On February 4, 2022, the Commission released a revised draft dual distribution guidance within the broader context of the ongoing review of EU vertical rules.
On July 9, 2021, the Commission published its long-anticipated proposed update of the Vertical Block Exemption Regulation (“VBER”) and the corresponding draft Vertical Restraints Guidelines (“Vertical Guidelines”) for public consultation and comment by September 17, 2021. The draft updated framework made a number of important adjustments to the existing rules, in part to reflect the significant growth in online sales by manufacturers directly and through online intermediaries. The primary proposed changes to the existing rules relate to dual distribution, Most-Favored-Nation clauses, dual pricing and other protections of brick-and-mortar sales, online customer and territorial resale restrictions, online intermediation services and agency, and broader exemption for resale restrictions in exclusive and selective distribution models.
The current VBER allows for the block exemption to apply even where a manufacturer directly sells its product to end-customers in competition with its downstream distributors (also known as “dual distribution”). Manufacturers are increasingly competing directly in the retail space using their own online shops or online marketplaces. Large hybrid platforms (such as Amazon) have begun selling not only their own products, but also those of third parties. These developments have increased the instances of horizontal competition between manufacturers and their distributors, and have made the retention of the dual distribution exemption a contentious issue during the consultation procedure.
To account for this concern, the draft revised VBER introduced a number of changes in relation to vertical agreements between competing companies. It proposed to eliminate the safe harbor for agreements between sellers and online platforms (providers of online intermediation services) that sell goods or services in competition with the sellers relying on the platform. In other non-reciprocal dual distribution scenarios, it proposed that a full exemption would apply where the parties’ combined market share at the retail level is below 10%. Above the 10% ceiling, provisions on “any information exchanges” would be excluded from the block exemption of dual distribution agreements (including, in particular, exchanges between a manufacturer and a distributor concerning downstream customers, sales prices or volumes, or marketing strategies). The draft revised VBER would also extend the dual distribution exemption beyond manufacturers to cover wholesalers and importers, but only to the extent that the buyer does not compete with the supplier at the manufacturing, wholesale, or import level.
Further Revisions To The Revised Draft Dual Distribution Rules
The public consultation indicated that additional guidance was warranted on the type of information that may be exchanged between supplier and buyer in a dual distribution context. The Commission responded with a proposal to exclude the benefit of the exemption in circumstances where the information exchanges are not “necessary to improve the production or distribution of the contract goods” and concurrently provided a non-exhaustive whitelist of information deemed “necessary” and therefore open to exchange: (i) technical information relating to the contract goods (e.g., information on registration, certification, or handling of the goods), as well as marketing and promotional campaigns; (ii) aggregated information relating to customer purchases, consumer preferences, and customer feedback; (iii) recommended and maximum resale prices; and (iv) performance- related information, including on marketing and sales activities of other buyers of the contract goods, as long as this does not enable the buyer to identify the activities of specific competing buyers. Conversely, specific pricing and customer sales data will fall outside the scope of the exemption and would need to be individually assessed under the rules applicable to horizontal agreements.
The Commission also suggested possible compliance measures, including exchanging solely aggregated sales information, ensuring an appropriate delay between the generation of the information and the exchange, and setting up firewalls.
Notably, the revised draft dual distribution rules do not appear to refer to the above-mentioned 10% safe harbor, leaving stakeholders speculating as to whether that threshold was dropped or might re-appear in the final revised rules. The Commission is expected to wrap up the VBER revision process with a view to adopting the new distribution rules by June 2022.
Editors: Conor Opdebeeck-Wilson and Thorsten Schiffer
 See Draft new section dealing with information exchange in dual distribution, February 4, 2022.
 See Annex to the Communication from the Commission Approval of the content of a draft for a Commission Regulation 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, C(2021) 5026 final of July 9, 2021.
 See Annex to the Communication from the Commission Approval of the content of a draft for a Commission Notice Guidelines on vertical restraints, C(2021) 5038 final of July 9, 2021.
 As reported in our Alert Memo “EC Seeks Comments on Draft Revised Distribution Rules”, July 22, 2021.
 The EC indeed noted that “the current exception for dual distribution is likely to exempt vertical agreements [from scrutiny] where possible horizontal concerns are no longer negligible,” Revision of the Vertical Block Exemption Regulation Explanatory Note, p. 2.
 Draft new section dealing with information exchange in dual distribution, February 4, 2022, p. 2.