The European Commission (the Commission) has launched its public consultation on the review of the existing competition rules relating to supply and distribution agreements.
Commission Block Exemption Regulation No 2790/1999 on vertical restraints (the Regulation) recognises that certain supply and distribution agreements satisfying specified conditions can facilitate rather than restrict competition. Accordingly, the Regulation provides a ‘safe harbour’ for such agreements from the general prohibition on restrictive business practices in Article 81(1) of the EC Treaty. There are also existing Guidelines on Vertical Restraints (the Guidelines) that accompany the Regulation.
The Regulation expires in May 2010. The Commission considers that it has worked well in practice and that no fundamental modifications are necessary but recognises that certain changes in the market place require the provisions under the Regulation and Guidelines to be updated. The Commission appears determined to get the Regulation through the current term of the Commission (which ends on 31 October 2009) and some commentators have suggested that it is touting its modifications as mere clarifications to push the changes through, when in reality some of the reforms appear to tread a new path – in particular, the new hardcore restrictions on conditions prohibiting online passive sales.
The increased use of the internet as a sales medium has introduced benefits to the market such as improved choice of supplier and facilitation of cross-border trade. However, there are also associated problems, in particular ‘free riding’, where online retailers are seen to benefit from luxury goods manufacturers’ investment in brands without investing in the brands themselves. In discussions over the proposed changes, online retailers have asked for unrestricted freedom to sell over the internet, while luxury goods manufacturers have sought to protect brand investment by being able to impose conditions on retailers’ ability to sell online.
According to the Commission, the proposed changes are intended to update the Regulation and Guidelines to take account of this evolution in online sales and the increased buying power of big retailers.
The changes to the Guidelines specify how the Regulation will apply to specific conditions imposed by suppliers on internet sales and impose new hardcore restrictions on conditions prohibiting online passive sales. One example is a condition that requires a distributor to terminate consumers’ transactions over the internet once their credit card data reveals an address that is not within the distributor’s territory.
To address major retailers’ enhanced buying power, under the proposed changes a vertical agreement will only benefit from the Regulation if both the supplier’s market share and also the buyer’s market share do not exceed 30%. Currently the 30% limit only applies to the supplier’s market share.
The launch of the public consultation follows the final meeting with the competition experts of the EU member states that took place on 22 July 2009.
Interested third parties are invited to comment on the proposed changes to the Regulation and Guidelines by 28 September 2009, with a view to the final text being adopted by the end of the year.
