The new rules on dual distribution: what information can you (still) share?
The new Vertical Block Exemption Regulation (VBER) and the new accompanying Vertical Guidelines (VGL) entered into force on 1 June 2022 and apply for the next twelve years. The new VBER/VGL introduce several substantial changes which will modernise EU competition law in the field of distribution, provide greater flexibility and clarity on certain important issues, but the new rules also highlight the prohibition of certain business practices. The size of the VGL has almost doubled, answering many questions and raising a few new ones for both suppliers and buyers. Market players along the supply chain should check that their existing contracts comply with the new rules, but may also identify new options to fine-tune certain business practices. The new rules provide for a one-year transition period for existing contracts, so now is the time to actively consider this.
One of the major changes that the new VBER/VGL bring about concern the topic of information exchange in dual distribution systems.
Dual distribution covers situations where a supplier is active both upstream and downstream, (e.g. where a manufacturer does not only sell its goods or services through independent retailers but also directly to end customers). The rise of online sales – in particular, through suppliers' own online shops – has resulted in a significant increase in dual distribution. The resulting competitive dynamic is that the supplier is in direct competition with its own distributors, blurring the line between competitors and non-competitors.
Under the ‘old’ VBER, dual distribution was covered by the safe harbour for vertical agreements, but limited to scenarios where the supplier is the manufacturer of the goods concerned. Article 2(4)(a) of the new VBER extends the safe harbour for (non-reciprocal) vertical agreements concluded between competitors, as long as the buyer does not compete with the supplier at the upstream level where the buyer buys the contract goods. The upstream level may be the level where the supplier is active as manufacturer, importer or wholesaler.
Subject to the 30 % market share threshold (a reduction of this threshold to a mere 10% did not make the final cut), the exemption applies to the exchange of information between suppliers and buyers if it is directly related to the implementation of the vertical agreement or necessary for production or distribution related efficiency gains (Article 2 (5) VBER, 96 VGL).
In the Vertical Guidelines (99 VGL), the European Commission sets out a non-exhaustive list of examples of information which can be considered necessary to improve the production or distribution of the contract goods or services and therefore benefit from a presumption of acceptability, including:
technical information about the product or service
information relating to production, inventory, stocks, sales volumes and returns
aggregated information relating to customer purchases, preferences and feedback
performance related information
Conversely, according to the Vertical Guidelines (100 VGL) the following types of information will be presumed not to improve the production or distribution of the contract goods and consequently would not benefit from block exemption:
information relating to actual future prices at which the distributor or supplier will sell the goods orservices,
customer specific (non-aggregated) sales data
information relating to goods sold by a distributor under its own brand name with a manufacturer of competing branded goods
Sharing these types of information would require a case-by-case assessment under the European competition rules (Article 101 TFEU) and are altogether unlikely to pass the antitrust test, unless major economic benefits can be proven that would outweigh the anticompetitive effect of sharing such information among competitors.
Importantly, vertical agreements relating to the provision of online intermediation services, where the provider of such services also sells goods or services downstream are excluded from the benefit of the VBER.
Together with the Digital Markets Act currently in the works (for those providers that also qualify as “gatekeepers” pursuant to that nascent legislation), this exclusion may have a significant impact on the business model of e-commerce marketplaces, app stores, price comparison tools and social media services.