The new Vertical Block Exemption Regulation: basic principles

On May 10, the European Commission adopted the new Vertical Block Exemption Regulation (VBER), which will enter into force on June 1. The revised Guidelines have not been formally adopted yet, but they are already available in English on the website of the Directorate-General for Competition.

We will examine the new regulation in a series of posts from a general perspective, since every sector and each company or group of companies have their own specificities and particular circumstances.

This first post focuses on the basic principles, recalling what type of regulation we are dealing with. We will discuss the general conditions laid down by the VBER, which have not been modified by the new regulatory framework.

In the context of the application of article 101 of the Treaty on the Functioning of the European Union (TFEU), a block exemption Regulation specifies the conditions under which certain agreements are considered compatible with that provision. The same applies to article 1(4) of the Spanish Competition Act (LDC), which refers, en bloc, to EU Regulations in the case of agreements with a strictly national scope.

First, the VBER is applicable to agreements that meet all of the following characteristics:

> Agreements between two independent businesses operating, for the purposes of the agreement, at different levels of the production or distribution chain. If the agreement raises horizontal concerns, the rules on relationships between competitors will apply, except for the vertical aspects of non-reciprocal agreements between retail competitors (e.g., a supplier competing with its retail distributor).

> Agreements governing the conditions under which the parties may purchase, sell or resell certain goods or services. Leases are outside the VBER’s scope of application.

> Agreements containing restrictions of competition within the meaning of article 101 TFEU: the VBER neither requires establishing certain restrictions of competition nor applies if an agreement does not contain restrictions of competition.

The VBER does not apply to companies from the same group or to genuine agency agreements, which require an assessment of the risks and costs assumed by the agent regarding the specific market and contractual relationship.

Second, the VBER favors agreements in which each party’s market share on the relevant market does not exceed 30%. As for suppliers, market share must be examined on the selling market, and in the case of buyers, on the purchasing market, even in agreements with three parties where the same party acts simultaneously as supplier and buyer. The definition of the product and the geographic market can be different, and in practice it usually is.

Market shares must be calculated based on value data, but if value data are not available, estimates can be made, based on other reliable market information. Also, for the calculation of market shares, in-house production, if there is any, will not be taken into account (note that in-house production can be relevant for the competition analysis in a particular agreement, but not to calculate a company’s market share). As clarified by the Guidelines, the supplier’s sales made through its integrated distributors and agents will be included.

The size of the companies or the market involved is irrelevant for the purposes of the VBER. The Guidelines clarify that agreements between SMEs are rarely capable of (i) affecting trade between Member States; or (ii) significantly restricting competition. However, national competition frameworks remain applicable, and the concept of insignificant (de minimis) restrictions can change.

Above we discussed the general conditions provided in the VBER, applicable to all forms of distribution through independent operators.

It is important to bare in mind that any agreements that do not comply with the VBER, regarding any of the conditions it lays down, are not illegal per se. Rather, they must be examined as any other restrictions of competition, considering their object and effect, the efficiencies they generate, and their actual and potential impact on consumers and competition. Sometimes it may be important to examine the agreement within the framework of potential abuses of a dominant position.