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European Commission confirms Vertical Block Exemption Regulation will be renewed and publishes its evaluation

  • United Kingdom
  • Competition, EU and Trade

10-09-2020

On 8 September 2020, the European Commission (the “Commission”) published a report on the evaluation phase of its review of the Vertical Block Exemption Regulation (the “VBER”).  The VBER, which was implemented in 2010 and is due to expire in 2022, provides automatic exemption for certain agreements from the EU’s rule against anticompetitive agreements.  The aim of the Commission’s review is to determine  whether the rules in the VBER (and its accompanying Vertical Guidelines) are still relevant and should be retained and, if so, whether and how they should be improved.[1] The outcome of the evaluation phase is that the Commission considers the VBER remains a useful tool, and one which should be retained. Having identified a number of issues, however, the Commission is now launching the second phase of its review - an impact assessment to determine how the VBER could be revised in order to remain relevant in a rapidly changing and increasingly digital world.

Background

Vertical agreements are agreements entered into between two or more parties where each party operates at a different level of the production or supply chain, for example, a company that manufactures goods and a separate company that buys those goods for resale in its stores.

Under Article 101(1) of the Treaty on the Functioning of the European Union (the “TFEU”), agreements which prevent, restrict or distort competition are generally prohibited. However, such agreements may be exempt from the general prohibition where they contribute to the production or distribution of goods or to the promotion of technical or economic progress, all while allowing consumers a fair share of the benefits without eliminating competition. The VBER provides automatic exemption from the general prohibition for vertical agreements where certain conditions are met.

Results of the Evaluation

On 8 September 2020 the Commission published a Staff Working Document summarising its findings from the evaluation stage of the review.  Over the course of the two-year evaluation, the Commission collected evidence from different sources including: stakeholders; an external evaluation support study relating to (a) market developments and consumer, and (b) specific areas of the VBER rules; the results of its own e-commerce sector enquiry and the enforcement practice relating to restrictive vertical agreements at both an EU and national level. 

Ultimately the evaluation concluded that the VBER and the Vertical Guidelines are still relevant as tools for facilitating the self-assessment of vertical agreements and helping businesses to reduce compliance costs when entering such agreements.  However, unsurprisingly, the Commission also concluded that the VBER and Vertical Guidelines need to be revised, as distribution models have changed significantly over the last decade since the introduction of the current version of the VBER.  In particular, as a result of the substantial growth of online sales and online platforms, and consumers’ increased use of omni-channels (i.e. switching between purchasing online and at physical stores).   

The evaluation identified a number of shortcomings with the VBER and the Vertical Guidelines in their current form and proposes changes to simply, clarify and update them, including the following:

  • making the definitions and other wording clearer (e.g. in relation to agency), and providing more examples to assist businesses with self-assessment;
  • updating the rules so that they reflect the current business environment and distribution models, as well as the recent enforcement practice of both the EU competition authorities and the EU courts;
  • filling in gaps in the rules to cover the rapidly evolving business environment such as guidance on the use of retail parity clauses and price comparison websites;
  • ensuring that the rules are clear so that they are interpreted consistently by the EU national competition authorities; and
  • simplifying the rules to further reduce compliance costs for businesses, particularly SMEs.

The next phase of the Commission’s review will be an impact assessment to consider and address the issues raised in the evaluation, as well as any possible policy areas. Stakeholders will have the opportunity to provide their feedback on the impact assessment in the last quarter of 2020.  The Commission intends to publish a draft revised VBER and guidelines for stakeholder comments next year so that they are in place by 31 May 2022 when the current rules expire. 

Comment

The VBER and associated guidance has proved an invaluable tool for businesses over the last decade and the business community will no doubt welcome the Commission’s confirmation that (a version of) the VBER will remain in place beyond 31 May 2022.  However, in line with the feedback a number of businesses and other stakeholders have given during the Commission’s consultation process, businesses will also welcome the fact that the Commission acknowledges that the current documents require updating and clarifying to reflect changes in national law as well as the business environment in which they have to operate.  The updates will hopefully improve legal certainty, reduce compliance costs  and provide a stronger common framework for the national competition authorities of the Member States. 

If you require more detailed information on how the vertical rules are likely to change over the coming two years, or you would like assistance in inputting into the next stage of the review process, please contact:


[1] Eversheds Sutherland’s response to the Commission’s public consultation is available from https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/1936-Evaluation-of-the-Vertical-Block-Exemption-Regulation/public-consultation.