Stronger antitrust scrutiny is expected as the new Vertical Block Exemption Regulation and guidelines are adopted

On 17 May 2022, the European Commission carried out unannounced inspections at the premises of companies “active in the fashion sector” located in several Member States, and the European regulator has sent out formal requests for information to several additional companies active in the fashion industry.

The Commission has concerns that the inspected companies may have violated EU competition rules that prohibit cartels and restrictive business practices (Article 101 of the Treaty on the Functioning of the European Union (TFEU) and Article 53 of the European Economic Area Agreement). (See its press release.)

Fashion industry is on the radar

The fashion industry in Europe currently seems to be the focus of enforcement efforts by competition authorities at both national and EU level. Investigations initiated in the last few years have focused on the limiting of cross-border online sales, exchange of information between competitors and distributors' ability to advertise online.

Stronger antitrust scrutiny expected

Given the recent interest of the European Commission in the sector and the substantial changes of the European Commission’s legal framework for distribution – which particularly affect the retail-heavy fashion industry – market players should take great care to ensure compliance with competition law.

On 10 May 2022, the European Commission adopted the new Vertical Block Exemption Regulation (VBER) accompanied by new Vertical Guidelines, reviewing the 2010 VBER and Vertical Guidelines that will expire on 31 May 2022. (See press release)

The VBER exempts agreements between companies that are active at different levels of the production or distribution chain (such as manufacturers and distributors of a certain product), subject to conditions, from the prohibition laid out in Article 101(1) of TFEU. The VBER thus provides for a “safe harbour”, exempting block agreements that meet certain conditions.

The main changes in the revised rules derive from two objectives. The first, to re-adjust the safe harbour offered by the VBER, and the second, to provide stakeholders with up-to-date rules and guidance, taking into account in particular the growth of online sales and the emergence of online platforms.

Indeed, experience has shown that the 2010 VBER does not grant the safe harbour of an exemption for certain practices that would warrant exemption (false negatives ) and, conversely, it exempts certain practices for which the European Commission realised that a block exemption is not warranted (false positives). To that end, the European Commission has introduced the following main changes:

  • Narrow the scope of the safe harbour: certain aspects of dual distribution and certain types of parity obligations will no longer be exempted under the new VBER but must instead be assessed individually under Article 101 TFEU;
  • Enlarge the scope of the safe harbour: certain restrictions of a buyer's ability to actively approach individual customers (active sales) and certain practices relating to online sales are now exempted under the new VBER, provided all conditions for the exemption are met.

In addition, the VBER rules have been updated as regards the assessment of online restrictions and vertical agreements in the platform economy. The Vertical Guidelines provide detailed guidance on a number of topics, such as sustainability objectives of agreements, selective and exclusive distribution and agency agreements.

Additional detailed information on the main changes can be found in our Insight.

Applicability of the rules

The revised VBER and its guidelines will enter into force on 1 June 2022, with a short transitional period for agreements concluded before 31 May 2022 (that is, until 31 May 2023).

Although agreements which are already in force on 31 May 2022 (and which benefit from the exemption provided for in the 2010 VBER) can benefit from the short transitional period, such agreements will nevertheless have to be brought in line with the new VBER rules by 31 May 2023.

This transitional period, however, does not apply to agreements concluded after 31 May 2022, which will have to comply with the new rules from 1 June 2022 in order to benefit from the block exemption.

Osborne Clarke comment

Due to the recent decisions and inspections carried out by competition authorities in Europe on the fashion industry, companies active in the fashion sector have a strong incentive to stay within the new VBER.

Since the beginning of the review process of the VBER and its guidelines, we have observed a growing interest in the fashion sector of the European Commission and national competition authorities. This is likely to be renewed with the adoption of the revised VBER by the European Commission.