EU Commission adopts new Vertical Block Exemption Regulation and Guidelines
Following a comprehensive evaluation and review and upon expiry of the current version of the law, the EU Commission has adopted the new Vertical Block Exemption Regulation (VBER) accompanied by detailed Guidelines (VGL), which will enter into force on June 1, 2022, and will expire after 12 years. VBER and VGL have been amended and modernised with a focus on digital markets and to reflect formative market developments, such as the growth of e-commerce and online platforms.
The general applicability framework for the VBER, such as vertical agreements, i.e., between suppliers/service providers and purchasers/customers, and the market share thresholds of 30% remain unchanged.
The following paragraphs briefly summarize the most significant changes in the VBER for your overview. As often, the devil is in the detail, which is particularly true in relation to vertical competition rules. Please contact us if you require guidance on the details of the new restrictions.
1. New rules for dual distribution, i.e., the supplier is also competing with its buyer at the retail level:
- Extension of the dual distribution exemption to wholesalers and importers. But hybrid platforms (see below) are carved out from the exemption.
- Ancillary information exchange between supplier and buyer in dual distribution systems benefits from the block-exemption, i.e., information directly related to the implementation of the vertical agreement and necessary to improve production or distribution of contract goods or services. The VGL provide more guidance on which information is considered as ancillary in this context.
2. Clarifications on pricing:
- Minimum advertised prices (MAP) are considered to constitute resale price maintenance (RPM) and, thus, remain prohibited. However, in individual cases they may be capable of an individual exemption outside the VBER, e.g., if strategically used by loss leaders.
- Fulfilment contracts are not RPM, if the sales price has been pre-agreed between the supplier and the customer, and the fulfiller is selected by the supplier.
- Sustainability-related criteria in selective distribution as well as longer non-compete obligations to amortize green investments are examples for individual cases, which may benefit from the VBER in the future.
3. Additional flexibility for exclusive and selective distribution systems: Active sales restrictions for the protection of exclusively appointed distributors have been amended for more flexibility.
- Shared exclusivity: up to 5 distributors can now be appointed as exclusive distributors for the same area or customer group.
- The prohibition for other distributors to actively sell into the exclusive area or group are now allowed to be passed on to the other distributors’ customers. But limited to direct customers, sales restrictions are not allowed to be passed on further down the supply chain.
- Better protection of selective distribution systems: Any sales to buyers who are not authorized members of a selective distribution system - whether from inside or outside the relevant territory, whether by members of an exclusive or selective distribution system or by free distributors can be prohibited.
4. According to the EU Commission, Online Sales have developed into a well-functioning sales channel and do not need special protection under the new VBER any longer:
- "Dual pricing", i.e., charging different prices for identical products to be resold by the buyer offline or online, respectively, is now allowed, as long as the pricing differences are not intended to prevent online sales. Accordingly, the “principle of equivalence” does no longer apply, i.e., pricing or rebate criteria for online sales no longer have to be equivalent to those for offline sales (which had previously been the case to prevent discriminatory pricing).
- General guiding principle for online distribution: Any restrictions intended to prevent buyers or their costumers from effectively using the internet to sell goods or services or from using online advertising channels are treated as severe restrictions of competition.
- Buyers’ prohibition to sell the contract goods on online marketplaces is generally permitted. But restrictions on the use of price comparison tools is not allowed.
5. Online platforms are now more specifically defined as online intermediation services (OIS), which provide intermediation services, but do not sell products themselves (this does exclude so-called hybrid platforms). There are special rules for OIS, including:
- (1) OIS providers are not treated as customers; (2) OIS is the relevant business for market share threshold (30 %); (3) OIS provider is bound by the core restrictions in Art. 4 VBER; (4) OIS providers must not impose cross-platform parity obligations on their customers.
- Hybrid platforms: Where the OIS provider also competes as a reseller on the relevant product market (hybrid function) agreements relating to the provision of OIS fall are not covered by the VBER, i.e., not block exemption applies.
- Wide price parity clauses (best price-clauses), i.e., no better prices anywhere else including other internet platforms, are no longer block-exempted. All other types of parity obligation are allowed, including best price obligations with regard to customer’s direct sales channels, e.g., own website (narrow parity).
- Generally, OIS do not benefit from the privilege of agency agreements, i.e., they are treated as two separate undertakings. Regularly, online platforms act for a larger number of principals and the market-specific investments made by the platforms let them bear their own risks. This is not a typical situation for agents, which would be a commercially integral part of the principal.
6. Non-compete obligations can now benefit from the block exemption even if they are tacitly renewable beyond a period of five years, provided that the buyer can effectively renegotiate or terminate the vertical agreement.