Following an extended review, the European Commission (“Commission”) has adopted revised competition law exemptions and guidance applicable to agreements in the vertical supply chain.
EU antitrust law prohibits certain vertical agreements if the harm to competition outweighs the benefits. To provide businesses with some legal certainty about that analysis, the Vertical Block Exemption Regulation (“VBER”) includes a safe harbor for: (i) vertical agreements that are not a “hardcore restriction” (e.g., resale price maintenance): and (ii) where neither party’s market share exceeds 30%. The Commission’s Vertical Guidelines clarify the safe harbor’s scope and provide guidance for companies to self-assess the risk of vertical agreements falling outside the safe harbor. Although the new rules apply to all sectors of the economy, the updates focus on the growth of e-commerce and online platforms. In substance, the final rules are generally aligned with interim drafts detailed in our August 2021 Commentary.
Compared to current rules, two of the most significant changes are to the list of practices benefitting from safe harbor, which reflect the Commission’s recognition of e-commerce as an established sales channel and the increased scrutiny of online platforms.
- Once a “hardcore restriction,” the VBER safe harbor now extends to businesses that charge the same reseller different wholesale prices for online and offline sales (“dual pricing”).
- Excluded from the safe harbor are: (i) “across-platform” retail parity clauses (i.e., obligations imposed by online intermediation service providers that prevent suppliers from offering better terms on other online platforms); and (ii) agreements for the provision of online intermediation services where the provider of such services competes for the sale of intermediated goods or services. Such practices are reviewed under the net effect on competition test.
The Commission also clarified its new approach to dual distribution systems (not involving online platforms), i.e., where a supplier of goods or services also is active in a downstream market, competing with its independent distributors. Under the new rules, dual distributors may benefit from the safe harbor with the exception of: information exchanges between the supplier/distributor and its independent distributor that are (i) not directly related to the implementation of the vertical agreement; and/or (ii) not necessary to improve the production or distribution of the contract goods or services. The Vertical Guidelines include a non-exhaustive list of compliant information exchanges, including technical, logistical, and certain other information relating to current retail prices, among others.
The new rules take effect on June 1, 2022, and expire in 2034. Existing vertical agreements that qualify for the safe harbor will remain exempt from antitrust challenge until May 31, 2023. After that date, the Commission will assess all vertical agreements under the new rules. Companies with operations in the EU should check their contracting practices against the new rules and, in addition, consider whether changes need to be made ahead of the grace period expiration in May 2023 for preexisting vertical agreements.