The European Commission adopts a new vertical block exemption regulation | Wilmer Hale
[co-author: Anastasiia Zeleniuk]
On May 10, 2022, the European Commission adopted the final text of the new Vertical Block Exemption Regulation (VBER)1 accompanied by the new guidelines on vertical restraints (the VGL),2 which provide details on the interpretation and application of the new VBER. The new VBER and new VGL provide updated guidance on when vertical agreements are exempted from the prohibition of anti-competitive agreements under Article 101(1) TFEU. Both the new VBER and the new VGL have great practical relevance for distribution networks and corporate online sales. This alert examines the main provisions and changes introduced by the new VBER.
Article 101(1) TFEU prohibits agreements that restrict competition (alongside Article 1 of the Sherman Act). However, Article 101(3) TFEU provides for the possibility of exempting such agreements in specific circumstances. VBER was introduced to provide a safe harbor for a group of vertical agreements (i.e. agreements between entities acting at different levels of a supply chain) which can be considered to normally fulfill the conditions set out in Article 101(3) TFEU.3 Non-safe harbor agreements may still be lawful, but must be individually assessed under Article 101(3) TFEU.
The current VBER was adopted in 2010 and expires on May 31, 2022.4 Therefore, in September 2020, the European Commission launched a revision of the VBER and the accompanying VGL in order to adapt them to the developments that have occurred since 2010. The new VBER provides clearer and more up-to-date rules regarding the valuation of markets vertical. agreements in the EU, with particular emphasis on issues of online sales and internet use.
Here are the main provisions and changes introduced by the new VBER:
- Scope. The scope of VBER remains largely unchanged, i.e. the exemption of Article 101(1) TFEU generally applies to vertical agreements where the share held by the parties to that agreement on the relevant markets does not exceed 30%.5
- Exchange of information in “Double Distribution”. The new VBER continues to apply to dual distribution scenarios but stipulates additional and more explicit restrictions in this regard.6 “Dual distribution” refers to scenarios where a supplier sells to end customers (i) indirectly via a distributor (non-competitive upstream) (B2B) and (ii) directly via its own online store or sales team. direct (B2C). In particular, the exchange of competitively sensitive information between a supplier and a buyer has become more restricted.seven For example, to benefit from VBER, the exchange of information must (i) be directly related to the implementation of the vertical agreement and (ii) be necessary to improve the production or distribution of the goods/services. These changes may well mean that (i) companies’ current practices of collecting and sharing information across vertical agreements need to be reviewed and (ii) safeguards need to be implemented.8 According to the VGL, this includes technical and administrative measures, such as the use of firewalls between B2B and B2C teams within the same company.
- New provisions for the “platform economy”. Under the new VBER, a company that provides online intermediation services (OIS) will now be considered a supplier and will generally no longer be considered an agent.9 This means, for example, that an SIO provider must not impose a fixed or minimum sale price for a transaction it facilitates, as this would be considered a prohibited resale imposed price.
In addition, “hybrid” OIS providers (who compete with their customers in the sale of goods and services) will no longer benefit from VBER.ten It remains unclear if a hybrid OIS provider can implement firewalls between its platform and its direct selling business to stay within the scope of VBER (such as in a dual distribution scenario) .
- No hindrance to the effective use of the Internet. The new VBER introduces a separate “fundamental restriction” which is to prevent effective use of the Internet.11 It was previously a subset of passive selling restrictions. Other restrictions on online sales or online advertising remain broadly permitted.12 The VGL lists a list of (typically) permitted or prohibited measures when selling online (e.g. regarding platform restrictions, search engines and dual display).
Additionally, the European Commission provides additional guidance on the distinction between active and passive sales specifically for online distribution. For example, search engine optimization targeting customers and using different languages or top-level domains to target territories are considered active sales.13
- New rules on parity clauses (MFN). The new VBER no longer provides a safe harbor for so-called extended retail parity obligations, which prohibit a buyer from offering goods/services to end customers on more favorable terms on competing online intermediation platforms.14 Other types of parity bonds can generally still benefit from VBER.15
- Clarified “Genuine” and “Duplicate” agents. The new VGL confirms that genuine agency contracts (i.e. in which the agent bears no financial or commercial risk or an insignificant financial or commercial risk) always remain outside the scope of the 101(1) TFEU. An independent distributor may, in parallel, also be qualified as a “genuine agent” in particular circumstances. For example, agency and distribution activities must be clearly delineated, and the “dual role” of the agent must not be imposed de facto by the supplier.16
- Exclusive distribution system with shared exclusivity. A supplier can now exclusively assign a specific territory/customer group to up to five buyers.17
- Transmission of restrictions (territory/customer). According to the new VBER, the supplier is no longer prohibited from forcing its buyers to pass on (permitted) territory/customer restrictions to their direct customers. This can be particularly relevant in multi-level supply chains.18
- Tacit extension of non-competition. The non-competition obligations may, in special circumstances, be tacitly renewed beyond a period of five years.19
- Coming into force. The new VBER will come into effect on June 1, 2022 and will replace the current VBER which expires. For agreements that come into effect on or before May 31, 2022, the parties may continue to comply only with the current VBER during a transition period ending on May 31, 2023.
While the scope and general structure of the VBER remains largely the same, the new versions of the VBER and the VGL provide clearer and more up-to-date guidance for assessing the compatibility of vertical agreements with the competition rules of the EU, particularly in the area of e-commerce. The new VBER has become stricter in some areas (eg dual cast, OIS), which may require a review of current business practices. In other areas (eg exclusive distribution, online sales restrictions), the new VBER provides greater flexibility, which suppliers may wish to reflect in their distribution and sales agreements.
Commission Regulation (EU) 2022/720 of 10 May 2022 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices, OJ L 134 of 11.5.2022, p. 4–13.
COMMUNICATION FROM THE COMMISSION, Approval of the content of a draft Commission communication – Guidelines on vertical restraints C (2022) 3006 final.
See VBER, recitals, paragraph 3.
Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices , OJ L 102, 23.4.2010, p. . 1–7.
See VBER, article 3.
See VBER, article 2, paragraphs 4 and 5; VGL, para. 96 and following.
See VBER, article 2, paragraph 5.
See VGL, para. 99 and following.
See VBER, article 1, paragraph 1, point d).
See VBER, article 2, paragraph 6.
See VBER, article 4, paragraph 1, point e).
See VGL, para. 208 et seq.
See VBER, item (1)(l); VGL, para. 211 and following.
See VBER, article 5, paragraph 1, point d).
See VGL, para. 254.
See VGL, para. 36 and following.
See VBER, Section 4(b)(i).
See VBER, article 4, points b) to d).
See VGL, para. 248.