Businesses to benefit from greater certainty
The European Commission (EC) has recently confirmed that it will be revising the current EU Vertical Agreements Block Exemption Regulation (VABER) and Vertical Guidelines to ensure they are fit for purpose in today's digital world and the future. Under the current VABER, vertical agreements (i.e. agreements entered into between two or more undertakings operating at different levels of the production or distribution chain) are automatically exempt from competition law provided they satisfy prescribed conditions in the VABER (and do not contain so-called "hardcore" restrictions, such as resale price maintenance (RPM) and territorial and customer restrictions, which are inherently anti-competitive).
Certain conditions look set to be clarified and simplified in the revised VABER, which is due to come into effect on 1 June 2022, following expiry of the current VABER. The revised VABER will also be expanded to cover the new types of distribution models and restrictions resulting from the growth of e-commerce. The update and simplification should make it easier for businesses to ensure competition compliance and reduce compliance costs. It is also intended to ensure that national competition authorities (NCAs) and national courts adopt a common enforcement approach.
Details of the EC's latest findings can be found in a Staff Working Document published on 8 September 2020, which is some 230 pages long. As far as proposed changes are concerned, key points include the following:
Proposed changes necessary to deal with market developments since 2010
The EC has found that the growth of online sales and new market players, including online platforms, has given rise to potential issues in a number of areas, including the assessment of:
- online sales, advertising restrictions and dual pricing;
- active sales (i.e. actively approaching individual customers to sell goods/services) and passive sales (i.e. responding to unsolicited requests from individual customers, including the use of a website to sell goods/services);
- selective distribution agreements (the use of which has increased);
- restrictions on the use of online marketplaces and price comparison websites;
- agency agreements and retail parity clauses; and
- the rules on dual distribution (which cover non-reciprocal agreements between competitors, where the parties act in different economic roles and do not act at the same level of trade (i.e. agreements where only one party distributes for the other)).
Proposed changes that are not necessarily linked to market developments
The EC's review of evidence also highlighted that the current VABER is not working properly in the following areas:
- certain hardcore restrictions – e.g. RPM;
- certain excluded restrictions – e.g. non-compete clauses;
- certain types of distribution model – e.g. franchising; and
- the combination of distribution models – e.g. the use of exclusive and selective distribution by the same supplier.
Businesses can expect the revised VABER to include provisions to ensure:
- future-proofing – as well as addressing the known issues (identified above), the revised VABER needs to contain bright-line principles to cater for possible new types of vertical agreements and restrictions;
- less complex rules – clear definitions and guidance that will make it easier for businesses to self-assess vertical agreements and reduce legal uncertainty; and
- a common assessment framework – so that divergent approaches between NCAs and national courts can be minimised, thereby providing greater certainty for businesses.
According to the EC's press release of 8 September 20201, the EC will launch an impact assessment in the upcoming weeks to look at the identified issues. Third parties will be given the opportunity to comment at various stages throughout the revision process, including on:
- an inception impact assessment and public consultation, which is planned for the end of 2020; and
- a draft of the revised VABER, which the EC plans to publish at some point next year.
Whilst the UK has exited the EU, the proposed revision of the current VABER will be relevant for UK businesses that are involved in vertical arrangements which have a potential or actual effect on trade between EU member states. For those businesses that are only active in the UK, the UK authorities have stated their intention – once the transition period ends on 31 December 2020 – to continue to apply the current VABER until its expiry on 31 May 2022. It remains to be seen whether, after that date, the UK authorities take a similar approach to the EC as far as any revised UK VABER is concerned.