Online sales distribution and the new European rules on vertical restraints – News Distribution / Competition / Contracts – June 2022

The strengthening of the role of online sales within the internal market goes hand in hand with the development of new commercial practices, unevenly regulated by European regulations. Regarding vertical restraints, the old Regulation No. 330/2010 applied for more than 12 years had proved to be progressively incomplete. The new Vertical Block Exemption Regulation (VBER) and its guidelines, which entered into force on Wednesday 1 June 2022, update and develop the regulatory framework for the European digital economy.                                                   

The new European framework exempting vertical agreements

For the record (see our May 2022 News), Article 101 of the Treaty on the Functioning of the European Union (“TFEU”) prohibits in its 1st paragraph any agreement having “as their object or effect the prevention, restriction or distortion of competition within the internal market”. This prohibition targets horizontal agreements (concerted and/or formalized practices between competitors operating on the same market) as well as vertical agreements (between operators intervening at different levels of the same chain from design to distribution).

The rigor of this provision is however moderated by several exemption mechanisms, based on an analysis of the positive and negative effects of the practice on the market, among which is the new Regulation (EU) n°2022/720 concerning the application of the 101(3) TFEU to categories of vertical agreements and its Guidelines . 

These texts update the former Exemption Regulation No. 330/2010 and bring notably changes considering the specific nature of digital services.

Competition law rules applicable to online sales

Online distribution players will benefit from several welcome clarifications making it more flexible to carry out their activity, introduced by the new VBER, concerning (i) the coexistence between online and offline distribution, (ii) the treatment of parity obligations, and (iii) the consideration of online platforms.

Articulation between physical and online distribution:

• The Regulation ratifies the prohibition of (i) sales and (ii) online advertising, therefore becoming hardcore restrictions. Any practice which, directly or indirectly, in itself or combined with other elements of the commercial relationship, has the object or effect of preventing the effective use of the Internet by the distributor to sell or promote the contracted goods or services is now clearly prohibited. This includes, for instance, the fact for a head of network to impose on a distributor to obtain the supplier’s prior authorization before each online transaction, with a view on prohibiting him from using the supplier’s brand and/or name on his site or its online sales area, or to use marketplaces .
• The supplier still benefit from the freedom to request to its distributors compliance with certain criteria concerning the manner of offering its products or services online (presentation requirements, brand environment in marketplaces, etc.), provided that the measure does not lead to such prohibition.
• Removal of the principle of equivalence from the list of hardcore restrictions: the new Guidelines now provide that it is no longer imposed on heads of network that the criteria imposed on distributors operating online coincide with those imposed on distributors operating only in physical points of sale.
• The practice of dual pricing, whereby a supplier sets differentiated wholesale prices according to the choice of the distribution channel (physical or online) operated by its distributor, is no longer considered to be a hardcore restriction, as long as (i) such price differentiation induces or rewards the distributor’s level of investment in the distribution channel in question, and (ii) does not have the object or effect of depriving the distributor of the possibility of selling the products online (cf. above ).

Parity obligations :

• Wide parity obligations (or wide “Most-Favored-Nation clauses”), by which a supplier undertakes to offer its goods or services to a distributor at prices or contractual conditions which are identical, if not more favorable, than those offered on its own channels and to its other distributors operating on other channels, no longer benefit from the block exemption granted to them in Regulation No. 330/2010. They are now prohibited. An individual exemption nevertheless remains possible on the basis of the aforementioned Article 101 TFEU, on a case-by-case analysis, such obligations not being qualified as hardcore restrictions.
• Other parity requirements, including narrow parity requirements for direct sales, remain exempted by Regulation 2022/720. This exemption may nevertheless still be withdrawn from platforms whose relevant market is highly concentrated, unless it is demonstrated that there is real efficiency gains.

Online intermediation services:

• The new Regulation proposes a broad definition of online intermediation services, inspired by the recent P2B Regulation, providing that (i) that the companies providing such intermediation services are suppliers – and not agents, which the guidelines clarify and (ii) benefit from the block exemption. Consequently, the hardcore restrictions are applicable to them (but remain inapplicable to the providers of these platforms vis-à-vis the latter).
• As an exception, hybrid online intermediation platforms, i.e. platforms offering for sale goods or services competing with those of operators who subscribe to its online intermediation services in addition to online intermediation, do not benefit from the block exemption for their intermediation contracts, although an individual exemption from such agreements remains possible on the basis of the aforementioned Article 101 TFEU.

Next updates on VBER and Agency and Franchise ; stay tune !

Assistance from Altaïr Avocats:

• Assistance in setting up, developing and/or restructuring physical and/or online distribution networks;
• Support in the context of investigations by the competition authorities;
• Representation in contentious proceedings before the competition authorities (procedures on the merits and request for interim measures to prevent anti-competitive behavior from causing irreversible damage) and judicial proceedings.