Vertical agreements soon to see revised rules: the Commission’s draft VBER and Vertical Guidelines are open for comments

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On 9 July 2021, the European Commission has published the long awaited drafts of the revised Vertical Block Exemption Regulation (“VBER”) and Guidelines on Vertical Restraints (“Vertical Guidelines”), contextually launching a public consultation to gather stakeholders’ feedback before the adoption of the new rules planned by June 2022. This follows a review process of more than two years and nine months.

Amongst the draft changes, the Commission proposes stricter rules for dual distribution and parity clauses relating to indirect sales. Conversely, the Commission proposes to relax rules for active sales restrictions and dual pricing.

The VBER and the Vertical Guidelines, and their review process

Under Article 101(1) TFEU, agreements between undertakings that restrict competition are prohibited, unless they fall under Article 101(3) TFEU. The latter exempts, in particular, agreements that contribute to improving the production or distribution of goods or services or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefits. The Article 101(1) TFEU prohibition applies, amongst others, to “vertical agreements” (agreements relating to the supply and distribution of goods and services between two or more undertakings operating at different levels of the production or distribution chain).

The current VBER (Commission Regulation (EU) No 330/2010) sets out a safe harbour for vertical agreements that meet certain conditions, namely (i) a market share below 30% and (ii) absence of hardcore restrictions (e.g. fixing resale prices): here, Article 101(1) TFEU does not apply. Guidance on how to interpret and apply the VBER is then provided by the Vertical Guidelines (Commission notice – Guidelines on Vertical Restraints). They also offer guidance on the assessment of vertical agreements outside the VBER’s block exemption.

The Commission considers that the VBER and Vertical Guidelines need to be adapted to the market developments that have occurred since their adoption in 2010 (as highlighted in a Commission Staff Working Document published in September 2020). In particular, in the last years, distribution models have been significantly impacted by the growth of online sales and platforms and suppliers have increased the distribution and sales channels for their products and services.

The proposed changes

As affirmed in the background note (pp. 1 and 2) accompanying the consultation, the draft revised VBER and Vertical Guidelines address three objectives:

  • Readjusting the safe harbour to eliminate false positives and reduce false negatives under the VBER (objective 1)”;
  • Providing stakeholders with up-to-date guidance for a business environment reshaped by the growth of e-commerce and online platforms, and ensuring a more harmonised application of the vertical rules across the European Union (objective 2)”; and
  • Reducing compliance costs for businesses by simplifying complex areas of the current rules and streamlining the existing guidance (objective 3).
1. Readjusting the safe harbour

The draft revised rules propose changes in four areas where the Commission has identified vertical agreements and restrictions that are currently:

  • covered by the safe harbour of the VBER, but for which it is not sufficiently certain that they fulfil the conditions for an exemption pursuant to Article 101(3) TFEU (false positives – particularly likely in the areas of dual distribution and parity obligations) and
  • not covered by the VBER, but which with sufficient certainty generally fulfil, under certain conditions, the requirements for an exemption pursuant to Article 101(3) TFEU (false negatives – particularly likely in the areas of active sales restrictions and certain online restrictions).

Dual distribution systems have now become prevalent due to the growth of online sales, facilitating direct sales by suppliers. Thus, the Commission believes that the current dual distribution exception likely exempts vertical agreements where possible horizontal concerns are no longer negligible. Thus, the draft revised VBER limits the dual distribution safe harbour to parties with aggregated market shares in the retail market not exceeding 10% (Article 2(4)) and foresees an additional safe harbour where aggregated supplier and distributor market shares at retail level exceed 10% but remain below the 30% market share threshold in Article 3 of the VBER (Article 2(5)). By object and hardcore restrictions still exclude the applicability of the safe harbour (Article 2(6) draft revised VBER). The draft revised Vertical Guidelines (Section 4.4.3) offer further clarifications about the revised scope of the dual distribution exception.

For parity obligations (or Most Favoured Nation clauses (“MFNs”)), different rules are proposed for indirect and direct sales or marketing channels. MFNs relating to indirect sales channels are now added to the list of excluded restrictions (Article 5(d) of the draft revised VBER) and, thus, they would have to be individually assessed under Article 101 TFEU. Conversely, retail parity obligations relating to direct sales or marketing channels (so-called narrow parity) are still block exempted under the draft revised VBER. The draft revised Vertical Guidelines (Sections 6.2.4 and 8.2.5) offer further guidance on the assessment of parity obligations.

