Commission Regulation on competition rules for distribution of goods and services
The European Commission adopted yesterday a new Regulation that ‘block exempts’ distribution and supply agreements at different levels of the production and distribution chain. The existing Vertical Restraints Block Exemption Regulation (VRBER) and accompanying Guidelines were 10 years old. The Regulation and accompanying Guidelines take into account the development, in the last 10 years, of the Internet as a force for online sales and for cross-border commerce, something that the Commission wants to promote as it increases consumer choice and price competition.
The basic principle remains that companies are free to decide how their products are distributed, provided their agreements do not contain price-fixing or other hardcore restrictions, and both manufacturer and distributor do not have more than a 30% market share. Approved distributors are free to sell on the Internet without limitation on quantities, customers’ location and restrictions on prices.
The new rules introduce the same 30% market share threshold for distributors and retailers to take into account the fact that some buyers may also have market power with potentially negative effects on competition. This change is beneficial for small and medium-sized enterprises (SMEs), whether manufacturers or retailers, which could otherwise be excluded from the distribution market.
This does not mean agreements between companies with higher market shares are illegal. Only that they must assess whether their agreements contain restrictive clauses and, whether they would be justified.
The new rules also address the issue of online sales. Once authorised, distributors must be free to sell on their websites as they do in their traditional shops and physical points of sale. For selective distribution, this means that manufacturers cannot limit the quantities sold over the Internet or charge higher prices for products to be sold online. The Guidelines further clarify the concepts of “active” and “passive” sales for exclusive distribution. Terminating transactions or re-routing consumers after they have entered their credit card details showing a foreign address will not be accepted.
With the new rules in force, dealers will now have a clear basis and incentives to develop online activities to reach, and be reached, by customers throughout the EU and fully take advantage of the internal market. The Regulation takes effect in June.
