The European Commission is calling for comments on its proposal for a revised Block Exemption Regulation and Guidelines on supply and distribution agreements (vertical agreements). The current Regulation is due to expire in May 2010. Based on its experience in their application and on stakeholders' comments, the Commission considers that the rules are working well overall and should not be fundamentally modified. The main suggestions for amendments intend to take account of recent market developments, in particular the increased buyer power of big retailers and the evolution of on-line sales on the Internet.

Specifically, the Commission proposes the following:

Market share cap

Vertical agreements will benefit from the new Block Exemption on the condition that the market share held by each of the undertakings party to the agreement (i.e. the supplier and the distributor) does not exceed 30% on any of the relevant markets affected by the agreement (the VABE currently generally only refers to the supplier's market share). This change is considered necessary as the Commission's experience to date has demonstrated that vertical agreements can give rise to competition concerns where either supplier or distributor already has market power.

Online sales

In order to address the changes that have arisen as a result of the evolution of sales on the internet, the Commission proposes updating the Guidance to reflect the realities of e-commerce. The prohibition on passive sales to other territories remains unchanged and the starting point is that general advertising or promotion in media or on the internet that reaches customers in other distributors' (exclusive) territories or customer groups will usually be considered as passive sales and must therefore not be restricted.

However, the supplier can require that the distributor sells at least a certain absolute amount of the products off-line to ensure an efficient operation of its brick and mortar outlet(s) and that the distributor's online activity remains consistent with the supplier's distribution model.

Upfront access payments (i.e. fees that suppliers pay to distributors in order to get access to their distribution network)

Upfront access payments will be block exempted when both the supplier's and buyer's market share on their respective downstream markets does not exceed 30%. Above the market share threshold, guidance is provided for the assessment of upfront access payments in individual cases.

Category management agreements (i.e. the distributor entrusts the supplier with the marketing of a category of products)

These will be block exempted when both the supplier's and buyer's market share on their respective downstream markets does not exceed 30%. Above the market share threshold guidance is provided for the assessment of category management agreements in individual cases.

Resale price restrictions ("RPM")

Whilst this is generally considered as a hardcore restriction, it will be open to parties to argue that the benefits of the practice in particular circumstances outweigh the anti-competitive effects. For example, RPM may lead to efficiencies where a manufacturer introduces a new brand or enters a new market (as RPM may be helpful to induce distributors to develop demand for the product). Fixed resale prices may also be necessary in a franchise system for a short term low price campaign.

Next Steps

The Commission invites interested third parties to comment by 28 September 2009. This consultation covers all issues dealt with by the draft Regulation and Guidelines. The Commission is seeking comments not only on the overall functioning of the current rules, but also on the extent to which recent market developments should impact on the new Regulation and especially regarding its suggested approach concerning buyers' market power and restrictions on online sale.