Since December 2021, the Distribution Law Center has been publishing a weekly countdown newsletter on the expected changes of the Vertical Block Exemption Regulation (the “VBER”) and the Vertical Guidelines (the “VGL”). Now that the new VBER and VGL have been adopted and enter into force on 1 June 2022, it is time for us to wrap up our DLC countdown. This last countdown provides an overview of the main topics that we discussed during the past weeks and indicates for each of these topics how they found their way in the new VBER and VGL. At the same time, we would like to bring a number of additional changes to your attention. Be sure however to read through to the end of this countdown to find out what new series the Distribution Law Center has in store for you.
Before moving on to the different topics, we would like to draw your attention to the period of validity of the new texts. The VBER and VGL will apply for a period of 12 years (i.e., until 31 May 2034). The Commission has chosen a period of validity of 12 years, rather than 10, because in 2034 a new Commission will take office. Please also note that vertical agreements that comply with the previous VBER benefit from a transitional period of 1 year (i.e., until 31 May 2023) to satisfy the conditions of the new VBER.
Our DLC countdown started with the draft new rules on agency, which showed that a stricter regime would apply to agency agreements. The most important developments were (i) the legal test to measure the significance of the risks undertaken by the agent (see, DLC countdown no. 3), (ii) the temporary transfer of ownership (see, no. 4), and (iii) the combination of agency and distribution for so-called dual role agents (see, no. 5).
The new VGL confirm the stricter regime. Going forward, suppliers appointing agents should be aware of the following:
To end this section on a positive note, the new VGL do confirm that an agreement will not necessarily be excluded from the exception if the agent acquires the ownership of the goods for a very short period of time while selling them on behalf of the principal.
As of 1 June 2022, there will be more legal certainty as to the European Commission’s approach to the issue of restrictions of price comparison services. Suppliers will be entitled to set the quality standards that price comparison services must meet. Conversely, they will not be allowed to impose a total ban on the use of price comparison services as an entire online advertising channel. Under certain conditions, it will be possible for them to impose a ban on the use of particular price comparison services, provided that this does not prevent the effective use of the internet by the distributor or its customers to sell the contract goods or services to particular territories or customers.
Moving on from agency, the following DLC countdowns focused on non-compete obligations, either imposed during the term of the distribution agreement (see, no. 6) or post-term (see, no. 7). Based on the draft VGL, the expectation was that the regime would remain largely unchanged. This is now confirmed:
The new VBER exempts post-term non-compete obligations under the same strict and cumulative conditions that applied previously.
The DLC countdowns continued with the centrepiece of the VBER, namely the hardcore restrictions. After a general introduction (see, no. 8), we addressed resale price maintenance (see, no. 9), dual pricing (see, no. 10), and equivalence (see, no. 11).
New compared to the previous VBER is Article 4(e): the prevention of the effective use of the internet by the distributor or its customers to sell the contract goods or services is now explicitly blacklisted as an illegal territorial or customer restriction.
Otherwise, the list of hardcore restrictions in Article 4 remains largely the same, even if it is now split between exclusive, selective and open distribution. The attentive reader will however note that the actual split is between selective and non-selective distribution, as the lists of hardcore restrictions for exclusive and open distribution are identical.
As regards resale price maintenance (“RPM”), the following additions are worth mentioning:
As regards online sales, the new regime is more flexible in relation to dual pricing and the previously existing equivalence requirement:
The same goes for the equivalence requirement. A supplier is henceforth entitled to impose online selective criteria that differ from the offline selective criteria, provided that the distinct online criteria do not aim to prevent the authorized distributors from effectively selling the contract product online.
Next, the DLC countdowns addressed the conditions to legally impose active sales restrictions toward exclusive territories or customers: no. 12 dealt with the exclusivity condition, no. 13 with the parallel imposition requirement, and no. 14 with the roll-over prohibition.
Before addressing these conditions, it is worth highlighting that the concepts of active and passive sales are now defined in the VBER, and that the definition of active sales confirms that specific forms of online promotion (use of language and top-level domain names) can lead to active sales, because the promotion is specifically targeting certain territories or customers.
