European Commission publishes list of issues to consider in the review of competition rules that apply to distribution agreements

26 November 2020

Thanks to Marianna Riedo for collaborating on this article

We hosted a webinar focusing on distribution and vertical agreements in EU competition law to provide a cross-border and multi-jurisdictional perspective on what’s new and envisaged developments on such issues.

On November 17, we hosted a webinar on distribution and vertical agreements in EU competition law. The aim was to provide a cross-border and multi-jurisdictional perspective on such issues thanks to the participation of distinguished colleagues from Blomstein (Berlin) and Kramer Levin (Paris). We dealt with the ongoing review of the Vertical Block Exemption Regulation (Reg. No. 330/2010, or “VBER”) and related Guidelines of the European Commission (“Commission”) on Vertical Restraints (the “VG”) from both EU and national perspectives (with takeaways from Italy, Germany, and France).

The aim of the VBER is to define categories of “vertical agreements” (i.e., agreements between undertakings operating at different levels of the production or distribution chain) that can be automatically presumed to fulfill the conditions for the exemption from the prohibition of anti-competitive agreements pursuant to Article 101(3) of the TFEU, i.e., they result in a general improvement of market outputs and consumer conditions. The VBER also sets out (i) a list of “hardcore” restrictions that, if part of the agreement, deprive it of the benefit of the block-exemption altogether; and (ii) a list of restrictions that are individually excluded from the same benefit, though without prejudice to the overall agreement.

The latest version of the VBER was adopted in April 2010 and is subject to revision every 10 years. The current version, due to expire on May 31, 2022, appears not to be well-suited to the market developments that have occurred in the last decade. Notably, it does not clearly address the growth in online sales and multi-channel distribution models, or the rise of new market players like online platforms, and it does not cite recent case-law. Some of these issues were first raised and identified by the Commission’s sector inquiry into e-commerce, which concluded in May 2017 (“e-commerce sector inquiry”).

On October 23, 2020, the Commission published its Inception Impact Assessment (“IIA”) on the review of the 2010 VBER and VG. The document is the outcome of a two-year evaluation phase that began in late 2018 with a public consultation on the functioning of the VBER and VG, and ended in September 2020 with the publication of a Staff Working Document (SWD) summarizing stakeholder observations and the outcome of the surveys conducted on the market, also incorporating the main findings of the e-commerce sector inquiry. The Commission then identified and extrapolated from the SWD a few issues that it deemed deserving of further attention and put them in the IIA. The Commission is now looking into policy options with respect to such issues with an eye to reducing the number of situations in which potentially harmful vertical restrictions are deemed block-exempted (“false negatives”) or, conversely, in which unharmful or pro-competitive agreements are subject to in-depth scrutiny by authorities or courts (“false positives”).

The envisaged changes are driven primarily by a need to simplify the regime to increase legal certainty and reduce complexities and costs for businesses. There is also an urgent need to level out unwelcome divergences between NCAs and national courts to ensure a consistent and coherent EU-wide competition regime. The issues identified during the evaluation phase that then made their way into the IIA relate to the following restrictions:

  • Active/passive sales: Protection from active sales in exclusive distribution territories by other distributors is currently block-exempted, while protection from passive (i.e., unsolicited) sales is listed as a “hardcore restriction” in the VBER (thus precluding block-exemption of affected agreements). However, the distinction between active and passive sales in the online environment is unclear and may need to be adapted to market developments.
  • Selective distribution: Restrictions on how products are sold (i.e., selective distribution systems) are becoming increasingly relevant and more common than restrictions regarding where (which territories) and to whom (to which group of customers) goods are sold (i.e., exclusive distribution systems). More clarity and consistency across Member States is therefore needed with respect to the types of products and requirements that can qualify for selective systems without infringing Article 101.
  • Online advertising restrictions: These are restrictions that may impact the visibility and amount of traffic online retailers get (e.g., brand bidding restrictions) and thus may impact genuine competition in the digital sphere. However, they may also be necessary to preserve a brand image in selective systems or to protect exclusive distribution systems from competing active sales.
  • Platform bans: The Commission needs to take into account some landmark cases (e.g., the CJEU judgment in the Coty case) to address the impact that marketplaces, comparison websites, and other types of platforms may have on the quality of distribution or on brand image.
  • Price parity or Most Favored Nation clauses (MFNs): These are restrictions imposed by one party on another with regard to offering better terms of sale on other sales channels, and they have become increasingly relevant with the rise of online platforms. There is a need to address diverging interpretation by NCAs of the effects these restrictions wield on competition, as they are not addressed by the VBER and VG.
  • Resale Price Maintenance (RPM): There is currently some inconsistency across different Member States in the interpretation and enforcement of restrictions on distributors’ ability to set the retail price of goods autonomously. This forces businesses to adapt their contracts to each state in which they operate or to align with the strictest jurisdiction. Moreover, the rapid growth of online commerce and multi-channel distribution models increasingly requires that investments in the brick-and-mortar channels be protected against free-riding and opportunity costs fostered by the inherent characteristics of the digital channel.
  • Dual distribution systems: The dual role played by certain online platforms (e.g., acting simultaneously as a marketplace for third-party sellers and as a direct retailer for competing goods, or as a manufacturer competing with its distributors at the retail level) may lead to unfair use of commercially sensitive data of third-party sellers as well as to “horizontal” competition issues. Dual distribution models at the retail level are currently block-exempted by the VBER, and the question is whether that general exemption is still justified or needs to be adapted to market developments.
  • Agency” agreements: The rise of online platforms and the increasing relevance of the role they play in online distribution and digital markets poses the question of whether their relationship with third-party sellers may fit into the traditional “agency” concept within the meaning of the VG. To a large extent, genuine agency agreements fall outside the scope of Article 101. The key features that distinguish the role of online platforms from that of genuine “agents” are their greater and more strategic market position, the level of investments in promoting online commerce and customer outreach, and the intensive use of Big Data analytics to drive sales.

The Commission acknowledges a clear need to update the regime to reflect recent case-law and market developments. Nevertheless, the list of hardcore restrictions (currently set forth in Section 4 of the VBER) is unlikely to change significantly. If any changes are made, we do not expect more than slight improvements or clarifications in the language relating to active and passive sales and RPM restrictions online. The list of individually excluded restrictions (Section 5 of the VBER) is instead more likely to expand to include certain types of MFNs and online advertising restrictions. Also, the specific types of dual distribution covered by a block exemption may be redefined.

In all likelihood, the Commission will intervene in the VG by introducing clarifications and new examples in connection to all of the issues identified above, hopefully with regard to situations falling outside of the VBER’s safe harbor and incorporating some of the findings of the e-commerce sector inquiry and of the SWD.

Stakeholders will have another chance to provide their views, as the opening of a public consultation on the IIA is foreseen for the end of this year. In the course of 2021, the Commission will then publish a draft of the revised rules for comments by stakeholders.

Follow us on