[co-author: Anastasiia Zeleniuk]

On May 10, 2022, the European Commission adopted the final text of the new Vertical Block Exemption Regulation (VBER)¹ accompanied by the new Guidelines on Vertical Restraints (the VGL),² which provide detail on interpretation and application of the new VBER. The new VBER and the new VGL provide updated guidance on when vertical agreements are exempted from the prohibition of anticompetitive agreements under Article 101(1) TFEU. Both the new VBER and the new VGL have great practical relevance for companies’ distribution networks and online sales. This alert examines key provisions and changes introduced by the new VBER.

Background

Article 101(1) TFEU prohibits agreements that restrict competition (parallel to Section 1 of the Sherman Act). Article 101(3) TFEU, however, provides for the possibility of exemption of such agreements under specific circumstances. The VBER has been introduced to provide a safe harbor for a group of vertical agreements (i.e., agreements between entities acting on different levels of a supply chain) that can be regarded as normally satisfying the conditions laid down in Article 101(3) TFEU.³ Agreements not coming within the safe harbor still can be lawful but have to be individually assessed in accordance with Article 101(3) TFEU.

The VBER currently in force was adopted in 2010 and expires on May 31, 2022.⁴ Therefore, in September 2020, the European Commission initiated a review of the VBER and the accompanying VGL to adapt them to the developments that have occurred since 2010. The new VBER provides for clearer and more up-to-date rules regarding the assessment of vertical agreements in the EU, with a special focus on the issues of online sales and use of the internet.

Key Implications

The following are the key provisions and changes introduced by the new VBER:

1. Scope. The scope of the VBER remains largely unchanged, i.e., the exemption from Article 101(1) TFEU generally applies to vertical agreements where the share held by the parties to such agreement in the relevant markets does not exceed 30%.⁵
2. Information exchange in “Dual Distribution”. The new VBER continues to apply to dual distribution scenarios but stipulates additional and more explicit restrictions in this respect.⁶ “Dual Distribution” refers to scenarios where a supplier sells to end customers (i) indirectly via an (upstream non-competing) distributor (B2B) and (ii) directly via its own online shop or direct sales team (B2C). In particular, the exchange of competitively sensitive information between a supplier and a buyer has become more restricted.⁷ For instance, to benefit from the VBER, the information exchange must (i) directly relate to the implementation of the vertical agreement and (ii) be necessary in order to improve the production or distribution of the goods/services. These changes may well mean that (i) current practices of companies for collecting and exchanging information in vertical agreements have to be reviewed and (ii) safeguard measures have to be implemented.⁸ According to the VGL, this includes technical and administrative measures, like the use of firewalls between the B2B and B2C teams within the same undertaking.
3. New provisions for the “platform economy”. Under the new VBER, an undertaking that provides online intermediation services (OIS) will now be considered a supplier and generally no longer considered an agent.⁹ This means, for instance, that an OIS provider must not impose a fixed or minimum sale price for a transaction that it facilitates, since this would qualify as prohibited resale price maintenance.

   In addition, “hybrid” OIS providers (which compete with their customers in selling goods and services) will no longer benefit from the VBER.¹⁰ It remains unclear whether a hybrid OIS provider can implement firewalls between its platform and direct sales activities to remain within the VBER’s ambit (similarly to a dual distribution scenario).

4. No prevention of the effective use of the internet. The new VBER introduces a separate “hardcore restriction” that consists of preventing the effective use of the internet.¹¹ This was previously a subset of passive sales restrictions. Other restrictions of online sales or online advertising remain largely permitted.¹² The VGL sets out a list of (typically) permitted or prohibited measures in connection with online sales (e.g., concerning platform restrictions, search engines and dual pricing).

   In addition, the European Commission provides further guidance on the distinction between active and passive sales specifically for online distribution. For instance, search engine optimization targeting customers and the use of different languages or top-level domains to target territories are considered active sales.¹³

5. New rules on parity (MFN) clauses. The new VBER no longer provides a safe harbor for so-called wide retail parity obligations, which prohibit a buyer from offering goods/services to end customers under more favorable conditions on competing online intermediation platforms.¹⁴ Other types of parity obligations can generally still benefit from the VBER.¹⁵
6. Clarification of “genuine” and “dual” agents. The new VGL confirms that genuine agency agreements (i.e., where the agent bears no or insignificant financial or commercial risk) still remain outside the scope of Article 101(1) TFEU. An independent distributor can, in parallel, also qualify as a “genuine agent” under specific circumstances. For instance, the agency and distribution activities have to be effectively delineated, and the agent’s “dual role” must not be de facto imposed by the supplier.¹⁶
7. Exclusive distribution system with shared exclusivity. A supplier may now exclusively allocate a specific territory/customer group to a maximum of five buyers.¹⁷
8. Passing on of (territory/customer) restrictions. According to the new VBER, the supplier is no longer prohibited from obliging its buyers to pass on to their direct customers (permitted) territory/customer restrictions. This can be particularly relevant in multilevel supply chains.¹⁸
9. Tacit prolongation of non-competes. Non-compete obligations can be—under specific circumstances—tacitly renewed beyond a five-year term.¹⁹
10. Entry into force. The new VBER will enter into force on June 1, 2022, and will replace the expiring current VBER. For agreements that enter into force by May 31, 2022, the parties may continue to comply only with the current VBER for a transition period ending on May 31, 2023.

Conclusions

While the scope and general structure of the VBER remain largely the same, the new versions of the VBER and the VGL provide clearer and more up-to-date guidance to assess the compatibility of vertical agreements with EU competition rules, especially in the area of e-commerce. The new VBER has become stricter in some areas (e.g., dual distribution, OIS), which may require a review of current business practices. In other areas (e.g., exclusive distribution, restrictions of online sales), the new VBER provides more leeway, which suppliers may want to reflect in their distribution and sales contracts.

Footnotes -

1. Commission Regulation (EU) 2022/720 of 10 May 2022 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices, OJ L 134, 11.5.2022, p. 4–13.
2. COMMUNICATION FROM THE COMMISSION, Approval of the content of a draft for a Communication from the Commission - Guidelines on vertical restraints C (2022) 3006 final.
3. See VBER, Recitals, para 3.
4. Commission Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices, OJ L 102, 23.4.2010, p. 1–7.
5. See VBER, Article 3.
6. See VBER, Article 2(4), (5); VGL, para 96 et seq.
7. See VBER, Article 2(5).
8. See VGL, para 99 et seq.
9. See VBER, Article 1(1)(d).
10. See VBER, Article 2(6).
11. See VBER, Article 4(1)(e).
12. See VGL, para 208 et seq.
13. See VBER, Article (1)(l); VGL, para 211 et seq.
14. See VBER, Article 5(1)(d).
15. See VGL, para 254.
16. See VGL, para 36 et seq.
17. See VBER, Article 4(b)(i).
18. See VBER, Article 4(b) to (d).
19. See VGL, para 248.