Revision of the EU distribution rules: another milestone reached – Commission publishes results of its evaluation

It has already been quite a journey and there is still some way to go, but an important milestone has been reached. The European Commission – in the form of a Staff Working Document (SWD) – has published the results of the evaluation of the Vertical Block Exemption Regulation (VBER) and its accompanying vertical guidelines, and indicated that it will revise the existing rules. For those of you who do not have the time or the inclination to read through the 233-page document, you could instead read the rest of this blog and the Commission’s four-page executive summary.

As a reminder, back in 2018, the Commission began reviewing and gathering evidence on the functioning of the VBER and its accompanying guidelines, which set out exemptions from antitrust rules for anticompetitive vertical restrictions and will expire on 31 May 2022 (read more in this blog post).

The Commission’s efforts to gather evidence are remarkable: it consulted national competition authorities and the public, held a dedicated stakeholder workshop, commissioned an external evaluation support study, and considered the results of its previous sector inquiry into e-commerce and the evidence gathered in the context of other Commission initiatives.

This work forms another part of the Commission’s overall ambition to shape Europe’s digital future and ensure that EU competition rules are fit for the digital age. In the run-up to the VBER SWD being published, there were two public consultations on the Digital Services Act package and a possible new competition tool – both of which, in particular, address digital and digitally enabled markets, and tackle platform-related issues.

The Commission’s findings

The key learnings from the Commission’s consultation do not come as a surprise:

1. The VBER and the accompanying guidelines are needed and need revising. In particular, in times of major change and innovation, it is crucial to strive for clear rules, legal certainty and safe harbours for market players in order to facilitate their self-assessment and reduce compliance costs.
2. The EU distribution rules need to be adapted to the way digitalisation has changed the business landscape.
3. The rules contain gaps, lack clarity in places, are difficult to apply and need updating in light of market developments since the VBER was adopted in 2010 and recent decisional practice (eg the CJEU’s Coty judgment).

Indeed, markets and distribution models have changed significantly over the last 10 years. Digital players and digitally enabled businesses have emerged, e-commerce has grown tremendously (with COVID-19 recently accelerating that growth) and new market players such as online platforms have entered the stage. Also, traditional businesses are having to adapt their distribution models, with manufacturers increasing their direct sales and more often using selective distribution systems. This has triggered several new types of vertical restraints.

The Commission found that multiple areas of the rules are not well adapted to these developments and, thus, merit a closer review following the evaluation, including the assessment of:

• online sales and advertising restrictions;
• dual pricing;
• selective distribution agreements;
• restrictions on the use of online marketplaces and price comparison websites;
• agency agreements;
• retail parity clauses;
• the rules on dual distribution; and
• the distinction between active and passive sales, which is relevant to determine the boundaries of some of the 'hardcore' restrictions.

Stakeholders also pointed to other areas of the rules that are no longer fit for purpose - but not necessarily because of the changing market environment. The Commission indicated it would also pay special attention to these issues, including:

• 'hardcore' restrictions (eg retail price maintenance);
• excluded restrictions (eg non-compete clauses);
• certain distribution models (eg franchising); and
• the combination of different distribution models (eg a supplier that is using exclusive and selective distribution).

Apart from these shortcomings in the current set of rules in relation to specific issues, the Commission identified some more general concerns it intends to deal with. The rules should:

• be future-proof (according to the Commission, they should 'contain bright-line principles that can cater for possible market developments and new types of vertical agreements and restrictions');
• be simplified to enhance legal certainty and make the rules easier to use especially for smaller businesses (though the Commission already indicated that it may not be possible to fully achieve this goal as some principles will need to give room for some interpretation to remain future-proof); and
• ensure convergence of the decisional practice by providing a common framework of assessment (especially for those areas in which national competition authorities and national courts have taken divergent approaches, eg on whether online platforms can qualify as genuine agents, the treatment of online platform bans, dual pricing, the assessment of price parity clauses and selective distribution systems).

With all these issues to deal with, the Commission is being very ambitious. But it would be of tremendous help for businesses if the Commission manages to provide clear, simple rules and safe harbours for businesses, and avoid diverging decisions in the future.

The Commission’s next steps

Now that the issues have been identified, the Commission’s next step will be to launch an impact assessment. This will aim to help the Commission determine the future of the VBER and its accompanying guidelines based on the evidence gathered during the evaluation phase.

The impact assessment will:

• explore the underlying causes of the identified existing problems;
• assess to what extent EU action is needed; and
• analyse the advantages and disadvantages of available policy options for a revision of the rules while considering the costs of implementing the possible changes.

A new public consultation is planned for the end of this year, which will give stakeholders the chance to comment on the impact assessment and provide their views.

The Commission plans to publish a first draft of the revised rules in the course of next year and will then again invite stakeholders to comment on this draft.

How might the draft revised rules look like

At this point we can only speculate, as the Commission has not yet presented its views on the identified issues.

However, Annex 4 of the SWD – which is worth taking a closer look at as it offers a consolidated report on the various views per area of the rules – indicates that the Commission does not favour any particular result but will consider all the different comments and information gathered. For example, it elaborates on the fact that the evaluation resulted in mixed evidence regarding the current classification of retail price maintenance as a 'hardcore' restriction. It thus remains to be seen what the new VBER will look like.