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Commission publishes industry views on proposed new Vertical Agreements Block Exemption

Posted on 29 November 2021

The Vertical Block Exemption Regulation (VBER) and Vertical Guidelines play an important part in assisting the legal and commercial community to draft vertical agreements (e.g. supply and distribution agreements) so as to comply with EU competition law.

In a separate article we wrote about the UK's proposal for a new Vertical Block Exemption Order to replace the existing regulation, which expires at the end of May 2022.

In July 2021, the Commission invited comments on its draft revised VBER and Vertical Guidelines following a review that started in October 2018. Under these proposals, while the bulk of the VBER would remain unchanged, amendments are proposed on dual distribution, parity obligations, active sales restrictions, and online sales.

The Commission has now reported on the views received.

Dual distribution

Dual distribution covers situations where a supplier sells its goods or services both through independent distributors (such as retailers) and directly to end customers, in direct competition with its independent distributors.

The rise of online sales – in particular through suppliers' own online shops – has resulted in a significant increase in such instances of dual distribution. It appears that most respondents were critical of the Commission's proposal that the safe harbour for dual distribution should only apply where the parties’ aggregated market share in the retail market does not exceed 10% ( the current threshold is 30%).

Conversely, all respondents were in favour of the idea that the dual distribution exception should cover wholesalers and importers. Some respondents sought a definition of ‘wholesaler’ and ‘importer’, as well as confirmation that the exception would apply not only where a manufacturer, importer, or wholesaler competes with retailers at the retail level, but also, as currently, where a manufacturer competes with wholesalers at the wholesale level.

Many respondents asked for more guidance on the type of information that can be exchanged between the parties in a dual distribution relationship and the measures that undertakings can take to address possible competition concerns, including the use of Chinese walls and aggregation of data.

Parity obligations

Regarding parity obligations, often referred to as most favoured nation clauses, there was a mixed response. Many backed a proposal to exclude cross-platform retail parity obligations from the VBER. However, others opposed the proposal on the basis that there was no need to change the current policy of block-exempting all forms of parity obligation.

A majority of suppliers and their associations, predominantly from the hotel sector, said that the proposal did not go far enough. They favoured extending the exclusion to narrow retail parity obligations or indeed all forms of parity obligation. This reflects long running concerns about hotel pricing on certain online travel agency sites, which has been investigated by many European competition agencies.

Active sales restrictions and online sales

Active sales restrictions are currently acceptable when imposed on an exclusive distributor preventing sales outside its territory. The Commission has proposed an extension of the VBER to certain other active sales restrictions.

Some respondents support the proposal to allow shared exclusivity on the grounds that it provided more flexibility for suppliers to structure their distribution system according to their needs. To avoid legal uncertainty, however, respondents suggested that more guidance or examples could be provided in the Vertical Guidelines to explain how this principle would be applied.

Many respondents asked for the Commission to clarify the position on Minimum Advertised Prices (MAPs), on which the current VBER and Vertical Guidelines are silent. Meanwhile, proposals made in relation to the treatment of platforms by reference to a new definition of providers of "online intermediation services" (OIS) received mixed views. Some considered the definition of OIS unclear, requesting further clarification on whether OIS providers can only be considered as suppliers of online intermediation services, or whether they can also be considered as suppliers of the products that are intermediated through their platforms.

It seems that the Commission will have a challenge to meet the concerns of all those who responded. However, some important changes are inevitably going to be introduced. A draft Regulation should be published early next year.

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