EU Regulatory Framework - VBER
Article 101(1) of the Treaty on the Functioning of the European Union prohibits agreements between undertakings and concerted practices that restrict competition unless, in accordance with Article 101(3) of the Treaty, these contribute to improving the production or distribution of goods or to promoting technical or economic progress allowing consumers a fair share of the resulting benefits.
So-called “vertical agreements” are among those covered by Article 101(1) of the Treaty. These are agreements and concerted practices relate to the conditions under which the parties may purchase, sell or resell certain goods or services.
VERTICAL BLOCK EXEMPTION REGULATION 'VBER'
Commission Regulation (EU) 2022/720 of 10 May 2022 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices (VBER)
These ‘general provisions’ apply to franchise networks (all sectors) – For the automotive sector it regulates new car sales franchises
Entered into force on the 1st of June 2022 and will expire on the 31st of May 2034
EC VBER's review process & Actions by CECRA
May 2022 - Publication of the new Vertical Block Exemption Regulation & Vertical Guidelines.
February 2022 - Commission launched a targeted public consultation in the context of the ongoing review of the VBER & Vertical Guidelines, inviting comments on the guidance proposing to introduce a new section in the Vertical Guidelines dedicated to the treatment of information exchange in dual distribution relationships.
CECRA participated in this consultation - CECRA’s contribution.
March 2022 - Meeting CECRA/DG COMP to clarify some aspects relating to information exchange in the context of dual distribution. Link to the report of the meeting.
Comments to the previous consultation on the draft VBER and the revised Vertical Guidelines showed that there was a need for more guidance on the types of information that can be exchanged between a supplier and a buyer in the context of a dual distribution relationship. The Commission gathered therefore more evidence and commissioned an expert report to inform the drafting of this additional guidance. This additional guidance would be included in the new Vertical Guidelines.
The new draft guidance let appear the revised VBER will apply only to the exchange of information between a supplier and a buyer that is “necessary to improve the production or distribution of the contract goods or services”. The new guidance makes no longer reference to the 10% market share.
The new approach stipulates that:
All commercial information that is exchanged in the context of dual distribution that can be considered to be “necessary to improve the production or distribution of the contract goods or services” can remain ‘covered’ up to the usual 30% market share threshold that regulates VBER ‘admission’
The exchange of information that cannot be considered as ‘necessary’ will not be ‘covered’ under the VBER, but will instead need to be assessed under Article 101 (TFEU), and also take account of the ‘Horizontal Guidelines’ that cover collaboration between businesses at the same level of the production or distribution chain.
Technical information about the goods/services – e.g. registration, certification, safe handling, etc.
Supply information – e.g. relating to production, inventory, stocks, sales volumes, and returns
Aggregated information around customer purchases, preferences, and feedback
Pricing information – e.g. the supplier’s wholesale and recommended/maximum retail prices, plus (at least by our interpretation of the draft text) the retailer’s achieved transaction price (provided that none of this restricts the retailer’s ability to set that transaction price)
Marketing information relating to the goods/services – e.g. promotional campaigns
Aggregated performance-related information relating to other retailers in the network (so long as the individual retailers cannot be identified), and information relating to the retailer’s volume/value sales of the contract brand as compared with its sales of other brands
Information around the future prices the supplier or retailer might sell the goods/services at (unless as part of a short-term low price campaign)
Customer-specific sales data, including non-aggregated volume/value data per customer, or information that identifies customers unless this is necessary for the supplier or retailer to adapt the goods/services to the customer’s requirements, or to provide warranty or after-sales services
Information about the retailer’s sales of own-branded goods/services (which compete with the supplier’s goods/services) unless the supplier also manufactured these goods/services on the retailer’s behalf
October 2021 – CECRA attended EC workshop dedicated on dual distribution. After the meeting, CECRA sent a mail reclaiming the need for maintaining a legal framework which sets out the conditions of exempting dual distribution as well as rejected the argument put forward by OEMs that negative effects of direct sales and exchange of information could be prevented by national legislation.
July 2021 – EC published its drafts of the revised Vertical Block Exemption Regulation and Guidelines for stakeholders to comment. Through the consultation, EC aimed gathering additional stakeholders feedback on the changes it proposes. CECRA sent its contribution.
June 2021 - Commission published all the results of the open public consultation including a summary of the contributions; a summary of the contributions of NCA, an expert report on active sales restrictions and an expert report on online sales and online advertising restrictions.
April 2021 – Regular contact with DG COMP conc. Agents - CECRA’s note on EC Working document on ‘Distributors that also act as agents for certain products for the same supplier’.
