Vertical Block Exemptions – changes in the rules from 2010

On 20 April 2010, the European Commission adopted the Regulation No. 330/2010 on the “application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices”, the Vertical Restraints Block Exemption Regulation which exempts certain distribution agreements from competition law rules prohibiting restrictive agreements.

The new Vertical Restraints Block Exemption Regulation is similar to the old rule in exempting distribution agreements from competition law rules as long as the agreement does not contain hardcore restrictions and the supplier’s market share is under 30 percent. However, the new Vertical Restraints Block Exemption Regulation also require the buyer’s market share to be less than 30% of the relevant market in which it purchases the contracted goods or services.

The new EU Guidelines describe how the Commission interprets active online sales and passive online sales.

Paragraph (51) of the Guidelines says that sending of unsolicited e-mails, actively approaching customers in a specific territory through internet advertisement or other promotions will be deemed active sales. Also putting advertising on third party websites or purchasing Adwords to have advertisements displayed to users in a particular territory would be forms of active sales which suppliers are free to restrict and still benefit from the VBER.

However, passive online sales activities such as responding to unsolicited requests from individual customers using a website to sell products which extends beyond the distributor’s own territory or where a customer has chosen to be kept informed by the supplier of offers which lead to a sale etc, these activities cannot be restricted by a supplier without falling foul of article 101.

Paragraph (52) provides examples of restrictions on online sales that are considered hardcore restrictions of competition:

(a) An obligation imposed on a distributor to prevent customers located in another territory from viewing its website or shall automatically re-route its customers to the manufacturer’s or other distributors’ websites.

(b) An obligation imposed on a distributor to terminate consumers’ transactions over the internet once their credit card data reveal an address that is not within the distributor’s territory

(c) An obligation imposed on a distributor to limit its proportion of overall sales made over the internet.

(d) An obligation imposed on a distributor to pay a higher price for products intended to be resold by the distributor online than for products intended to be resold offline.

The Commission’s approach to online sale is that distributors must be allowed to sell their products online without a supplier restricting the quantities that its distributor sells or by imposing on a distributor obligations to charge higher prices for products which will be sold online.

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