Op-Ed: “The Commission’s evaluation of its vertical competition law rules: a first glimpse at the upcoming revision” by Martin Gassler
On 8 September 2020, the European Commission published a Staff Working Document (‘Document’) that summarises the findings of its almost two-year long evaluation of both the current Vertical Block Exemption Regulation (‘VBER’) 330/2010 and the Vertical Guidelines (both are referred to as the ‘current vertical rules’). The Document marks the end of the evaluation phase that was started in late 2018. Although the Document does not yet lay down what and how the Commission intends to amend the current vertical rules, the Document still gives a first glimpse of what to expect from the next revision of the vertical rules. This is because the Document identifies the perceived problems with the current vertical rules and thus makes it obvious where amendments of and additions to the current vertical rules can be expected.
It is worth mentioning that the findings of the Document are not just based on contributions made by private stakeholders (during the publication consultation in early 2019) and national competition authorities, but are also based on the experience gained by the Commission’s own e-commerce sector inquiry (where the final report was published in 2017) and an external evaluation support study (’external study’) that was published in May 2020. The external study (over 900 pages long!) aimed to complement the findings of the e-commerce sector inquiry as it also focused on sectors that were not covered by the e-commerce sector inquiry (not just online sales of consumer goods and digital content) and looked at both offline and online sales channels.
The main finding of the Document is that the current vertical rules do not reflect more recent market developments (any longer), particularly linked to the increasing digitalisation of the economy. Among those market developments is the increasing use of new vertical contractual restrictions used by suppliers to better control the distribution of their products in light of increased price transparency and price competition due to the growth of e-commerce (such as platform/marketplace bans, restrictions on the use of price comparison tools, or price parity (better known as most favoured nation or MFN) clauses). These developments were also already identified in the e-commerce sector inquiry. It is interesting to note in this context that the external study finds that there is a move away from exclusive distribution networks towards selective distribution networks, the type of distribution model where these new vertical contractual restrictions are used often. The Document also finds that the current vertical rules also do not (as they are from 2010) consider the more recent case law. It explicitly mentions Coty (C-230/16), where the Court of Justice of the European Union confirmed that a supplier of luxury goods may prohibit its authorised suppliers in the selective distribution network from selling on a third-party platform (such as the Amazon marketplace) if it is necessary to preserve the quality and proper use of the products in question.
A further market development that the current vertical rules do not cover is the growth of online marketplaces. In fact, the external study highlights that the biggest impact on the distribution models was (besides the growth of online sales) the growth of online marketplaces. The document finds that one of the shortcomings of the current vertical rules is that they are designed to be applied to more traditional markets, where the definition of the relevant market and the calculation of market shares is relatively straightforward. However, the definition of the relevant market (and thus the calculation of market shares) is more challenging in emerging online markets or when online intermediaries (such as an online platform) are involved. The Document finds similar problems with the application of the agency exception to online platforms (for example as regards the definition of what would constitute a market specific investment).
Since the current vertical rules do not consider these new more recent market developments, they create legal uncertainty and increase the risk of an incoherent assessment of vertical agreements across the EU (effectiveness criterion), increase the costs for competition compliance for undertakings (efficiency criterion) and thus make themselves less relevant in practice (relevance criterion). Obviously, any revision of the current vertical rules has to consider these new market developments and provide clear guidance and criteria for assessment.
Besides this main finding, the Document also finds that there may be scope in some areas to further reduce the list of hardcore restrictions and excluded restrictions. For instance, some stakeholders argued that there is currently a lack of clarity as regards the conditions under which resale price maintenance can benefit from the Article 101(3) TFEU exemption (which may lead to false positives). The document also finds that the current vertical rules are too complex and identifies that there is room for reducing the complexity of the wording and the structure of the rules. Furthermore, the documents finds that some stakeholders raised concerns that there is insufficient guidance on the interplay between the current vertical rules and two recently adopted regulations (the Geo-blocking Regulation 2018/302 and the Platform-to-Business Regulation 2019/1150). For instance, some stakeholders expressed concerns that some restrictions of passive sales are allowed under the VBER, but not under the Geo-blocking Regulation.
It will be interesting to see how far reaching the changes of the current vertical rules will be. Although the author does not believe the changes will be as far-reaching as the changes brought by the 1999 VBER 2790/1999 (which the Commission itself describes as a ‘new generation’ of block exemption regulation inspired by the more economic approach), the Document provides indications that more changes will be needed compared to last revision in 2010 (the two main changes of which were the focus on buyer power with the introduction of the double market share threshold, and the guidance on the distinction between active and passive sales for internet sales). Since the list of new market developments that are not covered by the current vertical rules is quite long, the upcoming revision may require more (far-reaching) changes than last time.
As a next step, the Commission will launch the ‘impact assessment phase’, the second phase of the review of the current vertical rules (after the ‘evaluation phase’) according to the Better Regulation Principles. This will involve the publication of an impact assessment that will look into the issue identified by the Document. Although a first draft of the revised vertical rules is only planned to be published in the course of next year, the document still gives a first glimpse of what to expect.
Martin Gassler is a competition lawyer based in Vienna. He is also a case reporter for Oxford Competition Law and regularly publishes about recent developments in EU and Austrian competition law, most recently (in English) about the landmark private enforcement judgment Otis (C-435/18) in CoRe 4(1).