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EU redesigns overarching rules on distribution with new competition rules

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With the VBER and new Vertical Guidelines, the European Commission has issued new rules for distribution relationships that will remain in force until 2034. (Image: roibu/Shutterstock)

Mon. 19. September 2022

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BRUSSELS, Belgium: The European Commission has adopted Regulation 2022/720, and the regulation came into effect on 1 June this year. This is the so-called Vertical Block Exemption Regulation (VBER), which provides a safe harbour for vertical agreements and ensures that distribution agreements cannot be challenged on the basis of competition law.

The changes brought by this new set of regulations are of great practical importance, especially when we consider that infringements of the competition rules may lead to severe fines and affect the legal validity of distribution agreements. Invalid distribution agreements cannot be enforced and thus undermine their business rationale. In addition to the VBER, the European Commission has issued extensive new Guidelines on Vertical Restraints (Vertical Guidelines). These Vertical Guidelines offer clarifications on various aspects of the VBER and the analysis of distribution relationships.

The new rules will remain in force until 2034 and hence provide the legal framework for the next 12 years. The VBER is available for all types of distribution relationships, including selective distribution, exclusive distribution, free distribution, franchising and agency.

An important condition for the application of the VBER is that both the supplier and the distributor have a market share that does not exceed 30% of the market. This is not new, but certain related principles have been simplified.

The blacklist of the VBER, which contains the clauses that must be avoided, includes vertical price fixing and certain customer and territorial restrictions. Whereas the new regime contains certain important modifications of these topics, the basic principles have remained the same.

The regime regarding non-compete (also known as single branding) obligations has been kept in place, but the Vertical Guidelines introduce certain limited changes. The most striking changes introduced by the VBER and the Vertical Guidelines concern e-commerce and dual distribution. It is therefore appropriate to single out these two themes.

Regarding e-commerce, the VBER requires that distributors are able to operate their own online shops; however, it allows suppliers, such as producers and importers, to prohibit distributors from working through the sales platforms of third parties. The VBER allows limitations on the use of online advertising tools, but does not permit a complete prohibition of such use.

Dual distribution is the scenario where the supplier is not only active upstream but also enters into competition with its distributors downstream, for example, through its own online shop or by having sales representatives in the market. Hence, the supplier acts in a dual role. Such dual distribution relationships can benefit under certain conditions from the safe harbour of the VBER. The new and particular point of attention in this context is the information that can be exchanged between the parties, including the communication of recommended sales prices or information on end customers. The new Vertical Guidelines of the European Commission offer specific guidance on what is possible and not possible in this area.

All in all, the new regime very much resembles the previous regime of 2010. This is to be applauded, as it avoids the need for major changes to distribution agreements. However, as always, the devil is in the detail. The new rules will apply to distribution relationships for many years to come, and it is therefore necessary that those doing business in the dental industry familiarise themselves in greater detail with the VBER.

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