The EU’s Vertical Block Exemption Regulation (VBER) together with the Vertical Guidelines are due an overhaul, the European Commission has recently affirmed. Such a review will be aligned with the findings of the evaluation of both regulation and guidelines launched by the commission way back in 2018 and these findings have now been published.
Vertical agreements are those entered into between two or more undertakings operating at different levels of the production or distribution chain. Such agreements stipulate the conditions in terms of which supplier and distributor may purchase, sell or resell goods or services.
Article 101(1) of the Treaty of the Functioning of the European Union (TFEU) prohibits agreements between undertakings that restrict competition. This means that vertical agreements are, as a rule, prohibited in terms of this treaty’s article. However, in terms of Article 101(3) TFEU, agreements can be exempted provided that they contribute to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefits without eliminating competition.
In terms of the VBER, vertical agreements which satisfy certain conditions are automatically exempted from the prohibi- tion in Article 101(1) TFEU, thus creating a safe harbour for such agreements. The Guidelines on Vertical Restraints provide guidance on how to interpret and apply the VBER and how to assess vertical agreements falling outside the safe harbour of the VBER.
Hence, these two measures do much for the business community in so far as legal certainty is concerned. The current VBER which was adopted in 2010 will now expire on May 31, 2022. Hence, the decision of the commission to launch an evaluation regarding same in order to assess whether it should allow the said regulation to lapse, renew it in its current form, or revise same.
The commission has now confirmed that it will be revising the current VBER and vertical guidelines to ensure they are fit for purpose in today’s digital world and for the future. The evaluation has affirmed that these measures are both still relevant tools which facilitate the self-as- sessment of vertical agreements by businesses, hence also reducing compliance costs for them. The evaluation has also shown that the market has changed significantly since the adoption of the VBER and the vertical guidelines, particularly due to the growth of online sales and of new market players such as online platforms.
These developments have led to various changes in distribution models, such as increased direct sales by suppliers and a greater use of selective distribution systems, which allow suppliers a tighter control over resale conditions. Similarly, new types of vertical restrictions, such as restrictions regarding sales through online marketplaces and restrictions on online advertising, as well as retail parity clauses, have become more widespread.
The revised VBER will reflect these new realities while clarifying and simplifying certain rules. The evaluation has identified some lacunae, such as a lack of guidance on how to assess retail parity clauses or restrictions on the use of price comparison websites, and areas that do not reflect jurisprudence published after the adoption of the rules. Such issues will hence also be addressed.
The EC’s review of evidence also highlighted defaults in the implementation of certain aspects regulated in the current VBER such as certain hardcore restrictions like resale price-maintenance ones, certain excluded restrictions such as non-compete clauses as well as in so far as certain types of distribution models are concerned, franchising in particular.
The application of the rules regulating the combination of distribution models, such as the use of exclusive and selective distribution by the same supplier, has also proved to be problematic. The revised rules will also serve as a common assessment framework so that divergences in approach by national competition authorities and national courts can be minimised, thereby providing greater certainty for businesses.
The commission’s next step is now to launch an impact assessment to analyse the issues identified during the evaluation, with a view to having revised rules in place by May 31, 2022. Stakeholders will have the possibility to comment on this impact as- sessment and to provide their views in the context of a public consultation, which is planned for the end of this year. Next year, the commission will then publish a draft of the revised rules for stakeholder views. Block exemptions such as the VBER together with the relevant guidance serve business well in so far as legal certainty is concerned.
Parties which want to enter into a vertical agreement have a point of reference in assessing the legality or otherwise of their business relationship. Hence, the importance of ensuring that any such rules remain fit for purpose so that traders enjoy the necessary peace of mind when conducting their business in a world which is ever-changing and which poses different challenges on a daily basis.