Overview
As Regulation 330/2010 sets out the rules for exempting vertical agreements from Article 101(1) TFEU expired on May 31, 2022, the European Commission has now adopted Regulation 2022/720 (Vertical Block Exemption Regulation or VBER). The new VBER entered into force on June 1, 2022. The Commission envisages a transitional period of one year (until 31 May 2023) to apply to any agreements in place before June 1, 2022, to allow those agreements to comply with the new VBER. The new VBER is also accompanied by the revised Guidelines on Vertical Restraints (Guidelines).
To highlight the changes between the new and old VBER, we respond to some of the most burning questions below.
1. Can I have RPM and MAP clauses?
RPM (i.e., clauses imposing, directly or indirectly, fixed or minimum resale prices) remains a hardcore restriction. MAP (minimum advertised price) that prohibits the distributors from advertising prices below a level set by the supplier, is an example of indirect RPM and thus also a hardcore restriction. We would draw attention to the fact that setting the recommended or maximum resale price that the distributors charge, falls outside the hardcore restrictions as long as those prices do not become de facto minimum or fixed prices.
The Commission has identified in the guidelines that RPM/MAP may lead to efficiencies, for example:
- when a new product is introduced on the market;
- during a short-term coordinated low-price campaign (2-6 weeks);
- to allow retailers to provide additional pre-sale services; and
- to prevent a distributor from selling the product as a loss leader.
Companies that are considering imposing RPM/MAP clauses on the basis that they would lead to efficiencies in their particular case, will have to establish that all the requirements of Article 101(3) of TFEU have been met.
2. Can I restrict active sales?
The new VBER grants limited possibilities for the supplier to restrict active sales (i.e., sales resulting from actively targeting customers). In particular, the supplier can restrict active sales by:
- any distributor (including exclusive and authorized distributors) and their customers into other territories or to customer groups that are exclusively allocated to other distributors or reserved to the supplier;
- any distributor (including exclusive and authorized distributors) and their customers to unauthorized distributors located in the territory where the supplier already operates a selective distribution system (or which it has reserved for the operation of such a system); and
- any wholesalers (including exclusive and authorized wholesalers) to end-users.
3. Can I restrict passive sales?
The VBER grants limited possibilities to restrict passive sales (i.e., unsolicited sales from customers that have not been actively targeted). In particular, the supplier may restrict passive sales by:
- any distributor (including exclusive and authorized distributors) and their customers to unauthorized distributors located in the territory where the supplier already operates a selective distribution system (or which it has reserved for the operation of such a system); and
- any wholesalers (including exclusive and authorized wholesalers) to end-users.
4. Are there any restrictions on MFN clauses?
While all MFNs (i.e., most favored nation clauses or parity obligations that require a seller of goods or services to offer the goods or services to another party on conditions that are no less favorable than the conditions offered by the seller to certain other parties or via certain other channels) were block-exempted under the old VBER, this is no longer the case. MFNs that cause a platform (i.e., online intermediation service) user not to offer, sell, or resell goods or services to end-users under more favorable conditions via competing platforms (known as wide MFNs) are no longer exempted and require individual assessment under Article 101 of TFEU.
Other MFNs (known as narrow MFNs) are still exempted under the VBER if other conditions of the VBER are also met. However, the Commission has noted that any narrow MFN exemption could be individually withdrawn where the relevant market for the supply of platform services is highly concentrated and competition between the providers of such services is restricted by the cumulative effect of parallel networks of similar agreements restricting platform users from the offering, selling, or reselling of goods or services to end-users under more favorable conditions on their direct sales channels.
5. How do I deal with online marketplaces?
As long as a vertical agreement does not prevent the effective use of the internet for selling the contract goods or services to particular territories or customers and other requirements of the VBER are met, the supplier can impose restrictions on the use of online marketplaces. It is important that while such a restriction or ban restricts the use of a specific online sales channel, other online sales channels remain available to the distributors and retailers.
It should be noted that in the selective distribution systems where the supplier has appointed an online marketplace as a member of its selective distribution system, or where it restricts the use of online marketplaces by some authorized distributors but not others, or where it restricts the use of an online marketplace but uses that online marketplace itself to sell the contract goods or services, restrictions on the use of those online marketplaces are unlikely to fulfill the conditions of appropriateness and proportionality and therefore would require full individual assessment under Article 101 TFEU. The Commission has identified that the main risk to competition arising from restrictions on the use of online marketplaces is a reduction of intra-brand competition at the distribution level.
6. Are there any changes to exclusive distribution systems?
The new rules introduce a new concept of “shared exclusivity” as the exclusive territory or customer group can now be shared by up to five distributors.
7. Are there any changes to selective distribution systems?
Unlike under the old regime, the Commission acknowledges that the criteria for online distributors do not have to be overall equivalent to the criteria imposed on brick-and-mortar/offline distributors. At the same time, it should be noted that the differences in criteria for different distribution channels should not have the object of preventing the effective use of the internet by the distributors.
Similarly, it is also recognized in the guidelines that the supplier is not required to charge the same wholesale price for online and offline distribution, where the difference in the wholesale price is reasonably related to differences in the investments and costs incurred by the distributor to make sales in each channel.
8. Can I compete with my distributors?
Generally, agreements between the competitors cannot benefit from the exemptions under the VBER. However, the VBER provides an exemption for so-called dual distribution scenarios (i.e., where the supplier is active both at the upstream and downstream markets). In particular, a non-reciprocal vertical agreement can be exempted where the supplier is active at an upstream level as a manufacturer, importer, or wholesaler and a downstream level as an importer, wholesaler, or retailer of goods, while the buyer is an importer, wholesaler, or retailer at the downstream level and not a competing undertaking at the upstream level where it buys the contract goods. A similar exemption applies to suppliers of services.
The VBER specifies that the exemption will not apply to exchanges of information between the parties to the vertical agreement that are either not directly related to the implementation of the vertical agreement or is not necessary to improve the production or distribution of the contract goods or services.
9. Can my agreement be saved by sustainability objectives?
The vertical agreements that pursue sustainability objectives are not a separate category and do not benefit from a special exemption. Such agreements can still benefit from the exemption under the VBER as long as they meet the requirements set out in the VBER.
In respect to the sustainability objectives, the guidelines note that:
- the qualitative criteria for selective distribution systems could include the achievement of certain sustainability goals; and
- non-compete obligations may also be used to address a hold-up problem for investments pursuing sustainability objectives.
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Steptoe’s antitrust team would be happy to support you in any assessment of your distribution networks and answer any specific questions you may have on the new VBER.
