European Commission adopts new vertical restraints framework

On 20 April 2010, the European Commission (Ethe Commission") adopted a new Vertical Agreements Block Exemption Regulation (“the Regulation”) and accompanying revised Vertical Restraints Guidelines (“Guidelines”). The Regulation will replace Regulation 2790/1999 from 1 June 2010, with a transitional period of one year for pre-existing agreements that meet the conditions of Regulation 2790/1999.

The basic principle remains that companies are free to decide how their products are distributed, provided their agreements do not contain price-fixing or other hardcore restrictions, on condition that the market share cap is not exceeded. Under Regulation 2790/1999, the applicable market share cap was that the supplier's share of the relevant supply market does not exceed 30%. However, the new rules introduce a 30% market share cap for the buyer (on the market on which it purchases the contract goods or services) to take into account the fact that some buyers may also have market power with potentially negative effects on competition. Therefore, from 1 June 2010, in order for an agreement to benefit from the safe harbour of the Regulation, the market shares of both supplier and the buyer should not exceed 30% (and of course the agreement must not contain "hardcore" restrictions).

The Regulation and accompanying Guidelines also 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. The new rules specifically address the question of online sales. Once authorised, distributors must be free to sell on their websites as they do in their traditional shops and physical points of sale, i.e. without limitation on quantities, customers' location and restrictions on prices. However, suppliers may be able to impose quality standards on distributors for Internet selling and distributors may also be required to have one or more ‘brick and mortar’ shops.

Finally, the guidelines indicate a slightly increased tolerance on the part of the Commission for the notion that a hardcore restriction (e.g. resale price maintenance) may nevertheless qualify for individual exemption (the parties bearing the burden of rebutting a presumption to the contrary).