EU Commission: Consultation on the revised VBER – Summary Overview of the Main Changes and Relevance for Switzerland

On 9 July 2021, the European Commission published the drafts of the revised VBER and Vertical Guidelines. Interested parties have time until 17 September 2021 to comment on these drafts. The revised rules shall enter into force on 1 June 2022. For the purposes of an initial overview, the most important changes compared to the currently applicable regulations are presented and critically assessed in the following (including a redline version of the draft revised VBER). In addition, we discuss the relevance of the planned changes for Switzerland.

Background

In October 2018, the European Commission launched a comprehensive revision procedure of the Block Exemption Regulation for Vertical Agreements (VBER) and the associated Guidelines on Vertical Restraints (Vertical Guidelines). The aim of the revision is to adapt the rules to the market developments of the last ten years (including the growth of e-commerce and online platforms). On 9 July 2021, the European Commission published the drafts of the revised Vertical Block Exemption Regulation (E-VBER) and Vertical Guidelines (E-Vertical Guidelines) as well as explanatory notes on the revised drafts. Interested parties have now time until 17 September 2021 to comment on these drafts.

Main Changes

In the words of the European Commission, the proposed changes in the revised drafts of the VBER and Vertical Guidelines aim to:

  • readjust the safe harbour provided by the VBER to its intended scope, as regards the four areas of dual distribution, parity obligations, active sales restrictions, and certain indirect measures restricting online sales;
  • provide stakeholders with up-to-date guidance for a business environment reshaped by the growth of e-commerce and online platforms and ensuring a more harmonised application of the vertical rules across the EU. In particular, the application of the VBER and the Vertical Guidelines to online sales and advertising restrictions, will be clarified further and specific rules and guidance relating to the platform economy will be included; and
  • reduce compliance costs for businesses, notably small and medium-sized enterprises (SMEs), by simplifying and clarifying certain provisions perceived as particularly complex and difficult to implement.

In the area of dual distribution, i.e. the distribution of a distributor that is (partly) in competition with its distributors through its own distribution, both an extension and restriction of the existing rules is foreseen. According to the E-VBER, the wording of the dual distribution exemption rules no longer refers exclusively to manufacturers, but also to wholesalers and importers. While the subjective scope of application shall be extended, at the same time the objective scope of application shall be limited to cases in which the joint market share of the undertakings involved at retail level amounts to a maximum of 10% (cf. Art. 2 para. 4 E-VBER). In addition, dual distribution shall be exempted in cases in which the general market share thresholds of 30% (Art. 3 E-VBER) are met. However, the exchange of information between the undertakings concerned shall be excluded from this (cf. Art. 2 para. 5 E-VBER). Its assessment shall be made according to the rules for horizontal agreements.

Parity and most-favoured-nation (MFN) clauses, respectively, i.e. obligations according to which an undertaking must offer its contracting partner conditions that are at least as favourable as those offered on other distribution channels, are now only to be exempted to a limited extent. So-called broad (cross-platform) parity clauses of online intermediary services shall no longer benefit from the exemption with regard to retail conditions (cf. Art. 5 para. 1 lit. d E-VBER). In contrast, so-called narrow parity clauses, i.e. parity obligations relating to direct distribution channels as well as parity obligations for wholesale in general, shall continue to be exempted, provided that the general conditions for the applicability of the VBER are met.

In addition, the E-VBER regulates the resale restrictions exempted in the context of exclusive distribution systems, selective distribution systems and free distribution systems in a more transparent manner and supplements them in certain points (cf. Art. 4 lit. b-d E-VBER). In particular, the E-VBER now contains a legal definition of the term active sales (cf. Art. 1 para. 1 lit. l and m E-VBER) and clarifications on the interaction of the different distribution schemes with each other (Art. 4 lit. b ii), c i) first lemma and lit. d) i) and ii) E-VBER). The E-VBER newly introduces the possibility of shared exclusive distribution as well as the possibility to oblige the distributor to pass on the restriction of active sales to its customers (cf. Art. 4 lit. b i) e-Vertical BER in each case).

Important changes are proposed regarding e-commerce: Dual pricing systems, i.e. the possibility of setting different wholesale prices (of the distributor vis-à-vis the distributor) for online and offline sales shall no longer constitute hardcore restrictions and be considered exempt provided that they serve as an incentive or as remuneration for appropriate investments and are in proportion to the costs of the respective distribution channel. In addition, the so-called equivalence requirement, i.e. the requirement that the naturally different criteria for online and offline channels must be equivalent overall, shall be abandoned in selective distribution. Accordingly, the breach of the equivalence requirement is no longer mentioned as a hardcore restriction in the E-Vertical Guidelines.

