The European Commission has adopted revised competition rules that “block exempt” distribution and supply agreements at different levels of the production and distribution chain. The Regulation and accompanying Guidelines take into account the development, in the last 10 years, of the Internet as a force for online sales and for cross-border commerce, something that the Commission wants to promote as it increases consumer choice and price competition.

Manufacturers remain free to decide how to distribute their products. But in order to benefit from the block exemption, they cannot have a market share in excess of 30% and their distribution or supply agreements must not contain any hardcore restrictions of competition, such as fixing the resale price or re-creating barriers to the European Union’s single market.

The new rules introduce the same 30% market share threshold for distributors and retailers to take into account the fact that some buyers may also have market power with potentially negative effects on competition. This change is beneficial for small and medium-sized enterprises (SMEs), whether manufacturers or retailers, which could otherwise be excluded from the distribution market.

The new rules do not mean that agreements between companies with higher market shares are illegal; instead, it is necessary to determine whether the agreement complies with Article 101 of the EU Treaty.

The new rules also specifically address the question of online sales. Once authorized, distributors must be free to sell on their websites as they do in their traditional shops and physical points of sale. For selective distribution, this means that manufacturers cannot limit the quantities sold over the Internet or charge higher prices for products to be sold online. The Guidelines further clarify the concepts of “active” and “passive” sales for exclusive distribution. Terminating transactions or re-routing consumers after they have entered their credit card details showing a foreign address will not be accepted.

Critics of the rule note that the Commission has included several caveats in the rules that could restrict online sales growth. For example, manufacturers may decided to sell only to dealers that have one or more “brick and mortar” shops, which would prevent online-only retailers from selling the goods directly. In this regard, however, the Commission stated it will be particularly attentive to concentrated markets to which price-discounters either online only or traditional may not have access. The new Block Exemption Regulation and Guidance can be found at http://ec.europa.eu/competition/antitrust/legislation/vertical.html.