Antitrust and distribution – current status of the reform of the Block Exemption Regulation for distribution agreements (VBER)?

If the supplier and its customer compete (e.g. because a manufacturer is also active in direct sales), a vertical agreement pursuant to new Art. 2 (4) VBER-draft (VBER-D) can only be block-exempted in exceptional cases. Presently, this is the case if the supplier is a manufacturer and competes with the buyer only at the wholesale or retail level. At this point, the VBER’s scope of application is to be expanded in the future so that importers also benefit from the exemption if they compete with their buyers at the retail level. This change seems to have been widely supported by stakeholders. However, concerns have been expressed (and rightly so) that at the same time it will now no longer be block exempted if the manufacturer competes with its importer/wholesaler at the buyer level (=importer/wholesale level). Some of the stakeholders have put a question mark behind this and asked the Commission for clarification that this is (hopefully) a misinterpretation.

In addition, the new Art. 2 (5) VBER-D includes a new market share threshold at the retail level. In the case of joint market shares up to 10%, the agreement is block exempted as a whole; in the case of shares between 10-30%, the exemption applies except for the exchange of information, to which the Horizontal Guidelines (HGL) are to apply; above 30%, the block exemption is excluded. According to the Art. 2 (6) VBER-D, restrictions of competition by object are in principle not exempted (which is likely to be only of a clarifying nature). Not all, but all types of stakeholders have expressed criticism towards this proposed change. In particular, these stakeholders argue that the threshold is too low and that the reference to the HGL regarding the exchange of information (at least in the current form of the HGL) does not take into account the need to share certain information in the distribution relationship, which in a purely horizontal competitive relationship is just (and rightly so) considered sensitive. It does not yet seem to be completely ruled out that the second market share threshold might be set higher (less likely that it will be dropped) and that – regardless of whether in the VGL or the HGL – certain special features in distribution could be taken into account concerning the topic of information exchange.

In the new Art. 2(7) VBER-D, hybrid online platforms are completely excluded from the dual distribution exception – for all of their vertical agreements for the product in question, even if it is a vertical agreement unrelated to the platform activity. This broad exclusion, regardless of the size of the platform, has been (rightly) criticized by a large number of stakeholders. This is because this exclusion also affects the contractual partners of hybrid platforms, which, as often small and medium-sized companies, do not have the resources for a full-fledged individual exemption analysis. In addition, this change is likely to deter larger stationary players from opening up their previously proprietary platform offerings to third parties. The German Federal Cartel Office has, however, even come out in favor of excluding not only hybrid but all online platforms from the scope of the block exemption.

The ever growing shift of sales to the online world was one of the main topics and drivers of the European Commission's consultation on the reform of VBER. The focus is increasingly on digital platforms such as "gatekeepers" and possibly "unavoidable" partners for small and medium-sized enterprises in the sale of goods. The legal "battles" over best price clauses, which did not constitute a hardcore restriction under the present VBER because the "party restricted in its freedom to set prices" was not the buyer of the product (the platform), but the supplier of the product, are legendary. For online platforms, so called wide best price clauses (which affect all sales channels) constitute so-called grey clauses pursuant to new Art. 5 (3) VBER-D. They are themselves not block exempted, but do not prevent the block exemption of the agreement as such. Narrow best price clauses (which only affect the product supplier's own offer), on the other hand, will continue to be block exempted in the future. The feedback from stakeholders on this issue was apparently mixed. It appears therefore more likely that the European Commission will stick to its draft.

The definition of online platforms as "suppliers" is still unclear in terms of its effects and has been received rather critically by the vast majority of stakeholders. If this definition refers not only to the intermediary service, but (as is probably intended) also to the contract product (= the brokered product), this turns the previous idea of the distribution chain "upside down". Presently, the platform is either a commercial agent or was treated as a buyer according to Art. 1 lit. h VBER. According to the new draft, this shall no longer apply. This probably meansthat in the future, the platform cannot set fixed or minimum prices for the product provider due to the prohibition of price fixing by the buyer (by definition: the product supplier). Best price clauses, however, should not fall under the hardcore restriction due to the regulation in Article 5 (3) VBER-D. Most stakeholders felt that the new classification was not expedient because it did not correspond to economic realities. It remains to be seen how the European Commission will deal with this feedback – especially since the national antitrust authorities also seem to have had mixed views.

