Companies have until 31 May 2023 to amend their existing distribution agreements to the new VBER. New distribution contracts will have to comply with the new VBER’s conditions from the start to benefit from its safe harbour. Our VBER overview may be of help in this reassessment of distribution agreements.
As explained in our August 2021 newsletter, the new VBER – like the old one – provides a safe harbour for vertical agreements that may fall within the scope of Article 101 TFEU but that the Commission deems generally unproblematic. Vertical agreements that are not covered by the VBER may still be allowed but will require an individual legal assessment under Article 101 TFEU.
Dual distribution refers to a scenario where a supplier sells goods or services to end customers both directly and through independent distributors, thereby competing with its independent distributors. The dual distribution exemption under the new VBER has been extended to include wholesalers and importers. At the same time, the exemption has been narrowed down to take account of potential horizontal competition concerns that have arisen due to growing digitisation and online sales. As a result, the new VBER’s safe harbour does not apply to:
1. information exchange in dual distribution scenarios that is either not directly related to the implementation of the vertical agreement or is not necessary to improve the production or distribution of the contract goods or services by the parties,
The new Vertical Guidelines include a (non-exhaustive) list of exempted information exchanges, as well as a number of precautions that companies can take to minimise potential competition concerns (see our March 2022 newsletter). Information exchange that falls outside this scope needs to be assessed under Article 101 TFEU on a case-by-case basis, taking account of the Horizontal Guidelines (currently under review; see our August 2021 newsletter).
2. vertical agreements with providers of online intermediation services (OIS) with a hybrid function (e.g. Amazon or bol.com).
Vertical agreements with OIS providers that sell goods or services in competition with their users will therefore need to be assessed under Article 101 TFEU on a case-by-case basis. The Horizontal Guidelines will help to pinpoint any potential collusive effects, whereas the new Vertical Guidelines will provide guidance on assessing any vertical restrictions. Notably, the new Vertical Guidelines and the Commission’s explanatory note specify that, in the absence of by object restrictions or significant market power, the Commission is unlikely to prioritise enforcement action in respect of these agreements.
Across-platform retail parity obligations
The new VBER has added across-platform retail parity obligations (used, for instance, by online hotel booking sites) to its list of excluded restrictions. Clauses that restrict a buyer of an OIS from offering more favourable conditions to end users via competing online intermediation services can therefore no longer benefit from the VBER’s safe harbour. Such clauses will need to be assessed individually under Article 101 TFEU with the guidance given in the new Vertical Guidelines.
All other types of parity clauses are still covered by the new VBER’s safe harbour, provided that the market shares of the supplier and the buyer do not exceed 30%. This includes, for example, retail parity obligations imposed on the buyer of an online intermediation service relating to its direct sales channel (‘narrow’ retail parity) or relating to the conditions offered to undertakings that are not end users, as well as parity obligations regarding the conditions under which manufacturers, wholesalers or retailers purchase goods or services as inputs (‘most favoured customer’ obligations).
Active sales and distribution systems
The new VBER clarifies the scope of active sales restrictions. It explicitly includes definitions of active sales and passive sales and explains that offering an online shop with a domain name or language options which vary from those commonly used in the distributor’s trading area is regarded as active selling into another territory.
Moreover, the new VBER enables suppliers to appoint up to five distributors per exclusive territory or customer group and to oblige its exclusive distributors to pass their active sales ban on to their direct customers. In addition, the new VBER provides more clarity on the interaction between a supplier’s exclusive and selective distribution systems, by explaining that suppliers are allowed to prohibit:
- active or passive sales by the exclusive distributor and its customers to unauthorised distributors located in a territory where the supplier operates a selective distribution system; and
- active sales by the members of the selective distribution system and their direct customers, into a territory or customer group reserved to the supplier or allocated exclusively to a maximum of five exclusive distributors.
Restrictions on online sales or online advertising imposed on buyers to prevent them from effectively using the Internet to sell the goods or services fall foul of the new VBER’s safe harbour. Consequently, restrictions capable of significantly diminishing the overall amount of online sales will be regarded as a hardcore restriction under the new VBER. Similarly, a ban on price comparison tools and search engines is not allowed.
However, distributors may be prohibited from using a specific price comparison tool or search engine (provided this does not result in a prohibition on the use of the most widely used advertising services in the particular online advertising channel). In addition, a direct or indirect ban on the use of online marketplaces will be covered. So will dual pricing. A supplier can therefore set different wholesale prices for online and offline sales by the same distributor, as long as the price difference reasonably relates to the required investments and cost differences per channel.
Companies have until 31 May 2023 to adapt their existing distribution contracts to the new VBER. New distribution contracts will have to comply with the new VBER’s conditions from the start to fall within its safe harbour. Our VBER overview may be of help in this reassessment of distribution agreements.
Meanwhile, the UK’s Vertical Agreement Block Exemption Order (VABEO) also entered into force on 1 June 2022. Companies should keep in mind that their UK-related distribution contracts will now need to reviewed under these separate rules and possibly require adjustment.
This article was published in the Competition Newsletter of June 2022. Other articles in this newsletter: