New block exemption regulation for vertical agreements and new vertical guidelines

From 1 June 2022, a new Vertical Agreements Block Exemption Regulation and New Vertical Guidelines apply in order to adapt the vertical agreements regulation to the new digital context.

A new chapter in the field of Antitrust Law

This time to analyse, briefly, the new Vertical Agreements and New Vertical Guidelines Exemption Regulation (hereinafter, “CESCR”), which came into force on 1 June 2022 and which is motivated to adapt, or at least try to adapt, the regulation of vertical agreements to the digital context.

Before commenting on the new features of the RECAV, it is necessary to give a brief overview of the reason for this regulation. Firstly, Article 101.1 of the Treaty on the Functioning of the European Union (TFEU) prohibits agreements between undertakings which may adversely affect trade between Member States, such as restricting or distorting competition.

However, Article 101(3) TFEU provides for an exception to this prohibition of agreements between undertakings, which is where the benefits of such agreements outweigh the negative antitrust effects they may have.

What conditions must vertical agreements fulfil in order to benefit from the exception?

Until now, the conditions that these vertical agreements (agreements between companies operating at different levels of the production or distribution chain) must meet in order to benefit from the exception in article 101.3 TFEU were regulated in Regulation 330/2010.

After several years of exhaustive review by the European Commission on the functioning of the aforementioned Regulation, and due to the constantly changing and evolving needs of increasingly digital markets, on 10 May 2022, the European Commission adopted a new Block Exemption Regulation for vertical agreements restricting competition (Regulation 2022/720), as well as a set of Guidelines accompanying this Regulation for its interpretation.

However, a transitional period until 31 May 2023 is foreseen to allow companies to adapt to the new regime those vertical agreements in force on 31 May 2022 which, while not meeting the requirements for exemption set out in the new BEREC, did meet the requirements set out in Regulation 330/2010.

The TVER is expected to remain in force until 31 May 2034.

The CEA BER retains the same structure as the previous Regulation, and contains in Article 2 a general exemption from the prohibition of restrictive agreements for vertical agreements that fulfil certain conditions.

Main new features introduced by the BEREC

The main new features introduced by the BEREC can be grouped into 5 areas:

1. Dual distribution and parity obligations
2. Restrictions on online sales
3. Selective and exclusive distribution systems
4. Non-compete obligations

1. Dual distribution and parity obligations

Dual distribution, (the manufacturer or supplier competes with its own distributors in the market). The exception applies if:

• If the combined market share of the supplier and distributor is below 10%, they will be exempted in the absence of serious restrictions of competition.
• Between 10% and 30%, they must also introduce compliance mechanisms to control exchanges of sensitive information between supplier and distributors. In this respect, AddVANTE recently wrote an article on the importance of establishing competition compliance programmes in companies.

Above 30%, their compatibility will be more uncertain, with the supplier having to carry out a self-assessment exercise as indicated in the Guidelines themselves.

In this respect, it will be essential to determine whether the exchange of information between the buyer and the supplier is not directly related to the implementation of the vertical agreement, or is not necessary to improve the production or distribution of the products/services.

Parity obligations, i.e. obligations that prohibit a company from offering third parties better prices or contractual conditions. The CESCR does not cover parity obligations imposed on companies by online intermediation platforms when they prevent them from offering lower prices or better conditions through competing platforms.

2. Restrictions on online sales

• Clauses that prevent the effective use of the internet by the distributor for the sale of goods or services, including advertising on the internet as well as making use of price comparison websites, are considered to be hardcore restrictions and therefore prohibited by antitrust rules.
• Clauses on the fixing by the supplier to the distributor of fixed or minimum resale prices for goods or services are still considered to be hardcore restrictions; although it is true that, on the one hand, exceptions such as minimum advertised prices and performance contracts (those contracts that the supplier selects for the company that executes a contract previously concluded by a consumer) are included in the regulation and, on the other hand, it is permitted to set a different price for the same product depending on whether it is an online distributor or one with a physical establishment, which is understood as dual pricing, as long as this difference is not intended to de facto prevent the use of the internet for the distribution of the product.

3. Selective and exclusive distribution systems

The CESCR allows the supplier to impose on authorised distributors the obligation to prohibit the distributors’ customers from reselling to unauthorised operators and, in addition, allows the supplier to set quality standards for the distributors’ online sales.

It also allows the supplier to appoint several (and not only one) distributors in each exclusive territory/customer group and to oblige the distributor to prohibit its customers from making active sales in the territory/customer group assigned to other distributors.

4. Non-compete obligations

Non-compete obligations of indefinite duration or exceeding five years continue to be considered as restrictions excluded from the application of the CESCR as well as any obligation directly or indirectly prohibiting the members of a selective distribution system from selling the brands of certain competing suppliers.

Thus, the novelties introduced by the TVER imply the need for companies to (i) review the information exchanged between the parties in the context of a vertical agreement, (ii) as well as to verify that such changes may lead to new business opportunities.

AddVANTE has years of experience advising companies on vertical agreements, as well as adapting them to the new antitrust rules.