The so-called vertical block exemption regulation (VBER) determines which competition restrictions may lawfully be agreed in many distribution agreements. Consequently, the rules also affect many trading relationships. The present regulation came into force in 2010 and expires at the end of May 2022. We have prepared the below overview of what to expect from the new rules.

On 9 July 2021, the European Commission published a draft new block exemption regulation for vertical agreements (VBER) and new guidelines for vertical agreements. The draft is to replace the present block exemption regulation which expires on 31 May 2022. The consultation deadline concerning comments to the draft expired in September 2021, and the Commission is now working on the last phase towards a final text which must be adopted in May 2022 and come into force on 1 June 2022.

What is the vertical block exemption regulation?

VBER is an EU Regulation exempting a number of distribution agreements from the prohibition against anti-competitive agreements under the competition rules. A vertical agreement is an agreement between companies at different stages of the production or distribution chain, e.g. an agreement between a supplier and a distributor.

However, VBER only applies to contractual relationships where the parties’ market shares do not exceed 30 % of the relevant market. Furthermore, the agreement may not contain so-called “serious restrictions of competition” (blacklisted restrictions). It seems that these conditions will be maintained in the new rules and guidelines.

Purpose of the new vertical rules

The purpose of the revision of VBER is to ensure that the rules are still relevant and effective. The Commission's evaluation of VBER has proved that there is still a general need for an effective set of rules. The evaluation also proved that there is room for improvement. Since 2010, the markets have changed significantly, especially digitally. One of the purposes of the revision was therefore to adapt the applicable rules to a digital world where e-commerce and sale via online platforms are in strong growth.

Future rules on vertical agreements

We have not yet established how the new rules and guidelines are going to be, but the Commission’s draft gives a good indication of what to expect.

It seems that the basic method and many of the exemption options are upheld. It is for instance still possible to have maximum prices, recommended resale prices and 5-year non-competition clauses in the term of the agreement. The same applies to the classic distribution forms such as exclusive distribution with protection of exclusive areas or customer groups and selective distribution.

Material changes in the rules on vertical agreements

The new VBER and guidelines also seem to introduce changes in a number of important areas: The most important changes are:

Right to more than one exclusive distributor

According to the present VBER, a supplier may only appoint one exclusive distributor for a specific area or a specific customer group. This makes it difficult to adapt the distributor network to the supplier’s needs. The new rules propose that a supplier must be able to appoint more than one exclusive distributor per area or customer group when appropriate compared to the exclusive area (shared exclusivity). The guidelines specify that the number must be fixed so that the supplier is ensured a turnover that equals the investment in the area.

More restrictive access to Dual Distribution

Dual distribution describes the situation where a supplier distributes to retailers parallel with independent distributors. The present VBER exempts parallel distribution from the prohibition against agreements restricting competition when the distributors are active only at retail level.

The competitive challenge of dual distribution is that suppliers and distributors have a trading relationship and at the same time they are competitors. The trading relationship may involve an exchange of competition-sensitive data, e.g. on prices and customers, which exchange is normally not legal for competitors. To avoid problems, a number of adjustments are proposed, including:

  • New de minimis rule: If the parties’ total market share at retail level does not exceed 10 %, the agreement is exempted.
  • If the parties’ total market share at retail level exceeds 10 % but is below VBER's limit of 30 %, all aspects of the agreement will be exempted, except for any exchange of data between the parties.

The area of exemption is expanded so that exemption does not apply only to manufacturers but also to wholesalers and importers.

Restrictions of competition in connection with online distribution

It seems as if the new rules are to a greater extent adapted to the practical reality within online sale. A basic principle will still apply to general online distribution stating that a distributor must be entitled to distribute online. A prohibition against Internet sale is therefore still considered a serious restriction of competition not covered by VBER.

The draft new VBER describes directly when online sale is “active sale” which may lawfully be restricted in a sole distribution agreement. It appears directly that active customer inquiries both offline and online are considered “active sale”. Websites linguistically adapted to an area are considered active sale aimed at that area. Paid advertising aimed at a specific customer group also counts as active sale.

In addition, the draft guidelines are less restrictive when it comes to dual pricing where the supplier for instance grants more favourable wholesale prices to distributors with physical shops than to online sale. Dual pricing is a serious restriction of competition which cannot be exempted from under the present rules. In the draft new rules, it is proposed that it will be lawful to price differentiate if the purpose is to encourage or award investments in a physical point of sale. The price difference must be consistent with the cost difference of physical and online sale.

New rules on online platforms

Today, online platforms play a more important role in the distribution of goods and services than before. It is not always easy to categorise online platform in the traditional boxes as either suppliers or distributors.

The draft block exemption regulation therefore contains a new framework for online platforms. Under the new rules, agreements between distributors and online platforms will generally not be exempted if the platform sells goods and services in competition with the distributors to which the platform provides online intermediary services. Online intermediary services are defined as suppliers in the P2B regulation.

Online platforms and MFN clauses

A so-called “most-favoured nation” (MFN) clause is a price clause according to which a company obligates always to quote the best price for its products to the contractual party. MFN clauses are generally exempted from the present block exemption regulation.

The Commission proposes that the new VBER is not to exempt MFN clauses obligating a distributor as seller via an online platform not to sell its goods or services cheaper on competing platforms. The clauses are instead to be assessed individually. All other types of MFN clauses are still covered by the exemption.

For more information on the Commission’s draft new vertical block exemption regulation and the revised vertical guidelines: Public consultation on the draft revised Regulation on vertical agreements and vertical guidelines.

Contacts

Andreas Christensen

Partner

Marie Løvbjerg

Senior Attorney

Andrea Hilt Dyrby

Attorney