Last month, we held a webinar to discuss the modernisation of the EU’s distribution block exemption (the ‘VBER’) and of the UK’s own approach to this: the ‘VBEO’). Economic principles increasingly need to be woven into the commercial application of the competition rules by businesses and we were pleased to have with us Dr Claudio Calcagno, Director at GMT Economics. For those who were not able to participate in the webinar, here is a link to the recording. We compared the EU approach with the expected UK approach and discussed a number of key developments. Highlights from the webinar include:
- VBER will come into force on 1st June 2022 and last 12 years until 2034, while VBEO will last 6 years (as the CMA wants to evaluate post-Brexit market developments)
- Dual pricing – permitting differentiated conditions and pricing to online vendors and bricks-and-mortar vendors – will no longer be hardcore restrictions and may be safe harboured, subject to a degree of proportionality to be applied and also to a requirement to incentivise/reward investment by the offline vendor. The European Commission has indicated that free-riding could occur in either direction and Claudio observed that with inter-brand competition, brands are likelier to lower offline prices, not to increase online prices.
- VBER addresses online intermediation services (OIS) and made clear that the services they provide are NOT as agents.
- With parity clauses, so-called MFNs, there is an emerging divergent approach between the UK and the EU. In the UK, the CMA (which has yet to issue its guidelines) intends to blacklist wide or ‘indirect sales channel’ parity clauses (online or offline) whereas, under VBER, such clauses will not be blacklisted but rather will require individual assessment under A.101(3). Even narrow MFNs, which are safe harboured under VBER, may be investigated by the CMA where it thinks that they operate to create similar effects to wide MFNs.
- Shared exclusivity will be safe harboured under VBER – with multiple exclusive distributors permitted. Although this creates the opportunity for flexibility and additional intra-brand competition, there may be practical difficulties in moving from single to multiple exclusivity. Claudio pointed out that there are likely to be issues of scope and of network economies, as well as the time required to recoup the investment made.
- RPM and MAP remain areas that are likely to be too risky for businesses to roll out, notwithstanding the number of pages of the Commission Guidelines devoted to them.
- One of the main objectives of the Commission in modernising the verticals block exemption, was to take into account in the new safe harbour regulations and guidelines the huge growth in e-commerce and online distribution activities. It also wanted to streamline and clarify for business the guidelines to the regulations, so as to reduce the cost to business of complying with the new regime. In our survey of participants, we found 80% felt that the new regime reflected a good understanding of the evolution of online distribution since the last block exemption.