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EU Commission eyes revamp of vertical restraints regulations for the digital marketplace

Posted on 23 July 2019

EU Commission eyes revamp of vertical restraints regulations for the digital marketplace

In May the European Commission closed a consultation on the Vertical Restraints Block Exemption Regulations  ("the Regulations").

The Regulations set out a framework for the assessment of different types of distribution arrangements and the restrictions that these may contain, for example, exclusivity provisions, territorial restrictions, pricing, and the operation of selective distribution systems. They provide a safe harbour from the application of EU competition law for such arrangements where certain criteria are met.

The current Regulations date from 2010 and are due to expire in 2022. However, the development and expansion of online market places in the intervening period has meant that the Regulations (and their accompanying Guidelines) frequently have little to say on commonplace issues and challenges that brands now face. It has been left to case law and action by national competition authorities to plug the gaps, which is cumbersome and has led to divergence of opinion. 

The Commission has stated that it will seek to address a number of key concerns when reviewing the Regulations. Notably, these include the use of most favoured nation clauses and the operation of selective distribution systems, particularly insofar as they may create barriers to online sales or particular market places (i.e. eBay, Amazon).

The Commission has also cited the recent fine against American clothing brand Guess as an example of the sort of behaviour it will look to address: we discussed the fine against Guess for restricting its authorised retailers' use of its trade marks in keyword advertising in our last edition.  Similarly, on 9 July 2019, the Commission fined Sanrio (the owner of the brand Hello Kitty) for placing direct and in-direct territorial restrictions on sales by its licensees. Brands should also be aware that in-direct restrictions may also include the use of audits and the non-renewal of contracts.

It’s clear that, whilst the Commission may have the option to let the Regulations lapse, tackling vertical agreements and the methods used by companies to protect their brands remains a top priority for the Commission. It is therefore unlikely that it will let the opportunity to address these issues pass by. In our view, we are more likely to see a further evolution of the Regulations that is more restrictive for brand owners. 

The Commission plans to publish a staff working document on this issue in the second quarter of 2020. 

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