The new VBER finetunes the conditions for imposing active sales restrictions to better protect exclusive distributors and their investments, while at the same time allowing more intra-brand competition through shared exclusivity:
The new VBER softens the roll-over prohibition. Under the new regime, suppliers are allowed to impose an active sales restriction not only on their buyers, but also on direct customers of the buyers.
The DLC countdowns dealing with dual distribution discussed the envisaged extension of the exception to wholesalers and importers (see no. 15), the introduction of a market share threshold (see no. 16) and how to deal with information exchanges in a dual distribution set-up (see no. 17 and no. 18).
The main features of the new regime on dual distribution are as follows:
Vertical agreements relating to the provision of online intermediation services do not benefit from the safe harbour if the provider of the online intermediation services competes on the relevant market for the sale of the intermediated goods or services. Briefly said, hybrid platforms require an individual exemption. Interestingly, the Commission will not prioritize enforcement action in respect of hybrid platforms if a supplier allows its buyers to use its web shop, but does not allow that web shop to be used to offer competing brands of products and the supplier is not otherwise active on the relevant market for the provision of online intermediation services (see, paragraph 109 of the new VGL). This benefits SMEs that have an online presence mainly or exclusively via the website of their supplier and was a suggestion of the Distribution Law Center in its comments on the draft new section on dual distribution.
The DLC countdowns also examined a number of envisaged changes to selective distribution (see no. 19) and to hybrid distribution systems — i.e., when exclusive and selective distribution systems are combined (see no. 20).
The Distribution Law Center is pleased to see that the new VBER allows a better protection of authorized distributors when a supplier operates selective distribution in certain territories and exclusive or open distribution in other, for instance because it is gradually rolling out selective distribution in the EU.
In order to protect the authorized distributors against sales to unauthorized distributors in the territory where the supplier operates selective distribution, it may from now onwards restrict active and passive sales by all other distributors and their customers (so not only their direct customers, but all customers) to unauthorized distributors located in that territory. This is a major improvement to enforce the closed nature of a selective distribution system.
As the DLC countdowns on e-commerce were mostly published after the adoption of the new VBER and VGL, they already contain a handy overview of the rules applicable henceforth to restrictions or a ban of sales on online marketplaces (see, no. 22) and bans on price comparison services (see no. 23).
In summary, suppliers whose products are sold online should bear in mind the following principles:
The above rules apply to vertical agreements that fall within the VBER. When this is not the case (e.g., because the 30% market share threshold is exceeded) it is recommended to carefully consider imposing any of the above restrictions above. The new VGL (see, paragraphs 340-342 and 353-355) can help assessing whether a restriction imposed can benefit from an individual exemption in accordance with Article 101(3) TFEU.
Finally, the power of the Commission or a national competition authority to withdraw the benefit of a block exemption in individual cases — respectively for the EU and the Member State concerned – can be found in the basic regulation for the implementation of Articles 101 and 102 TFEU — i.e., in Article 29 Regulation 1/2003. In the new block exemption regulations (see e.g., the draft horizontal block exemption regulations) the possibility to withdraw the benefit of the block exemption is now incorporated in the block exemption itself. Article 6 of the new VBER foresees the possibility of withdrawal of the block exemption for a highly concentrated market for online intermediation services, where buyers use multiple providers of online intermediation services that apply narrow parity obligations, which would lead to a situation where those buyers are restricted from offering, selling or reselling products to end users under more favorable conditions on their direct sales channels.
This last DLC countdown completes the examination of the differences between the previous and the new VBER regime. The countdown to the new VBER and VGL ends here.
We hope that you enjoyed it as much as we did.
Whilst the countdown ends here, our actual journey for the next 12 years has only just started. Together with you, we look forward to seeing what impact the new rules will have on the daily business of millions of European companies, and what issues or questions will arise going forward.
This impact will be the subject of a new series which the Distribution Law Center will launch in September. Every month, we will address a concrete question originating from the business and explain the applicable rules in a practical way. Therefore, stay tuned more than ever!
Please check out the Distribution Law Center platform (www.distributionlawcenter.com) and our LinkedIn page for much more information on the laws governing vertical agreements, covering both competition and commercial law. 27 specialized teams from all over the EEA are working hard to turn the platform into your favourite source of guidance and information.