Businesses demand revision of distribution rules – especially in relation to e-commerce and digital markets

In November 2018, we reported that the European Commission had announced a review of EU distribution rules. 

It has now published a summary of the results of its public consultation on the Vertical Block Exemption Regulation (which expires on 31 May 2022) and accompanying guidelines.

During its consultation phase, the Commission received 164 online contributions and 13 position papers from businesses and citizens from a number of EU member states and across various economic sectors.

Most respondents are in favour of prolonging and revising the Regulation as well as the guidelines, particularly as regards the surge in e-commerce. They believe this helps with legal certainty and cost-effective compliance for business, as well as the consistent application of competition law throughout the EU.

Meanwhile, the Commission continues to develop its enforcement policy through individual infringement cases, with fines imposed in recent months on:

• Nike for territorial restrictions on distribution of football club-branded merchandise;
• AB InBev for hindering parallel trade in beer; and 
• Sanrio for limiting cross-border sales in its distribution and licensing of character merchandise.

Areas to be reviewed

Areas flagged for new or updated rules and guidance include:

• online sales restrictions;
• resale price maintenance (RPM);
• most favoured nation clauses (MFNs) and other price parity clauses;
• online search advertisement restrictions;
• the use of price comparison websites;
• vertical agreements between competitors and exchanges of information between them;
• selective distribution;
• territorial supply constraints;
• retail channelling;
• agency agreements;
• market share thresholds (especially their application to the relevant market); and
• franchising (especially concerning the transfer of know-how).

Respondents also call for a review of the scope of the Regulation. 

While the majority believe that the Regulation does not exempt agreements that should not be exempted, some argue that even more agreements should benefit from the Regulation (eg if market shares are between 30 and 40 per cent) and that, more specifically, some of the hardcore restrictions that are currently prohibited should be exempted (eg online sales restrictions, RPM (in view of potential efficiencies), territorial or customer restrictions, restrictions of active or passive sales, restrictions of cross-supplies and sourcing of spare parts). 

On the other hand, some would like to see some restrictions to be considered as hardcore restrictions (eg online market place bans, MFNs and retail channelling (as an indirect form of RPM)). 

As for the list of excluded restrictions, some respondents believe that this should be narrowed so as to exempt 'long-term' or post-term non-competes and restrictions on selling competing products in a selective distribution system.

Need for prolongation and revision 

Respondents call for a revision of the Regulation and, most importantly, of the accompanying guidelines mainly to increase the legal certainty provided by the Regulation (which is, in principle, acknowledged by most respondents).

This has been triggered mainly by recent trends such as the increasing importance of e-commerce, online sales and advertising, the growth of selective distribution systems, the increasing use of price monitoring software and price algorithms, as well as free-riding issues. The higher level of concentration in digital markets and the fact that more and more manufacturers are selling directly to end-users in competition with their independent retailers are also important factors. 

Respondents also feel a revision is needed due to diverging decisions made by national competition authorities and courts in some areas (such as MFNs, dual-pricing practices, RPM and the assessment of online platform bans), recent cases and the learnings from the Commission’s sector inquiry.

Respondents also favour prolongation of the Regulation to avoid the increased cost of compliance with competition law rules and the administrative burden that would arise in its absence. And companies might be less inclined to innovate if new practices and business models were not block exempted.

Next steps

According to its evaluation roadmap, the Commission plans to host an open public stakeholder workshop in Q4 2019 in Brussels and later discuss the revision within the European Competition Network. 

In Q2 2020, the Commission plans to adopt its own staff working document.