The new European Commission Vertical Agreements Block Exemption Regulation and accompanying guidelines, are now in force (although there will be a transitional period until 31 May 2011 for pre-existing agreements that complied with the old block exemption). The block exemption provides a safe harbour for vertical agreements (for example agreements between manufacturers and wholesalers) that fulfil certain conditions. The guidelines provide guidance on the assessment of vertical restrictions. In terms of the most significant changes these are in relation to the market share threshold in the block exemption, and further guidance on restrictions on internet selling.

The 30% market share threshold

The most significant change is that in order to benefit from the new block exemption both the supplier and the buyer must have a market share that does not exceed 30% (previously only the supplier's market share was taken into account in most cases).

Internet selling guidance

Interestingly the guidelines include more detailed guidance on restrictions that are likely to be unlawful and those that are likely to be lawful for a manufacturer to impose on a distributor in relation to internet selling activity. They also deal briefly with pricing practices.

Prohibited internet selling restrictions

In relation to internet sales the position is that an absolute prohibition on internet sales in a vertical agreement is likely to be unlawful from a competition law perspective. In addition the guidance makes it clear that it is likely to unlawfully restrict competition if a manufacturer requires a distributor:

  • to prevent its website being viewed from outside its territory, or re-routing customers to another distributor or the manufacturer;
  • to terminate a transaction if credit card details reveal an address outside the distributor's territory;
  • to limit the proportion of overall sales made over the Internet; and/or
  • not to send automated emails to customers in other territories that have opted to be kept informed.

 

Lawful restrictions on internet sales

However it is likely to be lawful to require:

  • certain objective standards of quality for a distributor's website;
  • that a distributor will have one or more 'bricks & mortar' shops;
  • links to websites of other distributors and/or the supplier; or
  • the sale of at least a certain absolute amount (in value or volume) of the product through a distributor's bricks & mortar shops provided this does not restrict the absolute level of internet sales.

 

The position in respect of prices charged to internet resellers

In relation to prices charged to internet resellers the European Commission Guidance states that a requirement that a reseller pay a higher price for products intended to be sold on line is likely to constitute an infringement. However two circumstances are mentioned that might lead to higher overall prices being charged to internet resellers than those agreed with other resellers:

  • agreeing a fixed fee to be paid by manufacturers to support off-line sales efforts by resellers; or
  • charging a higher price to reflect higher costs to the manufacturer of supplying the product to internet resellers, for example because such sales lead to a greater number of warranty claims.

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.