At the same time, the draft regulations make clear that restrictions by object on online sales or online advertising channels shall be considered restrictions on active or passive sales and thus hardcore restrictions under Art. 4 of the E-VBER (cf. Art. 1 para. 1 lit. n of the E-VBER; paras. 192 and 194 of the E-Verticals Guidelines).

Furthermore, the E-VBER and E-Verticals Guidelines contain specific provisions and guidance on the platform economy and its competition law assessment. For example, Art. 1 lit. d of the E-VBER defines the term «supplier» and clarifies that providers of online intermediation services qualify as suppliers and not as agents in the context of the VBER (cf. also Chapters 4.3 and 3.2.3 of the E-Vertical Guidelines).

In addition to these main changes, the E-VBER contains a number of smaller, but in practice significant changes. For example, the rule that non-competition clauses whose duration is tacitly renewed beyond the period of five years are deemed to have been agreed for an indefinite period of time, which has always been questionable from a contract law perspective, has in principle been dropped (Art. 5 para. 1 VBER). The assumption here is that an effective change is possible after the expiry of the five-year period, i.e. that the distributor can effectively renegotiate or terminate the agreement with reasonable notice and at reasonable cost.

An informal redline view of the proposed changes in the E-VBER marked against the currently applicable provisions of the VBER can be found here.

Preliminary Critical Assessment

Several of the proposed changes in the drafts of the revised VBER and Vertical Guidelines are, in our view, welcome, as they regulate existing rules in a clearer and more concise manner and, in particular with regard to the relationship between offline and online sales, tend to grant distributors greater freedom vis-à-vis their distributors to determine how they sell their services and/or products and how they are to resell them. Namely, the abandoning of the vague equivalence principle is to be welcomed. In practice, this repeatedly raised many questions that could hardly be answered conclusively. Nevertheless, it can be assumed that the relationship between offline and online sales will continue to raise questions in the future. Also, many regulations remain unchanged in essence, such as the prohibition of resale price maintenance.

The envisaged new regulations on platform services will have to prove themselves in practice. However, they fit into the general picture according to which the European Commission generally views platform services with great scepticism. The question of whether this actually serves the general welfare and prosperity of the EU internal market may certainly be questioned critically.

The proposed limitation of the objective applicability of the exemption with regard to dual distribution goes in our view in a wrong direction. Since the exchange of information in a dual distribution context shall no longer benefit from the exemption if the market share exceeds 10% at the retail level and the limits of what is permissible in this respect requires in most cases a case-by-case examination involving a great deal of discretion, dual distribution strategies are likely to decline given the threat of direct sanctions in the event of a misjudgement. The market concentration through vertical integration that this would fuel is probably unwanted.

Relevance for Switzerland

The revision of the VBER and the Vertical Guidelines is of major importance for Switzerland and Swiss companies and authorities. On the one hand, Switzerland with its small internal market is an exporting country, which is why many Swiss companies rely on exports to the EU. Swiss distributors will thus be directly affected by the new regulations in many cases when distributing their services and/or goods in the EU.

Furthermore, many jurisdictions around the world are inspired by EU regulations. It can therefore be assumed that the revised regulations will also have an impact on Swiss companies beyond the EU.

Finally, it is to be expected that amendments to the VBER and the Vertical Guidelines will lead to corresponding changes in practice in Switzerland, since the Swiss Competition Commission (COMCO) – as confirmed by the Swiss Federal Supreme Court – is guided in its interpretation and application of Art. 5 para. 4 of the Swiss Cartel Act by the legal situation in the EU, which – informally translated – «[…] is intended to be an equal as well as equally strict and also not stricter regulation as that of the European Union […]» (cf. BGE 143 II 297 Gaba, E. 6.2.3; in German only).

If the E-VBER and the E-Verticals Guidelines are implemented as part of secondary EU community law, they will contain a number of novelties that might no longer be covered by the will of the Swiss legislator (see BGE 143 II 297 – Gaba, E. 6.2.3). An update of COMCO’s Verticals Notice as a purely administrative ordinance, including the accompanying explanations (both in German), in order to restore the parallelism with the EU rules and regulations, would in our view raise questions from a rule of law perspective. Rather, this would require an amendment to the law as a legal basis.

With this change in the law, the original intention of the legislator to create an actual parallelism to the EU regulations could be restored. The COMCO and the courts in Switzerland are in fact often stricter in their practice and case law compared to the legal situation in the EU, most recently with regard to non-binding recommended retail prices in the Viagra case (see our discussion of the Swiss Federal Supreme Court ruling here).

CORE Attorneys is a boutique law firm in Switzerland, focusing on competition/antitrust law, regulatory and distribution law matters. Visit our News & Insights and follow us on LinkedIn for regular updates on all our focus areas.