European Commission publishes findings of the VBER evaluation

On 8 September 2020, the European Commission (EC) published the findings of its evaluation of the Vertical Block Exemption Regulation (VBER) and the accompanying Vertical Restraints Guidelines (Guidelines) in the form of a Staff Working document. The VBER “exempts” from the general antitrust prohibition vertical restrictions in agreements where neither of the parties has a share of more than 30% in the relevant markets, except for a list of “hardcore restrictions” that remove the benefit of the exemption for the whole agreement and a list of restrictions to which the exemption does not apply, while the remainder of the agreement may still be exempted. The VBER and the Guidelines set the regulatory framework for how distribution and retail networks can be set up to comply with EU antitrust rules. With the growth of e-commerce in recent years and rapid developments in online selling, many have criticised the VBER and the Guidelines as no longer being adapted to a world which is rapidly changing.

As the VBER is due to expire on 31 May 2022, the EC carried out an evaluation in order to decide what to do next: let the VBER lapse, renew or revise it? The EC relied on evidence from multiple sources and consulted extensively with businesses and other stakeholders. The evaluation revealed a number of issues that the EC will need to address in any next steps.

Main findings of the evaluation

The Staff Working document confirms that the VBER and the Guidelines are generally considered as useful instruments that allow companies to self-assess whether their agreements are compatible with EU antitrust rules.

However, the EC agrees that the current rules are not sufficiently adapted to recent market developments. In particular, the growth of online sales and online platforms has had a significant impact on distribution models and consumer behaviour which has led to gaps and a lack of clarity as to how the rules apply to vertical agreements or practices in the digital sector.

Stakeholders pointed to several practices that have become more prevalent in recent years and that would need further clarification and guidance, including online platform bans, restrictions on the use of price comparison websites, retail parity clauses and dual (offline/online) pricing.

Stakeholders also called for clarifications in relation to the application of the agency exception to online platforms. They consider that under the current rules it is unclear whether online platforms can qualify as an agent, namely as an integral part of the principal’s distribution system or if they should rather be considered as independent resellers.

As data has become an essential input for online services, it is no surprise that another area where stakeholders perceive a need for more guidance is the rules on data collection and information exchange in vertical agreements, including for dual distribution.

Further, stakeholders identified issues with regards to possible free-riding between different sales channels. They pointed out that the current rules fail to take into account the fact that free-riding can occur in both directions, thus not only free-riding by online retailers, but also by offline retailers. Therefore, the rules (e.g. in relation to dual pricing and the brick-and-mortar requirement in selective distribution) should be revised or flexed according to many stakeholders.

In addition, stakeholders suggested that the EC should rethink where to draw the line between agreements that can and cannot be exempted. For instance, some stakeholders questioned whether the market share threshold of 30%, below which an exemption is granted, is an adequate indicator of market power, especially for agreements involving online platforms. They noted that alternative criteria such as network effects and access to data would be better suited to determine market power in the digital sector. As regards the list of hardcore restrictions, an important part of the stakeholders indicated that certain types of online restrictions and resale price maintenance should to be dropped from the list because they serve to make significant efficiencies possible.

Stakeholders also called for a consistent application of the VBER by national competition authorities and national courts. Diverging approaches in relation to the treatment of vertical agreements prevents suppliers from rolling out uniform distribution strategies across the EU and limit the effectiveness of the VBER.

Next steps

In the coming weeks, the EC will carry out an impact assessment to look into the issues identified during the evaluation. Stakeholders will be invited to provide their views on the impact assessment toward the end of this year. In the course of next year, the EC will publish a draft of the revised rules for comments, with a view to having the revised regulation and guidelines in place by 31 May 2022, when the current VBER expires.