25 May 2022

New era for distribution agreements in the EU: Commission adopts revised rules

+ 2 other experts

The European Commission has adopted the updated vertical block exemption regulation (VBER) and the accompanying vertical guidelines (VGL). They enter into force on 1 June 2022 and will replace the outgoing VBER and VGL. Companies will have 12 months to ensure that their existing distribution arrangements comply. The VBER and VGL were last revised in 2010, when the e-commerce sector and digital platform economy were still coming of age. However, the past decade has seen a boom in internet sales, a marked prevalence of online platforms, and the proliferation of new-age vertical agreements. These market changes, resulting in more complex and hybrid distribution arrangements, have been factored into the Commission's revised rules. Moreover, the new era for vertical agreements in the EU bodes well for both the digital and green "twin" transitions as the revised rules also address some sustainability concerns. The new guidelines are also more commercially savvy, recognising that restrictions in distribution arrangements (for example, exclusivity) can benefit from additional flexibility to cater for legitimate commercial needs.

Our reference guide describes the ramifications of the revised rules for distribution agreements in the EU.

The vertical context

EU treaty law and national competition laws of member states contain prohibitions on anti-competitive agreements. Anti-competitive agreements can either be horizontal agreements (i.e. at the same level of the supply chain) or vertical agreements (i.e. at different levels levels of the supply chain.) Vertical agreements concern the supply and distribution of goods and services and, like horizontal agreements between competitors, may distort competition if they contain certain restraints. However, restraints in vertical agreements are generally considered less harmful than restraints in horizontal agreements. Against this backdrop, the VBER operates as a "safe harbour" by declaring that if vertical agreements fulfil specific conditions, the prohibition on anti-competitive agreements does not apply. In addition, agreements that do not fall within the VBER's scope are not necessarily prohibited. They can still escape the prohibition on anti-competitive agreements altogether or benefit from a self-assessment against the criteria for an individual exemption.

The revised VBER is accompanied by the revised VGL. The VGL provides guidance on the application of the VBER and the self-assessment for individual exemption of vertical agreements that are not block-exempted by the VBER. Before finalising the revised rules for vertical agreements, the Commission unveiled drafts of the revised VBER and the VGL and invited comments from stakeholders (see our previous article). Similarly, earlier this year, the Commission published drafts of revised rules for horizontal agreements and launched a public consultation (see our previous article). The horizontal block exemptions and guidelines will expire by the end of 2022.

New revised rules for verticals

The new rules for vertical agreements simultaneously narrow and enlarge the scope for block exemption under the VBER. Certain aspects of dual distribution and certain types of parity obligations will no longer be block-exempted. Certain restrictions on a buyer's ability to actively approach individual customers (active sales) and some practices relating to online sales (like dual pricing or differential criteria for online and offline resale) will be exempted, provided other VBER conditions are fulfilled.

Following a separate public consultation on information exchange in the context of dual distribution, the revised VGL include examples of types of information exchanges in dual distribution arrangements that are either likely or unlikely to be block-exempted. The revised VBER also specifically covers vertical agreements relating to the provision of online intermediation services (OIS). However, OIS providers that are hybrid platforms selling goods or services in competition with retailers to whom they provide online intermediation services, will not benefit from the VBER. With the P2B Regulation, the Digital Markets Act (see our previous article), and now the harsher treatment of online intermediation services under the revised VBER, the landscape governing platforms is becoming increasingly crowded.

The revised rules also cover some vertical situations that concern sustainability. For example, qualitative criteria for selective distribution systems may include achieving sustainability objectives. Equally, exclusivity obligations to incentivise investments in green/clean energy plants may get the green light. However, similar to the separate chapter in the new draft horizontal cooperation guidelines (see our previous article), the revised VGL reiterate that vertical agreements pursuing sustainability objectives are not a distinct category of agreements.

Adjusting to the new rules

The Revised VBER and Revised VGL apply to all agreements concluded after 1 June 2022. Agreements already in force on that date that complied with the outgoing VBER and VGL do not need to be amended until 31 May 2023. Meanwhile, as a result of Brexit, the UK’s Vertical Agreements Block Exemption Order (VABEO) will, in parallel to the revised VBER, also come into force on 1 June 2022.

It will take some time, effort and insights to adjust to the revised EU rules and safe harbours for vertical agreements. Nevertheless, to provide some much-needed clarity, we have drafted a reference guide that illustrates the ramifications of the revised rules for distribution agreements. We provide an in-depth assessment of the new framework applicable to exclusive, selective and free distribution; dual distribution; resale price maintenance (RPM); non-compete provisions; online restrictions; dual pricing; parity obligations (MFN clauses); and platforms, agency and OIS.

Decoding the New EU Rules on Distribution Agreements – A Reference Guide, can be downloaded here.