Following a workshop held on Nov. 14 and 15, where the Federation of the European Sporting Goods Industry (FESI) and other trade associations expressed their reservations about it, the European Commission has agreed to revise at least one of the new draft VBER2022 regulations and guidelines that it submitted for public review on July 9 to govern future relationships between vendors (brands or manufacturers) and their wholesale and retail clients.
The contested regulation would inter alia restrict exchanges of information between suppliers and retailers after June 1, 2022, if their combined market share is higher than 10 percent and if the supplier has adopted a “dual distribution system,” selling the same products directly to consumers as well.
Citing cases where the two parties want to get feedback on the sales of a certain product or the effects of a promotional campaign, for example, Youri Mercier, deputy secretary general of FESI said in a webinar on Nov. 30 that this is “one of the most critical points” in the proposed new anti-trust guidelines. The calculation of the parties’ aggregate market share is “the most problematic issue,” he added.
This and other new VBER2022 regulations and guidelines are supposed to update the so-called “Vertical Block Exemption Regulations” issued in 2010 (VBER 2010), which provide a “safe harbour” from anti-trust challenges on “vertical agreements” along the supply chain for commercial operations conducted in the European Union and the wider European Economic Area. Its provisions also allow the parties to such commercial agreements to avoid seeking prior approval by the European Commission’s or the national competition authorities.
The new regulations and the accompanying guidelines will go into effect on June 1, 2022, replacing VBER 2010 in view of recent changes in the market, including the expansion of the suppliers’ direct-to-consumer (DTC) strategies and the emergence of major online players like Amazon, eBay or Zalando. After a lengthy consultation with numerous stakeholders, the Commission is generally expected to come up with a final version of VBER 2022 around April 2022. The new VBER 2022 will become effective on June 1 and remain in force until 2034. From next June, companies will have one year of transition to adjust their policies accordingly until they need to be fully compliant.
In a nutshell, certain types of “vertical agreements” between suppliers and retailers will be permissible under the draft version of VBER 2022 as long as they don’t contain any “hardcore restraints” and if the parties have a market share of less than 30 percent. Where such a threshold is exceeded, commercial operators would need to seek individual approval from the competent European or national competition authorities.
In the webinar, which was co-organized by FESI and the World Federation of the Sporting Goods Industry (WFSGI), both Mercier and Jochen Schaefer, a lawyer with his private practice and legal counsel for both FESI and WFSGI, called on the Commission to clarify its definition of market shares and to help harmonize the definitions used by national anti-trust authorities.
Schaefer cautioned the brands against making a public claim that they are “global leaders” in a certain product segment. He recalled that the German Cartel Office restricted Adidas’ rights to impose prices in the very narrow market segment of football jerseys, where it has a dominant position in the country. He noted, however, that “retail price maintenance” may be permitted under VBER 2022 under exceptional circumstances and for a limited period of time for special coordinated sales actions, for example in connection with the launch of a “revolutionary” new product. The case needs to be extremely well documented in order to justify that exception, he stressed.
On the positive side, both Mercier and Schaefer praised the Commission for a change in the current regulations that will allow the vendors to charge different prices and to adopt different selective distribution policies for pure online retailers and brick-and-mortar retailers. Mercier explained that the change was required because the two distribution methods present different opportunities and different constraints, for example with regard to logistics and rental costs, but Mercier stressed that the different criteria must be clearly specified.
He and Schaefer also indicated that VBER 2022 doesn’t allow the introduction of “parity clauses” in commercial agreements, whereby, for example, “providers of online intermediation services” such as online marketplaces request from a brand not to offer better (financial) terms to any third parties at the B2C level than those granted to the intermediaries themselves.
Among the other positive points of the proposed new regulations, Schaefer mentioned the possibility for suppliers to demand a ban on the use of one specific price comparison tool in a specific territory, but again, the argument needs to be carefully crafted. He also indicated that it will be legally possible to restrict grey marketing activities in a neighboring country and to pass on certain “active sales restrictions” to the distributor’s own retail clients.
This means that a brand will be in a position to require its appointed distributor in a certain country to contractually oblige its retail clients in the respective territory not to actively sell the same products into a certain neighboring country where the brand has a selective distribution system in place. A concrete example of active selling would be for instance one where a German retailer would establish a website in the Danish language to offer its products to Danish customers. Its use of a website in the English language would be allowed for active sale or marketing purposes anywhere, however.
Furthermore, Schaefer indicated that VBER 2022 may allow vendors to renegotiate existing contractual agreements by introducing a distribution scheme of shared exclusivity in a certain territory of the EU or the wider European Economic Area. He also stated that the currently strict and non-extendable five-year duration imposed on post-contract non-compete clauses can now be prolonged under certain circumstances.
Schaefer recommended that companies should make an in-depth review of their existing contractual arrangements – at the wholesale and retail level, offline and online – as soon as possible right after the final version of VBER 2022 and its guidelines will become available, possibly by April 2022 at the latest. With Schaefer’s help, we plan to keep our subscribers informed of any progress in this important area.
Noting that the new buzzwords are omnichannel, DTC distribution and open marketplace, our legal expert said it is very noteworthy in general that the EU Commission has significantly changed its views about the role that online sellers, and in particular open marketplaces, are playing today, judging from the text of its draft VBER 2022 and its guidelines. While EU competition authorities regarded such online intermediaries in the past as a highly useful vehicle, especially for small retailers, to become more visible and increase their reach in marketing terms, the notion is now that brick-and-mortar and hybrid retailers need to be somehow protected, as they tend to be “suffocated” by big global online players such as Amazon, turning them into a kind of ‘endangered species.”
As part of the recommended review of their commercial policies, Schaefer said that suppliers should ask themselves whether it makes commercial sense for them to contractually restrict the presence of their retail clients on marketplaces, and whether this will be legally possible under the new rules. The Commission feels that marketplaces can still be helpful for independent retailers, Schaefer noted, but they will be “much more regulated” in the near future, he added, referring to the EU’s Digital Markets Act, which will come into force very soon and will have a significant impact on the current business model of internet giants such as Google and Facebook, as well as Amazon.
Schaefer said that vendors should also wonder whether it would fit their overall distribution strategy to require their brick-and-mortar retail clients to purchase certain minimum quantities and reserve those solely for offline sales within the related legal requirements of the new regulations.
Mercier and Schaefer invited companies to become members of FESI and/or the WFSGI to substantially benefit from their numerous services, networking and access to valuable information at the European and global level.
Schaefer, who is also available for individual consultation (website: www.sjlegalonline.de; e-mail: sj@sjlegal.de), already commented on the topic of the forthcoming European distribution law reform in an opinion piece published in SGI Europe on July 20.
We welcome our readers’ comments and suggestions. We encourage them to share with us and our readers the changes that they plan to implement in their commercial policies based on the new regulations.
