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Public consultation on the Vertical Block Exemption Regulation: brand battle lines are drawn

Public consultation on the Vertical Block Exemption Regulation: brand battle lines are drawn

Posted on 19 September 2019

We previously reported on the European Commission's consultation on the functioning of the current Vertical Block Exemption Regulation ("VBER") and the accompanying guidelines. The Commission has recently published responses to this consultation.

The public consultation targeted a variety of stakeholders, including brands, industry associations, distributors, online marketplaces and law firms. Over 164 responses to its questionnaire were received, and 13 position papers.

Although more luxury brands (e.g. LVMH) and associations (including Walpole, Cosmetics Europe and Brands for Europe) have engaged in the consultation than online market places and distributors, the responses highlight the tensions between brands and the online marketplaces. The key concerns raised by the brands can be broadly broken into four themes:

1) The necessity of the VBER and guidelines: Brands broadly agreed that the VBER and guidelines provide legal certainty and generally contributed to promoting good market performance in the EU.

2) Online sales restrictions: A number of the responses highlight a divergence in the application of the European Court of Justice's Coty decision (regarding the legitimacy of restrictions imposed by luxury goods brands on the on-sale of their products) by national competition authorities.

In response to this, some of the respondents suggest that the clarifications provided in Coty should be integrated into the VBER and guidelines, along the following lines:

a. An exemption for selective distribution systems for luxury goods designed, primarily, to preserve the luxury image of those goods; and

b. An express acknowledgment that (in the case of selective distribution systems of this kind) contractual clauses which prohibit authorised distributors from using, in a discernible manner, third-party platforms for the digital sale of goods purchased under that contract should not be considered a restriction by effect.

When arguing in favour of online marketplace bans, brands also highlighted issues and challenges they face with free-riding and grey-market players. A number of the responses call for the Commission to consider providing greater protection for brands in these circumstances.

3) Modification of the guidelines with regard to Resale Price Maintenance (RPM) and dual-pricing: Brands also highlighted the importance of investment in bricks and mortar and the difficulties they face with incentivising such investment without an option to dual-price. They therefore called for clarity in terms of the caselaw, VBER and guidelines around when dual-pricing may be appropriate (currently it is a hardcore restriction). Similarly, recognising that there has been a shift by national competition authorities in the assessment of RPM arrangements towards recognising that they potentially give rise to pro-competitive effects, brands asked the Commission to provide guidance on when RPM arrangements may be appropriate.

4) More flexibility around selective distribution use and criteria: Again with reference to the Coty decision, brands ask for more clarity and flexibility, from the Guidelines in particular, regarding the qualitative criteria which can be used as part of a selective distribution network. Brands also want clarification as to whether (and ideally support for the position that) legitimate selective distribution arrangements are not simply limited to luxury goods, but could also be applicable to preserve the quality and proper use of non-luxury products. On the other side of the fence, distributors and online market places called for clarification around what is meant by "luxury".

In terms of next steps, a dedicated stakeholder workshop will be planned for autumn 2019 and the publication of a staff working document is planned for Q2/2020, which will provide the Commission's view and assessment of the current framework and any proposed changes. 

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