European businesses speak out on vertical agreements and e-commerce

We reported earlier this year on the European Commission’s consultation on its Verticals Block Exemption Regulation and accompanying Guidelines (together, the VBER). The rules are due to expire in May 2022 and so a consultation was expected. (See our Insights, which include our response to the consultation).

During its consultation, the EC received 164 online contributions and 13 position papers from businesses and other stakeholders across a range of economic sectors. The most impactful market development since the adoption of the current VBER in 2010 is, of course, the explosive growth of e-commerce. And so it is no surprise that a significant proportion of comments concerned this sector. The EC’s Summary Report as well as the individual responses are available on the EC’s consultation page.

Legal certainty

Most respondents advocated to extend the VBER. The legal certainty provided was welcomed and the VBER was considered to foster the consistent application of competition law throughout the EU.

At the same time, respondents called for a revision of the VBER also in the interests of legal certainty and the consistent application of competition law rules by EU Member State authorities. The explosive increase in online sales and online advertising, the growth of selective distribution systems, the increasing use of price-monitoring software and price algorithms, as well as free-riding issues, were all developments identified as important to consider in revising the rules in the interests of legal certainty. Increased concentration in online markets and the fact that more and more manufacturers are selling directly to end-users were also considered important factors.

Concerning the consistent application of competition law rules by EU Member State authorities the consensus was that the VBER supports consistency in general but needs to be revised to support consistency across the board. The divergence was considered to be caused by a lack of clarity in relation to the application of the rules to online markets and also the non-binding nature of the Vertical Guidelines. For example, in recent years we have seen diverging views of national competition authorities (NCAs) and courts in relation to legal questions concerning the application of MFNs, dual-pricing practices, resale price maintenance (RPM) and the assessment of online marketplace sales restrictions.

An extension of a revised VBER was also generally considered necessary to avoid costly compliance. Companies in Europe could be less inclined to innovate if new practices and business models were not block exempted and the risk of infringement was more opaque. Indeed, compliance with VBER comes at a cost and SMEs would be especially affected by any cost increase caused by a withdrawal of the VBER or the adoption a new regulation lacking legal certainty.

Scope of the Regulation

Respondents called for a review of the scope of the VBER. Most commentators agreed that the VBER does not exempt agreements which should not be exempted. However, some argued that the VBER should be wider in scope. Some respondents considered that certain agreements not currently covered by the block exemption should benefit from it. Specifically they referred to agreements entered into by companies with market shares between 30 and 40 percent. Also some argued that agreements containing RPM clauses, due to the efficiencies generated, should be exempted, particularly in the context of the increasing use of price-monitoring software and price algorithms.

As regards the list of hardcore restrictions, 66 respondents considered that there are vertical restrictions included presently which should not be (because it can be assumed with sufficient certainty that they generate efficiencies). These respondents referred to online sales restrictions, RPM, territorial or customer restrictions, restrictions of active or passive sales, restrictions of cross-supplies and agreements preventing or restricting the sourcing of spare parts.

Some respondents, mainly business associations, considered that for certain vertical restrictions it cannot be assumed with sufficient certainty that they generate efficiencies. For example, online marketplace bans, MFNs and retail channeling, as an indirect form of RPM.

As for the list of excluded restrictions, some respondents argued that this should be narrowed so as to exempt “long-term” or post-term non-competes and restrictions on selling competing products in a selective distribution system.

Summary of main areas to be reviewed
  • Online sales restrictions
  • Selective distribution
  • Resale price maintenance (RPM)
  • Territorial supply constraints
  • Most favoured nation clauses (MFNs)
  • Retail channelling
  • Online search advertisement restrictions
  • Agency agreements
  • The use of price comparison websites
  • Market share thresholds
  • Vertical agreements between competitors and exchanges of information
  • Franchising
Recent surge in fines for vertical infringements

Outside the VBER consultation, the EC continues to develop its enforcement policy. A sector inquiry into e-commerce was concluded in 2017, which led to a number of investigations into online sales. Since 2018 nine companies have been fined a total of almost EUR 1 billion for online sales restrictions. Before this rush of cases, the last fine imposed by the EC for a vertical restriction was in 2003 in Yamaha.

A number of cases are pending before the EC. For example, investigations into tour operators, video game makers, airline tickets distribution services, and licensing and distribution practices of Universal Studios. In addition the EC is investigating possible anti-competitive conduct by Amazon relating to vertical agreements, albeit under Article 102 TFEU.

Next steps

The EC plans to host an open public stakeholder workshop in Q4 2019 in Brussels and later discuss possible revisions within the European Competition Network.

In Q2 2020, the EC plans to adopt its own staff working document to present the results of all impact assessments and evaluations/fitness checks.