10 key aspects of the revised EU competition law in the field of distribution (VBER/VGL)

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The new Vertical Block Exemption Regulation (VBER) and the new accompanying Vertical Guidelines (VGL) were published on 10 May 2022. The new VBER will enter into force on 1 June 2022 and apply for the next twelve years. The new VBER/VGL introduce several substantial changes which will modernise EU competition law in the field of distribution, provide greater flexibility and clarity on certain important issues, but the new VBER/VGL also stress the prohibition of certain business practices. Suppliers and buyers along the supply chain are well advised to check that their existing contracts comply with the new rules, but also to identify new options to fine-tune certain business practices. The new rules provide for a one-year transition period for existing contracts.

These are the ten key aspects of the new VBER/VGL:

  1. Information exchange in dual distribution scenarios remains block exempted Contrary to previous considerations of the European Commission (EC), information exchange in dual distribution scenarios remains largely block exempted. As a rule, it is deemed to do no harm if a supplier competes with its buyer for the latter's customers if the buyer is not itself competing with the supplier on the upstream market level (Article 2 (4) VBER, 95 VGL). Subject to the 30 % market share threshold and certain other conditions, the exemption applies to the exchange of information between suppliers and buyers if it is directly related to the implementation of the vertical agreement and necessary for production or distribution related efficiency gains (Article 2 (5) VBER, 96 VGL).
  2. Some clarifications concerning pricing (RPM) but MAP prohibited The new guidelines do not change the general approach towards pricing policies but provide for some clarifications. Imposing minimum advertised prices (MAP), which prohibit the distributor from advertising prices below a level set by the supplier, will be qualified as an indirect means to apply resale price maintenance (RPM) (187 VGL). On their own, price monitoring and price reporting are not deemed to constitute RPM (191 VGL). Where the supplier negotiates the commercial terms with the final customer and selects the undertaking that will provide the fulfilment services, the imposition of a resale price by the supplier is not RPM (193 VGL). A provider of online intermediation services may not impose a fixed or minimum sale price for the transactions that it intermediates (194 VGL). In exceptional cases, preventing a distributor from selling below the wholesale price (by way of a minimum resale price or MAP) can be used to prevent a particular distributor from using a supplier's product as a loss leader (197 VGL).
  3. More flexibility for exclusive distribution systems: one "exclusive" customer group or territory can be allocated to up to five buyers Suppliers wishing to allocate customer groups or territories to certain buyers to protect them from active sales can now do so for up to five buyers for one customer group or territory (Article 4 (b) (i) VBER, 219 VGL). Under the previous VBER, suppliers had to allocate each customer group or territory to a single buyer.
  4. Improved protection of exclusive customer groups or territories against active sales Under the previous VBER, any restriction of active sales to exclusive or reserved customer groups or territories had to be limited to the first level of trade, i.e. suppliers could only require their direct buyers not to sell actively to exclusive customers or into exclusive territories. Under the new VBER, not only can suppliers now require their direct buyers to refrain from active sales, they can also require direct buyers to restrict their own direct customers from actively selling into territories or to customer groups that the supplier has exclusively allocated to other distributors or reserved to itself. However, suppliers may not require such other buyers to pass on the active sales restrictions to customers further down the distribution chain further passing on the active sales restrictions to customers down the distribution chain is not block exempted (Article 4 (b) (i) VBER, 220 VGL).
  5. Improved protection of distribution systems against grey imports from neighbouring territories The new VBER makes it easier for suppliers of products to set up different distribution systems in different territories within the EEA and to protect them from each other. Exclusive distribution territories can be now protected against active sales by distributors in selective distribution territories (Article 4 (c) (i) 1. VBER) and free territories (Article 4 (d) (i) VBER). Selective distribution territories can be protected against active and passive sales by distributors in exclusive distribution territories (Article 4 (b) (ii) VBER) or by distributors in free territories (Article 4 (d) (ii) VBER).
  6. Tacit extension of non-competition clauses beyond 5 years Non-compete obligations that are tacitly renewable beyond a period of 5 years can benefit from the VBER, provided that the buyer can effectively renegotiate or terminate the vertical agreement containing the obligation with a reasonable period of notice and at a reasonable cost, thus allowing the buyer to effectively switch its suppliers after the expiry of the 5-year period (248 VGL).
