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New Block Exemption Regulation for Vertical Agreements – The Main Changes

On May 10, the new Block Exemption Regulation for Vertical Agreements (“Vertical Block Exemption Regulation”) was adopted by the EU Commission, which is complemented by the new Vertical Guidelines. The new rules are primarily intended to improve the compatibility of supply and distribution agreements with EU competition rules. The two revised sets of rules will enter into force on June 1, 2022.

Commissioner Margrethe Vestager, responsible for competition policy, emphasized the importance of adapting the rules to competition in the coming years: “The new rules will provide companies with up-to-date guidance that is fit for an even more digitalized decade ahead.”

Background

Vertical agreements are agreements between two or more companies operating at different levels of the production or distribution chain which concern the conditions under which the companies involved may purchase, sell or resell goods or services.

The Vertical Block Exemption Regulation exempts vertical agreements that meet certain conditions from the prohibition set forth in Article 101(1). The Vertical Block Exemption Regulation is complemented by the Guidelines, which explain how the Vertical Block Exemption Regulation should be interpreted and applied and how vertical agreements not protected by it should be assessed.

Main changes in the revised rules

The Vertical Block Exemption Regulation creates exceptions to the prohibition in Article 101(1) of the Treaty on the Functioning of the European Union (TFEU) for agreements between companies operating at different levels of the production or distribution chain.

For the exemption to apply, requirements must be fulfilled, which were discussed over several years in the run-up to the Regulation that has now been adopted. The evaluation started in October 2018 and the consultation phase ended in May 2019. In October 2020, the Commission published the “VBER inception impact assessment” and opened the possibility for feedback until November 20, 2020. The high number of feedback responses shows the relevance and controversy (164 feedbacks, including 93 associations and 42 companies/business associations). During the consultation phase last year, there was again considerable feedback. In essence, the evaluation shows that many companies and associations did not clearly know when and how the previous regulations were applicable and applicable.

The changes now adopted include both restrictions and extensions:

Restriction of the protected scope: It will no longer be possible to exempt certain aspects of dual distribution and certain types of parity obligations under the new Regulation, but instead they will have to be assessed individually under Article 101 TFEU.

Broadening of the scope of protection: Restrictions on a buyer’s ability to actively target individual customers (active selling) and certain practices relating to online sales will be exempt under the new Vertical Block Exemption Regulation, provided all other conditions are met.

Examples of changes of particular interest

Article 1(1)(l) in conjunction with Article 1(1)(n) provides for a definition of active sales.  In addition, the new Regulation contains proposed amendments to the rules on active sales restrictions.

Article 4(b) introduces the possibility of ‘shared exclusivity’, allowing a supplier to appoint up to a maximum of 5 distributors per territory or customer group.

Another change related to exclusive distribution concerns the possibility for the provider to require its distributors to ‘pass on’ restrictions on active selling to their customers. The new Regulation and the new Vertical Guidelines clarify that the block exemption also applies when a supplier requires its distributors to ‘pass on’ restrictions on active selling in territories or customer groups allocated exclusively to other distributors. However, such pass-on is not exempt further down the distribution chain.

The EU Commission has published some information on the main changes in an explanatory note.

Our blog contributions shall provide an overview with regard to legal topics, legislation and case law and are supposed to provide some general information rather than constituting any specific advice. Please do not hesitate to contact Maiwald and in particular the authors of the particular contributions if have any questions on the addressed topics or on other legal issues.

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Authors

Dr Gisela Grabow

Counsel

Lawyer (England/Wales)