Draft revised rules for the vertical block exemption regulation and guidelines on vertical restraints: the Commission publishes the results of its public consultation

On November 22, 2021, the Commission published the results of its public consultation on the draft revised rules for the vertical block exemption regulation (VBER) and guidelines on vertical restraints, launched on July 9, 2021.

The comments received by the Commission mainly concern dual distribution, parity obligations, active sales restrictions and indirect measures restricting online sales.

For the record, concerning dual distribution i.e. situations where a supplier not only sells its goods or services through independent distributors but also sells directly to end customers (like its distributors at the retail level) the Commission had proposed to exclude from the exemption instances of dual distribution. It viewed this to be likely to raise horizontal issues by lowering the safe harbor to a aggregated market share of 10 percent. Stakeholders expressed reservations regarding this threshold, and argued that it should, as a minimum, be increased to 20 percent or be replaced by an alternative threshold (relating to the share of direct sales of the manufacturer in relation to its entire sales). Many stakeholders also indicated that it is difficult and costly to calculate market shares at the retail level, notably where local markets and/or different products are concerned.

Furthermore, all categories of stakeholders asked for more guidance on the type of information that can be exchanged between the parties in a dual distribution relationship and on the measures that undertakings can take to address possible competition concerns (the viability of Chinese Walls, etc.). They also asked the Commission to recognize that exchange of information is necessary to generate efficiencies under vertical supply agreements that underlie dual-distribution relationships.

Regarding active sales restrictions, Article 4 point b) of the draft VBER introduces the possibility to share exclusivity, allowing a supplier to appoint more than one exclusive distributor for a particular territory or customer group. However, the appointed distributors have to be determined in proportion to the allocated territory or customer group, to secure a certain volume of business to preserve their investment efforts. In addition, Article 4 point c) of the draft VBER reinforces the protection of selective distribution systems against active and passive sales made in the selective territory by distributors operating in a territory that has another distribution system.

Stakeholders supported the proposal to allow shared exclusivity, on the ground that it provides more flexibility for suppliers to structure their distribution system according to their needs and that customers would be better served. Other stakeholder shared the need to limit the number of distributors in a shared exclusivity system to secure a certain volume of business that preserves the distributors’ investment efforts.

Conversely, some retailer and consumer associations as well as stakeholders of the e-commerce sector considered that the proposal provides too much flexibility for suppliers without imposing limits to prevent them from misusing that shared exclusivity to shield a large number of distributors from active sales coming from other territories.

The new rule extending the restriction of active sales to distributors’ customers has been well received it allows distributors that benefit from exclusivity a better chance at recovering their investments. However, clarifications are needed as regards the scope of this new rule notably whether it applies to all buyers in the chain, or only to the distributor’s direct customers.

Regarding indirect measures restricting online sales, the draft VBER proposes to no longer count among hardcore restrictions the “equivalence principle” (between the criteria imposed on selected distributors for online sales and those imposed for sales in physical stores) or the “dual pricing” practice (when suppliers charge the same distributor a higher wholesale price for products intended to be sold online than for products sold offline). The Commission considers that online sales have become an efficient sales channel and no longer need to benefit from this special protection.

These new exemptions are only valid insofar as these restrictions are not intended, directly or indirectly, to prevent buyers or their customers from using the Internet to sell their goods or services online.

Although the relaxation has been welcomed by some, other stakeholders stated that they preferred to maintain the hardcore restriction. Some stakeholders further underlined the text’s lack of clarity and asked for clarification of the rules or guidelines on how to apply these new provisions.

Comments are also unanimous against characterizing online platforms as “suppliers.” This is not justified by market reality and is likely to discourage suppliers and distributors from signing contracts with online platforms.

Actions for damages in the dairy products case: the Paris Court of Appeal overturns a first instance judgment and accepts claims for compensation

For the record, in decision No. 15-D-03 of March 11, 2015, the French Competition Authority sanctioned a cartel on dairy products sold under retailer brands. Thereafter, the supermarkets Cora and Match, two large and medium-sized retailers (GMS), brought an action for compensation before the Paris Commercial Court for the prejudice they claimed to have suffered due to higher prices resulting from the anti competitive agreement. Considering that their prejudice had not been sufficiently demonstrated, the court dismissed their claims. It is in these circumstances that the GMS lodged an appeal before the Paris Court of Appeal that handed down its decision on November 24, 2021.

In its decision, the Paris Court of Appeal largely overturned the judgment of the Commercial Court that had considered that the GMS had had the possibility to pass on nearly 100 percent of their extra costs related to the unlawful concerted practices. On the contrary, the Court of Appeal asserted that there was sufficient evidence of “the existence of a direct prejudice suffered by Cora and Match, due to extra cost related to the cartel, in any event for the period until December 2012 included, extra cost that was only partially passed on in their final consumer prices.” The Court considered that passing on the extra costs was limited due to the GMS’ business policy aimed at limiting price increases.

It will also be noted that the court considered that an “umbrella effect” caused prejudice to the appellants. This is an umbrella effect which occurs “when companies that are not themselves parties to a cartel (...), set, deliberately or not in the wake of the actions of this cartel, their own prices at a higher level than what the conditions of free competition would have allowed them to charge otherwise.” The Court accepted compensation while limiting it to the period during which the prejudice was suffered.

Finally, the court set compensation for the prejudice at €2 million for Cora and €332,780 for Match.