The 2021 outlook for supply and distribution: In the search for relevant rules for the coming years

Further, many businesses face compliance costs related to the lack of consistency in the application of vertical rules, also with respect to subjects discussed below.

Given that, and also the fact that the current VBER expires on 31 May 2022, the Commission is conducting an extensive review process, in which it analyses the practice of applying the current VBER and determines the scope and character of guidance to be provided in the new VBER due out in 2022.

Current stage of the review process

The review process aims to clarify and simplify the rules and to fill the gaps that can lead to divergent interpretations across the national competition authorities in the EU. This process is divided into two steps: (i) an evaluation phase and (ii) an impact assessment phase. On 8 September 2020, the Commission published its Staff Working Document presenting the results of the evaluation of the functioning of the current VBER and its accompanying guidelines (“Evaluation Document”). Later, on 23 October 2020, the Commission published the inception impact assessment paper (“Impact Assessment”).

The Impact Assessment identifies several issues that need to be addressed in the new VBER and the Vertical Guidelines.

The below-discussed list is largely based on the Impact Assessment, but it is not exhaustive as there are other subjects that need to be addressed, e.g. retail price maintenance, tacitly renewable non-compete clauses, agency contracts, franchising contracts.

Dual distribution

In a dual distribution system, a manufacturer sells its products via distributors and directly to end customers. Thus, a manufacturer using a dual distribution system is considered as a competitor on the retail level in relation to its distribution partners.

Having said this, it has to be noted that agreements between competing undertakings should be in principle assessed under horizontal competition law rules. However, Article 2(4) of the current VBER provides some exception to that rule allowing some dual distribution systems to be reviewed under the VBER.

In the Impact Assessment, it was pointed out that a dual distribution system is more common and there is a risk of exempting vertical agreements, where horizontal concerns are no longer negligible and the conditions of Article 101(3) TFEU are not satisfied.

The main issues raised by the stakeholders concern a mutual exchange of competitively sensitive information between a manufacturer using such a distribution system competing with its distribution partners on the retail level. This concern has also recently been identified by the Danish Competition Authority, which found Hugo Boss to have exchanged sensitive information with two of its retailers.

The Commission proposes four different policy options:

• no policy change;
• limiting the scope of the exception to scenarios that are unlikely to raise horizontal concerns by, e.g. introducing a threshold based on the parties’ market shares in the retail market or other metrics and aligning the coverage of the exception with what is considered exemptible under the horizontal rules;
• extending the exception to dual distribution systems organised by wholesalers and/or importers – this was specifically proposed by independent importers from the automotive sector;
• removing the exception from the VBER, thus requiring an individual assessment under Article 101 TFEU in all dual distribution cases – this would significantly increase the compliance costs of businesses.

Active sales restrictions

Article 4(b)(i) of the VBER and paragraph 51 of the Vertical Guidelines allow some flexibility when it comes to preventing retailers from actively approaching individual customers (“active sales”).

However, according to the Impact Assessment, suppliers consider the current rules to be particularly complex and unclear. This prevents them from designing their distribution systems according to their business needs. Additionally, suppliers and distributors believe that the current rules prevent the effective protection of the territory in which a selective distribution system is operated against sales from outside that territory to unauthorised distributors located inside the selective distribution territory.

The Commission proposes three different scenarios for the revision (the second and third options can be introduced jointly):

• no policy change;
• expanding the exceptions for active sales restrictions to give suppliers more flexibility to design their distribution systems according to their needs. In particular, it is envisioned that an exemption could be granted in situations of “shared exclusivity” with two or more distributors within the same territory;
• ensuring more effective protection of selective distribution systems by allowing restrictions on sales from outside the territory in which the selective distribution system is operated to unauthorised distributors inside that territory.

Dual pricing and other measures restricting online sales

Due to the growth of the importance of online sales, the Commission is considering a revision of applicable rules.

In fact, with increasingly different marketing strategies between online and offline channels, there is a true need for a revision of the guidance concerning online sales restrictions, especially in the context of the distinction between passive and active sales, the application of dual pricing schemes, or the possibility of applying the online search advertising restrictions.

The Commission proposes the following options (the second and third options can be introduced jointly):

• no policy change;
• no longer regarding dual pricing as a hardcore restriction pursuant to Article4(b) of the VBER, with safeguards to be defined in line with the case law (e.g., the German Competition Authority’s proceedings);
• no more obligation on the supplier to apply equivalent selective criteria for distributors operating online and offline in a selective distribution system, with safeguards to be defined in line with the case law.

Retail parity clauses

Over the last decade, there has been an increase in the use of parity obligations across sectors, notably by online platforms. This has proven to be a hot topic, particularly as a result of various investigations by national competition authorities in the EU into the use of retail price parity clauses by online hotel booking sites.

Parity clauses in vertical (distribution) agreements are covered by the VBER and exempted from Article 101(1) TFEU, provided that the market share of neither of the parties to the agreement exceeds the 30% VBER threshold, and the agreement does not contain any hardcore restrictions of competition.

However, respondents to the public consultations (including National Competition Agencies) pointed out that there is limited guidance on the treatment of parity clauses under the VBER and the Vertical Guidelines.

The Commission proposes three different options for policy revision:

• no policy change;
• removing the benefit of the VBER and including in the list of excluded restrictions (Article 5 of the current VBER) obligations on parity in relation to specific types of sales channels, thus requiring an individual effects-based assessment under Article 101(3) TFEU for such obligations. Conversely, parity obligations relating to other types of sales channels would continue to benefit from the block exemption, on the basis that they are more likely to create efficiencies that satisfy the conditions of Article 101(3) TFEU;
• removing the benefit of the block exemption for all types of parity obligations by including them in the list of excluded restrictions (Article 5 of the current VBER), thus requiring an individual effects-based assessment in all cases.

Online platforms restrictions

The current VBER does not provide sufficient guidelines on the assessment of online sales restrictions and on whether restrictions on the use of search engines and price comparison tools are considered hardcore restrictions.

Many stakeholders have therefore called for better guidance on the assessment of restrictions on the use of third-party online platforms, price comparison tools, and search engines for selling products online.

Even though the ECJ in its Coty judgment of 6 December 2017 (C-230/16) held that the ban on use of third-party online platforms does not raise issues if the market shares of the parties do not exceed 30% and could even possibly be justified above this threshold, the Coty judgment should be incorporated in the revised VBER. This is because it remains unclear whether marketplace restrictions are lawful outside selective distribution systems and for goods other than luxury goods. Some national competition authorities have suggested a narrow interpretation, whereas, for example, according to Nils Wahl, the Advocate General in Coty (currently a judge of the ECJ), Coty should be applicable to high-quality products also.

Similar guidance is also needed with bans on the use of trademarks in online search advertising (as discussed in the Commission’s Guess decision), or with the restrictions of the use of price comparison websites, which are used by customers to find retailers offering best price. Such restrictions may thus limit the retailer’s ability to effectively generate traffic to its website (as discussed in the German Competition Authority’s Asics decision).

Final remarks

The policy options proposed in the Commission’s Impact Assessment would increase legal certainty and would allow businesses more flexibility to shape their distribution systems. In particular, the policy options would provide guidance on practices that can or cannot benefit from the block exemption.

We thus look forward to hearing from the Commission on what the new VBER and the Vertical Guidelines would look like.

For more information please contact Piotr Dynowski and Marcin Alberski.