Recent Trends in Enforcement Against Vertical Restraints

The new Vertical Block Exemption Regulation (VBER) 2022/720 was adopted over two years ago (see our newsletter on the topic). However, it is still too early to draw definitive conclusions, as competition authorities have not yet fully adjudicated on the new provisions. 

While the updated VBER considers the significant growth of online sales and offers a more flexible approach to vertical restraints, the European Commission’s commitment to eliminating unjustified barriers to ensure the proper functioning of the Single Market remains steadfast.

This commitment is also particularly evident in the enforcement practices of the French Competition Authority (FCA). 

As the market continues to evolve, particularly with the growing importance of online sales, it is likely that the FCA will maintain a rigorous approach to enforcing Article 101 TFEU and L.420-1 of the French Commercial Code. 

While the new VBER offers some flexibility—such as allowing differentiated pricing based on whether products are sold online or clarifying conditions under which internet sales can be regulated—the overarching legal framework remains focused on maintaining a competitive and functional Single Market.

Furthermore, the commitment to remove unjustified barrier is also a political one: on 24 May 2024, a call for action was initiated at an EU Competitiveness Council meeting by eight EU Member States (Netherlands, Belgium, Croatia, Czech Republic, Denmark, Luxembourg and Slovakia), who addressed the need to eliminate territorial supply constraints on the Single Market .

This article aims to provide an overview of the FCA’s enforcement priorities since the adoption of the new VBER, offering guidance to companies within distribution networks to ensure their compliance with competition law.

Enforcement Trends Reflect Challenges in the Market

The enforcement trends of competition authorities serve as a strong indicator of the challenges businesses face, and the FCA’s decision-making over the past two years is no exception.

Key Challenges

Over the past 10-15 years, the European market has seen unprecedented integration, driven primarily by the rise of online sales. This development has significantly increased intra-brand competition, with resellers able to sell products freely across borders within the EU. As a result, price disparities between Member States have led to downward pressure on prices (and, inevitably, on businesses’ margin) particularly in markets with traditionally higher price points. 

To counteract this, businesses may be tempted to impose restrictions on their distributors, either by limiting where they can sell products or by directly controlling resale prices—both of which are prohibited under Article 101 of the TFEU and its French equivalent, Article L.420-1 of the French Commercial Code.

FCA’s Focus on Territorial and Online Sales Restrictions

The FCA’s recent decisions confirm these trends. Since May 2022, it has issued five sanction decisions concerning vertical restrictions, all of which involved either territorial/online sales restrictions (four decisions) or resale price maintenance (RPM) (two decisions).

Similarly, at the European level, the Commission has issued two decisions  and a Statement of Objections regarding vertical restraints, all concerning cross-border sales limitations. Notably, the Commission recently imposed a record-breaking fine exceeding €300 million on Mondelez for restricting parallel trade, addressing violations under both anti-competitive agreements (Article 101) and abuse of dominance (Article 102).

The Commission sanctioned the following behaviours: 

• contractually restricting the territories where wholesalers could resell products;
  
• contractually prohibiting passive sales by preventing some exclusive distributors from responding to sales requests from customers in other Member States without Mondelēz’s prior approval;
  
• refusing to supply a broker in Germany to prevent the resale of chocolate tablet products in countries where prices were higher and where Mondelez held a dominant position; and
  
• stopping the supply of chocolate tablet products in the Netherlands to prevent their importation into Belgium, where Mondelēz was selling these products at higher prices.

In France, the FCA has also targeted cross-border sales restrictions, imposing fines across various sectors for limiting resellers’ freedom to sell products in certain territories or to specific customers. 

For example, in decision no. 23-D-05 (in French), the FCA sanctioned companies in the bakery equipment sector for restricting passive sales by exclusive resellers. Similarly, in decision no. 23-D-12 (in French), the FCA fined luxury tea company Mariage Frères €4 million for restricting its distributors' ability to sell products online and preventing them from reselling to one another. The FCA also fined chocolate manufacturer De Neuville (in French) for having implemented vertical agreements aimed at restricting, on the one hand, the online sale of De Neuville brand chocolates by franchisees and, on the other hand, sales to professional customers.

The FCA’s Continued Fight Against Online Sales Restrictions

In addition to territorial restrictions, the FCA remains vigilant against online sales restrictions, recently imposing one of its highest sanction (in French) in recent years on luxury watch manufacturer Rolex. 

The FCA reiterated that while online sales can be subject to qualitative conditions, an outright ban is not a legitimate means to combat counterfeiting or off-network sales, in line with the new VBER and its guidelines.

Resale Price Maintenance (RPM) Remains a Priority

Despite rejecting RPM claims against Rolex due to insufficient evidence, the FCA’s commitment to enforcing RPM regulations remains strong. Recently, the FCA fined a wine manufacturer (in French) €500,000 for imposing minimum resale prices on its distributors.

This decision is the first RPM decision taken by the FCA after the European Court of Justice’s (ECJ) ruling in the Super Bock case, which provided additional clarity on the “object test” for RPM. The ECJ stated that RPM is not automatically a restriction of competition “by object” despite being classified as a "hardcore restriction" under the VBER. Instead, a case-by-case analysis is required to assess whether an agreement fixing minimum prices constitutes a “by-object” restriction, considering the provisions' content, objectives, economic and legal context, and pro-competitive effects.

Interestingly, in its recent Wine decision (no. 24-D-07), the FCA did not fully apply the nuanced approach presented in Super Bock. After briefly referencing the ECJ’s ruling and describing the conduct at stake, the FCA only relied on established case law to classify the vertical price agreements as a restriction of competition by object. 

This reflects the FCA’s particularly stringent approach to RPMs. It remains to be seen whether this stance will withstand legal scrutiny, especially if challenged before the Paris Court of Appeal which has proven to be prepared to apply stringent standard of proof to decisions sanctioning RPMs in its recent Apple ruling .

Recommendations 

While the new VBER readjusted certain rules regarding vertical restraints, the overall purpose and functioning of the VBER remains identical, with basically the same restrictions being considered as hardcore or excluded.

Companies must therefore continue to be particularly cautious when implementing measures aimed at limiting cross-border trade, including indirect methods like packaging differentiation, which have already attracted the Commission’s attention . Additionally, companies should ensure that:

• cross-border sales restrictions are avoided, whether direct (contractual provisions) or indirect (e.g. refusal to supply; packaging differentiation, etc.)
  
• measures that might indirectly aim to prevent price decreases are carefully scrutinized
  
• market shares, particularly those approaching the 30% threshold, are monitored to ensure continued exemption under the VBER
  
• legal and operational teams receive adequate competition law training
  
• distribution agreements and schemes are thoroughly reviewed by legal departments or outside legal counsel prior to implementation.

For further information or guidance, please contact Thomas Oster and Elsa Mandel.