  7. Important clarifications concerning the online platform economy The new VBER recognises that agreements relating to the provision of online intermediation services (online marketplaces, app stores, price comparison tools and social media services, etc.) are vertical agreements and in principle can benefit from the exemption under the VBER. The new guidelines point out that agreements between platform operators and their customers will generally not fulfill the conditions for agency agreements exempted from Article 101 TFEU (63 VGL). When applying the VBER to agreements in the platform economy, a provider of online intermediation is considered a supplier in respect of those services and companies using these services are categorised as buyers, irrespective of whether they pay for the services (Article 1 (1) (d) VBER). This has the following consequences: (i) the provider of online intermediation services cannot be considered a buyer of the goods offered through the online intermediation service; (ii) the market share of the provider of online intermediation services for these services is relevant for the 30 % market share threshold; (iii) a provider of online intermediation services may only impose sales restrictions on companies using these services within the boundaries of Article 4 VBER; (iv) a provider of online intermediation services cannot apply across-platform retail parity obligations on companies using the service (Article 5 (1) (d) VBER). Importantly, the exemption by the VBER does not apply where the provider of the services has a so-called hybrid function and is competing with the companies using the services for the sale of the intermediated goods or services (Article 2 (6) VBER).
  8. New hardcore restriction concerning online selling With the addition of Article 4 (e), the new VBER for the first time includes an express hardcore restriction relating specifically to online sales: Agreements that have the object of preventing the effective use of the internet to sell contract goods or services cannot benefit from the block exemption, without prejudice to the possibility of imposing on the distributor other restrictions of online sales or restrictions of online advertising that do not have the object of preventing the use of an entire online advertising channel. Such hardcore online sales restrictions include, for instance, vertical agreements whose objective is to significantly diminish the aggregate volume of online sales of the contract products or the possibility for end users to buy the contract goods or services online. The assessment should consider the content and context of the restriction but does not depend on market-specific circumstances or individual characteristics of the contract parties (recital 15 VBER, 203 VGL). An example of a hardcore restriction would be prohibiting the distributor from using the supplier's trademarks or brand name on its website (206 VGL). Other restrictions of online sales or advertising can be block exempted by the VBER, for instance, if online advertising restrictions are linked to the content of online advertising or set certain quality standards (207, 210 VGL). In general, online sales and advertising restrictions do not constitute hardcore restrictions where the distributor remains free to operate its own online store and to advertise online (208 VGL).
  9. Dual pricing for click store vs brick store permitted; no more equivalence principle So far, dual pricing was regarded as a hardcore restriction but according to the new VGL requirements that the buyer pays a different (e.g. higher) wholesale price for products sold online than for products sold offline can benefit from the VBER (209 VGL). However, such price differences may not have the object of preventing the effective use of the internet by the buyer to sell the contract goods or services to particular territories or customers (see Article 4 (e) VBER). This would be the case where the difference makes selling online unprofitable or financially unsustainable (209 VGL). A further example is if dual pricing is used to limit the quantity of products made available to the buyer for sale online (209 VGL). The general test should be whether the difference in the wholesale price is reasonably related to the differences in the investments and costs incurred by the buyer to make sales in each channel (209 VGL). The EC also abandoned the equivalence principle. Under the new guidelines, the criteria imposed by suppliers in relation to click stores need no longer be equivalent to the criteria imposed on brick-and-mortar stores, provided that the new Article 4 (e) is observed.
  10. Further guidance for bans on online marketplaces and price comparison services In accordance with the ECJ judgment in Coty, the VGL provide that bans of the use of online marketplaces can in principle benefit from the VBER block exemption (208 VGL). This would not only apply to total bans but also to other (more limited) restrictions (e.g. dual pricing). A direct or indirect total ban of all price comparison services is in general qualified as a hardcore restriction (203/347 VGL), like the judgment of the German Federal Supreme Court in Asics. However, imposing quality standards or prohibiting some price comparison services remains possible (349 VGL).