On 10 May 2022, the European Commission ("EC") published a new Vertical Block Exemption Regulation ("VBER") and guidelines on vertical restraints ("Vertical Guidelines") that will enter into force on 1 June 2022. The package introduces important changes for the treatment of distribution agreements under EU competition law, in particular to the rules governing the combination of several different distribution systems, dual distribution, dual pricing and parity obligations.

What are the VBER and Vertical Guidelines?

The VBER provides parties to vertical agreements (i.e. agreements entered into between businesses operating at different levels of the supply chain) with increased certainty about the compatibility of their agreements with Article 101(1) of the Treaty on the Functioning of the European Union ("TFEU"), by creating a safe harbour exemption.

If neither party's market share exceeds 30% on the relevant sales and purchasing markets, vertical agreements, which do not contain any so-called "hardcore restrictions" (including, for example, resale price maintenance or certain territorial/customer restrictions), automatically benefit from an exemption. Agreements that do not satisfy the VBER conditions may still be compatible with Article 101(1) TFEU, but these agreements require individual assessment pursuant to Article 101(3) TFEU.

The Vertical Guidelines aim to help companies to self-assess whether their agreements are covered by the VBER or may qualify for an individual exemption pursuant to Article 101(3) TFEU.

The new VBER will enter into force on 1 June 2022, and will be valid for 12 years (with an evaluation report after eight years). There is a one-year transitional period for agreements already in force on 31 May 2022 that satisfy the conditions for exemption under the current VBER, but do not satisfy the conditions under the new VBER.

The new VBER and Vertical Guidelines follow an extensive evaluation exercise that the EC undertook over the last three and a half years. The EC's evaluation has, in particular, focused on the changes that seemed appropriate as a result of the further growth of online sales and increasing emergence of new market players (such as online platforms). Like the rules governing horizontal relationships between competitors recently reviewed by the EC, the new vertical rules also account for economic and social developments, in particular digital transition and the European Green Deal.

Key revisions

Set out below is a snapshot overview of the key revisions.

Impact

While they maintain the overall analytical framework of the past, the new EC vertical rules introduce some important changes that business should consider now in a review of existing supply and distribution arrangements. Some of the changes offer new opportunities for restructuring distribution networks with, for example, a more lenient approach to active sales restrictions and certain practices related to online sales. Other changes present a stricter approach, for example in relation to safe harbours for dual distribution and parity obligations, which may necessitate changes to current commercial arrangements.

Going forward, there may be some uncertainty regarding the application of the rules in practice. For example, there is now a requirement to undertake a case-by-case assessment of whether a restriction has as its object the effective use of the internet (since restricting the effective use of the internet is now listed as a hardcore restriction under Article 4 (e) of the new VBER). This requirement somewhat defeats the purpose of a block exemption to provide a safe harbour that avoids the need of individual assessment.

Entering into force on 1 June 2022 (on the same day as the new EC rules) is the UK's Vertical Agreements Block Exemption Order, which set outs new UK rules regarding vertical agreements. There is, however, some divergence between the two systems, and business will need to consider two separate systems for the EU and UK.