The revision of the Vertical Block Exemption Regulation (VBER) and the accompanying guidelines is one of the many long-term reform projects on the agenda of the Directorate-General for Competition (DG COMP) of the European Commission.
Indeed, Regulation No (EU) 330/2010, the VBER, will expire on 31 May 2022. In August 2019 we already reported on the Commission’s summary of the results of its public consultation on the Regulation. Now, in line with its better regulation policy, the Commission has presented a comprehensive independent evaluation study on the functioning and application of the VBER. An impact assessment will likely follow in the course of the legislative debate.
Evaluation support study
The study, Evaluation support study on the EU competition rules applicable to vertical agreements in the VBER and the Guidelines, was published by the Commission and prepared by several economic consultancies and institutes. The study was preceded by extensive consultation of stakeholders. (All comments are published)
While the study looks at the impact of the VBER in the past, it is open-minded about possible changes to the Regulation and even considers the option to let it lapse (even though that would significantly increase legal uncertainty and so is not a desirable option). So far, the study has not received much attention from the antitrust community and has not been distributed by the Commission with much fanfare.
What is in the study?
The study relates and evaluates the most relevant case law from the EU and national competition authorities alike, and contains econometric analysis of the most problematic restraints, a review of the relevant scientific literature (economic as well as legal), case studies on the business models of three digital companies (among them Amazon), a review of purchasing behaviour by consumers (compare the separate Study on consumer purchasing behaviour in Europe) and the results of numerous interviews with market participants and stakeholders.
The whole study with its supporting annexes runs to more than 500 pages (a reminder of Blaise Pascal’s apology for writing a long letter because he was lacking the time to write a short one). There is, of course, an informative executive summary (also in French and German) and the thoughtful conclusions of the study are condensed on pages 143-7.
The study looks in detail at:
- price restrictions, particularly retail price maintenance (RPM);
- selective distribution agreements with most widely used restraints;
- exclusive distribution; and
- most favoured nation (MFN) or price parity clauses.
The study focuses on typical vertical restraints and has been rigorous in presenting the case law, and the pros and cons of each restraint in an admirably neutral manner. It even refers to a separate study whereby (lawful) RPM for book sales under an economic analysis does not necessarily lead to higher prices or otherwise undesirable competitive conditions. Yet RPM remains a controversial topic.
The term ‘digital’ crops up frequently as a buzzword for the unprecedented change distribution has undergone in the past ten years. But problems well-known from ‘brick and mortar’ distribution have not disappeared and there generally seems to be a blurring of market practices relevant to offline and online trade.
After all, in 2010, when the VBER was enacted, web-based trade was no longer unknown – it is expressly discussed at various points in the 2010 vertical guidelines. Another ten years earlier, in the year 2000, the EU had already adopted the E-commerce Directive, which will now be revised as part of the EU’s Digital Services Act.
A few points to note from the discussion are summarised below.
- RPM and minimum advertised pricing are still widespread practices, interviews the study authors conducted with many stakeholders suggest.
- The general view on selective distribution is that the current block exemption provided by the Regulation is warranted and should continue. While there was a flurry of cases dealing with internet sales and platform bans in selective distribution systems, it is also true, according to the Commission’s findings, that some suppliers and distributors have in the meantime abandoned their opposition to online trade.
- Exclusive distribution is rarely a bone of contention. The number of enforcement cases in this area is small.
- The decision-making by national competition authorities often varies from jurisdiction to jurisdiction – often in the absence of guidance from the Commission – this being most visible in the treatment of MFN clauses on hotel booking platforms.
Finally, the study does not fully address the additional complexities found in numerous online distribution markets, which are characterised by the presence of platform businesses, and in which the interplay between horizontal cooperation rules and VBER rules creates significant legal uncertainty.
Although the study recognises the role of platforms and quotes industry associations’ concerns that the definitions in the VBER are unclear (while the rules on horizontal agreements are even more relevant for them), it does not focus on this aspect of vertical relationships, which increasingly are no longer purely vertical.
One can only look forward to the next proposal coming out of Brussels on how to deal with the issues addressed in the study, also because the study does not really take a position on existing market and/or legal issues. In view of the development of e-commerce and the rise of marketplaces and online platforms over the last couple of years, a revision of the VBER and its accompanying guidelines is much needed – which is, in principle, acknowledged by the Commission. One would expect new guidance on MFN and price parity clauses. However, it would not come as a surprise if a complete re-write of the VBER did not occur.