On 18 December 2020 the Commission published a further consultation on its proposals for a revised vertical agreements block exemption Regulation (VBER) and guidelines. The Commission’s steps to date, and conclusions of its evaluation phase, are set out in our HSF Notes post from 17 September 2020. In essence the evaluation concluded that the current rules are still relevant and useful to businesses, but there are certain areas that could be improved.
The latest consultation follows the inception impact assessment published by the Commission in October 2020 (see our HSF Notes post from 26 October 2020) to inform the updated version of the VBER and guidelines. The current consultation proposes the same policy options as in the initial impact assessment, and effectively asks for more detailed comments and evidence on these.
The next step will be a consultation on the draft text of the VBER and guidelines to be published later this year.
The consultation is in the form of an online questionnaire, seeking views on the different policy options identified in the inception impact assessment, and responses are invited by 26 March 2021. The questionnaire focuses on the following issues:
Exception for dual distribution
Agreements between competitors are currently not covered under the VBER and must be assessed under the competition rules for horizontal agreements, but Article 2(4) provides for an exception for dual distribution, where a supplier sells its goods or services directly to end consumers, thereby competing with its distributors at retail level. The growth in e-commerce has made it easier for suppliers to engage in dual distribution and the Commission is now asking views on the following options in respect of dual distribution:
- No policy change
- Limiting the scope of the exception to scenarios that are unlikely to raise horizontal concerns, eg by introducing a threshold based on the parties’ market shares or other metrics, and aligning the scope of the exception with what is considered exemptible under the rules for horizontal agreements
- Extending the exception to dual distribution by wholesalers and/or importers
- Removing the exception from the VBER thereby requiring an individual assessment under Article 101 TFEU for all cases of dual distribution
Active sales restrictions
The current VBER rules permit restrictions of active sales in certain limited cases, in order to protect investments by exclusive distributors (active sales into exclusive territories can be restricted under Article 4(b)(i) of the VBER) and to prevent sales by unauthorised distributors in territories where a supplier operates a selective distribution system (members of a selective distribution system can be restricted from selling to non-members under Article 4(b)(iii) of the VBER).
The current rules are perceived as preventing suppliers from designing their distribution systems according to their business needs, in particular with regard to the possibility of combining exclusive and selective distribution in the same or different territories. The rules are also considered as not allowing for the effective protection of selective distribution systems against sales from outside the territory in which the system is operated. The Commission is seeking views on the following options for the new VBER:
- No policy change
- Expanding the exceptions for active sales restrictions in order to give suppliers more flexibility to design their distribution systems according to their needs, in line with Article 101 TFEU
- Ensuring more effective protection of selective distribution systems by allowing restrictions on sales from outside the territory in which the selective distribution system is operated to unauthorised distributors inside that territory
Indirect restrictions of online sales
Online sales are considered a form of passive sales and restrictions preventing distributors from selling through the internet are considered hardcore restrictions that cannot benefit from the safe harbour of the VBER and as by object restrictions under Article 101 TFEU. The current rules apply the same approach to two types of indirect measures that may make online sales more difficult:
- charging the same distributor a higher wholesale price for products intended to be sold online than for products sold offline (dual pricing)
- imposing criteria for online sales that are not overall equivalent to the criteria imposed for sales in physical shops (the so called ‘equivalence principle’) in the context of selective distribution
Stakeholders have indicated that the rules on dual pricing prevent them from incentivising investments, notably in physical stores, by not allowing them to differentiate wholesale prices based on the costs of each channel. Stakeholders also pointed to a lack of legal certainty in the application of the equivalence principle, as online and offline sales channels are inherently different, and it is difficult to assess when a divergence in the criteria used for each channel amounts to a hardcore restriction under the VBER. The Commission is now consulting on the following policy options for these two types of indirect restrictions of online sales:
- No policy change
- No longer treating dual pricing as a hardcore restriction, with safeguards to be defined in line with the case law
- No longer treating as a hardcore restriction the imposition of criteria for online sales that are not overall equivalent to the criteria imposed for sales in physical stores in a selective distribution system, with safeguards to be defined in line with the case law
Parity clauses require a company to offer the same or better conditions to its contract party (for example, an online platform) as it offers on certain other sales channels. ‘Wide’ parity clauses generally relate to the conditions offered on all sales channels (including other platforms and the company’s direct sales channels), whereas ‘narrow’ parity clauses generally relate only to the company’s direct sales channels (for example, the company’s website). All types of parity obligations currently benefit from the VBER, but the use of such clauses has become much more common in recent years, in particular by online platforms, and national competition authorities and courts have identified anti-competitive effects of wide parity clauses.
The Commission is consulting on the following options:
- No policy change
- Removing the benefit of the VBER for obligations that require parity relative to specific types of sales channels, by including such obligations in the list of excluded restrictions (Article 5 VBER)
- Removing the benefit of the VBER for all types of parity obligations, by including them in the list of excluded restrictions (Article 5 VBER), thus requiring an individual effects-based assessment in all cases
Resale price maintenance
RPM is considered a hardcore restriction under the VBER and a by object restriction under Article 101 TFEU. However, the guidelines recognise that RPM may, in certain circumstances, lead to efficiencies (e.g. to achieve an expansion of demand during the launch of a new product or to avoid the undercutting of a coordinated short-term low price campaign in a franchising system). The evaluation has identified a lack of clarity and guidance as to when efficiencies of RPM can be argued and the evidence needed to meet the threshold for an individual exemption under Article 101(3) TFEU, and as a result companies will prefer not to run the financial and reputational risk of including RPM restrictions in their vertical agreements.
The Commission is asking stakeholders for examples where RPM has led to efficiencies and views on how it could address the current lack of clarity and guidance.
The Commission is considering the possibility of including tacitly renewable non-compete obligations for the duration of an agreement under the safe harbour of the VBER, provided the buyer can terminate or renegotiate the agreement at any time, with a reasonable notice period and at reasonable cost. It is asking for views on whether there are instances where this would not be appropriate.
In line with the objectives of the European Green Deal, specific considerations as regards the impact of the current framework for vertical agreements on sustainability objectives will be taken into account in the context of the VBER review. The Commission is asking for views and examples where the current rules create obstacles for vertical agreements that pursue sustainability objectives, and whether there is a need for specific guidance on vertical agreements and sustainability objectives.
Impact of Covid-19
The Commission is keen to ensure that the effects of the Covid-19 crisis on supply and distribution arrangements are, where appropriate, incorporated in the review of the VBER and guidelines. The Commission is asking stakeholders for views on the impact of the crisis on market trends relevant to the review.