1. Revision of EC regulation of vertical agreements November 2009
Contacts
For further information, Commission proposes new Block
please contact your usual
Eversheds contact or Exemption for Vertical Agreements
Mogens Aarestrup Vind
Partner
+45 33 75 05 05 The Commission’s proposal of 28 July 2009 for a revised Block
mogensvind@eversheds.com Exemption Regulation and Guidelines on vertical agreements
contains limited changes to the existing regime which, if adopted,
For a full list of our offices and come into effect in May 2010.
contact details please visit
www.eversheds.com In response to the Commission’s proposal Eversheds has submitted
its comments on 2 October 2009. Eversheds is concerned that the
proposed changes may reduce legal certainty and add to the
compliance burden of many companies. In particular concerning the
amendment of the market share threshold Eversheds has expressed
their concern.
Introduction
The current Block Exemption for vertical agreements expires on 31 May
2010. The Commission published on 28 July 2009 a draft of a replacement
Block Exemption (the "Draft Block Exemption") and the accompanying
Guidelines on Vertical Restraints (the "Draft Guidelines"). Companies should
note that no transitional period is included in the proposed Block Exemption.
This means that companies must comply with the new rules as soon as the
current Block Exemption expires.
The Commission’s preliminary assessment is that the current Block
Exemption and guidelines have worked well in practice.
The Commission has not considered that the current rules should be
fundamentally modified, however, it recognizes that there have been two
major developments that have an impact on vertical agreements:
• an increase in the market power of large distributors and retailers;
and
• the increased significance of sales on the Internet.
These suggested changes that relate to the developments will be discussed in
turn below:
Market power of the buyer
The Draft Block Exemption provides the benefit of exemption only where the
market share of the supplier and the buyer for the relevant goods/services
does not exceed 30 per cent. Previously only the supplier's market share was
generally taken into account.
1
2. This change reflects the growing concentration in retail markets in the EU.
However, its inclusion is controversial, not least, because of the difficulties
suppliers may face in calculating the market share of buyers who may be
located in unfamiliar territories or local markets.
Eversheds has taken strong reservations towards this change in our response
to the Commission.
First, we are unconvinced as to the need for such a fundamental change. The
recitals to the proposal merely refer to “further increase in large distributors’
market power” without further justification or explanation about the
competition risks that might justify the proposed change to the market share
thresholds.
Second, we are concerned that the proposed change introduces unnecessary
complexity for companies seeking to apply the Block Exemption. The revised
thresholds based on the buyer’s share would make it much more difficult for
companies to determine whether the Block Exemption would benefit their
agreements.
We see the following practical problems for companies and, in particular,
suppliers:
• Inability to confidently assess market share of the contracting party;
• Additional legal cost and burden of assessing and monitoring the
market share not just of the supplier, but of tens or even hundreds of
distributors in order to be certain that relevant distribution
agreements benefit from the safe harbour;
• Increased risk that any particular distribution agreement might lose
the benefit of the Block Exemption as a result a change in the market
share of a distributor;
• Risk of competition problems stemming from the exchange and
discussion of market share information and sales information required
for purposes of both parties satisfying themselves that the market
share test is met.
Our proposal to the Commission is to retain the current market share
threshold based only on the market share of the supplier (except in the case
of exclusive supply) but to include in the Guidelines an expanded section
addressing the problems that would arise from agreements entered into with
buyers with high market share.
Online distribution
The text of the Draft Block Exemption itself is not different from the existing
Block Exemption Regulation in relation to the proposed changes. However,
the Commission has included significant clarification on online selling in the
Draft Guidelines.
Suggested changes and clarifications include:
A clearer distinction between active and passive selling in relation to online
distribution. The Commission has, for the first time, given a number of
examples of where restrictions on internet sales will normally be deemed to
be "hardcore" infringements. The following conduct will therefore be illegal:
• Requiring a distributor to block or re-route customers from outside of
the distributor's territory;
• Requiring a distributor to reject transactions made on credit cards
registered at an address outside of the distributor's territory;
• Requiring a distributor to limit the number of sales made via the
internet; and
• Charging a higher price to distributors for goods that are intended to
be sold online. However, this does not prevent a supplier from
offering its distributor a fixed fee to support its offline trading.
A supplier may still require a retailer to operate a "bricks and mortar" shop or
2
