The new Vertical Block Exemption Regulation 2022/720, which has been in force since 1 June 2022, provided for a transition period for previously concluded contracts. This expired on 31 May 2023. We advise performing a review of existing contracts.

Summary

We already outlined the main changes in our previous newsletter article on the Vertical Block Exemption Regulation 2022/720. It is encouraging that many regulations have become more flexible. For example, the Vertical Block Exemption Regulation now also covers importers and wholesalers that compete with their dealers at the distribution level in dual distribution.

Exclusive territories may now be granted to up to five distributors jointly, who are protected against competition from all other buyers of the supplier.

It is now easier to pass on territorial restrictions to the buyer's customers. The main thing here is to adapt the model contracts used or to make full use of the drafting scope when concluding new contracts.

The initial euphoria surrounding the tacit extension of non-compete clauses has faded - so far this does not seem practicable and is associated with considerable risks.

There have been some changes and clarifications in the area of online trading. Here it appears that in practice the specifications and prohibitions being drafted for online trade, such as platform prohibitions, are not permissible. Contracts containing requirements for distributors with regard to their online sales should therefore be reviewed in any case.

However, the transitional period becomes relevant especially where the regulations have become more stringent. This primarily concerns the exchange of information.

Exchange of information in distribution agreements

If a manufacturer or wholesaler competes with distributors at the downstream market level, this is treated by the vertical BER as dual or two-track distribution.

Reporting obligations are regularly laid down in distributor agreements. In some cases, the supplier may even be granted audit and inspection rights. Suppliers are interested in information - especially if they themselves are active in dual distribution on the same market - and are trying to obtain an increasing amount of data that is as specific as possible. The new provision in the Vertical Block Exemption Regulation is intended to put a stop to this.

If contracts are not correctly drafted in accordance with current distribution antitrust law at this point, this can lead to the overall contract being invalid - and the risk of fines. Both are unwelcome consequences.

If the parties are competitors at the downstream distribution level, the exchange of information must be limited to such information that directly concerns the implementation of the distribution contract and while at the same time is necessary to improve production or distribution, Article 2(5) Vertical Block Exemption Regulation. It is therefore always recommended to transmit data in aggregated form and in particular to share information on sales prices only with a time delay for the past. Information on sales prices is therefore critical as it may not be used for RPM or minimum price requirements.

The guidelines issued by the Commission give some examples of permissible and impermissible information sharing. For example, information on identified end users is permissible only in special cases, such as when this is necessary to adapt the contract goods to the buyer’s requirements.

The downside of these new regulations is that many distributors cite antitrust concerns and do not want to fulfil their obligations but instead to keep their data secret. On closer examination, however, these concerns often turn out to be pretexts.

Online trade

Many manufacturers have an interest in excluding the use of online platforms such as Amazon, etc. in their authorised dealer agreements. There are many reasons for this.

A distinction must be made between whether sales to the platform by resellers or sales via the platform by the dealer to the end customer are to be regulated. If the manufacturer wants to exclusively reserve the distribution to the platform by a reseller, this can be done by stipulating an exclusive customer group which then may not be supplied by the distributors. The only prerequisite here is that all dealers operating in Europe are equally prohibited from supplying this exclusive customer group.

The exclusion of trade via platforms as a distribution channel is more difficult. In practice, this exclusion can be inadmissible - with the effect that the entire contract becomes invalid if the manufacturer has included this exclusion in the contract. Particularly critical is the case where the manufacturer imposes such requirements on the wholesaler which has to pass them on to its distributors.

Recital 15 of the Vertical Block Exemption Regulation clarifies that the use of the internet by the buyer may not be prevented and that an exclusion of an "entire online advertising channel such as price comparison services or search engine advertising" is not exempted. Thus, if internet sales are in fact prevented to a significant extent, the exemption of all other restrictions of the agreement (black clause) ceases to apply. This therefore has far-reaching consequences.

The so-called "logo clause", according to which the use of online portals whose logo is recognisable to the end customer can be restricted, has been dropped. The guidelines adopt the case law of the ECJ (reference in para. 208), according to which the restriction of the use of online portals and online intermediary services must be examined in detail and must not de facto prevent the actual use of the internet by the customer. The result is that a detailed examination must be carried out and model clauses carry the risk of invalidating the contract concerned.

Non-competition clause

Many commentaries on the new Vertical Block Exemption Regulation welcomed the reference to a tacit extension of non-compete clauses. However, it is advisable to be cautious when it comes to the automatic renewal of non-compete clauses limited to five years permissible under certain conditions as declared in the guidelines under recital 248. Such automatic renewal cannot be advised so far, even if the necessity associated with the time limit to reach an agreement on a non-compete clause with the contracting party again before the expiry of the five years is cumbersome in practice. That is because such guidelines are not binding on courts and it is still unclear which factual scenarios might fall under such conditions. As one condition of validity, the guidelines specify that the buyer must be given sufficient opportunity to terminate the non-compete obligation for the automatic renewal of the non-compete clause to be permissible under antitrust law. This creates a significant potential for disputes where a distributor no longer wishes to comply with a non-compete agreement in the future. If a tacit renewal has been agreed, there are still options open to the distributor to have the non-compete clause declared invalid from the outset.