What do the new vertical antitrust rules proposed by the European Union mean for luxury brands?

This summer, the European Commission published a draft of the European Union Vertical Agreements Block Exemption Regulation (“VBER”) as well as a draft revised guidelines on vertical restraints to replace existing guidance on vertical restraints. vertical agreements (i.e. agreements concluded between companies operating at different levels of the supply chain). With the current rules in place for more than a decade and due to expire on May 31, 2022, one of the key elements of the new VBER draft and the corresponding guidelines on vertical restraints focuses on e-commerce, including market sales. sites, which has potentially significant impacts on brands when revisions to long-standing guidelines come into play.

The VBER was set up in order to provide companies which maintain vertical agreements with greater certainty as to the compatibility of their agreements with Article 101 (1) of the Treaty on the Functioning of the European Union (“TFEU ”) – which prohibits agreements that could affect trade between EU countries, including by preventing, restricting or distorting competition – by creating a safe harbor exemption. In short: if none of the parties’ market shares exceeds 30%, vertical agreements which do not contain “fundamental restrictions”, such as resale price restrictions, for example, may be presumed to be exempted. (Agreements that do not meet the VBER conditions are not necessarily contrary to Article 101 (1) TFEU. However, they require individual evaluations.)

In terms of contracting parties, “the most obvious examples can occur in retail,” says Paul Henty of Beale & Co., which refers to “the supplier of luxury fashion items and its authorized suppliers”, for example. “But the concept goes further,” he notes, because “vertical arrangements also include an agreement between a manufacturer of materials and its wholesaler or between a supplier of raw materials and a manufacturer that incorporates them into its own goods” .

Among the potential violations of the TFEU: companies are prohibited from imposing resale prices on distributors and completely preventing them from selling online, as well as prohibiting authorized wholesalers from selling outside their allocated territories, from make cross-border sales to end-users or – sell to other members of the selective distribution network within the EEA. While Henty states that “most vertical relationships do not raise competition concerns, however,” brands such as Nike, Guess and Hello Kitty maker Sanrio, among others, have nonetheless come under criticism for their use of such trade restrictions.

Positive reforms

Given the persistent attempts by brands to exercise greater control over the distribution of their products, including the conditions under which their products are offered and sold, it should come as no surprise that “many manufacturers and brand owners of leading press for positive reforms in this area. zone, ”according to lawyers for Osborne Clarke, Marc Shrimpling, Valeria Veneziano, Rebecca Malone, Sebastian Hack, Cecilia Sbrolli and Alexandre Glatz. They claim that from the perspective of manufacturers and brand owners operating in the EU and UK (although the UK has left the EU, the VBER is an example of successful legislation), the proposed reforms which derive from the VBER project. They highlight the “positive aspects of the proposed reforms for manufacturers and brand owners”.

Double pricing will be allowed – Under this VBER, it is illegal to set different wholesale prices depending on whether the products in question will be resold online or in a physical store. Earlier this year in France, for example, Lego was forced to change its discount policy to remove aspects of support for physical retailers that de facto amounted to double pricing. Under the new regulations, in the UK and the EU at least some degree of dual pricing will be allowed in order to provide positive support and incentives to traditional retailers.

Additional protection and flexibility for selective distribution models – The UK and EU appear to have recognized the value of Selective Distribution (“SD”) for brand owners as a way to ensure consistent and efficient execution of their retail strategies. The proposals will give manufacturers greater powers to enforce their SD systems by preventing all sales in SD territory by unauthorized distributors. The proposals also give manufacturers more flexibility in defining SD selection criteria so that they are not required to define equivalent criteria for online and offline sales.

Express freedom to restrict resale on online marketplaces – As an express confirmation of the founding judgment of the Court of Justice of the European Union in the Coty case in 2017, in which the Court ruled that “a supplier of luxury goods may prohibit its authorized distributors to sell these products to a third party. Internet platform such as Amazon ”in order to“ preserve the luxury image of products ”, the new proposals will make it clear that manufacturers are free to restrict the ability of retailers to resell in online marketplaces, that products in whether or not luxury goods or highly technical offerings.

Possibility of “sharing” the exclusivity between the selected business partners – Under the current VBER, the legal protections granted to an exclusive distribution partner are only valid if the manufacturer selects a single partner per territory. As part of the proposed reforms, it will now be possible to allocate a particular territory or group of clients to a certain number of partners without sacrificing any legal protection.

Areas of concern

Even with the above gains in mind, the proposed new VBER, whose initial consultation period ended last month and which is now the subject of a final round of stakeholder comments, there is a number of areas that Shrimpling, Veneziano, Malone, Hack, Sbrolli and Glatz characterize as “areas of concern to manufacturers and brand owners ”, such as…

Maintaining resale prices remains a “hard” ban – Despite lobbying efforts from some sectors, EU and UK competition regulators do not allow manufacturers to set ‘advertised minimum prices’, although this is permitted in some other jurisdictions including in the USA. Therefore, retailers should always remain free to determine their resale prices, subject only to legitimate maximum price instructions and / or manufacturer’s price recommendations.

Additional restrictions on online advertising now expressly blacklisted – In addition to an outright ban on preventing online sales by retailers, the EU has made it clear that preventing a retailer from advertising online, including through the use of web sites comparing prices and buying preferences on search engines would amount to illegal behavior.

Dual distribution in the spotlight, especially where the manufacturer has a direct presence to the consumer – Manufacturers are increasingly emphasizing the need for manufacturers to ensure that they have in place effective internal information barriers to ensure that the data and information they receive from their third party retail partners do not unduly influence their own direct access to independent consumer retail operations.

Persistent uncertainty around the use of agency agreements, most-favored-nation clauses and online intermediaries – Although regulators in the EU and UK have recognized the importance of implementing partners and other intermediaries who are essential to running a successful e-commerce business, there is still uncertainty considerable impact on how manufacturers can use these intermediaries without creating a significant competition law risk.

Evidence of divergence between EU and UK competition regimes – At this point, the differences between EU and UK regulation of supply and distribution agreements appear relatively minor. But manufacturers and brand owners may begin to see regulatory landscapes diverge, which can create additional, longer-term compliance issues, compared to the consistency and stability of the VBER, which still applies from the same way in both regions until May 31, 2022.

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