On 10 May 2022, the new Block Exemption Regulation for Vertical Agreements (Reg. 720/2022 - VBER) was adopted). It regulates which restrictions of competition in vertical relationships are group exempted from Art. 101 TFEU. The new VBER is the result of an extensive reform and consultation process (see here for our report on the process). In view of its enormous relevance for every distribution agreement a high number of stakeholders had provided their feedback in that process. The reformed VBER contains a number of changes and some surprises even for those who have closely followed the process over the last few years. The adopted version shows that the Commission did not just conduct the consultation as a " pro forma exercise", but intensively reflected the "stakeholder" feedback. This is very welcome and makes it worthwhile to participate in such process. In many respects, the new VBER appears to better reply to the needs of the markets than its predecessor version (Reg. 330/2010). The new version of the Vertical Guidelines (V-LL), which accompany the new VBER, has also been published, (see here), initially only in English; the other language versions are to be expected soon (formal adoption will take place only after all language versions are ready for publication). The following article gives an overview of some of the most important changes in VBER, such as the new framework for dual distribution, hardcore restrictions and e-commerce, in particular online platforms. The new conditions for exemption from Art. 101 TFEU will already apply from 1 June 2022. Agreements in force on 31 May 2022 still enjoy protection for one year: They remain exempt under the previous conditions and only have to be converted thereafter.
If the contractual relationship is not purely vertical, but the parties are also competitors on the same level of trade for the same product, the VBER does generally not grant an exemption from Art. 101 TFEU. An exception exists for dual distribution (Art. 2(4) VBER) - which was one of the "hot topics" in the consultation process.
For dual distribution, the European Commission has introduced some significant changes compared to the text submitted for consultation in July 2021. Firstly it closes previous (probably unintended) loopholes in the scope of application: Regardless of whether the supplier is manufacturer/wholesaler or importer, the exemption for dual distribution can now always be recurred to if the competitive relationship exists only at the market level of the buyer, but not at the (upstream) level of the supplier.
The Commission's proposal from July 2021 to introduce a new retail market threshold of 10% as a further condition for the comprehensive exemption (i.e. including the exchange of information) has been dropped. The same applies to the (probably rather declaratory) paragraph according to which (horizontally) targeted restrictions of competition in dual distribution would not benefit altogether from the VBER.
Instead, the new VBER contains a paragraph according to which the dual distribution exemption does not apply to such exchange of information between suppliers and buyers which is 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 (Art. 2 (5) VBER). The VGL explain this concept in more detail in paras. 94 et seq. This aspect is (correctly) dealt with in the VGL now and for the first time it is formally recognised that information exchange in the vertical relationship may be necessary for the (efficient) implementation of the distribution relationship and should therefore be treated differently (i.e. more lenient) than in a purely horizontal relationship between competitors.
Contracts with online platforms offering online intermediary services do not benefit from the VBER if the online platform also acts as a (re)seller (i.e. ultimately dealing "in its own name and for its own account") for the same product (Art. 2(6) VBER). Thus, the new VBER has a reduces scope compared to the previous Vertical Block Exemption (Reg. 330/2010), but it goes beyond the draft of July 2021. Now, the contracts concerning (only) the (re)sales activity of the hybrid platform can still be block exempted, whereas their intermediary activity for the same product no longer can.
There are no revolutionary changes to the hardcore restrictions in Art. 4 VBER. As before, price fixing will not be tolerated.
The wording concerning customer and territory restrictions has undergone a “restructuring”– albeit with few changes in substance. This is consistent with the July 2021 draft version. In order to protect selective and exclusive distribution systems, companies are granted somewhat more leeway in that, for example, the restrictions may be passed on to certain customers (in the case of exclusive distributors, e.g. to their direct customers). This should mean some relief for companies, not only compared to the current version, but also compared to the draft version of July 2021 which provided for a more complex rule for the pass-on possibility.
The terms "active" and "passive sales", which are important in this context, are defined in Art. 1(1)(l) and (m) of the VBER. These clarify on regulation rather than on VGL-level which behaviour may be prohibited to protect an exclusive distribution system. The definitions also explicitly treat certain forms of internet advertising that go beyond maintaining a website as "active sales". New and somewhat of a break in the system is the definition of participation in public and private tenders as "passive selling".
There is a new, specially introduced hardcore restriction concerning the prevention of internet sales, which, however, is ultimately (probably) only intended to show that restrictions of internet sales can be restrictions of the customer base: The “prevention of the effective use of the internet by the buyer or its customers to sell the contract goods or services” will expressly be a prohibited hardcore restriction (Art. 4 lit. e)). Explicitly excluded (and thus not hardcore restrictions) are "other restrictions on online sales" or "restrictions on online advertising which do not have the object of preventing the use of an entire online advertising channel". Identifying "other restrictions" versus a "prevention of the effective use of the internet" will be the crucial question in the future. The new guidelines provide further guidance and examples in paras. 203 et seq. The guidance and examples are - similar to the draft of July 2021.
In addition, explicit new core restrictions relating to the preventing the buyer of the effective use of the internet and the exclusion of online intermediary services (OIS) by hybrid online platforms from the VBER’s scope of application (Art. 2(6), see above, I.), the new VBER provides for further changes regarding online distribution:
On the one hand, broad parity clauses (most favoured nation clauses), which prohibit buyers of online intermediary services from offering more favourable conditions on other online platforms, will in future no longer benefit from the block exemption (even though it is still not a hard core restriction). Conversely, so-called narrow parity clauses, i.e. clauses that prohibit more favourable offers on other distribution channels (e.g. the respective website of the buyer of the online intermediary service or offline), will remain block exempted. Previously, such clauses were covered by the VBER 330/2010 as a whole provided that the market share thresholds were met. (Prominent German jurispruence conveying a different impression related to hotel booking platforms with market shares that excluded the application of the VBER altogether - we reported on this here).
Furthermore, the new VBER defines the online platform as a "supplier" of intermediary services. This is of considerable practical importance because in many cases the hardcore restrictions only "protect" the buyer, but not the supplier. This change had already been included in the Commission's proposal of July 2021 and had caused a lot of questions and also criticism (we had already reported on this in December, see here).
It will still have to be analysed in detail how the new rules are to be interpreted in the future. We remain curious to observe how they will be applied by competition authorities and courts.
Anne Caroline Wegner, LL.M. (European
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Dr Helmut Janssen, LL.M. (King's College
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Dr Sebastian Felix Janka, LL.M. (Stellenbosch)
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