EU Commission to review rules of distribution

The EU Commission is considering  revising the block exemption regulation (VBER) and accompanying guidelines relating to vertical agreements (agreements between parties at different levels of the production or distribution chain). If an agreement satisfies the conditions of the VBER, it is exempt from the prohibition of anticompetitive agreements in Article 101(1) of the Treaty on the Functioning of the European Union (TFEU). If it does not satisfy the VBER then there is a serious risk that it does not comply with EU Competition law, so facing the possibility of being unenforceable, of the parties facing material fines by competition authorities and actions for damages by third parties claiming to have been prejudiced by the unlawful agreements.

The EU Commission has kicked off the review by issuing a consultation document to which responses can be submitted by interested parties by 27 May 2019. The review process will last for approximately two years and apart from responding to the consultation document, stakeholders can seek to canvass their views through the submission of papers and meetings with key Commission officials.

The last decade has seen a significant change in distribution strategies and consumer behavior such as:

  • growth in e-commerce;
  • online price transparency;
  • direct sales by manufacturers to consumers in competition with distributors;
  • increased use of selective distribution systems (to enable manufacturers to better control their distribution networks through appointment of pre-selected authorized distributors); and
  • increased use of contractual restrictions to better control product distribution (marketplace (platform) bans, restrictions on the use of price comparison tools and exclusion of pure online players from distribution networks).

The Commission will take into account these trends in the market when proposing changes to the rules. It is likely there will be a change in the current EU rules following the completion of the review. The rules that are set in place following the review will likely be in force for ten years. Given that many markets operate differently, companies that fail to communicate their views to the Commission properly may find their future business strategies compromised if the EU Commission has not fully appreciated the practical consequence of the application of the rules in the market in question.

Strategically there are legal and business implications for operations in the rest of the world as other regulators may replicate the EU rules.

A comprehensive consideration of the legal, commercial and strategic aspects will enable companies to both limit any potential downsides and maximize the upsides resulting from the review. Companies should follow the review process closely to canvass their views to the Commission and also to give themselves the opportunity to respond to the changes in rules by flexing their business models and distribution strategies.