On July 9, 2021, the European Commission published for public consultation the revised draft Vertical Block Exemption Regulation (VBER) and the draft revised Guidelines on Vertical Restraints (Vertical Guidelines). The VBER deals with vertical agreements, which are agreements made between companies operating at a different level of the supply chain (eg suppliers, distributors, etc.). It clarifies that if such vertical agreements meet certain conditions, the prohibition in Article 101(1)1 of the Treaty on the Functioning of the European Union (TFEU) does not apply to them.
The current VBER – Regulation (EU) No. 330/2010 – was last revised more than ten years ago. With the revision, the Commission aims to better reflect market developments that have taken place since adoption, such as the growth of online sales and the increased presence of online marketplaces. As Ecommerce Europe members act as buyers, sellers and resellers to end consumers and other businesses through online and omnichannel sales channels, the VBER and its vertical guidelines provide an important framework for vertical agreements between them and suppliers.
The rise of omnichannel business models
Over the past few years, and even more so after the COVID-19 outbreak, the retail landscape has increasingly merged online and offline business models, with a surge in the emergence of companies omnichannel. Ecommerce Europe is concerned that the VBER revision proposal establishes a strict separation between online and offline sales, and that it does not seem to take sufficient account of the convergence of sales channels. Moreover, the proposed changes appear to be biased in favor of brands and suppliers and give them greater control over the distribution chain and the pricing of products and services. Ecommerce Europe would therefore argue that for each of the changes, it should be considered whether they serve the two purposes of VBER:
exempt vertical agreements that do not harm competition but provide efficiencies;
in order to provide legal clarity and certainty, allowing businesses to assess for themselves whether the conditions for an exemption are met.
Ecommerce Europe has identified several changes in the proposed revision that would have a significant impact on the e-commerce sector. The first major change is the revision of the rules of dual distribution, which refers to the situation in which a supplier uses distributors for the distribution of goods or services, but also uses its own distribution channel to sell directly to the end user. Dual distribution is currently covered by the VBER Safe Harbor. In the new draft, vertical agreements in a dual distribution system would always be exempted where the combined market share of the supplier and distributor in the relevant market at retail level does not exceed 10%. Where the joint market share exceeds 10% in the relevant market at the retail level, but the market share threshold is below 30%, there would be a limited safe harbor, covering all aspects of the agreement , with the exception of exchange of information between the parties – this should be assessed in the context of horizontal exchanges under the horizontal guidelines.
Ecommerce Europe has urged the Commission to take into account the growth of direct-to-consumer (D2C) sales online by manufacturers and brands – and to ensure that the information exchanged between a distributor and a supplier in a context of dual distribution cannot be used by the supplier to increase its own direct sales.
The second relevant change in the VBER rules would affect hybrid platforms, namely companies which not only offer intermediary services, but also sell products and services, which would no longer be included in the exemption. To justify the new provision, the Commission argues that hybrid platforms are not comparable to the dual distribution model and that their activities affect inter-brand competition. However, Ecommerce Europe considers that there is no reason to treat these platforms differently from other dual distributors. First, vertical agreements with hybrid platforms are just as likely to create efficiencies as other dual distributors. Second, the general provision denying safe harbor is not justified, as the “hybrid” test is not a test that, in itself, raises competition concerns. It seems disproportionate to implement a general provision without taking into account size, market share, characteristics of the agreements, characteristics of the market, etc.
Thirdly, Ecommerce Europe is concerned about the revision of the new draft guidelines allowing dual price display. This means that suppliers would be allowed to set different wholesale prices for online and offline sales by the same distributor, as long as this price difference is linked to the differences in costs incurred in each channel by distributors at the level of the retail. This provision raises concerns that it only promotes offline retailing and could drive up the prices of goods purchased online, which would disadvantage consumers as well as online sales channels. Additionally, the VBER update does not appear to take into account the move towards an increasing number of omnichannel businesses – for example, SMBs which, during COVID-19, migrated some of their business online to survive and reach new consumers.
For more information, the full response to the Ecommerce Europe consultation is available here.
This editorial was first published in our Cross-Border Payments and E-Commerce Report 2021-2022which taps into the fast-growing cross-border market and provides a comprehensive overview of the trends and developments that are essential in this space, being the ultimate source of information for e-commerce businesses wishing to expand globally.
About Maike Jansen
Maike Jansen is Public Affairs Advisor for Ecommerce Europe, where she handles a wide range of regulatory topics relevant to the digital commerce industry, including consumer rights, contract law, data protection and (e-) privacy, product security, platform legislation such as the Digital Services Act and Digital Markets Act, competition rules and other broader issues such as the rise of transparent commerce (retail omnichannel).
About e-commerce in Europe
Ecommerce Europe is the single voice of the European digital commerce industry. By joining forces with EMOTA, Ecommerce Europe now represents, through its 24 national associations, more than 150,000 companies selling goods and services online to consumers in Europe.
1. Article 101, paragraph 1, TFEU: “The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions of associations of undertakings and concerted practices liable to affect trade between Member States and having as their object or effect the prevention, restriction or distortion of competition within the internal market[…]»