For more than a decade, the Vertical Block Exemption Regulation (“VBER”)[1] and the accompanying Guidelines on Vertical Restraints (“Guidelines”)[2] have been the essential point of reference for the assessment of resale and distribution arrangements[3] under EU antitrust rules. With the VBER set to expire in 2022, the Commission in 2018 launched a review process to determine whether it should let the regulation lapse, prolong, or revise it.[4] After almost two years of evaluation, stakeholder feedback, public consultations and dialogues with national authorities, on September 9, 2020, the Commission published its report summarizing the outcomes of the evaluation.[5] The report provides a detailed overview of the VBER’s shortcomings and points of strength, and paves the way for the possible introduction of a revised regulation within the next two years.
Unclear, outdated, or missing: a VBER provisions checklist
The European distribution and retail sectors have radically changed since the current VBER was introduced in 2010. As already reported by the Commission in its e-commerce sector inquiry, the share of retail sales made on the internet has dramatically increased over the last decade. Online marketing tools, such as virtual marketplaces, price comparison websites, and online advertising, have become more and more pervasive. Finally, the COVID-19 crisis and the resulting lockdown measures have increased consumers’ reliance on internet platforms and online sales.
The evaluation report provides a detailed screening of the VBER provisions, focusing on the areas in which the regulation “is not functioning well or not functioning as well as it could.”[6]
Some of the VBER’s provisions remain unclear and are not easily applicable in practice:
- For instance, agency agreements are considered to fall outside the scope of Article 101 TFEU, but the distinction between agents and independent distributors is not sufficiently clear-cut.[7] This is particularly true for online platforms, which sometimes enter into agency agreements with their suppliers.[8] Several national agencies took the view that these intermediaries cannot qualify as “genuine agents” in light of their strong bargaining position, their diversified supplier base, and the risk associated with the significant investment they make in their digital infrastructure.
- Also, it is not always clear whether certain e-commerce practices may amount to an illegitimate imposition of minimum retail This is for instance the case of algorithm-based mechanisms used to monitor the respect of recommended retail prices by resellers. Moreover, given the lack of clarity on the conditions in which a minimum resale price is permissible, businesses often consider this clause to be outright anticompetitive and refrain from using it in their distribution agreements.[9]
In light of the innovations introduced by e-commerce platforms, other provisions of the VBER appear to be outdated and no longer adapted to current market conditions:
- Some respondents to the public consultation propose a revision of the very notion of a vertical agreement, currently focused on the purchase, sale, and resale of goods and This definition should be extended to companies “making products available to third parties,” so as to cover, for instance, online marketplaces and price comparison websites that do not fit the traditional definition of vertical relationships.[10]
- Respondents also call into question the prohibition to impose higher prices for products to be distributed This provision no longer seems necessary in a context where online sales have become ubiquitous and the brick-and- mortar channel often needs to be protected from free riding.[11]
Also, the VBER does not provide sufficient guidance with respect to certain commercial practices that are now widespread in online retail:
- The VBER is silent regarding clauses prohibiting resellers from using price comparison websites. Although the case law of the European Court of Justice allows suppliers of luxury goods to restrict the use of online marketplaces by their resellers, it is unclear whether this principle would also apply to price comparison [12]
- Effective guidance is also lacking with respect to retail parity clauses, which have come under close scrutiny of national agencies in recent years.[13] Certain respondents argued that these clauses are anticompetitive, as their economic effects are largely identical to those of resale price maintenance. Others believe that parity clauses can reduce free riding and negotiation costs, and therefore encourage investments in distribution [14]
Room to improve overall effectiveness, efficiency, and coherence
Besides the evaluation of the VBER’s individual provisions, the Commission also carried out a holistic assessment of the regulation’s overall effectiveness with respect to its stated purpose, its efficiency in terms of cost savings, and its coherence with other instruments of EU law.[15] While concluding that the regulation remains a useful and relevant instrument for stakeholders, the report identifies a number of issues where further improvement is possible.[16]
The effectiveness of the VBER is undermined by diverging interpretations adopted by antitrust agencies and courts at the national level. These diverging interpretations are possible due to the lack of clarity of the VBER provisions, as well as the lack of binding effect of the Guidelines. Respondents have noted that the uneven application of the VBER forces businesses to conduct different risk assessments for each EU country in which they operate. This inflates compliance and negotiation costs and stands in the way of a coherent implementation of commercial strategies across Member States.
