In the context of the revision of the Block Exemption Regulation on vertical agreements (the "VBER"), the European Commission published on July 9^th its draft regulation and guidelines (see here). Along with these drafts, the Commission issued an explanatory note in which it explains the reasoning behind the adaptation of the applicable framework taking into account the evolution of distribution and consumption patterns since 2010 (see here).

The publication of these drafts follows the Commission's publication of its Staff Working Document (our alert here) and its Initial Impact Assessment (our alert here), leading to a second phase of stakeholder consultation.

The main objectives of the Commission in drafting the new Regulation are:

1. readjusting the "safe harbor" offered by the VBER to eliminate "false positives" and reduce "false negatives" as much as possible;
2. providing stakeholders with up-to-date guidance reshaped by the growth of e-commerce and the emergence of online platforms;
3. reducing compliance costs for businesses by simplifying or clarifying the current rules.

MAIN CHANGES

The main changes brought by the draft regulation and guidelines concern the following points:

The end of the exemption for dual distribution

• The Commission has noted that, in particular as a result of the growth of e-commerce, dual distribution situations (situations in which a supplier not only sells its goods through independent distributors, but also directly to end customers, in direct competition with its independent distributors) have become common. It thus considers that the current exception for dual distribution is likely to lead to the exemption of vertical agreements where possible horizontal concerns are no longer negligible (in particular as regards exchanges of information between competitors in a vertical relationship

• The proposal therefore aims at providing a more limited framework for the cases in which vertical agreements between competitors can benefit from the block exemption, by introducing a market share threshold above which the exemption will be limited

The proposal thus provides that the exemption applies to all aspects of a non-reciprocal vertical agreement (such as a distribution agreement) between competitors if :

- the supplier is a manufacturer, but also a wholesaler or importer and a distributor of goods, while the buyer is a distributor and not a competing undertaking at the manufacturing, wholesale or import level, and their aggregate market share in the relevant market at retail level does not exceed [10]%; or

- the supplier is a provider of services at several levels of trade, while the buyer provides its services at the retail level and is not a competing undertaking at the level of trade where it purchases the contract services, and their aggregate market share in the relevant market at retail level does not exceed [10]%.

- In the case where the aggregate market share at the retail level exceeds 10%, the exemption may be triggered if the market shares of each of the parties on the supply market are below the 30% exemption threshold provided in Article 3. In this case, the exemption applies to all vertical aspects of the agreement, except for any exchange of information between the parties, which has to be assessed under the rules applicable to horizontal agreements, which are also currently under review.

- Finally, and importantly, in order to take account of the major role that platforms play in distribution today, the Commission considers that any undertaking that provide online intermediation services should be considered as a supplier for the purposes of the VBER. Therefore, the Commission introduces a new exception to the exemption for dual distribution, which provides that the abovementioned exceptions shall not apply where a provider of online intermediation services that also sells goods or services in competition with undertakings to which it provides online intermediation services enters into a non-reciprocal vertical agreement with such competing undertakings (Article 2.7)

• As online intermediation platforms are considered to be acting as suppliers and have de facto bargaining power that allows them to set up potentially unbalanced conditions vis-à-vis their users, they cannot therefore benefit from the exception applicable to agency relationships and their relationships with their users are de facto subject to Article 101(1) TFEU. The consequences here are structural in many sectors since, in certain situations, online intermediation platforms act as agents for their users and do not generally decide the prices of products and services offered online by the latter.

Restrictions on active selling

• The Commission has taken a step forward by providing a clearer definition of active and passive sales, specifying that certain types of online behavior, when specifically targeted at a customer or territory, could constitute active sales. This is in particular the case for any means of targeting a customer, such as targeted advertising, the use of price comparison tools, referencing tools, the use of country extensions beyond the country of establishment, etc. (see Article 1(l) of the draft VBER and Section 6.1.2 of the draft revised Guidelines).

• It introduces, in Article 4(b), the possibility of shared exclusivity, allowing a supplier to appoint, in a particular territory or for a particular customer group, more than one exclusive distributor.

• Article 4(b) gives the supplier a right to oblige its buyers to pass on the restriction on active sales to their customers where the customer of the buyer has entered into a distribution agreement with the supplier or with a party that was given distribution rights by the supplier.

• Article 4(c) grants selective distribution systems enhanced protection from sales by unauthorized distributors located within the selective distribution territory.

As regards indirect measures restricting online sales, the Commission has taken into account the major development of e-commerce and the need to provide operators with greater flexibility in the organization of their distribution systems, since the Internet no longer needs to be subject to reinforced protection.

It therefore proposes to relax the rules on dual pricing and on the principle of equivalence.

• Concerning dual pricing: Article 4 of the draft regulation no longer qualifies dual pricing as a hardcore restriction and therefore allows suppliers to set different wholesale prices for online and offline sales by the same distributor, in so far as the dual pricing is designed to incentivize or reward an appropriate level of investments which relates to the costs incurred for each channel, and is not intended to restrict the distributor's ability to sell the products online

• As regards the principle of equivalence, the proposal provides that, in the context of selective distribution systems, the criteria imposed in relation to online sales no longer have to be overall equivalent to those imposed on brick & mortar shops, since these two channels are "intrinsically different in nature".

• However, this new flexibility is not without a counterpart, as the Commission seems to want to adopt a broader definition of online sales restrictions by considering in Article 1 n) that a restriction could also result from limiting the distributors’ ability to use one or more online advertising tools (such as, inter alia, price comparators or targeted advertising tools).

• As regards restrictions on online sales, the Commission provides updated guidance to clarify and harmonize the applicable rules. The draft Regulation and Guidelines incorporate the guiding principles for the assessment of online restrictions, drawn in particular from the case law of the EJC, notably in the Pierre Fabre and Coty cases, which scope it clarifies (cf. section 1.2 of the draft revised Guidelines, which provides further guidance on hardcore restrictions).

• The proposal also provides specific rules and guidance on the platform economy, as platforms play an increasingly important role in the distribution of goods and services.

The draft Exemption Regulation thus provides a definition of online intermediation services provider, which is based on a similar definition in the Regulation on the relationship between platforms and businesses (no. 2015/1535). This definition clarifies that providers of online intermediation services are considered to be suppliers within the meaning of the Exemption Regulation. The consequences of this clarification and the application of a number of other rules to providers of online intermediation services are set out in the Guidelines (section 4.3).

NEXT STEPS

• Following the publication of the draft Regulation and Guidelines, the Commission has opened a new phase of public consultation. Interested parties are invited to submit their contributions by 17 September by email.

• The comments submitted will be taken into account by the Commission when finalizing the reform and its entry into force on June 1^st 2022.