The new regulation on category exemptions for vertical agreements reflects the current importance of e-commerce

As a consequence of the expiry on 31 May 2022 of Regulation 330/2010 on category exemptions (hereinafter, “Regulation 330/2010”), and given the latest developments in the markets, the growth in e-commerce and the new types of vertical agreements (or the most commonly used types of vertical agreements), the Commission has approved Regulation 2022/720 on category exemptions for vertical agreements and concerted practices (hereinafter, the “new RECAV”).

The new RECAV provides a transitional period between the date on which it comes into force and 31 May 2023, during which vertical agreements that were already in force on 31 May 2022 and met the conditions set out in Regulation 330/2010 but that do not meet the requirements for exemption set out in the new RECAV may be adapted to bring them into in line with the new regulation.

Insofar as certain types of vertical agreements may improve the economic efficiency of a production or distribution chain by allowing greater coordination between the companies involved and offering users a fair share of the resulting profits, the new RECAV retains the structure of Regulation 330/2010 in establishing a general exemption from the ban on agreements that restrict competition in the case of vertical agreements in which the market share obtained by supplier and distributor does not exceed 30% in their respective sectors, albeit with the specific conditions already provided for in Regulation 330/2010 in relation to vertical agreements between an association of businesses and one individual member or supplier, and vertical agreements that contain clauses relating to the assignment or exploitation of intellectual property rights.

The new RECAV also maintains the following provisions as particularly severe restrictions which will entail the withdrawal of exemption and the presumption of a limitation on competition:

• • The imposition of resale prices on the distributor, though the supplier may impose maximum or recommended prices provided that this does not amount to establishing a fixed or minimum sale price through the use of pressure or incentives by either of the parties;
  • Actively or passively restricting the territory or the customers to which the distributor may sell the goods or services, with a number of exceptions, depending on whether an exclusive, selective or other kind of distribution system is used;
  • Restrictions agreed between a supplier of components and a buyer that incorporates these components into other products, where this limits the component supplier’s capacity to sell these components as spare parts to end users or repair workshops, wholesalers or other service suppliers, other than those to which the buyer entrusts the repair and maintenance of its products.

The new provisions introduced by the new RECAV are summarised below:

1/ Dual distribution systems:

The new RECAV reduces the scope of exemption with regard to dual distribution systems, i.e. vertical agreements in which a supplier sells goods or services not only upwards but also downwards, thus competing with its own independent distributors. It retains the general exemption of such agreements, with two exceptions:

• • the exemption will not be understood to include information exchanges between supplier and buyer when they are not directly related to the application of the agreement or are necessary to improve the production or distribution of the goods or services forming the subject of the agreement; and
  • the exemption will not apply to distribution agreements in which the supplier acts as an online intermediation service that competes with the distributor in the sale of the intermediated products or services.

2/ Sales via the Internet:

Given the importance of e-commerce in the distribution of goods and services, the new RECAV also regards the following as especially severe restrictions which are therefore prohibited:

• • contractual clauses that prevent the distributor from using the Internet to sell its goods and services, or that prevent the use of a particular online advertising channel in its entirety;
  • parity or most favoured nation clauses between a supplier and an online intermediation platform that oblige the supplier not to offer, sell or resell its goods and services to end users under more favourable conditions via other online intermediation platforms.

The new Vertical Directives, which include a guide to interpretation of the provisions contained in the new RECAV, explain that the supplier may:

• • establish certain requirements for the online sale or advertising of its products:
    • With regard to Internet sales: requirements relating to the quality or appearance of the distributor’s website, and the way in which the goods or products must be viewed on the distributor’s website;
    • As regards online advertising: requirements relating to quality, the inclusion of certain information in advertisements, not using the online advertising services of certain suppliers that do not meet minimum quality requirements, or not using the supplier’s trademark on the distributor’s website.
  • prohibit the use of platforms or marketplaces for the distribution of its goods, if this does not have the result of effectively prohibiting use of the Internet;
  • require the distributor to have a physical sales outlet in addition to an online channel (as a condition for the distributor to form part of a selective distribution system), and require the distributor to make a minimum volume of sales via that physical outlet;
  • introduce a dual wholesale pricing system for the same product, depending on whether it is distributed online or via a physical outlet, provided that this practice is not aimed at preventing the Internet from being used to distribute the product and the difference in the wholesale price bears a reasonable relation with the difference in the investment costs and expenses incurred by the buyer in order to make sales via each channel.

3/ Other issues:

Finally, the new RECAV continues to classify certain clauses as prohibited:

• • Any direct or indirect non-compete clause that is indefinite or lasts for more than five years. This time limit will not apply if the contractual goods or services are sold by the buyer from premises and land owned by the supplier or leased by the supplier from third parties not connected with the buyer, provided that the duration of the non-compete clause does not exceed the period of occupancy of the premises and land by the buyer.
  • Any direct or indirect obligation that prohibits the buyer, after expiry of the agreement, from manufacturing, purchasing, selling or reselling goods or services. However, such obligations will not be prohibited if the following conditions are met: (a) if the obligation relates to goods or services that compete with the contractual goods or services; (b) if the obligation is limited to the premises and land from which the buyer has operated during the contractual period; (c) if the obligation is indispensable in order to protect know-how transferred by the supplier to the buyer; and (d) whenever the duration of the non-compete clause in question is limited to a period of one year after expiry of the agreement.
  • Any direct or indirect obligation that prevents the members of a selective distribution system from selling the brands of particular competing suppliers.

In conclusion, the new RECAV adjusts the treatment of vertical agreements under Competition Law to the current situation in the marketplace and, in particular, to the increase in e-commerce, resolving a range of issues that arose while its predecessor, Regulation 330/2010, was in force.