In a recent preliminary ruling, the European Court of Justice ("ECJ") established that lead registration programmes may under certain circumstances constitute 'by object' restrictions of competition law (i.e. by their very nature be harmful to normal competition).
A "lead registration programme" is an agreement between a supplier and its resellers that gives the first reseller to register a potential transaction with a customer, either a preferential right or an advantage in comparison with other resellers, to carry out the transaction with the customer in question. Such advantages may, e.g. consist in the lead generating reseller being allowed higher discounts from the supplier than other resellers.
Background for the preliminary reference
The reference for a preliminary ruling stems from a case in Latvia concerning a specific lead registration programme used by a large IT-company.
The IT-company's agreement with its resellers/partners for the distribution of IT-programmes, contained a clause which gave the first reseller/partner to register a potential transaction with a customer a preferential right to complete the sales process with that customer for a period of up to six months, unless the end user objected to this.
The Competition Council of Latvia found that this clause constituted an infringement of the prohibition of restrictive agreements under Latvian law (which is similar to Article 101 TFEU), as this clause had as its object the restriction of competition.
During the appeal of this decision by the Competition Council of Latvia, the Latvian court referred seven questions to the ECJ, including whether such an agreement between a supplier and a reseller constitutes an infringement by object.
Preliminary ruling by the ECJ of 18 November 2021
The ECJ found that a lead registration programme, which gives the reseller to first register a potential transaction with a potential customer a preferential right to complete the sale for a limited time (unless the end-user objects hereto), cannot be qualified as an agreement, which has the "object" of restricting competition, unless the agreement - given its wording, purpose and context - can be considered to be sufficiently harmful to competition.
It is thus for the national court in Latvia to determine whether the specific lead registration programme in question constituted a restriction by object. In its judgment, the ECJ did not provide further guidance on how to assess whether a lead registration scheme may be considered to be sufficiently detrimental to competition for it to be considered as a by object restriction.
In spite of these programmes potentially holding some benefits, as they both limit the number of unnecessary approaches that customers are faced with and unnecessary contacts made by sellers, the judgment reiterates that companies must remain careful when entering into lead registration programmes, as these may constate by object restrictions of Article 101(1) TFEU.
This is especially the case for lead registration programmes, which both preclude competing resellers from contacting and responding to requests from customers, which are exclusively allocated to a specific reseller.
We therefore recommend that thorough consideration of the purpose, context and competitive situation is taken before entering into an agreement concerning a lead registration programme.
The preliminary ruling by the ECJ can be found here.
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