Antitrust law: The new Block Exemption Regulation for Vertical Agreements entered into force on June 1, 2022

On May 10, 2022, the European Commission adopted the new Block Exemption Regulation for Vertical Agreements ("Vertical Block Exemption Regulation" or "VBER"), which is accompanied by the new Commission's Guidelines on Vertical Restraints. The VBER defines the legal framework under antitrust law for agreements between manufacturers and distributors and other suppliers and buyers. Accordingly, vertical agreements between supplier and buyer are exempt from antitrust prohibition if their market share does not exceed 30 % and the agreement does not contain so-called hardcore restrictions or other non-exempt clauses (so-called grey clauses).

As the former VBER from 2010 expired on May 31, 2022, the amendment was necessary. This was preceded by an intensive consultation process in which comments from market participants, associations and legal scholars were taken into account in the preparation of the drafts.

Background to the new regulations

The new regulations pursue three objectives in particular: The area in which companies can operate safely if their market share falls below the 30 % threshold was to be adapted to past experience and new developments in distribution. Furthermore, the VBER was to be updated with regard to the expansion of e-commerce and online platforms. Finally, the existing regulations were to be simplified and streamlined to make it for the companies concerned to apply them.

New definitions, in particular exclusive distribution and online intermediary service

The VBER contains new definitions to facilitate the application of the VBER and adapt it to new distribution models. The definition of exclusive distribution is noteworthy. Such a system no longer exists solely when the supplier allocates a territory or a group of customers to itself or to one of its customers, but also when the allocation is made exclusively to up to five customers. This allows more flexibility when more than one distributor can be designated in larger markets.

The definition of supplier is extended to companies providing online intermediary services. These services include all services in which transactions between businesses or between businesses and consumers are mediated, even if the businesses themselves are not directly involved in the transaction. Classic examples are online marketplaces, such as Amazon Marketplace or ebay, and booking platforms such as booking.com. This now explicitly clearifies that the commercial agent privilege does not apply to online intermediary services. Their distribution agreements must meet the requirements of the VBER.

Dual Distribution

New rules are provided for so-called Dual Distribution, i.e. where the supplier distributes its goods to end customers both directly itself and via an independent dealer network, so that it competes with its dealers in distribution. Although in principle the VBER does not apply to competitors, there is an exception for Dual Distribution if the companies involved only compete at the trade level, but not at the upstream market level. In this case, the Vertical BER remains applicable.

The scope of application is now extended insofar as the VBER does not only apply if the supplier is a manufacturer, but also if the supplier is an importer or wholesaler.

On the other hand, an exemption from restrictions in the context of so-called hybrid platforms is excluded in principle, i.e. such platforms through which the operator not only sells its own goods but also brokers transactions between third parties.

In principle, the exchange of information between supplier and buyer in Dual Distribution remains permissible if it relates to the implementation of the vertical agreement and contributes to improving the production or distribution of the goods. In this respect, the Guidelines contain numerous concrete examples of information that may or may not be exchanged in individual cases, such as prices, customer data and technical information.

Customer and territorial restrictions

The new VBER contains significant changes to the possibility of restricting the buyer with regard to its supply territories and customers. In this respect, the possibilities of restriction are considerably extended. Exclusive distribution, i.e. the allocation of a certain territory or customer group to a buyer, is now possible even if the territory or customer group has been allocated to the supplier itself or to up to five of its buyers. In this case, the remaining buyers can be prohibited from active selling into the exclusive territories or to the exclusive customer groups.

In addition, this active sales restriction may not only be imposed on the immediate buyer, but the buyer may also be obliged to pass on the same restrictions to its customers.

Overall, protection against gray imports from neighbouring territories is also significantly improved with regard to selective sales territories.

Online sales

In the area of online sales, the VBER features numerous new provisions, some of which are actually new, and some of which adopt already existing principles from case law.

First, the restriction of the effective use of the internet has been included as a new impermissible hardcore restriction. This particularly includes restrictions that prohibit online sales completely. Likewise, the use of price search engines may not be prohibited in principle. However, the prohibition of the use of a specific price comparison portal may be exempted.

At the same time, the Guidelines also contain numerous examples of how online trade may be restricted in a permissible form:

• Dual pricing systems, in which different prices are charged for online and offline sales, are permissible if they do not actually prevent the use of the Internet as a sales channel and the price difference is in reasonable proportion to the different investments and costs incurred by the buyer for sales in the individual sales channels.
• Sales via third-party platforms may in principle be prohibited.
• The so-called equivalence principle no longer applies, i.e. the quality standards set in selective distribution systems for online sales do not have to find a counterpart in the criteria for stationary offline sales.
• Certain quality requirements for online sales may also be set outside of selective distribution systems.

In connection with the use of online intermediary services, so-called price parity clauses are prohibited, i.e., in the case of sales via online intermediary services, buyers may not be prohibited from selling the same products via competing online intermediary services at lower prices (broad parity clause). However, it is permissible to impose a prohibition on the providers, according to which they may not sell the products at lower prices on their own website.

Resale Price Maintenance (“RPM”)

While RPM remains a core restriction, this now explicitly applies to minimum price guidelines, where buyers are obliged not to resell the products concerned below a certain minimum price. In addition, the Guidelines clarify that the prohibition of RPM also applies to providers of online intermediary services. Non-binding price recommendations and maximum price specifications as well as price monitoring measures remain exempt from the prohibition on fixed prices.

Of considerable importance in this context is the possibility of specifying the price within the framework of so-called fulfillment contracts. If the supplier has already concluded an agreement with the end customer on the purchase of a certain product at a certain price, the supplier is entitled to determine the price for the distributor whom the supplier uses to fulfill the agreement.

On the other hand, the use of commercial agents in a dual role is expressly prohibited if they relate to the same product market. This means that a buyer may not act both as an independent dealer and as a commercial agent on the same product market for the supplier. In this respect, the European Commission sees a risk that the buyer will also be influenced with regard to the setting of its prices in the context of independent distribution.

Term of non-competition clauses

The agreement of non-competition clauses at the expense of the buyer is now also permissible if they do not automatically end after five years at the latest. Rather, such an agreement is also permitted if the underlying contract is tacitly renewed after the expiration of five years, provided that the buyer has the option to terminate the contract after the five-year period.

Need for action for companies and comment

The new VBER and the associated Guidelines contain a large number of innovations that open up new opportunities for the companies concerned in the design of their distribution channels, but in some cases also set tighter limits. Against this background, it is advisable to review existing contracts to determine whether they still meet the requirements of the new VBER. For this purpose, the European Commission has granted companies a transitional period of one year until May 31, 2023 - in view of the notice periods for existing contracts, a review should nevertheless be carried out at an early stage. At the same time, the new opportunities, particularly with regard to online trading, customer and territory restrictions and the admissibility of price specifications in fulfillment contracts, can be exploited to restructure existing distribution systems.