European Commission adopts new regulation and guidelines on Vertical Block Exemption

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 take effect today and expire again after 12 years. VBER and VGL have been modified and modernized with a focus on digital markets and to reflect structural changes in the market, 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 maximum market share at both market levels of 30% 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 especially true in vertical competition rules. Please contact us with specific questions.

1. Its scope has been widened: Exemption from double distribution

  • Double distribution exemption now extends to wholesalers and importers (Section 2(4) VBER)
  • However: hybrid platforms are excluded from the safe harbor
  • 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. Additional Clarifications: Pricing

  • Minimum advertised prices are treated as resale price maintenance (RPM) prices and, therefore, are not permitted. However, in some cases they may be subject to individual exemption outside the VBER, for example if they are strategically used by loss leaders.
  • Execution contracts are not RPM, if the selling price has been previously agreed between the supplier and the customer, and the executor is selected by the supplier.
  • Sustainability-related criteria in selective distribution as well as longer non-compete obligations to amortize green investments are examples of individual cases that could benefit from VBER in the future.

3. Benefit from greater flexibility: Exclusive and selective distribution systems

  • Shared exclusivity: Up to 5 distributors can now be designated as exclusive distributors for the same zone or customer group.
  • The prohibition on other distributors from actively selling in the exclusive zone or group can now be passed on to the customers of other distributors. However, this is 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 inside or outside the relevant territory, whether made by members of an exclusive or selective distribution system or by free distributors – may be prohibited.

4. More special protection: Online sales

  • “Dual pricing”, i.e. charging different prices for identical products to be resold by the buyer offline or online, respectively, is now permitted, as long as the price differences are not intended not prevent online sales. As a result, the “equivalence principle” no longer applies, i.e. the price or discount criteria for online sales should no longer be equivalent to those for offline sales (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 acceptable. However, restrictions on the use of price comparison tools are not allowed.

5. Are now more specifically defined: online platforms

  • Online platforms are now considered providers (Article 1(1)(d) VBER) and their activities are now legally defined as online intermediation services (OIS) (Article 1(1)(e) ) of the VBER).). Therefore
    • an OIS supplier cannot be considered a buyer of the goods offered through the OIS;
    • the market share for the provision of IOS is now relevant for the VBER market share threshold (30%);
    • IOS providers may only impose sales restrictions in accordance with Art. 4 VBERs;
    • cross-platform parity has been dropped (Art. 5 (1) d VBER).
  • Note that VBER does not apply where the OIS provider has a “hybrid function” and competes with firms using the intermediary services in the sale of the intermediary goods or services (Article 2(6) of the VBER).
  • Extended 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, OISs do not enjoy the privilege of agency contracts, i.e. 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. Now exempt: non-competition obligations

  • 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.

Aurora J. William