In terms of efficiency, all sources suggest that the VBER reduces the costs incurred by businesses (especially small and medium enterprises) in assessing their compliance with EU antitrust rules. However, the evaluation report shows significant room for further simplification and cost reduction, by streamlining the most complex provisions of the VBER (such as the “exceptions to the exceptions” in Article 4) and clarifying the wording of its definitions.
The coherence of the VBER with other instruments of EU law could also be improved. For instance, under the Geo-Blocking Regulation, restrictions of passive sales based on the location of the customer are always void,[17] while so far they may be permissible under the Guidelines in certain cases.[18]
Outlook and next steps
Based on the results of the evaluation, the Commission has now launched an impact assessment phase to explore the underlying causes of the problems identified in the report and consider possible solutions. The Commission intends to hold public consultations with stakeholders by the end of 2020, with a view to publishing a draft proposal for the reform of the VBER and the Guidelines in the course of 2021.
[1] Commission Regulation (EU) No. 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices, OJ L 102, 23.4.2010.
[2] Guidelines on Vertical Restraints, OJ C 130, of 19 May 2010, p. 1–46.
[3] These agreements are considered “vertical” because they are entered into between companies operating at a different level of the production or distribution chain.
[4] As reported in our November 2018 EU Competition Law Newsletter, February 2019 EU Competition Law Newsletter, and May 2020 EU Competition Law Newsletter respectively.
[5] Commission staff working document on the Evaluation of the Vertical Block Exemption Regulation, SWD(2020) 17, of 8 September 2020 (the “Evaluation Report”).
[6] These areas are summarized in Section 5.3 of the report and analyzed in full detail in Annex 4.
[7] Guidelines, para. 12 to 18, and Evaluation Report, page 148.
[8] See for instance the Commission decision in Case COMP/AT.39847, as discussed in our July/September 2013 EU Competition Quarterly Report, concerning the agency agreements for the distribution of e-books entered into between Apple and several publishers.
[9] Guidelines, para. 225, and Evaluation Report, page 170.
[10] See VBER, Article 1(a). Similarly, the notion of buyer in a vertical relationship would benefit from an extension of the definition around the company that “sells goods or services on behalf of another undertaking,” to include companies that “make available to third parties” in Article 1(1)(h) of the VBER; see Evaluation Report, page 152.
[11] Guidelines, para. 52, and Evaluation Report, page 212.
[12] Coty Germany (Case C-230/16) EU:C:2017:941, as discussed in our October/November 2017 EU Competition Quarterly Report.
[13] Retail parity clauses are typically applied by hotel booking platforms, and prevent listed suppliers from offering lower prices or better terms on other platforms or on their own websites. These arrangements were recently scrutinized, with divergent outcomes, by national authorities in Germany, as discussed in our July/ August 2019 German Competition Law Newsletter, France, as discussed in our December 2019 French Competition Law Newsletter, and Italy and Sweden.
[14] Evaluation Report, page 182.
[15] This analytical framework for the evaluation of policy interventions is prescribed by the Commission’s Guidelines on Better Regulation (see Commission staff working document, SWD (2017) 350).
[16] Evaluation Report, pages 49 to 93.
[17] Regulation (EU) No. 2018/302 of the European Parliament and of the Council of 28 February 2018 on addressing unjustified geo-blocking and other forms of discrimination based on customers’ nationality, place of residence or place of establishment within the internal market and amending Regulations (EC) No. 2006/2004 and (EU) No. 2017/2394 and Directive 2009/22/EC, OJ L 60I of 2 March 2018, p. 1–15. Passive sales are sales following unsolicited requests from individual customers.
[18] Guidelines, para. 61 and Evaluation Report, p. 179.