On April 20, 2010, the European Commission adopted a new block exemption
regulation covering so-called “vertical” agreements such as distribution and
supply agreements (the new Vertical Restraints Block Exemption Regulation or New
VRBER). EU block exemptions automatically exempt certain types of agreement from
the general ban on anti-competitive agreements in the EU contained in Article
101(1) of the Treaty on the Functioning of the European Union (TFEU) (by
applying the exemption provisions in Article 101(3) TFEU).
The New VRBER is highly significant due to the ubiquity of vertical
agreements in the EU and the fact that they often contain restrictive provisions
(such as exclusivity) which may in principle be considered anti-competitive.
Reflecting this, the existing Vertical Restraints Block Exemption Regulation
(Old VRBER), which expires May 31, 2010, has been, since it came into force in
2000, probably the most relied upon EU competition law instrument of all.
The New VRBER will apply from June 1, 2010, until May 31, 2022. Agreements in
force on May 31, 2010, which do not satisfy the conditions of the New VRBER but
which do on that date satisfy the provisions of the Old VRBER, will continue to
benefit from the Old VRBER up to May 31, 2011.
Broadly, the New VRBER exempts from Article 101(1) vertical agreements
entered into between undertakings which are not competitors, subject to market
share limits concerning the goods or services in question (see below), and
provided that the agreement does not contain a “hardcore” restriction (also see
below). The definition of vertical agreements essentially covers the full range
of business-to-business purchase and distribution agreements, whether the goods
or services are resold or used as an input (save in the automobile sector, so
long as a separate regime applies there).
The hardcore restrictions are very similar to those contained in the Old
VRBER and include in particular resale price maintenance provisions and
provisions intended to divide the EU market along national lines. The important
exception allowing for a restriction on “active” sales by a distributor into
territories or to customers reserved to the supplier or another distributor
where exclusive distribution arrangements are being used is retained. “Passive”
sales (responding to unsolicited requests) must however always be allowed,
regardless of the type of distribution arrangements employed.
The commission also published on April 20, 2010, a notice titled “Guidelines
on Vertical Restraints.” The notice further explains the application of the New
VRBER and the treatment of vertical agreements which fall outside it. It is
important to note in this context that a vertical agreement which falls outside
the New VRBER is not necessarily illegal, and in particular there is no
presumption that this is the case where the market share limits are exceeded.
Undertakings will have to consider whether any such agreement contains
anti-competitive provisions (such that Article 101(1) may apply), and if so,
whether Article 101(3) applies to allow for an individual exemption for the
agreement. It will, however, generally be difficult to justify a “hardcore”
restriction under Article 101(3).
The two most significant changes introduced by the New VRBER, as compared to
the Old VRBER, and those which attracted the most attention during the
consultation period leading up to the adoption of the New VRBER and the notice,
concern the market share limits and the treatment of Internet sales.
Under the Old VRBER, a 30% market share limit on the supplier applied in most
cases. Under the New VRBER, in all cases there is a 30% market share limit on
the supplier in its selling market(s) as well as a 30% market share limit on the
buyer in its purchasing market(s). The commission considers that this change “is
particularly beneficial to small and medium-sized enterprises, because they are
the most likely (as competitors of the powerful buyer or as a supplier unable to
countervail the market power of the buyer) to be harmed by buyer-led vertical
The commission faced extensive lobbying in relation to its treatment of
Internet sales. The New VRBER itself makes no mention of Internet sales, the
issue being dealt with solely in the notice in terms which the commission
describes as “Internet friendly.” The key points are:
- “Active” sales are considered by the commission
to include approaching a specific customer group or customers in a specific
territory through advertisement on the Internet (such as by using
territory-based banners on third-party websites) and by sending unsolicited
e-mails. Thus, these activities can be restricted in the context of
exclusive distribution arrangements without removing the benefit of the New
- Sales made from a website are considered to be “passive” sales within
the meaning of the New VRBER. Thus, distributors can never be stopped from
operating a website from which purchases can be made. Further, and
consistent with this, the commission considers that hardcore restrictions
include provisions requiring an exclusive distributor: to prevent customers
from outside the exclusive territory from viewing the distributor’s website;
automatically to re-route such customers; or to terminate transactions over
the Internet once a credit card reveals an address outside that
distributor’s exclusive territory. In the context of selective distribution,
the commission considers the imposition of criteria for online sales which
are not overall equivalent to those imposed for sales from brick and mortar
shops to be hardcore restrictions.
- The commission further considers that it is a hardcore restriction for a
supplier and a distributor to agree to limit the proportion of the
distributor’s overall sales made over the Internet, although there can be a
requirement for a distributor to sell a certain absolute amount offline, and
that it is also usually a hardcore restriction to charge a higher price for
products intended to be resold online than for those intended to be resold
- The New VRBER allows a supplier using a selective distribution network
to require distributors to have one or more brick and mortar shops, and to
conform to the standards required of the distributors’ own websites when
using third-party platforms for distribution.
The commission presents the new regime as simple, and at its headline level
it is. Companies are free to decide how and on what terms to distribute their
products in the EU, provided their agreements do not contain hardcore
restrictions and the market shares of the supplier and buyer both do not exceed
30%. Further, approved distributors are generally free to sell on the Internet
without any limitation on the quantities, their customers’ location and on the
However, as ever, “the devil is in the details.” Internet sales practices, as
with various other issues in relation to vertical agreements, will continue in
many cases to be complex and require significant analysis even where the basic
requirements of the New VRBER are met. In this regard, the new regime is the
same as the old regime.