Ongoing review of Vertical Block Exemption Regulation by European Commission

By Kasper Mussche, DTI
June 26, 2019

BRUSSELS, Belgium: The Vertical Block Exemption Regulation (VBER) exempts certain agreements from the EU’s general competition rules and allows suppliers to restrict a distributor’s active sales to a specific territory or customer group. Because the regulation expires on 31 May 2022, the European Commission launched a public consultation aimed at stakeholders and citizens earlier this year to check whether the regulation is still relevant. The Commission is currently reviewing whether it should allow the VBER to lapse or prolong or revise it. This review is especially necessary because of the increase of online sales and market platforms which affect the distribution and pricing strategies of manufacturers and retailers.

As a starting point, Article 101 of the Treaty on the Functioning of the European Union says that any agreement that restricts or distorts competition is unlawful. An agreement is exempt, however, if it can be shown to contribute to improving production or distribution, or if it is in the overall interest of consumers. To help parties in assessing whether a particular agreement is within this exemption, the Commission has laid down rules for different types of agreements in block exemptions. One specific kind of agreement is an agreement between undertakings operating at different levels of the supply or distribution chain. This is known as a vertical agreement.

Under current EU competition law, the VBER can theoretically grant suppliers the right to restrict a distributor’s active sales to a specific territory or to exclusive customers, provided that this does not restrict the customers of such distributors. The VBER is important for the ADDE and its members, as it governs the competition law aspects of distribution agreements for all of the European Economic Area countries. It deals with matters such as vertical price fixing, parallel trade, online distribution and non-compete obligations. All of these matters are of daily relevance to distribution channels active in Europe.

Is the current VBER up to date?
Although the VBER may lead to a restriction in a distributor’s active sales, sales over the Internet are considered passive sales. Trends such as the increased importance of online sales and the emergence of online platforms mean that there are more and more manufacturers at the retail level who have opened their own online shops. This leads to increasing tension between manufacturers and online platforms.

Unfortunately, the current VBER does not take into account these digital developments. Indeed, the growth of e-commerce over the last decade has affected the distribution and pricing strategies of both manufacturers and retailers. Manufacturers use selective distribution as contained in the VBER as a reaction to the growth of e-commerce, as it allows them to control their distribution networks better, in particular in terms of the quality of distribution but also in terms of price.

The continued review of the VBER over the course of 2019 serves as a way to ensure that it takes account of the new market developments since its adoption in 2010. These relate mainly to the increased importance of online sales. The Commission is of the view that the results of the e-commerce sector inquiry do not call for a change to the Commission’s general approach to qualitative and quantitative selective distribution as reflected in the VBER. However, the fact that the Geo-Blocking Regulation prohibits all passive sales restrictions in the situations covered by the regulation is something the Commission should investigate during the review of the VBER.

The public review will continue throughout 2019 with a stakeholder workshop at the end of the year and discussions with anti-trust watchdogs around Europe. The process of the review can be followed here.

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