Definition of terms and legal foundations of horizontality
The term ‘horizontal’ has a variety of meanings in legal contexts, which are applied in different fields of law. Fundamentally, ‘horizontal’ describes a level orientation or relationship, but is also used in legal regulatory mechanisms, for example, to distinguish between horizontal and vertical legal relationships as well as in the structuring of contracts, corporate agreements, or administrative organizational structures. The following overview provides a comprehensive summary of the legal aspects of the term, structured according to its main areas of application and regulation.
Horizontality in civil law
Horizontal legal relationships
In civil law, horizontality often refers to the relationship between parties of equal standing. Here, natural or legal persons generally interact at the same level, i.e., there is no superiority or subordination, such as in the relationship between administration and citizen (vertical) or employer and employee.
Contractual equality
In contractual relationships, the horizontal relationship manifests itself through the principle of freedom of contract. Both parties can generally negotiate the contract terms freely, as long as there are no statutory restrictions. Typical examples of horizontal contracts are purchase agreements, rental agreements, and contracts for work and services between private individuals or companies.
Equality in tort law
A horizontal relationship also exists in tort law. Liability claims, for example under section 823 BGB (German Civil Code), are asserted at the same level between the injuring party and the injured party, without one party being superior to the other.
Horizontality in public law
Distinction from verticality
In public law, ‘horizontal’ refers to the relationship between entities exercising public authority on an equal footing, as opposed to vertical legal relationships, which describe the relationship between the state and the citizen. At this level, public-law contracts are entered into, among others, between public corporations.
Intermunicipal cooperation
An example of horizontal legal relationships is intermunicipal cooperation between municipalities or districts. This cooperation is based on contracts and frequently serves the joint fulfillment of public tasks, such as in waste management or emergency services.
Horizontality in competition law and antitrust law
Horizontal restraints of competition
A significant area of application for the term can be found in antitrust and competition law. Here, ‘horizontal’ describes the cooperation or agreement between companies at the same market level. These agreements (so-called horizontal cartels) are generally prohibited under section 1 GWB as well as under Article 101 TFEU, as they can severely impede free competition.
Types of horizontal agreements
Typical horizontal restraints of competition include:
- Price-fixing agreements
- Market division agreements
- Production restrictions
- Exchange of information on competition-related aspects
Sanctions and legal consequences
Violations of horizontal cartel prohibitions are sanctioned with substantial fines. In addition, such agreements are generally null and void from the outset. Authorities such as the Federal Cartel Office or the European Commission monitor compliance with the relevant regulations.
Horizontality in corporate law
Horizontal group structures
In corporate law, horizontal relationships exist in corporate groups with individual companies that operate alongside each other and do not have parent-subsidiary relationships. The companies are equals, cooperating, for example, within a joint venture or acting as legally independent companies with a common objective.
Contractual foundations
Horizontal mergers are often structured through cooperation agreements. Another example is the so-called horizontal mergers in corporate takeovers and mergers on an equal footing.
Horizontality in other areas of law
Administrative organization
In the context of administrative organization, ‘horizontal’ refers to the cooperation of authorities at the same hierarchical level. For example, municipal administrations within a federal state are organized horizontally with respect to each other, in contrast to supervision by state or federal authorities.
Employee rights
In labor law, horizontal relationships exist among works councils of different companies or within a corporate group, especially when representatives at the same level pursue common interests.
Summary
The term ‘horizontal’ in a legal context encompasses all relationships, structures, or agreements based on equality. Whether in civil law, public law, antitrust law, or corporate law – the distinction from vertical relationships is always central. This horizontal structuring often serves cooperation, balancing interests, or joint fulfillment of tasks, but may also pose considerable legal risks, especially in the competitive environment. Therefore, a differentiated analysis of the respective applications and a critical review of relevant regulations are indispensable for ensuring legal compliance in horizontal relationships.
Frequently Asked Questions
What legal requirements govern horizontal cooperation between companies?
