On 20 April 2010, the European Commission adopted a new Vertical Restraints Block Exemption Regulation (VABER) and new accompanying Guidelines. These new rules cover agreements between manufacturers, wholesalers and distributors for the sale of products and services.

Introduction

The new VABER and Guidelines will replace, as from 1 June 2010, the existing VABER (Regulation (EC) No 2790/1999) and Guidelines, which were applicable since 1 June 2000.

According to the Commission, the new rules take into account the increased relevance of buyer power at wholesale and retail level as well as the development, in the last 10 years, of the Internet as a major autonomous distribution channel.

The new rules do not affect the basic features of the exemption system:

  • distribution or sale agreements which fulfil the conditions of the VABER are block exempted;
  • such agreements which do not fulfil these conditions are not block exempted; this means that they must be analysed individually, without there being a presumption that actually restrict competition within the meaning of Article 101(1) TFEU or that the conditions for an individual exemption under Article 101(3) TFEU are not fulfilled.

Conditions

The basic principle of the VABER remains that distribution or sale agreements between non-competitors and, under certain conditions, between competitors, are block exempted if a 30% market share threshold is not exceeded and if they do not contain specifically defined hardcore restrictions.

Market Share Thresholds

The main change in the system is that the 30% market share threshold no longer applies only to the supplier, but to both supplier and buyer. The relevant market for calculating these shares is the market on which the parties concerned buy and sell the contract goods. (Depending on the circumstances, distinct markets may be defined for the sales from manufacturers to wholesalers and for the sales from wholesalers to retailers.) The supplier's market share is the share, in terms of turnover, of total sales, while the buyer's market share is the share, again in terms of turnover, of total purchases.

According to the Commission, this amendment has been introduced to take into account the fact that some buyers may also have market power with potentially negative effects on competition, with the aim of protecting SME's which could otherwise be excluded from the distribution market.

Restrictions that are not exempted

Except for specific details, the restrictions which are not exempted under the VABER have not changed in comparison to Regulation 2790/1999, the most important being the following:

  • imposing fixed or minimum resale prices (the supplier being able to recommend resale prices or to impose maximum prices, unless this results, in practice, in fixed resale prices);
  • restricting passive sales into reserved territories or to reserved customers (the supplier being able to restrict active sales);
  • applying a selective distribution system with (i) restrictions on retail sales to territories or customer groups; (ii) restrictions on cross-supplies within the system; or (iii) exclusive resale obligations (the supplier being able to apply a selective distribution system without these features);
  • applying a purchase obligation relating to more than 80% of the buyer's need relating to the type of goods concerned for an indefinite period, for a period exceeding five years, or for a period with tacit renewal, unless this obligation is connected with the use of the supplier's property (the supplier being able to impose purchase obligations which have no time limitation below the 80% threshold or purchase obligations for fixed periods not exceeding five years, which can be renewed expressly); and
  • applying a post term purchase obligation, subject to some specified exceptions.

The New Guidelines

The new Guidelines provide guidance on how to apply the new VABER and on the self-assessment of agreements which are not covered by the VABER.

Specific issues

The following types of distribution systems and restrictions are discussed:

  • agency;
  • single branding;
  • exclusive distribution;
  • exclusive customer allocation;
  • selective distribution;
  • franchising;
  • exclusive supply;
  • upfront access payments;
  • category management agreements;
  • tying; and
  • resale price restrictions.

Internet sales

The Guidelines contain the following rules on internet sales.

  • Restrictions on the following behaviour are deemed to relate to active sales and may therefore be applied under the VABER:
  • unsolicited e-mails;
  • specifically targeted sites or banners; and
  • specifically targeted specifications for search engines or online advertising.
  • The following measures are deemed to related to passive sales and may therefore not be restricted under the VABER:
  • website language restrictions;
  • automatic rerouting to another site on the basis of the browser's internet service provider location;
  • blocking a transaction on the basis of foreign credit card details;
  • proportion of sales restrictions; and
  • dual pricing resulting in higher prices being charged for products to be sold online, except where this relates to a cost increase for the supplier.
  • A supplier operating a selective distribution system may:
  • impose qualitative criteria relating to online sales which are equivalent to the criteria it imposes for brick and mortar sales, relating, for example, to the design of websites, delivery times and after sales service; and
  • require a distributor to have one or more brick and mortar stores before engaging in online sales, so that consumers can physically try or test their products.
  • A supplier may only prohibit online sales for objective reasons relating to health and safety. If he chooses to do so, he may not himself conduct online sales.

Resale price maintenance

In the wake of developments in economic research and the US Supreme Court's 2007 judgment in the Leegin Case, the new Guidelines contain slightly less restrictive language in relation to resale price maintenance systems. They now concede that such systems may be justified in an individual self-assessment, albeit in special circumstances, for instance in case of the introduction of a new product.

Conclusion

The 30% market share threshold for the buyer has been introduced in the face of vigorous criticisms in reaction to a draft version of the VABER published in June 2009. It can be expected to significantly hamper the practical applicability of the VABER, while it does not appear to be justified for all types of vertical restrictionst.

Even though some of the guidance provided for the ability to regulate online sales is debatable, it certainly offers more guidance than was the case under the 1999 Guidelines and therefore forms a positive development.

The new VABER will replace Regulation 2790/1999 from 1 June 2010, with a transitional period of one year (until 31 May 2011) for pre-existing agreements that meet the conditions of Regulation 2790/1999. It will expire on 31 May 2022.

The new VABER can be found at:

http://ec.europa.eu/competition/antitrust/legislation/regulation_verticals_en.pdf

The new Guidelines will be published after the finalisation of the different linguistic versions.