The new vertical guidelines - new developments in the regulation of distribution agreements

As mentioned in our latest post, on May 10, the European Commission (the “Commission”) published a new draft, in English, of the Guidelines accompanying the New Regulation (the “New Guidelines”). The New Guidelines will replace the 2010 guidelines and will be formally adopted later, when they become available in all EU official languages.

Below are the main developments:

• The New Guidelines confirm the approach to online sale restrictions

As for the restrictions on online sales, the New Guidelines confirm that the following practices will be covered by the exemption provided in the New Regulation:

-       Imposing quality requirements for distributors’ online stores.

-       Prohibiting the use of online marketplaces.

-       Requiring distributors to have a physical store.

-       Requiring distributors to have a minimum volume of physical or offline sales, which cannot be a percentage of the distributor’s total sales.

However, any restrictions qualifying as an absolute ban on the use of online sales will be outside the scope of the Regulation. This includes, e.g., imposing clauses that require (i) that all sales be in physical stores; (ii) distributors to prevent customers located in another territory from viewing their websites or online stores, or to re-route these customers; and (iii) to terminate consumers’ online foreign credit card payments.

Remarkably, the New Guidelines expressly allow dual pricing, i.e., setting different prices based on the distributor or customer’s intention to resell the products or services online or offline. In this regard, the price difference cannot prevent online sales and must be associated with the investment levels and costs applicable to each sales channel.

• Resale price restrictions will continue to be hardcore restrictions, although the situations that can lead to efficiencies are clarified

Although resale price restrictions for distributors remain hardcore restrictions, the New Guidelines add a new scenario to those of the 2010 Guidelines, in which setting a resale price or imposing a minimum resale price (resale price maintenance or “RPM”) can have pro-competitive effects: preventing distributors from selling a product below its wholesale price thus using it as a loss leader.

Also, the imposition by online intermediation service providers of a fixed or minimum sales price for a transaction that it facilitates will be considered a hardcore restriction under the New Regulation.

Imposing minimum advertised prices (“MAPs”) will also qualify as a hardcore restriction, since it discourages (although it does not prevent) distributors from setting prices below the level advertised.

The New Guidelines also highlight the growing use of price monitoring systems, particularly in electronic commerce, and clarify that price monitoring and price reporting are not, on their own, RPM, and could benefit from the New Regulation’s exemption.

Additionally, when a supplier selects an undertaking for fulfilling a supply agreement previously concluded with a specific customer (known as fulfillment contracts), the imposition of a resale price by the supplier on the undertaking fulfilling the contract is not RPM. In contrast, if the undertaking that will provide the fulfillment services is selected by the customer, the imposition of a resale price by the supplier will not be covered by the New Regulation.

• As for dual distribution, the New Guidelines specify the type of information exchanges covered by the exemption

The New Guidelines specify what can be considered information (i) directly related to the implementation of the vertical agreement or (ii) necessary to improve the production or distribution of the contract goods or services, therefore benefitting from the exemption provided in the New Regulation under the dual distribution framework. This information includes, e.g., (i) technical or logistical information relating to customer experience and purchases (subject to certain conditions); (ii) information on resale prices; (iii) information on promotional campaigns implemented by distributors; and (iv) performance-related information. Therefore, the 10% market share threshold that the Commission had included in last year’s draft Guidelines disappears.

• Other developments

The New Guidelines also provide guidance on agency agreements concluded with agents that also act as independent distributors for the same supplier and within the same product market. So, guidance is provided on the situations in which the principal must cover specific investments to operate in the relevant market. Also, regarding agency agreements, according to the New Guidelines, it is unlikely that agreements entered into by companies active in the online platform economy meet the conditions to qualify as agency agreements.

Finally, the New Guidelines supplement the Regulation provisions on parity obligations or Most Favored Nation Clauses (MFNs). So, the clauses that require suppliers to offer the same or better conditions (i) to a customer as those offered on any other sales channels; or (ii) on direct sales channels like the supplier’s website can benefit from the exemption provided by the New Regulation within the market share thresholds. The only exception are clauses that prevent customers of online intermediation services from offering, selling or reselling goods or services to end users under more favourable conditions via competing online intermediation services, which are considered excluded restrictions (i.e., the exclusion from the block exemption under the New Regulation only covers the restriction itself and not the entire agreement).

We will continue reporting developments related to the New Regulation on vertical agreements and the adoption of the New Guidelines.