In this area, quite little has changed regarding the VBER itself in substance. However, the provision has been completely restructured to include a separate section for hardcore restrictions in exclusive distribution systems (lit.b), one for selective distribution systems (lit. c.) and one for distribution systems that are neither one of them (lit.d). The ability to assign a distribution territory to more than one (but only a limited number) exclusive distributors has been introduced. In addition, for the practically rare case of exclusive distribution alongside selective distribution (in different territories), the hardcore restrictions were modified to allow improved (though still not complete) protection of selective distribution from sales by an exclusive distributor from another territory, and vice versa. The accumulation of exclusive and selective distribution in the same territory continues to be ineligible for block exemption. These changes appear to have been largely well received. Criticism was voiced mainly regarding to the possibility of using more than one exclusive distributors in one and the same territory.

One of the new features of the draft Vertical Guidelines (VGL-D) is that dual pricing in online sales should no longer constitute per se hardcore restrictions (in the form of restrictions on the customer group). However, this only applies if the different pricing aims to encourage investment in this sales channel and to remunerate such investments appropriately. Such price differentiation may not have the purpose or effect of hindering internet sales. (Otherwise, however, dual pricing remains a core restriction (cf. para. 189 lit. g) VGL-D)) This amendment seems to have been assessed rather positively for the most part. However, many stakeholders have asked for clarification as to whether such differentiation would require a detailed cost calculation of the different costs of investments.  

The same applies to a relaxation of the strict equivalence principle for the online and offline channels. The new guidelines recognize that strict equivalence in the selection criteria for inclusion in the system as well as in the discount/bonus structure is not always possible or appropriate due to the differences between the sales channels. Factual differentiation between the channels should therefore be permitted in future, as long as it pursues legitimate purposes and is not aimed at restricting online sales.

As might be expected, third party platform bans are in line with the ECJ's Coty judgement no core restriction in the future. Furthermore, the VGL-D clarify that individual search engines/marketplaces/distribution channels can be excluded under quality criteria. However, a complete prohibition of certain advertising channels as a whole should not be permissible. In particular, a general ban on price search engines/search engine advertising would probably constitute an impediment to internet sales and thus a restriction of the customer group to which the buyer can sell.

With regard to the prohibition of RPM, the guidelines contain interesting comments on whether binding minimum advertised prices (MAP) could be permissible in the future. The stakeholders considered this passage to be in any case in need of clarification and in part also found it worthy of criticism. It seems likely that the passage in question will not be included unchanged in the final regulation.

The helpful explanations on fulfillment contracts are important and merit particular emphasis. This concerns a contract structure in which an end customer enters into a framework agreement with the manufacturer, but fulfillment may be carried out by independent dealers located closer to the end customer (who often mainly perform logistics functions). Currently, the problem of price fixing arises - because the prices negotiated by the manufacturer are often already so low that they can de facto hardly be undercut by the fulfilling dealer and therefore possibly have the effect of fixed prices. According to the VGL-D, price maintenance is unproblematic if the end customer waives the right to choose the fulfilling dealer. While the national antitrust authorities had the opinion that fulfillment contracts should continue to be treated as unlawful RPM, stakeholders were positive about the proposal. They took the stance (and rightly so) that unproblematic fulfillment contracts were still defined too narrowly.

It remains to be seen how the European Commission will evaluate and take into account the many arguments it received during the consultation process. In the meantime, the obvious applies: predictions are notoriously difficult, especially when they concern the future... Further details can be found in the slides on the VBER-reform (German) that were presented at the conference organized by Studienvereinigung Kartellrecht on December 10, 2021).

We will certainly keep you updated on this channel. Feel free to contact us if you have further questions!