[Update: the final Vertical Block Exemption Regulation and Guidelines were adopted and published on 10 May 2022. The final versions contain some changes with regard to the previously published drafts].
In 2021, the European Commission published drafts for the new Vertical Block Exemption Regulation (the Block Exemption) and the Guidelines on Vertical Restraints (the Guidelines) that shall apply from 1 June 2022. The Block Exemption is important for the assessment of agreements between suppliers and their distributors under the cartel prohibition. This prohibition means that companies may not make anti-competitive agreements. Such agreements are void and may be fined by the European Commission or by the Netherlands Authority for Consumers and Markets (ACM).
Although the assessment and exemptions of distribution agreements largely remain the same, suppliers are well advised to carefully review the agreements made with their distributors. The draft Block Exemption still provides for an exemption from the cartel prohibition for distribution agreements. That exemption is subject to the conditions that the market share on the relevant market(s) of both the supplier and the distributor does not exceed 30% and that the distribution agreement does not contain hardcore restrictions. The latter means that, in principle, a supplier may not impose restrictions on its distributor regarding, for instance:
- The resale price
- Territories and customers
- Internet sales
The development of the digital economy has caused the European Commission to introduce nuances in the Block Exemption and Guidelines. The three main changes are addressed below.
Dual distribution and dual pricing
In the future, suppliers that also operate at retail level (dual distribution) must beware when exchanging information with their distributors. Such exchange of information is exempted only if the supplier and the distributor have a combined maximum market share of 10% at the retail level. A separate analysis is required above that market share. [update: this 10% threshold is not included in the final Block Exemption and Guidelines]
In a supplement to the draft Guidelines, the European Commission further explained that only the exchange of information that is necessary to improve the production or distribution of goods may benefit from the Block Exemption. The European Commission recommended building in safeguards to prevent information of the distributor ending up in the hands of the supplier's team dealing with sales at a retail level.
Suppliers will have more scope to charge different (wholesale) prices for online and offline sales channels (dual pricing) in relation to distributors. Provided that the price difference between those sales channels is related to the various investments and costs of the sales channels, the Block Exemption may be applied.
Internet sales
The draft Block Exemption does not apply to online trading platforms which themselves also sell goods or services in competition with the companies to which they provide intermediary services. According to the European Commission, distribution agreements with hybrid platforms, such as Amazon and Bol.com, often give rise to competition-law concerns.
The draft Block Exemption and draft Guidelines are in keeping with the Coty judgment, in which it was ruled that a ban on online platform sales of luxury products is permissible. According to the European Commission, a ban on online platform sales restricts only the manner in which online sales take place. It does not constitute a hardcore restriction. In light of the different characteristics of online and offline sales channels, a supplier may apply different rules to online sales and to sales in brick-and-mortar shops, such as different return conditions. But the rules may not lead to a restriction of online sales.
A blanket ban on price comparison websites is considered a hardcore restriction, however. According to the European Commission, a price comparison website is not an online sales channel, but rather an advertising channel: restricting online advertising opportunities (including price comparison websites) hinders a distributor in its passive sales to customers located outside its physical trading area who want to buy from it online.
Exclusive and selective distribution
The new structure of the Block Exemption and the Guidelines still allows suppliers to allocate territories or groups of customer exclusively to distributors. Although the term “exclusive distribution” suggests otherwise, the draft Block Exemption and draft Guidelines now make it clear that within an exclusive network “a limited number” of distributors may be appointed for a territory or group of customers. If more than one exclusive distributor is appointed for a territory or group of customers, the number of appointed distributors must be proportionate to the allocated territory or group of customers and to the investments required for the exclusive sales. [Update: the final Block Exemption can only be applied to exclusive distribution systems with a maximum of five appointed distributors per territory or group of customers].
The new Block Exemption makes it easier to operate several distribution networks (open, exclusive or selective) alongside each other. Distributors (and their customers) may be prohibited, for instance, from actively selling in areas in which the supplier operates an exclusive system. Distributors (and their customers) may furthermore be prohibited from selling actively and passively to unauthorised distributors in areas in which the supplier operates a selective system. This will make it easier for suppliers to set up closed distribution networks.
Two tips
- The draft Block Exemption and draft Guidelines give a good impression of how the European Commission wishes to assess vertical agreements. Apart from a few adjustments, the assessment and exemption of distribution agreements remain largely the same. Suppliers that themselves also supply to consumers must, however, be more cautious than in that past when it comes to the unauthorised exchange of sensitive competitive information with their distributors.
- Distribution agreements that were in force on 31 May 2022 but do not meet the conditions of the draft Block Exemption will be exempted from the cartel prohibition until 31 May 2023, provided that they met the conditions of the old Block Exemption. Until that date, suppliers have the opportunity to check their distribution system and make changes where necessary.
This blog was also published in Globe Magazine of Evofenedex and in the Snelrecht section of the Mr. journal.
Information on dawn raids by ACM and the European Commission can be found at invalacm.nl.
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