The article provides an overview of vertical agreements, which are contracts between businesses at different levels of the supply chain, such as manufacturers and wholesalers or wholesalers and retailers. These agreements play a crucial role in regulating the distribution of goods and services, defining the rights and obligations of suppliers and buyers.

While vertical agreements are generally permissible, they can violate competition law if they contain terms that restrict or distort competition, as stated in Article 11 of the Competition Law in Latvia, which aligns with Article 101 of the Treaty on the Functioning of the European Union. Businesses in the EU, including Latvia, must be aware of prohibited terms in these agreements to avoid legal violations.

Competition law advisors are urged to educate their clients about the boundaries of acceptable vertical agreements. This knowledge is vital for businesses to respond effectively if a partner imposes anti-competitive conditions, helping them maintain fair competition in the market. The article highlights that both formal and informal agreements are subject to legal evaluation, with the context, including market share, being critical.

Key prohibitions include resale price maintenance, territorial restrictions, and limitations on online sales, which are inherently anti-competitive. While some exemptions exist for vertical agreements with minor market impact or significant efficiency gains, they are rare and applicable only in specific circumstances.

The Competition Council has noted a lack of awareness among businesses regarding these prohibitions. Advisors should focus on educating clients about the implications of these strict restrictions to prevent unintentional violations. The article also discusses the implications of fixed and minimum resale prices set by suppliers, which can severely limit competition and consumer choice.

Additionally, the article addresses the distinction between active and passive selling strategies, emphasizing that while limiting active selling may be permissible in certain cases, restricting passive selling is strictly prohibited. Suppliers cannot prevent distributors from selling outside their designated regions or responding to inquiries from customers in other areas.

Competition law advisors should inform businesses about the legal consequences of non-compliance, including potential fines and reputational damage. The article mentions a case involving several companies accused of violating competition laws in Latvia, facing fines that can reach up to 10% of global net revenue if the violation affects competition across the EU.

Businesses are encouraged to report illegal vertical agreements to the Competition Council and can apply for leniency if they provide new information. Key recommendations for business leaders include educating employees about acceptable practices, implementing internal guidelines, and regularly reviewing distribution agreements for compliance.

Overall, the article emphasizes the importance of compliance with competition laws and the need for businesses to act swiftly to rectify any violations to mitigate potential penalties and reputational harm.