The draft revised VBER proposes to relax rules for active sales restrictions (defined by Article 1(1)(l) and (n) of the draft revised VBER). Indeed, while so far active sales restrictions are allowed only in narrow instances, the draft revised VBER (Article 4(b)) foresees shared exclusivity, allowing a supplier to appoint more than one exclusive distributor in a particular territory or for a particular customer group. The draft revised Vertical Guidelines then clarify that the number of appointed distributors should be determined in proportion to the allocated territory or customer group in such a way as to secure a certain volume of business that preserves their investment efforts.

Moreover, Article 4(b) of the revised draft VBER introduces the possibility (provided in order to enhance the protection of the investment incentives of exclusive distributors, as explained in the background note (p.4)) for the supplier to oblige its buyers to pass on to their customers. Also, Article 4(c) of the draft revised VBER offers selective distribution systems an enhanced protection from sales by unauthorised distributors located within the selective distribution territory.

The new draft rules do not consider certain indirect measures restricting online sales, namely dual pricing and the principle of equivalence (i.e. the imposition of non-equivalent criteria for online sales and for brick-and-mortar stores), anymore to be hardcore restrictions and block exempt them if they do not, directly or indirectly, have as their object to prevent buyers or their customers from using the internet for the purposes of selling their goods or services online. If such indirect measures are intended to incentivise or reward an appropriate level of investments and relate to the costs incurred for each channel, there are no concerns. Moreover, as indicated under para. 221 of the revised draft Vertical Guidelines, imposing selective distribution criteria that are not overall equivalent for offline and online sales is no longer considered a hardcore restriction.

2. Up-to-date guidance for stakeholders and ensuring a more harmonised application of the vertical rules across the EU

The draft revised VBER (Article 1(1)(n)) and the draft revised Vertical Guidelines (Section 6.1.2) incorporate the principles on online restrictions established by the EU jurisprudence in Pierre Fabre and Coty.

Moreover, the draft revised documents foresee specific rules and guidance relating to the platform economy. First, Article 1(1)(d) of the revised draft VBER clarifies that online intermediation services providers qualify as suppliers under the VBER. Second, section 4.3 of the draft revised Vertical Guidelines further explains the implications of this clarification and Section 3.2.3 includes an explanation as to why undertakings active in the online platform economy cannot qualify as genuine agents. Finally, Article 2(7) of the draft revised VBER excludes hybrid online intermediation providers from the VBER’s safe harbour.

Furthermore, “the draft revised VBER aims to ensure a more harmonized application of Article 101 of the Treaty to vertical agreements across the EU (…) by incorporating in the VBER itself certain guiding principles, such as those applicable to online sales restrictions, as well as new rules, for example regarding the definition and qualification of online intermediation services providers as suppliers” (background note, p. 6). It will be interesting to see if this will be more successful in avoiding deviations by National Competition Authorities than the current VBER. For their part, the draft revised Vertical Guidelines (Section 7.1) allow national competition authorities to withdraw the benefit of the VBER in individual cases under certain conditions and procedures.

3. Reducing compliance costs by simplifying the current rules and guidance

The particularly complex territorial and customer restrictions under Article 4(b) of the current VBER have been replaced by Article 4(b), (c) and (d) of the draft revised VBER. These distinct sets of provisions clarify the scope of the prohibition for each of the main distribution systems, namely exclusive, selective and free distribution. Section 4.6 of the draft revised Vertical Guidelines explain the characteristics of each of these distribution systems.

Finally, the background note (p. 6) claims that “the structure of the draft revised Vertical Guidelines has been simplified to provide a clearer framework of analysis for vertical agreements. For example, the new structure combines the previously scattered guidance on RPM in one dedicated section (see section 6.1.1 of the draft revised Vertical Guidelines).”

Practical information

Interested parties can submit their comments on the draft rules up until 17 September 2021.

Information on how to submit a contribution is available here.

Please contact Ziegler SAAT here for assistance in contributing to the consultation.

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