Proposed EU distribution rules for the digital age

On 9 July the European Commission published its proposals for updated distribution rules, consisting of a revamped Verticals Block Exemption Regulation (VBER) and related Guidelines. The intention in particular is to bring them up to date for today’s – and tomorrow’s - world of e-commerce and online platform business, and to clarify and simplify the rules. On digital issues, the drafts not only introduce new guidance, but also effect a certain rebalancing of interests: the Commission observes that “online sales have developed into a well-functioning sales channel and therefore no longer need [certain] special protection”.

Below we flag some of the key changes reflected in the draft updated VBER and Guidelines. Many of these were already foreshadowed in the previous consultation, which means that the Commission had the benefit of input from various stakeholders when drafting these new texts. Major changes to the proposals are therefore unlikely at this stage, and businesses for which the new rules may present challenges, or opportunities, may already want to start considering their options.

Having said that, there is considerable scope for many important points to be finessed and clarified, so it is crucial that interested parties engage with the Commission on the fine print of the proposals.

The consultation is open until 17 September, with the new rules due to be finalised in time to enter into force on 1 June 2022. A transitional period of one year will then run until 31 May 2023 to give business time to adapt.

Block exemption – both wider and narrower than before

The VBER exempts certain agreements between suppliers and distributors at different levels of the supply chain from the prohibition on anti-competitive agreements under Article 101 TFEU, provided the supplier’s and distributor’s market shares are less than 30%. The main changes proposed to the scope of this exemption are:

Dual distribution (where a supplier not only sells its goods or services through independent distributors but also directly to end customers in direct competition with its independent distributors) is exempted more broadly than before, being extended to include wholesalers and importers. On the other hand the exemption is narrowed in that:

• it will only apply in full if the parties’ aggregate retail market share does not exceed 10%;
• if the 10% threshold is exceeded, the exemption applies, but does not cover information exchanges between the parties, which should be assessed separately in accordance with the Horizontal Guidelines (it is worth noting though, that the language of the draft Guidelines seems to contradict the draft VBER on this point, in that they suggest that above the 10% threshold, dual distribution will only benefit from the block exemption provided that the information exchange is compatible with the Horizontal Guidelines); and
• it does not apply to providers of online intermediation services selling goods or services in competition with undertakings to which they provide online intermediation services (although online intermediation services will generally be “suppliers” for the purposes of the VBER).

Wide (or across-platform) retail parity clauses (a requirement to offer the same or better conditions to the other party as those offered on any other sales channel or on the company’s direct sales channel) are no longer exempted. They are excluded from the scope of VBER in the same way that certain non-compete clauses already are, and so have to be individually assessed. Narrow parity clauses (retail parity obligations relating only to direct sales channels) will remain block exempted.

Some active sales restrictions which currently take an agreement outside the VBER will now be permitted. For example:

• a supplier may appoint more than one exclusive distributor in a particular territory or for a particular customer group (the draft Guidelines clarify that the number of appointed distributors should be determined in proportion to the allocated territory or customer group in such a way as to secure a certain volume of business that preserves their investment efforts);
• suppliers may require their buyers to pass on active sales restrictions to the buyer’s customers; and
• additional restrictions protecting selective distribution systems from sales by unauthorised distributors located within the selective distribution territory will be allowed.

Some indirect measures restricting online sales no longer cause an agreement to fall outside the scope of the VBER - provided they do not have the object of preventing online sales. For example:

• dual pricing (i.e. charging the same distributor a higher wholesale price for products intended to be sold online than for products to be sold offline) are permitted in certain circumstances; and
• criteria for online sales are no longer required to be equivalent to the criteria imposed on brick-and-mortar shops;
• marketplace bans can now benefit from the block exemption, provided the ban does not prevent the buyers (or their customers) from effectively using the internet to sell their goods or services online; however, prohibiting the use of price comparison sites or the use of a supplier’s trademark in search advertising are hardcore restrictions.

Guidelines – significant new guidance 

There are many changes and additions to the Guidelines, including assistance in interpreting and applying the VBER and its new features mentioned above. There is also new guidance on:

• restrictions relating to the use of online platforms, internet selling and price comparison tools;
• the concepts of active and passive selling;
• treatment of online intermediation services, including agency issues;
• the assessment of parity clauses;
• distributors that also act as agents for certain products for the same supplier;
• withdrawal by national competition authorities of the benefit of the VBER in individual cases