EU: New competition rules for distribution agreements

Mark 1 June on your calendar, because that's when the new Vertical Block Exemption Regulation (VBER) and the new Vertical Guidelines enter into force. The new rules require a reassessment of many distribution agreements in the EU and will reshape agreements between suppliers, distributors, wholesalers and retailers for the next decade.

What's this all about?

The VBER and the accompanying Vertical Guidelines set out the conditions under which vertical agreements may be "block-exempted", i.e. presumed as not breaching competition rules. These norms are the most relevant guidance for vertical agreements not only at the European level but in all EU Member States.

The VBER covers all types of distribution scenarios, including exclusive distribution, selective distribution, free distribution, agency and franchising. The new VBER also provides details on vertical agreements in e-commerce. With the new VBER, the European Commission acknowledges the changes brought by digitalisation and revises the rules on vertical agreements to make them "fit for an even more digitalised decade ahead".¹

Below is a summary of the most important changes.

1. Different online/offline prices

Dual pricing is the practice of charging the same buyer a different wholesale price for products intended to be sold online than for products to be sold offline. While the old rules on vertical agreements prohibited pricing arrangements that put sales via the internet at a disadvantage, the new Vertical Guidelines make clear that a supplier may charge the buyer different wholesale prices for products sold online than for those sold offline, provided that the difference in price reflects the difference in investments or costs incurred with the respective sales channels.

2. More specific rules on dual distribution

Dual distribution generally describes a scenario in which the supplier sells its products or services not only through distributors or retailers but also directly to end customers, e.g. in flagship stores or branded online shops. While the previous rules only included this "classic scenario", the new VBER expands the notion of "supplier" to wholesalers and importers.

Moreover, the new regime introduces detailed provisions as regards information exchanges in dual distribution. As of today, information exchanges in dual distribution scenarios which (i) are not directly related to the implementation of the distribution agreement and/or (ii) are not necessary to improve the production or distribution of the contract goods or services in question are not block-exempted.

The Vertical Guidelines further include a non-exhaustive list of examples of information exchange in dual distribution that cannot benefit from the block exemption, for instance:

• information that identifies end customers, unless necessary in specific situations;
• information relating to the actual future prices at which the supplier or buyer will sell the contract goods or services, with a few exceptions.

Any company operating a dual distribution system is well advised to reassess its current system in light of the above. In particular, the latter example (prohibited exchange of actual future prices) will have a high degree of practical relevance.

3. More leeway for exclusive and selective distribution systems

There are also a few updates on exclusive and selective distribution systems.

For instance, suppliers may now appoint up to five exclusive distribution partners for the same exclusive territory or exclusive customer group. To protect exclusive territories or exclusive customer groups, suppliers may require distributors to pass on specific active sales restrictions to their customers.

Furthermore, under the new rules, a selective distributor may now also enjoy protection against sales from distributors outside the selective territory.

4. Other changes

Further clarifications concern, inter alia, minimum advertised prices, price comparison tools, online platforms and online marketplaces.

The new Vertical Guidelines also recognise that the European Green Deal is a priority objective for the EU and provide examples of how vertical agreements can pursue sustainability goals.

5. Applicability of the new rules

The new VBER and Vertical Guidelines come into effect on 1 June 2022 and will be applicable for 12 years. They provide for a one-year transitional period until 31 May 2023 for existing agreements, giving companies a small window to make sure they remain compliant under the new rules.

¹ https://ec.europa.eu/commission/presscorner/detail/en/IP_22_2844.

authors: Anna Sofia Reumann and Bianca Duca