On 9th July 2021 the European Commission passed a draft Regulation on the exemption of categories of vertical agreements and the corresponding Guidelines (Communication EU C 359/17), which are to substitute the Regulation in force 330/2010 of 2010.
The extraordinary evolution experienced in the last ten years in electronic commerce, and particularly in cross-border sales models based upon on-line platforms, made an adaptation of the legal framework for vertical agreements foreseeable. It is clear that sales via a platform represent a challenge for the maintenance of exclusive and selective distribution systems, given that they result in a de facto dilution of the sales restrictions implicit in such contracts, just as we have been experiencing in practice. This effect has special consequences in the market of luxury goods or goods for professional use, generating notorious tensions between the supplier and the distributor, the latter seeing their exclusive and excluding sales right in a certain territory altered and diminished by the sales of products subject to exclusive distribution via on-line platforms, in their role as intermediaries or resellers.
Given its nature as a Regulation, with direct effect on citizens and commercial entities of the Member States of the E.U., as from its entry into force, it is worth knowing how it will affect selective distribution contracts and on-line sales, in order to start to adapt contracts to the new legal framework.
Let us remember that the draft Regulation – in the same way as the current Regulation – establishes the legal limits of vertical agreements, these being understood as concerted practices between two or more companies which operate on different levels of the production and distribution line and refer to the conditions under which the parties may buy, sell or resell products or services. These agreements shall be understood as vertical restraints or restrictions on competition when they enter into the scope of application of article 101.1 of the Treaty on the Functioning of the European Unión. The Regulation establishes exemptions applicable to restrictive pacts which enter into conflict with said article provided that they comply with certain requirements. In general, the exemption shall apply provided that the supplier’s market share does not exceed 30% of the market where the contractual goods or services come from and that the share of the distributor does not exceed 30% of the market in which said goods or services are bought.
a) Restrictive clauses in selective distribution contracts
The selective distribution system is that in which the supplier undertakes to sell the goods or services only to distributors selected on the basis of specific criteria and the distributors undertake not to sell to unauthorised distributors in the territory defined by the parties to the contract.
According to the draft Regulation, a contractual clause shall be allowed, which prohibits the authorised distributor’s clients from selling to third parties that are not authorised by the supplier. The main obstacle in applying the exemption in these cases lies in being able to justify that the supplier’s system indeed fulfils the characteristics of a selective distribution system, because if this is not so, the clause in question would not be covered by the block of exemptions provided for in article 2 of the draft Regulation.
On the other hand, in order to guarantee the high and exclusive standard that the supplier wishes to attribute to the product or service, the supplier is allowed to define its quality standards, thus increasing the margin for manoeuvre for establishing such standards, especially as far as online sales are concerned. The essential point is that an existing condition of the currently in force Regulation and its Guidelines is eliminated, that is to say, that the standards must be globally equivalent.
Non-competition. It should be noted that any direct or indirect obligation that causes the members of a selective distribution system not to sell the brands of certain competing suppliers will not benefit from the exemption provided for in the Regulation. The draft Guidelines state that the reason for this is to prevent a number of suppliers using the same selective distribution points from preventing one or more other specific competitors from using those points to distribute their products.
Restrictions may be placed on the active sales to distributors of an exclusive distribution system to certain third parties to whom the supplier has granted distribution rights in another territory or to a group of clients reserved for the supplier or for a third party designated by the supplier in relation to one buyer or a limited number of buyers.
Active or passive sales by a member of an exclusive distribution system to non-authorised distributors located in the territory in which the selective distribution system is managed may also be prohibited. This type of sales may be prohibited to final users which operate at wholesale level.
The places of establishment of the members of the selective distribution system may be restricted.
Likewise, restrictions on the faculty to actively or passively sell components with the purpose of incorporating them into a product will also be valid, for clients who intend to use them for manufacturing the same type of goods as the supplier.
By contrast, the following will not be exempt, and therefore will not be valid:
(i) restrictions on cross-supplies (active or passive) among the members of the selective distribution system;
(ii) restrictions on active or passive sales to final users on the part of said members who operate at retail level, except for cases of active sales on the part of the selective distributor to third parties who have entered into agreements with the supplier or with a party with exclusive distribution rights in another territory, or from one group of clients reserved for the supplier or assigned by the supplier to only one buyer or group of buyers.
b) Selective distribution contracts and online sales via platforms.
In selective distribution contracts, the possibility that restrictive clauses in this area may benefit from the exemption must be analysed with an outlook on proportionality. The draft Guidelines of the Regulation indicate that the restrictive clause must not go beyond the objective pursued by a selective distribution system. In this regard, it declares that the prohibition imposed by the supplier of luxury products on authorised distributors for the use of third-party online platforms for their sale may be considered appropriate, (and, therefore, permitted), although the supplier must allow them to:
- Carry out advertising via the third party internet platforms; and
- Use search engines.
Additionally, the supplier who applies a selective distribution system may impose criterion for online sales which are not identical to those imposed on sales in physical stores upon their authorised distributors, provided that this is not intended to prevent buyers or clients from using the internet to sell their goods and services online. Thus certain requirements may be established for guaranteeing levels of quality of service for users who buy on line, such as
- the creation of after-sales assistance services online,
- the obligation to cover the costs of returning products,
- the obligation to use secure payment systems.
Nevertheless, these restrictions will not affect those buyers who can manage their own websites and advertise via third-party platforms or search engines.
For more information, please contact:
Eduardo Vilá
Vilá Abogados
For more information, please contact:
25th March 2022
