The Commission is continuing its work with the aim of revising the Vertical Restraints Regulation. The final review published on 25 May 2020 states that the current framework remains relevant but needs to be modernized and clarified in respect of several points.
Those points are examined by the Commission in its impact assessment, which specifies the options open to it. Further to the publication of that document, it launched a public consultation to be held between October 23 and November 20, 2020, following which it will present a draft of the new regulation.
Clarification and simplification of the rules
The Commission proposes to address the problems identified in the evaluation of the VBER. In particular, it wishes to integrate recent case law into the new text and to limit the scope for divergent interpretations, especially for restrictions that are new or have become more prevalent since the adoption of the current regulation, such as restrictions on price comparison sites or online advertising. The new regulation should also address the situation of new market players, such as online platforms in certain areas (e.g. sales agents or dual distribution). The Commission also intends to improve clarity in the rules applicable to efficiency gains in cases of resale price maintenance (RPM), which is currently a hardcore restriction: the revised regulation would set out the conditions under which efficiencies for RPM can and the evidence required to satisfy the conditions of Article 103(3) TFEU. Lastly, in order to reduce costs and the administrative burden, tacitly renewable non-compete obligations will benefit from the block exemption to the extent that the buyer is able to periodically renegotiate or terminate the agreement.
Revision of current rules
The Commission has identified four areas that require a reform of the rules currently in force and sets out a list of the various scenarios possible.
- Dual distribution which covers situations where the manufacturer or supplier of a product also intervenes at the retail level in competition with independent distributors. The development of online sales has facilitated an increase in dual distribution. This raises the question of exempting vertical agreements which, in reality, give rise to horizontal competition concerns and do not meet the conditions of Article 101(3). Furthermore, it excludes wholesalers or importers, in a situation of dual distribution, from the benefit of the VBER. The Commission has three options:
- make no changes;
- limit the scope of the exception to scenarios that are unlikely to raise horizontal concerns by introducing a threshold based on the parties’ market shares in the retail market and, for example, by aligning the coverage of the exception with what is considered exemptible under the rules on horizontal restraints;
- extend the exemption to wholesalers and importers.
- Active sales restrictions which reduce the territory into which the distributor can sell or the customers to whom it can sell are currently regarded as hardcore restrictions not covered by the VBER, which does however make an exception in certain limited cases even though it prohibits all restrictions on passive sales. These rules are now considered too complex by suppliers, who are calling for “shared exclusivity” between two or more distributors in a particular territory and to be able to effectively combine exclusive and selective distribution in the same or different territories. Here too, the Commission finds there are three possibilities:
- make no changes to the regulation;
- or expand the exceptions for active sales restrictions to give suppliers more flexibility in the design of their distributions networks;
- or ensure a more effective protection of selective distribution systems by allowing restrictions on sales from outside the territory in which the selective distribution system is operated to unauthorized distributors inside that territory.
- Restriction of online sales : online sales are a form of passive sales. Therefore, restrictions preventing distributors from selling through the internet are considered hardcore restrictions not exempted by the VBER. Certain indirect measures such as dual pricing, e.g. charging the same distributor a higher wholesale price for products intended to be sold online than for products sold offline, or the equivalence principle, which imposes criteria for online sales that are not overall equivalent to the criteria imposed in brick-and-mortar shops, receive the same treatment. Indeed, according to the Commission, it is not possible to charge a higher price for products intended to be resold online (Vertical Restraints Guidelines, pt. 64.), unless the price difference is justified by “substantially” higher costs incurred by the supplier for online sales. Similarly, the developer of a selective distribution network should not impose an obligation aimed at dissuading designated distributors from using the internet by attaching conditions for online sales which are not broadly equivalent to those laid down for sales at a physical point of sale. While it is accepted that the conditions imposed for online sales may not be the same as those required for offline sales, they should pursue the same objectives and lead to comparable results.
By not allowing wholesale price differentiation based on the costs of each distribution channel, the current rules constitute, for multi-channel suppliers and retailers, a restraint on associated investments, particularly in physical stores. There is also legal uncertainty about the application of the equivalence principle since the differences between online and offline channels make it difficult to assess cases when a divergence in the criteria used for each channel amounts to a hardcore restriction. Once again, the Commission has considered three scenarios:
- no policy change;
- dual pricing no longer regarded as a hardcore restriction with safeguards to be defined in line with the case law;
- no longer regard as a hardcore restriction the imposition of criteria for online sales that are not overall equivalent to the criteria imposed in brick and mortar shops with safeguards to be defined in line with the case law.
- Parity obligations allow the contracting party to automatically benefit from the same or better terms as those offered in other sales channels (wide parity) or only on the supplier’s own channel (narrow parity). Parity obligations can be agreed at wholesale or retail level and can cover price or non-price conditions such as inventory or availability of goods or service. They are currently block exempted under the VBER. These obligations are particularly prevalent in the mass market segment (e.g. household goods, soft drinks) where competition is largely price-driven, in contrast, for example, to the luxury segments where quality plays a greater role. They are now experiencing a particular development in e-commerce and are used by platforms to bind suppliers. National competition authorities and courts have identified the anti-competitive effects of parity obligations relating to indirect sales or marketing channels (e.g. other platforms, or on- or offline intermediaries). The Commission’s options are :
- either making no change to current policy;
- or removing the benefit of the VBER and including in the list of excluded restrictions terms that require parity relative to specific types of sales channels (especially indirect sales or marketing channels, other platforms and intermediaries), thus requiring an individual assessment on the basis of Article 101(3);
- or removing the benefit of the block exemption for all types of parity obligations which would be included in the list of hardcore restrictions and only subject to an individual assessment under Article 101(3).
Whichever options are chosen, they will, according to the Commission, have an economic impact on undertakings operating in the internal market. Some of the options favor cost reduction and greater legal certainty, such as those relating to active sales, online distribution and dual distribution, to some extent. Others however, such as those on parity obligations or to some extent on dual distribution, lead to the exclusion from block exemption of practices that do not with insufficient certainty meet the conditions of Article 101(3) TFEU. These options represent an additional cost for undertakings that will have to self-assess the compliance of their agreements with the regulation.
In any case, it appears that the current Vertical Restraints Regulation and its guidelines have reduced the legal costs of undertakings and increased their legal certainty. It therefore seems essential to preserve its rules and adapt them to market changes, in particular by taking more account of developments in the digital sphere.