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Home | News & events | Legal updates | Online selling: Commission publishes new VRBE and Guidelines
Online selling: Commission publishes new VRBE and Guidelines
21 April 2010
On 20 April the European Commission published the new Vertical Restraints Block Exemption (VRBE) and Guidelines.
They introduce some important changes, particularly in the area of supplier restrictions on online selling.
They will come into force for new agreements on 1 June 2010. For existing (compliant) agreements, there is a limited one year transitional period before the new rules have to be applied.
These incorporate the vast majority of the changes set out in the draft documents, as reported in our October 2009 briefing. This is a short initial briefing on the new rules, and depending on demand we may follow up with a more detailed version in a few weeks.
As you would expect of a firm with clients on ‘both sides of the fence’ on the main issue, in this short briefing we will just state the facts, without much subjective comment.
Main changes
These are:
- agreements will only be block exempted where the market shares of both supplier and buyer are 30% or less
- the line between genuine agency agreements and distribution agreements has been clarified, with the Commission identifying an additional category of ‘risk’ as being material to the assessment of whether an agreement is one of agency or distribution
- in some respects the Guidelines take a more ‘economic’ approach, for example by clarifying that, in certain circumstances, short term resale price maintenance could be acceptable in the context of a promotion.
Online sales
But it is in the area of online sales that the biggest changes have been made. As in the draft documents, these have been (contentiously) introduced not through the VRBE itself, but through the Guidelines.
The Guidelines explicitly set out the Commission’s policy reasons for introducing stricter rules on how, if at all, suppliers may control internet selling.
According to the Guidelines ‘the internet is a powerful tool to reach more and different customers than will be reached when only more traditional sales methods are used and this is why certain restrictions on the use of the internet are dealt with as resale restrictions’. This position and its implications have been hotly debated for several years now.
The new Guidelines make clear that the following will be treated by the Commission as hard core restrictions of competition (which are generally illegal unless there are very good exemption arguments):
- preventing customers from outside an (exclusive) distributor’s territory from viewing that distributor’s website or rerouting them
- requiring an (exclusive) distributor to terminate a transaction with a customer who is outside that distributor’s territory
- requiring a distributor to limit the proportion of its overall sales made over the internet, although (interestingly) the supplier may stipulate that the distributor should sell a fixed amount (determined by value or volume) offline through bricks and mortar sales. This fixed amount can be set across the board, by geography, or (and this is confusing) by reference to that distributor’s ‘size in the network’
- requiring a distributor to pay a higher price for products to be sold online than for those to be sold offline. The supplier may pay the buyer a fixed fee to support its offline (or online) sales efforts, but this fixed fee may not ‘increase with the realised offline turnover as this would amount indirectly to dual pricing’. Some suppliers say that their bricks and mortar dealers’ higher costs of sale need to be recognised, and had hoped that this support could continue to be given through cost price discounts, rather than a fixed lump sum. The Commission does acknowledge that where online sales generate extra costs for the supplier – for example increased customer complaints and warranty claims – a system of dual pricing might qualify for exemption.
The Commission does accept – or clarifies – that certain restrictions on e-tailing are legitimate.
The Guidelines state that a supplier may:
- restrict genuine online active selling into another distributor’s exclusive territory. Examples of such active selling include territory based banners on third party websites and paying a search engine to have an advertisement displayed specifically to users in a particular territory
- exclude ‘pure’ e-tailers from its distribution network
- apply quality criteria to a distributor’s use of third party platforms such as eBay. For example, where a distributor’s website is hosted by a third party platform, a supplier can require that customers do not visit the distributor’s website through a site carrying the name or logo of that third party platform
- impose quality criteria on a distributor’s website, provided that these ‘pursue the same objectives and achieve comparable results to the quality criteria that the supplier imposes on a distributor’s offline sales’
The Guidelines do contain more detail on many of these points. The law will be much clearer in certain respects, though the new position will be far from popular in many quarters. There is, however, still substantial room for disagreement or uncertainty in some respects including:
- the calculation of the ‘fixed fee’ allowed to support bricks and mortar sales, and when this ‘tips over’ into straight dual pricing (proving that a higher price is down to the fact a dealer is selling online, rather than any number of other commercial factors, is not easy)
- how a supplier can calculate and apply the minimum level of bricks and mortar sales it can require of its dealers
- how to apply the ‘equivalency principle’ to internet quality criteria
- the extent to which a supplier can still run a strong “free-riding” exemption argument for dual pricing where its goods are “high end”, expensive and require significant pre-sales support which it is difficult to offer on-line.
It is certainly the case that suppliers in jurisdictions such as the US continue to have more control over how, if at all, these products are sold online.
Transitional period
The new VRBE provides for a transitional period.
Agreements that are currently in force and block exempted under the old VRBE will remain block exempted until 31 May 2011, whether or not they fall within the new VRBE. From 1 June 2011, all agreements will have to be assessed under the new VRBE.
© Shoosmiths. This page is for general information: it is not legal advice. Please read our full terms and conditions for details of the disclaimers and exclusions which apply.
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Sarah Livestro
Associate
T: 03700 86 5148
I: +44 (0)115 906 5148
E: sarah.livestro@shoosmiths.co.uk