March 2021 – Commission launched a public consultation on a block exemption regulation and guidelines on vertical agreements – CECRA completed the questionnaire.
October 2020 – Commission launched the impact assessment, during which it gathered evidence for improvement, including through an open public consultation, discussions with interested parties, NCA and through expert reports.
September 2020 – Commission published a Staff Working Document setting out the results of the evaluation of the current VBER and its Vertical Guidelines. The evaluation showed that they are both useful tools that significantly facilitate the self-assessment of vertical agreements and help reduce compliance costs for businesses entering into such agreements. However, it also provided indications that the current rules need to be adapted to market developments.
CECRA regularly informs DG COMP on developments occurring within the automotive distribution and aftersales sector (Austrian Supreme Court rules that Peugeot Austria has abused market power against independent dealers & Frankfurt court has just ruled that the Opel dealer remuneration system in Germany is illegal & Non genuine agency contracts).
CECRA’s key demands have been taken into account:
Exchange of information in case of ‘dual distribution
Dual distribution refers to the scenario where a supplier sells goods or services not only at the upstream level, but also at the downstream level, thereby competing with its independent distributors. Dual distribution has become more prominent in the recent past, as online sales facilitate direct sales by suppliers, either through their own websites or through marketplaces. Dual distribution was exempted under the previous VBER. However, the EC’s review of the previous VBER revealed horizontal concerns when the supplier offers goods and services in direct competition with its own distributors.
Exchange of Information: The new VBER introduces in Article 2(5) a two-limb test, according to which the exchange of information in dual distribution is exempted only when it is both (i) directly related to the implementation of the vertical agreement and (ii) necessary to improve the production or distribution of the contract goods or services. To provide guidance on how this test will apply in practice, the EC included in the new Vertical Guidelines a non-exhaustive list of examples of information that either may fulfil or are unlikely to fulfil the two conditions set out in Article 2(5) of the new VBER. The new Vertical Guidelines also provide examples of precautionary measures that parties can take to minimise the risk that the information exchange will raise competition concerns.
Point 99 of the Guidelines specifies examples of information that may improve the production or distribution of the contract goods or services and point 100 examples of information that is unlikely to fulfil these conditions.
Information exchange that may improve production and distribution, i.e. are in the VBER’s safe harbour such as technical information; logistic information, customer preferences and feedback, price & marketing information and performance-related aggregated information. Information that is unlikely to fulfil these conditions, i.e. information which are not in the safe harbour are information linked to future prices, offerings, prices on deals which are not closed/delivered yet; information relating to identified end users (unless it is necessary to enable to satisfy the end user’s requirements; unless it is necessary to grant special conditions (e.g. loyalty scheme); unless it is necessary to provide pre-or after sales services (e.g. guarantee services); unless it is necessary to implement or monitor selective or exclusive distribution system under which particular end users are allocated to a certain supplier/buyer; info relating to goods sold by a distributor under its own brand name unless the manufacturer is also producer of those own-brand goods.
VBER 330/2010: higher wholesale price for online sales was a hardcore restriction as it would hinder the development of online sales.
NEW VBER 2022/720: sets out the possibility for a supplier to sell products on a different wholesale price to dealers depending on whether the goods are sold in a physical sales outlet versus online.
Hybrid sales platform
A manufacturer may not oblige a dealer to use its website. Manufacturers should not use their website to offer used vehicles of other brands as they are competing goods.
This might lead to manufacturers accepting the management of website common to a network by a trusted third party, avoiding access by manufacturers to customers’ personal data and strategic commercial information.
An agent is a legal or natural person entrusted with the power to negotiate and/or conclude contracts on behalf of another person (the principal), either in the agent’s own name or in the name of the principal, for the purchase of goods or services by the principal, or the sale of goods or services supplied by the principal. An agent is considered as genuine when it bears no significant financial or commercial risks. In such cases, the agent does not act as an independent economic operator, and therefore the agency agreement falls outside the scope of Article 101(1) TFEU.
The Vertical Guidelines accompanying the Regulation provide a framework for agency status. It details the costs that must be reimbursed to the agent: the Guidelines (points 23 to 45) make the recognition of the status of agent within the meaning of competition law conditional on the agent not having to bear all the costs specific to the contracts concluded and/or negotiated by the agent, the costs relating to the investments specific to the market as well as the risks relating to other activities carried out on the same product market when this independent activity is required by the supplier (or in the case of assumption of costs that it remains absolutely insignificant).