Background
On 9 July 2021, the European Commission (Commission) published the draft revised Vertical Block Exemption Regulation (VBER) and Vertical Guidelines (Guidelines) and invited interested parties to comment on the amended rules. The public consultation feeds into the preparatory process with a view to introducing the revised VBER and Guidelines by 1 June 2022.
The VBER exempts agreements entered into by undertakings operating at different levels of the production or distribution chain from the Article 101 Treaty on the Functioning of the European Union (TFEU) prohibition (and/or Member State equivalent). This is on condition that the contracting parties’ market shares do not exceed 30% and that their agreements do not contain any of the ‘hardcore’ restraints as set out in Article 4 of the VBER (e.g. provisions fixing resale prices or allocating customers and/or territories). Generally speaking, most vertical arrangements are pro-competitive and will likely benefit from the VBER safe harbour.
The VBER is therefore an extremely important instrument for providing legal certainty for parties. Along with the accompanying Guidelines, it helps provide comfort in respect of common vertical arrangements (e.g. distribution and supply contracts) by identifying where the risk of consumer harm is unlikely (ie ruling out market power where relevant market shares are not exceeded). At the same time, the VBER allows the Commission and Member State competition authorities to maintain their focus on more (evidently) problematic arrangements or where anti-competitive effects might result from the exercise of market power.
Proposals
The revised rules take into account new market developments and, unsurprisingly, have a strong focus on the growth of the e-commerce and the platform economy. Indeed, since the VBER was last revised in 2010 there has been a major boom in e-commerce – a development marked particularly by the emergence of online marketplaces and third party intermediaries. This rapid shift away from a traditional 'bricks and mortar' model of retail has created serious challenges for producers and suppliers. It has also led to an intense debate about what should (or should not) be permissible in terms of contractual restraints in an online context.
The draft revised VBER therefore includes a number of provisions that are designed to make the rules fit for the digital economy. In this respect, the key features of the revised rules are:
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An updated definition of ‘supplier’ that includes an undertaking that provides online intermediation services – i.e. that allows undertakings to offer goods or services to other undertakings or to end-users, irrespective of whether and where those transactions are ultimately concluded. One possible outcome of this is that the draft revised VBER will prohibit an intermediation services provider from imposing a fixed or minimum sales price for the transaction that it facilitates.
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An updated definition of ‘active sales’ that now encompasses actively targeting customers by means of digital media, including online media, price comparison tools or advertising on search engines targeting customers in specific territories or customer groups, offering on a website language options different than the ones commonly used on the territory of distributor’s establishment and, in a similar vein, offering a website with a domain name corresponding to a territory other than the one of distributor’s establishment.
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Changes in the current rules on dual distribution that, on the one hand, expand the safe harbour to also include a non-reciprocal vertical agreement where the supplier is a wholesaler or importer and a distributor of goods, while the buyer is a distributor of goods and not a competing undertaking at the wholesale or import level and, on the other hand, remove certain scenarios of dual distribution from the current safe harbour by adding a market share threshold. The revised rules also explicitly exclude from the safe harbour a non-reciprocal vertical agreement between a provider of online intermediation services that also sells goods or services and a competing undertaking to which it provides online intermediation services.
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The exemption of dual pricing from the list of hardcore restrictions that will allow suppliers to set different wholesale prices for online and offline sale by the same distributor and still benefit from the safe harbour of the revised rules, provided that the wholesale price difference does not have as its object preventing the effective use of the internet for the purpose of selling online.
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The revision of the catalogue of excluded restrictions – i.e. obligations that are subject to an individual assessment under Article 101 TFEU, to include certain retail parity obligations. These are obligations imposed by a provider of online intermediation services which cause an undertaking to which it provides online intermediation services not to offer, sell or resell goods or services to end users under more favourable conditions using competing online intermediation services. All other types of parity obligations remain covered by the VBER safe harbour.
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The introduction of different criteria that a supplier may impose on its authorised distributors for online sales and sales in brick and mortar shops, in the context of a selective distribution system, provided that the criteria for online sales do not have as their object preventing buyers or their customers from effectively using the internet for the purpose of selling their goods or services online.
Another novelty of the revised rules, which is not limited to the digital economy, is the possibility of shared exclusivity. This means that under the draft revised VBER, in the context of an exclusive distribution system, the supplier may appoint more than one exclusive distributor in a particular territory.
Next steps
The Commission invites all interested parties to contribute to the public consultation by submitting their comments on the amended rules by 17 September 2021. On the basis of the submissions, the Commission will finalise the impact assessment and review its proposals with a view to have the new rules enter into force by 1 June 2022. Get in touch to discuss the possible impact that the revised rules could have on your business and let us help you make your voice heard.
Authored by Dr. Salomé Cisnal de Ugarte, Ivan Pico, and Marta Powolny.
