On 23 April 2010 the EU Commission adopted a new block exemption regulation on the application of EU competition rules to vertical agreements (the Regulation).
In certain circumstances, the Regulation allows suppliers in distribution and other vertical agreements to impose exclusivity and non-competition obligations, and a ban on active selling, on their distributors or purchasers, which would normally be in breach of Article 101(1) of the Treaty on the Functioning of the EU. Agreements outside of the Regulation are not automatically void but must be assessed under the EU competition rules to determine whether they merit exemption.
New rules
The changes introduced by the legislation and its accompanying guidelines are as follows.
Market share thresholds
The legislation introduces new market share thresholds for the application of the block exemption. Both the supplier and the distributor or purchaser must have a market share of 30% or less for the exemption to apply. This is to ensure that the automatic exemption does not benefit dominant buyers, such as supermarkets.
Internet selling restrictions
The new guidelines set out the type of selling restrictions suppliers can (active selling) and cannot (passive selling) place on their internet distributors. Selling via a website is generally regarded as passive selling unless a distributor’s website deliberately targets a particular territory or a group of customers. Suppliers can restrict:
- active online selling to reserved territories or customers;
- the sending of unsolicited e-mails to reserved territories or customers; and
- internet advertising by the distributor that is specifically targeted at reserved territories or customers.
However, subject to limited exceptions, suppliers cannot:
- prevent sellers’ websites from being accessed outside their allotted territory;
- demand cancellation of online orders when customers’ payment details come from outside the territory; or
- sell goods or services to online distributors at a higher price than is charged to other outlets.
Resale price maintenance
The automatic exemption does not benefit resale price maintenance (RPM). However, the guidelines indicate that there is increased scope for suppliers to control their distributors’ resale prices of their goods or services in defined circumstances. If these conditions are met, RPM could merit an individual exemption. For example, RPM could be permitted where a supplier launches a co-ordinated campaign to promote new products or services and obliges its distributors or purchasers to resell at a low promotional price for a short period of time.
What next?
The Regulation enters into force on 1 June 2010. However, existing agreements can benefit from the exemption provided by the Regulation for a transitional period, which ends on 31 May 2011.
Failure to comply with the EU competition rules can have serious consequences, including the inability to enforce relevant agreements, the risk of third party damage actions and regulatory fines of up to 10% of the parties’ worldwide turnover.
It is therefore essential that businesses review their distribution and other vertical agreements. This will ensure that their distribution arrangements are fully enforceable in light of the new rules and will not expose them to private damages or regulatory action.
By Robert Bell, partner, and Paul Henty, solicitor, Speechly Bircham LLP.
E-mail: robert.bell@speechlys.com; paul.henty@speechlys.com.
