The Commission seeks feedback to reform the “Vertical Block Exemption Regulation”

The “Vertical Block Exemption Regulation” (“VBER”, Reg. n. 330/2010) and the accompanying Guidelines on Vertical Restraints (“Guidelines”) are now almost nine years old and the European Commission has recently launched an evaluation roadmap to assess whether these documents can still be considered fit or need to be updated in light of the developments occurred over the last years, notably the increased importance of online sales and the emergence of new market players such as online platforms.

The Vertical Block Exemption Regulation

As competition lawyers know, the VBER is the landmark piece of legislation to whom one refers to address antitrust issues arising from relationships between companies active at different levels of the value chain (i.e.: manufacturer and distributor/retailer). More precisely, the VBER details the conditions under which certain agreements or specific contractual clauses can be exempted from the application of article 101(1) TFEU since they are deemed to “contribute to improving the production or distribution of goods or services or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefits”, in accordance with article 101(3) TFEU. The VBER needs to be interpreted in light of the principles set out by the Guidelines, where the Commission goes more in depth with the aim to help companies conduct their own assessment of vertical agreements under EU competition rules.

Evaluation process

The evaluation process initiated by the Commission will be articulated in the following steps:

  1. A public consultation of 12 weeks in the first quarter of 2019;
  2. An open public stakeholder workshop in the fourth quarter of 2019;
  3. Continued discussions with the competition authorities of the EU Member States in the framework of the Working Group on Vertical Restraints of the European Competition Network.

Evaluation criteria

The Commission will assess whether the VBER is still effective, efficient, relevant, coherent and whether it provides consistent added value at EU level. More specifically, the purpose of the evaluation process is to assess whether the VBER and the Guidelines:

  1. effectively capture the permissible conducts, the “hardcore restrictions” that harm the antitrust compliance of the entire agreement and the “excluded restrictions” that make individual clauses void;
  2. have reduced the costs of compliance for all the stakeholders over the years;
  3. need to be updated in light of the developments occurred in the last years;
  4. contributed to ensuring a consistent enforcement of article 101 TFEU across the EU.

The main developments in the context of vertical agreements

The online environment has experienced significant developments since the adoption of the VBER in 2010. With the aim to capture these developments, the European Commission launched an e-commerce sector inquiry in 2015 and published its final report in 2017 and an accompanying working document identifying new business practices that may restrict competition.

By way of example, in this document the Commission appears to be cautious on the use of price-monitoring and price-matching algorithms by manufacturers (paras 602-608 of the accompanying working document), since this practise could limit the incentives for retailers to deviate from recommended prices by limiting the expected gains (the deviation would immediately be matched).

Another important point made by the Commission in the Report is that the exchange of competitively sensitive data, such as on prices and sold quantities, between marketplaces and third-party sellers or manufacturers with own shops and retailers may lead to competition concerns where the same players are in direct competition for the sale of certain products or services (para. 651). The Commission has followed up on these concerns by recently opening a preliminary investigation against Amazon.

As to restrictions concerning the use of Google Adwords by the retailers, the Commission pointed out that limitations on the ability by retailers to use or bid on the trademarks of certain manufacturers in order to get a preferential listing on the search engines paid referencing service (such as Google Adwords) could raise concerns under Article 101 TFEU since they appear to restrict the effective use of the internet as a sales channel by limiting the ability of retailers to direct customers to their website. Such restrictions are typically in the interest of the manufacturer in order to allow its own retail activities to benefit from a top listing and keep bidding prices down (para. 996-998).

Many other new findings are included in the Report, ranging from restrictions on the use of price comparison tools, which are considered permissible if they are based on objective qualitative criteria, to the use of Most-Favoured Nation (“MFN”) clauses and geo-blocking restrictions.

Notwithstanding the above, probably the major development since the adoption of the 2010 VBER occurred with the CJEU delivering the Coty judgment in December 2017, in which it was ruled that manufacturers operating selective distribution systems can prevent their customers from selling through internet platforms. In this regard, the antitrust community is still debating on whether this principle applies only to luxury goods (which were the subject of the relevant case) or to branded goods in general provided that they are subject to selective distribution, as the reasoning of the Court appears to suggest.

Conclusion

A lot has happened over the last 9 years in the field of vertical agreements, particularly in relation to the changing role of internet platforms. While some issues have been addressed in these years at various levels and the adopted outcomes would only need to be transposed in the next version of the VBER, others appear to remain open to discussion (i.e.: restrictions to sales of branded goods on internet platforms; exchange of data between platforms and users which compete on the same market; use of pricing algorithms).

The evaluation process launched by the Commission offers a unique opportunity to all the stakeholders to express their view and to shape the new competition law policy of the Commission in the field of vertical agreements.

Avv.marcolobue@gmail.com

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