Horizontal cooperation, i.e., mergers or collaboration between companies at the same market level, are subject to the provisions of antitrust law in Germany and the EU, in particular the Act against Restraints of Competition (GWB) and Article 101 of the Treaty on the Functioning of the European Union (TFEU). These provisions generally prohibit all agreements between companies that are intended to, or result in, the prevention, restriction, or distortion of competition. Cooperation is only permitted if, for example, it leads to efficiency gains and benefits consumers without significantly impairing competition. In addition, there are special block exemption regulations, for example for research and development cooperation or specialization agreements, which are exempt from the cartel prohibitions under certain conditions. Before entering into a cooperation, companies should always check whether the planned collaboration is unobjectionable under antitrust law, as violations can lead to substantial fines, claims for damages, and contracts being void.
When does a horizontal agreement constitute an unlawful restraint of competition?
There is an unlawful restraint of competition whenever horizontal agreements or concerted practices between competitors aim to share markets, coordinate prices, or limit production volumes. These so-called ‘hardcore’ cartel violations are strictly prohibited and generally not eligible for exemption. Even the exchange of information between competitors may constitute a restraint of competition if it increases the degree of market transparency in such a way that market behavior is coordinated to the detriment of competition. The assessment must also consider the impact on the relevant market, the market shares involved, as well as the purpose and specific structure of the agreement. There is an obligation to examine, even for less obvious arrangements, whether a cumulative or coordinated strategy impairs competition.
What fines and sanctions may be imposed for violations of the cartel prohibition on horizontal agreements?
The Federal Cartel Office and the European Commission can impose substantial fines for proven violations of the cartel prohibition, which can amount to up to 10% of the worldwide total turnover of the company involved. In addition to financial penalties, other measures may also be ordered, such as the nullity of contracts and the prohibition of further continuation of the cooperation. Responsible natural persons in the companies may also be held civilly or even criminally liable. In Germany, there is also a leniency program, under which companies that first disclose a cartel agreement can expect a reduction or waiver of fines. Lastly, there is a risk of claims for damages by third parties, especially from injured customers or competitors.
How do horizontal agreements differ from vertical agreements from a legal perspective?
Horizontal agreements occur between companies at the same market level (e.g., two manufacturers), whereas vertical agreements exist between companies at different stages of the market – such as manufacturer and wholesaler. Legally, horizontal agreements are generally viewed more strictly, as they have a direct impact on competition at the same level and cartel violations such as price-fixing, market sharing, or production limitations typically occur in the context of horizontal mergers. While certain types of vertical agreements (e.g., resale price maintenance) are also prohibited, there are specific block exemptions for many vertical agreements, offering a broader range of exceptions.
What is the significance of the relevant market when assessing horizontal cooperation from a legal perspective?
Defining the relevant market is crucial in legally assessing horizontal cooperation. Only once it is established on which relevant product, geographic, and possibly temporal market the cooperation partners operate, can the actual extent of the competitive restraint be evaluated. The larger the market share of the cooperation partners in this market, the more stringent the legal scrutiny and the more likely the competition authorities are to intervene. If the relevant market is highly concentrated or there are only a few competitors, even a minor coordination may be considered critical. Conversely, small market shares or strong competition can be mitigating factors.
What exemptions are possible for horizontal cooperation under European and German law?
Under Article 101(3) TFEU and section 2 GWB, horizontal agreements can be exempted from the cartel prohibition provided they contribute to improving the production or distribution of goods or to promoting technical progress, and they grant consumers a fair share of the resulting benefit. Restrictions must not go further than necessary to achieve these goals, and competition must not be eliminated. Block exemption regulations, such as the R&D Block Exemption (Regulation (EU) No 1217/2010) or the Specialization Block Exemption (Regulation (EU) No 1218/2010), specify the scenarios covered by the exemption and set thresholds that must not be exceeded in order to benefit. Exemptions must always be assessed on a case-by-case basis, as they are subject to numerous requirements.
What role does the exchange of information between competitors play in horizontal agreements?
The exchange of information is a central issue in horizontal relationships. Even the exchange of competition-relevant information, such as on prices, future business strategies, production volumes, or customer data, can be considered as a restrictive agreement or concerted practice. Decisive for the legal assessment are the type and timeliness of the information, the group of participants in the exchange, and the market position of those involved. While anonymous and aggregated exchanges are often unproblematic, individual, current, and sensitive data are generally taboo. Companies are therefore obliged to document any information exchange and to legally safeguard or even avoid risky contact with competitors. A violation may already exist if the exchange of information facilitates parallel market conduct, even without explicit agreements.
