European Commission adopts new regulation and guidelines on vertical block exemption | Knowledge
Following a thorough assessment and review and on the expiry of the current version of the law, the European Commission has adopted the new Vertical Block Exemption Regulation (VBER) together with detailed guidelines (VGL ), which will come into force on June 1, 2022, and will expire after 12 years. VBER and VGL have been modified and modernized with a focus on digital markets and to reflect market-structuring developments, such as the growth of e-commerce and online platforms.
The general framework of applicability of VBER, such as vertical agreements, i.e. between suppliers/service providers and buyers/customers, and the 30% market share thresholds remain unchanged.
The following paragraphs briefly summarize the most important VBER changes for your overview. As often, the devil is in the detail, which is particularly true when it comes to vertical competition rules. Please contact us if you need advice on the details of the new restrictions.
1. New rules for dual distributionthat is, the supplier also competes with its buyer at the retail level:
- Extension of the double distribution exemption to wholesalers and importers. But hybrid platforms (see below) are excluded from the exemption.
- The exchange of ancillary information 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 the production or distribution of the contract goods or services. The VGL provides more guidance on what information is considered ancillary in this context.
2. Details on pricing:
- The minimum advertised prices (MAP) are considered to constitute Taxation of resale price (RPM) and therefore remain prohibited. However, in some cases they may be subject to individual exemption outside of VBER, for example if they are strategically used by loss leaders.
- Implementing contracts are not RPMs, if the selling price has been agreed beforehand between the supplier and the customer, and the executor is selected by the supplier.
- Sustainability criteria in selective distribution as well as longer non-competition obligations to amortize green investments are examples of individual cases that could benefit from VBER in the future.
3. Added flexibility for exclusive and selective distribution systems: Active selling restrictions for the protection of exclusive distributors have been modified for more flexibility.
- Shared exclusivity: up to 5 distributors can now be designated as exclusive distributors for the same zone or the same group of customers.
- Prohibiting other distributors from actively selling in the area or exclusive group is now allowed be transmitted customers of other distributors. 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 sale to buyers who are not approved members of a selective distribution system – whether located inside or outside the territory concerned, whether made by members of a system exclusive or selective distribution or by free distributors may be prohibited.
4. According to the European Commission, Online sales have become a powerful sales channel and no longer need special protection under the new VBER:
- “Dual price display“, i.e. the charging of different prices for identical products intended for resale by the buyer offline or online, respectively, is now permitted, as long as the price differences are not intended to prevent Consequently, the “principle of equivalence” no longer applies, i.e. the price or discount criteria for online sales should no longer be equivalent to those for online sales. offline (which was the case before to avoid discriminatory prices).
- General guiding principle for online distribution: Any restriction intended to prevent buyers or their customers from actually using the Internet to sell goods or services or from using online advertising channels is considered a severe restriction of competition.
- Prohibiting buyers from selling the contract goods on online marketplaces is generally permitted. But restrictions on the use of price comparison tools are 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 excludes so-called hybrid platforms). There are special rules for OIS, including:
- (1) OIS providers are not treated as customers; (2) OIS is the relevant undertaking for the market share threshold (30%); (3) The OIS provider is bound by the fundamental restrictions of Art. 4 VBERs; (4) OIS providers should not impose cross-platform parity requirements on their customers.
- Hybrid platforms: Where the OIS provider also competes as a reseller in the relevant product market (hybrid function), agreements relating to the supply of OIS are not covered by VBER, i.e. no block exemption applies.
- Wide price parity clauses (best price clauses), i.e. there are no better prices elsewhere, including on other internet platforms, no longer benefit from the block exemption. All other types of parity obligations are permitted, including best price obligations with respect to the customer’s direct sales channels, for example, its own website (tight parity).
- Typically, SIBs do not enjoy the privilege of agency contracts, that is, they are treated as two separate businesses. Regularly, online platforms act for a greater number of principals and the market-specific investments made by the platforms allow them to assume their own risks. This is not a typical situation for agents, who would be commercially an integral part of the principal.
6. Non-competition 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 actually renegotiate or terminate the vertical agreement.