributor and as agent for the same supplier escapes Article 101(1) only on two conditions (point 30): that the independent distributor was genuinely free to enter into the agency contract, and that the supplier bears the relevant risks connected with the sale of the goods or services covered by the agency, including the market-specific investments. Put another way, the only market-specific investments the principal need not cover are those relating exclusively to the sale of differentiated products, on the same product market, that are distributed independently and not sold under the agency contract; the investments needed to operate on the relevant product market must be covered by the principal in every case. Dual-role structures therefore call for careful analysis, because they are the setting in which an otherwise genuine agency most easily loses its shelter.

Consequences, and the overlap with agency drafting

Two practical consequences follow. First, even a genuine agent is not immune from competition law on the substance of anti-competitive conduct: an agent can be implicated, as accomplice or co-author, in anti-competitive practices carried out with or in the name of the principal. The shelter protects the ordinary clauses of a genuine agency; it does not license participation in a cartel or a concerted practice, and an agent drawn into one is exposed like any other participant.

Second, the competition analysis and the French statutory agency regime pull in the same direction on drafting. The clauses competition law treats most warily — above all the non-compete, and particularly the post-contractual non-compete — are the very clauses French agency law confines within strict statutory limits (in writing, limited to the contract goods, to two years, and to the territory or clientele entrusted). Drafting a non-compete to meet those statutory limits also keeps it narrow enough to reduce the risk of market foreclosure under Article 101. A principal that respects the agency statute is, in this respect, already some way towards respecting competition law — and a principal that overreaches on restraint risks falling foul of both at once.

The convergence is a useful drafting discipline. When reviewing an agency contract, it is worth testing each restraint twice: first against the agency statute, to confirm it is valid and enforceable as a matter of contract law, and then against Article 101, to confirm it does not, by its scope or duration, produce an appreciable foreclosure effect. A clause that passes both tests is secure; a clause that fails either is a liability, whether because it is unenforceable against the agent or because it exposes the principal to a competition challenge. For cross-border principals in particular, whose agents may operate across several markets, that dual check is the surest way to keep the arrangement both effective and compliant.

Frequently asked questions

Does a commercial agency fall under Article 101 TFEU?

A genuine agency does not. The genuine agent is treated as the prolongation of the principal's undertaking rather than an independent one, so their arrangement is not an agreement between undertakings caught by Article 101 (or Article L 420-1 of the Commercial Code).

What makes an agency "genuine" for competition purposes?

The agent must bear no significant financial or commercial risk on the contracts it concludes or negotiates for the principal — no material contract-specific risk (such as stock financing), no sunk market-specific investment, and no risk from other activities the principal requires it to run at its own risk (Vertical Guidelines 2022, points 30-31).

Can a principal set the prices a genuine agent charges?

Yes. In a genuine agency the sale is the principal's own, made through the agent, so fixing the price the agent must quote is not resale price maintenance. The principal, bearing the risk, may determine the agent's commercial strategy (Vertical Guidelines, point 41).

Which clauses can still breach competition law in a genuine agency?

Clauses concerning the agent's activity as a service provider — chiefly a non-compete (single-branding) obligation, especially a post-contractual one, which can infringe Article 101(1) if it forecloses the market. Exclusivity in the agent's favour is generally regarded as benign (Vertical Guidelines, point 43).

What is a "dual-role" agent?

An operator that is both the principal's agent and, at its own risk, an independent distributor. Such arrangements risk resale price maintenance and cross-subsidisation, and escape Article 101(1) only if the distributor was free to enter the agency and the principal bears the relevant market-specific risks (Vertical Guidelines, points 30, 36 ff).

Does a del credere clause matter?

Yes. Taking on a del credere (guaranteeing the customer's performance) is in principle a relevant risk that brings competition law into play, unless it is limited to a reasonable fraction of the unpaid amounts (Vertical Guidelines, point 33).

Key takeaways

How our French lawyers help with agency and competition law

This article is for general information only. It does not constitute legal advice. The competition-law treatment of an agency turns on a detailed, economic assessment of risk. Contact our French lawyers for qualified advice before structuring or enforcing an agency arrangement.