10 key points in the European Commission's proposals on Vertical Agreements

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On 9 July, the European Commission (EC) published for consultation (until 17 September 2021) a draft revised Vertical Agreements Block Exemption Regulation (VABER) and accompanying guidelines (see: EC VABER Consultation). As the current Regulation and guidelines are now more than 10 years old, they need to be updated, especially regarding online sales. Once adopted, these new rules will reshape commercial relationships across Europe (such as distribution arrangements) for the next 12 years or so. Meanwhile, the CMA is consulting until 22 July on its proposals for a UK-only Vertical Agreements Block Exemption Order.

Here are 10 key points to note:

  1. Online sales: Restrictions on using a specific online sales channel (such as online marketplaces), or setting a quality standard for selling online, will be permitted. Criteria used to authorise online suppliers need no longer be the same as those used for offline suppliers. Online platforms will be treated as suppliers of online intermediation services, not agents, so they cannot limit territories or customer groups, or determine resale prices or conditions.
  2. Dual pricing: Suppliers will be able to charge different prices for online and offline sales by the same distributor, provided the differences reflect different investments for each channel.
  3. Price comparison websites (PCWs): Direct or indirect bans on reselling via PCWs will be prohibited as "hard core" restrictions.
  4. Price parity provisions (wide MFNs): All price parity (MFN) obligations will be exempted where parties' market shares are below 30%, except for wide MFNs imposed on sellers by online platforms – i.e. restrictions on selling on better terms on any other retail platforms.
  5. Dual distribution (such as where a manufacturer both retails and wholesales its branded products) will only benefit from automatic exemption where the supplier's and the buyer's combined aggregate retail market shares do not exceed 10%. If their combined market share is between 10% and 30%, they will have to follow EC guidance on exchanging information to benefit from exemption. If their market share is above 30%, the parties must self-assess, as they do now. However, an agreement between an online marketplace and a third party supplier will not be exempted where the parties compete for sales via the online marketplace.
  6. Shared exclusivity: The draft VABER introduces the concept of "shared exclusivity" whereby a supplier will be able to have more than one distributor within a particular territory and still prevent each of those suppliers from actively selling outside their territory. However, to benefit from exemption under the VABER, distributors must be determined in proportion to the relevant territory or customer group, to justify investment efforts. There will be greater freedom to mix selective and exclusive distribution systems in different territories.
  7. Free distribution: A new category of free distribution (neither exclusive nor selective) will be exempted and can include certain restrictions on active sales by the distributor.
  8. Sales by buyer's customers: In exclusive distribution systems, suppliers will be able to oblige buyers to impose active sales restrictions on their own customers, to protect investment incentives.
  9. Brand bidding: Restrictions on bidding to use the supplier's trade marks or brand names on search engines will not be permitted, as they are considered to prevent online sales.
  10. Transition: The new rules will take effect from 1 June 2022, but agreements which complied with the current VABER on 31 May 2022 will continue to be exempted under it until 31 May 2023 – so they will have one extra year to transition to the new rules.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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