Contract analysis

I. Executive Summary You have asked us to analyze the Channel Reseller Program Agreement (the "Agreement") between Lumos Analytics Inc. ("Lumos") and Meridian Data Solutions GmbH ("Meridian") for compliance with European Union competition law, with particular focus on Article 101 of the Treaty on the Functioning of the European Union ("TFEU") and the Vertical Block Exemption Regulation (EU) 2022/720 (the "VBER"). Thi

II. Background and Transaction Overview A. Parties Lumos Analytics Inc. Lumos is a Delaware C-Corporation headquartered at 4700 Sandhill Road, Suite 300, Palo Alto, California 94304. Lumos is a software-as-a-service ("SaaS") and financial technology company that develops, markets, and supports the Lumos Prism™ platform, an AI-driven financial analytics and risk-modeling solution designed for enterprise customers, inc

III. Applicable Legal Framework A. Article 101 TFEU

Article 101(1) of the Treaty on the Functioning of the European Union prohibits agreements between undertakings, decisions by associations of undertakings, and concerted practices that have as their object or effect the prevention, restriction, or distortion of competition within the internal market, insofar as such agreements, decisions, or practices may affect trade between EU Member States. The prohibition applies

IV. Market Share Analysis The VBER safe harbor is available only where neither the supplier's market share on the relevant supply-side market nor the buyer's market share on the relevant purchase-side market exceeds 30%. This section sets out our assessment of both parties' market shares. A. Supplier's Market Share (Lumos) Relevant Product Market. For purposes of VBER market share analysis, we define the relevant pro

V. Analysis of Hardcore Restrictions (Article 4 VBER) The inclusion of a "hardcore restriction" listed in Article 4 of the VBER in a vertical agreement removes the entire agreement from the benefit of the block exemption. We have reviewed each category of hardcore restriction and assessed the Agreement against each. A. Resale Price Maintenance (Article 4(a))

Article 4(a) of the VBER provides that the block exemption does not apply to vertical agreements that have as their object the restriction of the buyer's ability to determine its sale price, without prejudice to the possibility of the supplier imposing a maximum sale price or recommending a sale price, provided that the maximum or recommended sale price does not amount to a fixed or minimum sale price as a result of

Article 4(b) of the VBER addresses restrictions on the territory into which, or the customers to whom, a buyer party to a vertical agreement may sell the contract goods or services. The treatment of such restrictions depends on the type of distribution system in place (exclusive, selective, or non-exclusive). We address each relevant sub-issue in turn. Non-Exclusive Distribution System. The Agreement appoints Meridia

Article 4(c) and (d) of the VBER address restrictions applicable within selective distribution systems. A selective distribution system is one in which the supplier undertakes to sell the contract goods or services, either directly or indirectly, only to distributors selected on the basis of specified criteria, and in which these distributors undertake not to sell such goods or services to unauthorized distributors w

Article 4(e) addresses restrictions on the ability of a supplier of components to sell those components as spare parts to end users, independent repairers, or service providers. This provision is not applicable to the Agreement, as Lumos Prism™ is a SaaS platform (not a physical component), and no component supply relationship exists between the parties. There are no restrictions on cross-supplies between distributor

VI. Analysis of Excluded Restrictions (Article 5 VBER) Unlike hardcore restrictions (which remove the entire agreement from the VBER safe harbor), excluded restrictions under Article 5 of the VBER result only in the specific restriction being removed from the benefit of the block exemption, while the remainder of the agreement continues to benefit from the VBER. Nevertheless, the inclusion of excluded restrictions is

Article 5(1)(a) of the VBER excludes from the benefit of the block exemption any direct or indirect non-compete obligation the duration of which is indefinite or exceeds five years. A "non-compete obligation" is defined in Article 1(1)(f) of the VBER as any direct or indirect obligation causing the buyer not to manufacture, purchase, sell, or resell goods or services which compete with the contract goods or services,

Article 5(1)(b) of the VBER excludes from the benefit of the block exemption any direct or indirect obligation causing the buyer, after termination of the agreement, not to manufacture, purchase, sell, or resell goods or services, unless such obligation: (i) relates to goods or services which compete with the contract goods or services; (ii) is limited to the premises and land from which the buyer has operated during

Article 5(1)(c) of the VBER, in conjunction with Article 5(1)(d), addresses obligations that restrict the buyer's ability to challenge the validity of intellectual property rights held by the supplier. Under the VBER, the supplier may terminate the vertical agreement in the event of such a challenge, but may not include a standalone obligation prohibiting the buyer from challenging the validity of the supplier's inte

VII. Specific Provisions Assessed In addition to the systematic analysis of hardcore and excluded restrictions set out in Sections V and VI above, we have assessed several specific provisions of the Agreement that merit individual attention from a competition law perspective. A. Minimum Annual Commitment (MAC) Schedule The MAC schedule obligates Meridian to generate a minimum level of resale volume during each contra

Section 11.1 of the Agreement prohibits Meridian from modifying, reverse-engineering, decompiling, disassembling, or creating derivative works of the Lumos Prism™ platform. This is a standard intellectual property protection clause that is customary in SaaS distribution agreements and serves the legitimate purpose of protecting Lumos's proprietary technology, trade secrets, and source code. Such restrictions fall out

VIII. Automatic Renewal Provision

Section 3.2 of the Agreement provides that, following the expiration of the initial five-year term on March 31, 2029, the Agreement shall automatically renew for successive one-year periods unless either party provides at least ninety (90) days' prior written notice of non-renewal. For the initial term, this means that the deadline for notice of non-renewal is December 31, 2028 (i.e., 90 days prior to the March 31, 2

IX. Online Sales and Digital Distribution The Lumos Prism™ platform is a SaaS product delivered via cloud infrastructure hosted by Stratos Cloud Services AG at its Frankfurt, Germany data center. The product is inherently digital: end users access the platform through a web browser or API integration, and no physical media or on-premises installation is involved. Distribution of the product — including marketing, sal

X. Interaction with Other Regulatory Frameworks Several provisions of the Agreement implement obligations arising from regulatory frameworks other than competition law. These provisions serve mandatory compliance purposes and do not constitute anticompetitive restrictions within the meaning of Article 101 TFEU. Export Control and Sanctions Compliance. The Agreement's export control and sanctions provisions (Section 8