In August of 2021, the European Commission published its long-awaited draft of the new Vertical Block Exemption Regulation (Draft Revised VBER). You can read our full summary and analysis of the proposals here. In it, we set out how the Draft Revised VBER and its accompanying guidelines (Draft Revised Guidelines) substantially differ from the current regime on topical issues including dual distribution, dual pricing, retail parity obligations, active sales restrictions, and certain indirect measures restricting online sales. We explained how the Commission's policy recognizes the developments in online distribution and the changing dynamics between suppliers and resellers in multichannel distribution relations.
The proposed changes in relation to dual distribution received a cold reception from stakeholders. On the back of this, the Commission has now published draft guidance on this very topic. On the whole, the guidance is a useful (although not ground-breaking) document and we have summarised the main takeaways in this alert. Interestingly, it also points to a potential U-turn by the Commission.
What is dual distribution?
Dual distribution takes place when a supplier sells goods to its customers directly and through independent distributors simultaneously. The advent of online sales has increased this phenomenon with many brand owners selling directly through their own website as well as through a network of distributors. The resulting competitive dynamic is that the supplier is in direct competition with its own distributors, blurring the line between competitors and non-competitors.
Under the current VBER, only non-reciprocal agreements benefit from the safe harbour; that is to say agreements between parties with different economic roles that are not active on the same level of the market. The Draft Revised VBER extends this safe harbour to wholesalers and importers. However, it proposed to limit its applicability where parties have an aggregate market share that exceeds 10 %. In the proposal, if the aggregated market share lies between 10% and 30%, the block exemption still applies albeit not for the exchange of information, which will need to be assessed under the rules the horizontal guidelines.
The Draft New Guidance
During the public consultation, which followed the publication of the Draft Revised VBER, the new dual distribution regime was heavily criticised by stakeholders, both in relation to the lower 10% threshold and the new information-exchange rules. The aggregated 10% threshold was perceived as being unreasonable, unpractical and disproportionately low. Stakeholders pointed out that exchange of certain information in any vertical relationship, even in dual distribution, often generates efficiencies and asked for more guidance on the sort of information that could be exchanged between the parties in a dual distribution relationship.
Many also criticised the European Commission's reference made in that regard to the Horizontal Guidelines and argued that information sharing in a vertical relationship between brand owners and distribution, (even in dual distribution scenarios) is not comparable to information exchange in a horizontal relationship between actual or potential competitors.
In response to the criticism, the European Commission drafted a new section on dual distribution to be included in the Draft Revised Guidelines. Notably, this new section makes no reference to the 10% market share threshold anymore, which seems to indicate that the introduction of such a threshold in the revised VBER has been abandoned. The European Commission also states that the revised VBER will only apply to the exchange of information where it is necessary to improve the production or distribution of the contract goods or services.
In the draft section, the European Commission sets out a non-exhaustive list of examples of information which can be considered necessary to improve the production or distribution of the contract goods or services and therefore benefit from a presumption of acceptability, including i) technical information about the product or service, ii) information relating to production, inventory, stocks, sales volumes and returns, iii) aggregated information relating to customer purchases, preferences and feedback and iv) performance related information.
Conversely, the following types of information will be presumed not to improve the production or distribution of the contract goods: i) information relating to actual future prices at which the distributor or supplier will sell the goods or services, ii) customer specific (non-aggregated) sales data and iii) information relating to goods sold by a distributor under its own brand name with a manufacturer of competing branded goods.
Although the new section provides a welcome guidance on what to expect from the European Commission's stance towards dual distribution, it remains to be seen whether it answers the deep concerns of the stakeholders. This draft section is open for consultation until 18 February 2022 and interested parties are invited to provide comments before this deadline.
We will continue to update you on further developments on the Vertical Block Exemption Regulation and Guidelines as the Commission is working against its May 31st (2022) deadline when the current VBER expires.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.