Update on the reform of the vertical restraints regulation – An overview of the Commission workshop of 14 and 15 November 2019

Here is an update on the reform of Vertical Restraints Block Exemption Regulation No 330/2010 and its guidelines which is currently being conducted by the Commission in consultation with various stakeholders throughout Europe.

As you know, we responded to the public consultation launched by the Commission, and we were subsequently invited to attend the workshop organized by the Commission’s DG Competition on 14 and 15 November at the Autoworld Museum in Brussels. Two lawyers from the firm, Joseph Vogel and Mathilde Leroy, attended. Here is their feedback on the progress of the workshop and our general impressions:

Among the hundred or so participants in attendance, there seemed to be large proportion of suppliers and brands or associations/federations representing them, especially in the luxury and cosmetics sectors. Auto dealerships were also fairly well and the European Automobile Manufacturers Association was there on behalf of carmakers. For online distributors, we know that  Amazon, Zalando and eBay were present. We also met numerous lawyers from different European States but only one other French firm. We were not aware of any consumer associations being present.

1. The Commission started by presenting the initiative, aimed at gathering additional information to the written consultations, and invited a few persons to talk about their positive experiences of the current regulation (from Yves Rocher, Zalando, Estée Lauder, Metro, and a Belgian federation of beer wholesalers).

2. Next, the first part of the workshop began, consisting in an interactive debate in small working groups aimed at identifying major topics on the basis of ideas submitted in answer to the question: “What should change in the VBER to ensure consumer welfare?“. All of the exercises of the workshop were conducted under the lens of consumer welfare, which in our opinion somewhat oriented the debate towards topics for which the impact on consumers was more direct or obvious than for other topics (for example, the question of raising the 30% exemption threshold).

One of the main themes that emerged almost unanimously was the need for the Commission not to focus solely on short-term price competition and to take into account other equally important aspects for consumers, such as competition through quality, service and innovation.

The topics of online sales, selective distribution, resale price maintenance (RPM), dual pricing, and franchising were also frequently raised.

3. At the end of this first phase, the Commission took note of the concerns in an exchange with participants. The content of the discussions has been captured on the Slido polling platform (see slide results attached) and on harvesting sheets.

4. On the second day, those who wished to do so were invited to propose a topic that was important to them and to lead a discussion on that theme with a round table group of other interested participants. The subjects of discussions were transcribed onto poster boards and all participants were asked to vote on them.

In total, 26 topics were debated in two one-hour sessions, each time in a round-table group. You will find attached a list of the 26 topics submitted for discussion in those groups.

The ten most successful topics posters at the end of this vote were:

• VBER and online sales: more readable business-friendly rules; online sales restriction after Coty (24 votes)
• Freeriding: how to balance adverse effects across EU (22 votes)
•  Differentiated view on RPM: a more nuanced approach to RPM for products requiring high value service to preserve high-level consumer experience in the long run (20 votes)
• Enable third party access to machine generated/IoT data to enable an end-user to maintain/service its own product or choose its service provider (16 votes)
• Dual distribution: application of the exemption to agreements between wholesaler – retailer and clarification in the guidelines (16 votes)
• Dual pricing: how to support value added service in a fair market (14 votes)
• Definition of franchising including transfer of know-how (13 votes)
• Enforceability of selective distribution network on EU member states to fight grey market(13 votes)
• Equivalence of criteria within selective distribution systems for the purpose of a level playing field (13 votes)
• Lack of clarity about the flexibility within selective distribution systems (differentiated partnerships to provide better services to consumers and exchange of data permissible) (10 votes)

5. The above topics were then presented orally to the whole group by their initiator followed by a brief discussion.

6. Finally, a spokesperson took the floor to indicate that the Commission took note of the various issues that had emerged from the workshop, which it has broadly endorsed, and to note the agreement of the participants on many points, despite some unavoidable points of divergence.

Overall, the discussions clearly showed a strong rejection of pure price competition and an attachment from suppliers and distributors to a plural form of competition guaranteeing price, quality, service and innovation. Internet platforms were very much in the minority. Moreover, the protectionist positions of auto dealer associations claiming protective status (termination indemnity, freedom to transfer business, limitation of direct sales, etc.) were not raising in the round tables of the first day and were not put forward as topics on the second day. It is true that they were quite inappropriate in this context, competition law being intended to protect competition and not one category of competitors.
In addition, such demands would lead to an increase in distribution costs, which is reflected in prices, thus counter to the well-being of consumers.

A summary of the workshop will be published by the Commission at the end of the first semester in the next weeks, alongside with a list of the companies, law firms and business associations that participated in the workshop.

The Commission has stated that it is working in close cooperation with the national competition authorities, a “working group on verticals” having been set up for this purpose.