On May 10, 2022, the European Commission adopted the new Vertical Block Exemption Regulation (VBER) accompanied by the new Vertical Guidelines (Guidelines), which entered into force on June 1, 2022. We spoke with several Czech competition experts to understand how these updates will influence the day-to-day business activities in the vertical agreements area.
Familiar Yet Different
“The basic structure and the main principles of VBER remain preserved,” Kocian Solc Balastik Partner Sylvie Sobolova explains, noting that the most significant change consists in the readjustment of the so-called “safe harbor,” i.e., vertical agreements and restrictions which fall under the exemption. “The safe harbor was narrowed in two areas – dual distribution and parity obligations – and enlarged in the other two areas – active sales restrictions and restrictions of online sales,” she says.
For Havel & Partners Partner Robert Neruda, the major amendments and clarifications are related to online marketplaces or price comparison tools and reflect recent developments in online sales. “The European Commission rightly believes that e-commerce has evolved during the last ten years, to a level where it no longer needs as much protection from being restricted as in the previous decade,” he notes.
Allen & Overy Senior Associate Ivana Halamova Dobiskova and White & Case Partner Ivo Janda, on the other hand, believe that the most important change relates to dual distribution. “The VBER and the Guidelines extend dual distribution exemption to also cover agreements where the parties’ activities overlap at the wholesaler or importer level,” Halamova Dobiskova says. “The frequent occurrence of a dual distribution system also triggered new rules on the exchange of information between the parties to the vertical agreement.” The new vertical package “introduces several important changes to the assessment of distribution agreements that will have an impact on a number of our clients,” Janda explains.
Impacting Online Platforms and Beyond
Sobolova and Janda say that the VBER will have an immediate impact on online platforms and e-commerce companies. “Taking into account the particular focus of the new VBER on the digital/platform economy as an increasingly important distribution channel, we believe that the new VBER will be particularly relevant for online intermediation services (OIS) providers,” Sobolova explains.
Beyond that, “the VBER is applicable no matter in which sector you do business,” Halamova Dobiskova argues. “Any company in various levels of the distribution chain will be impacted by the amended rules.” This, according to her, might lead to “pressure from the suppliers to alter the way in which their distribution channels are structured. In particular, the amendments to active and passive sales restrictions will allow the suppliers to design their distribution systems more flexibly.”
Further still, Janda adds that “the impact of the new vertical package will be notable.” According to him, “the Czech competition authority (CCA) applies EU block exemptions also to purely national commercial agreements, based on authorization anchored in the Czech Competition Act. Consequently, the new vertical package will be equally applicable also to local commercial agreements lacking appreciable effect on the trade between member states.”
New Rules of the Game
“For companies that are currently relying on the VBER, it is important to review their relationships with business partners and make amendments, if needed, until the end of the transition period,” Halamova Dobiskova points out. “It is also essential for companies to train those people responsible for interactions with vertical business partners to ensure compliance with the new rules.”
“The rules governing the relationship between manufacturers and distributors of goods fundamentally changed,” Neruda agrees, noting that the changes create both potential risks and opportunities. “Companies should pay attention to the obligations imposed by competition law in connection with the distribution of goods and services, such as whether they are allowed to tell their distributors what prices to charge for their products, or to restrict retail sales of their products via online sales channels.” According to him, “the correct setting of distribution systems should eliminate the risk of competition law infringements and the related high fines.”
Sobolova adds that “the new VBER defines OIS and clarifies that OIS providers qualify as suppliers under VBER.” According to her, “OIS providers should take into account that OIS-related agreements do not benefit from the safe harbor exemption in situations where the provider has a hybrid function – i.e., also competes as a seller in the relevant market.”
“A provider of OIS must refrain from imposing hardcore restrictions on its customers purchasing these OIS,” Janda notes. “Furthermore, in the case of dual distribution where the supplier is active both in the upstream and downstream market, companies will have to pay proper attention to information exchanges.”
Shaping the CCA’s Behavior
Lawyers believe that the new VBER and Guidelines will have an impact on the CCA’s work and its focus when it comes to investigating vertical restrictions.
In general, Neruda notes that “in the eyes of many companies, competition law is often reduced to the topic of huge fines, which ‘clearly affect only the biggest companies, not us.’” However, he adds, “in the last year, the CCA has initiated an unprecedentedly large number of new cases in the area of verticals in many industries.” Consequently, he says, both large multi-national companies as well as purely local entrepreneurs end up caught by the watchdog and face the threat of fines running into millions of euros.
Up to this date, the CCA “has focused more on horizontal agreements,” Janda notes. “In the Czech Republic, the CCA issued fourteen first-instance decisions with finding vertical agreements as anti-competitive in the last ten years” and, “by far, the most common infringement addressed was that of resale price maintenance (RPM), which was investigated and addressed in the vast majority,” Halamova Dobiskova says. Janda adds that, after RPM, exclusive distribution and parity obligations were closely observed by the CCA.
However, there seem to be some indications that the landscape might change. “Currently, the CCA is conducting several investigations into RPM practice imposing record fines in the ensuing administrative proceedings, reaching the statutory cap of 10% of the total turnover of the fined undertaking,” Neruda notes. In addition to that, “in 2021, the CCA imposed the highest penalty so far in the area of vertical agreements, CZK 96.751 million for an RPM violation,” Sobolova points out. “These statistics seem to reflect the increasing attention of the Office for the Protection of Competition concerning the enforcement of vertical agreement regulations.”
Consequently, “we expect that the RPM will continue to be an important focus of the CCA in vertical restraints,” Janda concludes. “With the further rise of e-commerce and online platforms, we expect that the Authority may start looking more thoroughly into the contractual terms and pricing conditions of online platforms, as well as dual distribution.”
A Bit of Breathing Space
At this point, Janda notes that “as the new VBER provides for a transition period until May 31, 2023,” he does not expect “any major enforcement changes immediately after June 1, 2022. However, the Czech Office for the Protection of Competition might take a closer look at vertical agreements after the lapse of the transition period.”
This Article was originally published in Issue 9.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
