New draft vertical block exemption regulation under TFEU article 101(3)

Introduction
Existing setup of TFEU article 101(1) and article 101(3)
Moving towards new VBER
Outlook
Comment

Introduction

On 22 November 2021, the European Commission (EC) published the results of a public consultation that concerned its draft Vertical Block Exemption Regulation (VBER).(1)

Article 101(1) of the Treaty on the Functioning of the European Union (TFEU) provides that the following shall be prohibited as incompatible with the internal market:

agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market.

Article 101(3) of the TFEU allows the above provisions in article 101(1) to be declared inapplicable, provided that the relevant agreement, decision or practice or category of such "contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit".

Existing setup of TFEU article 101(1) and article 101(3)

The wording of the cited provision under article 101(3) of the TFEU ("may, however be declared inapplicable") constitutes the general obligation to register any potentially anticompetitive conduct with the competition authorities and to await their approval of such envisaged conduct. This changed with the introduction of Regulation (EC) 1/2003 of 16 December 2002 (the Regulation).(2)

Article 1 of the Regulation determines that conduct which complies with the prerequisites of article 101(3) of the TFEU be exempted from the general prohibition ipso iure. Prior to the implementation of the Regulation, it was necessary to bear the burden of bureaucratic expenditure in the run-up to contemplated business conduct. Now, undertakings bear the risk of having to determine the correct legal interpretation of articles 101(1) and 101(3) of the TFEU by themselves. In order to reduce legal uncertainties, undertakings may work towards an informal clearance with the EC, which is a proceeding that is restricted to exceptional cases. Apart from this informal clearance, conduct may fall under a block exemption regulation, such as the VBER.

In general, therefore, undertakings should verify that the relevant conduct is subject to a block exemption regulation or, if not, that they meet the requirements of article 101(1) and article 101(3) of the TFEU. According to article 29 of the Regulation, conduct that is exempt by virtue of a block exemption regulation may, in individual cases, be withdrawn from this privilege if the EC finds that an agreement, decision or concerted practice has effects that are incompatible with article 101(3) of the TFEU.

Moving towards new VBER

The current VBER will expire on 31 May 2022 and a new VBER is expected to enter into force on 1 June 2022. The goal of the new VBER is, among other things, a rearrangement of the relationship between manufacturers and distributors that focuses on e-commerce. Several steps have been taken in the process leading up to the new VBER; the most important was the publication of a revised draft of the VBER on 9 July 2021, in addition to a revised draft of the Vertical Guidelines.

The revised VBER draft comprises several prominent modifications, a few of which will soon be introduced.

In a dual distribution system, a vertical relationship, such as between a manufacturer and a distributor, is complemented by horizontal competition between the same two parties. Therefore, this is a constellation in which the manufacturer sells simultaneously through distributors and customers directly. Under the revised VBER draft, an exemption will only be considered if there is a competitive relationship at the retail level, and it provides stricter rules through graduated market share thresholds. In the future, the exemption of dual distribution will depend on the market shares of the parties on the retail market. The revised VBER draft provides for full exemption only if the combined market share of the parties on the retail market is at or below 10%.⁽³⁾ The exemption would even cover vertical and horizontal restraints of competition, including information exchange, which could be allowed as long as the parties do not attempt a horizontal restraint of competition. In situations where the aggregated market share is between 10% and 30%, exemptions will be limited. The vertical dimension of dual distribution will be subject to a more diligent assessment that concerns objecting to, or effecting, the prevention or distortion of competition.⁽⁴⁾

Further, the revised VBER draft provides that online intermediation services (ie, trading platforms) be treated as suppliers, irrespective of whether they are party to the transaction that they facilitate.⁽⁵⁾ In particular, such classification would result in non-applicability of the commercial agent privilege, making it necessary for distribution agreements with intermediation platforms to always meet the requirements of the revised VBER draft. It also proposes the explicit exclusion of exempting obligations that were widely used in vertical agreements and prevented buyers from offering, selling or reselling goods or services to end users under more favourable conditions by way of competing online intermediation services. Therefore, only obligations that prevent a buyer from offering, selling or reselling goods or services to end users under more favourable conditions through direct distribution remain eligible for exemption.

Further topics of interest include:

• exclusive and selective distribution systems;
• the facilitation of non-competition clauses; and
• price control.

Outlook

Following the publication of the revised VBER draft, the EC initiated a public consultation period that lasted until 17 September 2021.⁽⁶⁾⁽⁷⁾ On 22 November 2021, the EC published the results of the public consultation, showing that most of the comments that were received addressed:

• dual distribution;
• active sales restrictions;
• indirect measures restricting online sales; and
• parity obligations.

Further developments in the legislation process are anticipated.

Comment

Generally, companies are not granted any legal scope for assessment. As the risks of legal misinterpretation lay with the companies, due diligence is necessary when reviewing and assessing current or contemplated business conduct. Thorough and timely legal advice is indispensable in order to set up and operate a competition-compliant business. This must be emphasised particularly with respect to the new VBER. Contracts between manufacturers, distributors, subcontractors, importers and customers may have to be severed or restructured in order to comply.

For further information on this topic please contact Sebastian Jungermann or Daniel Bunsen at Arnecke Sibeth Dabelstein by telephone (+49 69 979885 465) or email ([email protected] or [email protected]). The Arnecke Sibeth Dabelstein website can be accessed at www.asd-law.com.

Endnotes

(1) Commission Regulation (EU) 330/2010 of 20 April 2010 on the application of article 101(3) of the TFEU to categories of vertical agreements and concerted practices.

(2) Council Regulation (EC) 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in articles 81 and article 82 of the TFEU.

(3) Article 4(2) of the revised VBER draft.

(4) Article 2(5) to article 2(7) of the revised VBER draft.

(5) Article 1(1)(d) of the revised VBER draft.

(6) Article 5(1)(d) of the revised VBER draft.

(7) Further information is available here.