Reform of EU Competition Law completed

Recap of the history of this law reform

The EU Commission started to work on a comprehensive review of the predecessor of VBER 2022 already in 2018. The private sector was involved in a series of stakeholder workshops and public consultations, which led in July 2021 to a first publication of a preliminary detailed draft version of the Regulation and its Guidelines. The Commission had realised that the markets forces and players between 2010 and 2022, had considerably changed and shifted in particular in the area of online sales. Consequently, it was a must to substantially modify the rules of the game as it is now reflected in VBER 2022.

Impact of the revised EU Competition Law

VBER 2022 is by its nature an EU regulation. Its name already signifies that it is relevant for all vertical business relationships and transactions within the supply chain from suppliers to manufacturers, wholesalers (such as distributors) and retailers up to the end consumer level.The Regulation will not only have an impact on major brands and commercial operators in the bicycle sector but will also be of relevance for smaller to medium-sized companies doing business in Europe. Decision-makers at executive management level should be aware that EU competition law infringements cannot only be investigated and taken up by the EU Commission and/or national competition law authorities (with the threat of fines up to 10% of an annual global turnover of a company in case of hard-core infringements), but also be subject of civil lawsuits between brands and their marketing partners at wholesale and/or retail level or be brought up by consumer protection groups and associations.

One-year grace period

While the Regulation itself is binding upon companies in the course of their commercial endeavors, its accompanying guidelines (with a volume of 104 pages in their English language version) are only binding upon the EU Commission itself. Consequently, courts in the EU and national competition authorities do not necessarily need to act in line with the guidelines, although in practice they will mostly do. From a strict legal point of view, VBER 2022 provides a kind of one-year grace period to be in full compliance with the new law. From a commercial viewpoint however, it is recommended to look into existing contractual arrangements with marketing partners much earlier and if appropriate to redefine a company’s EU distribution policy by benefiting from the numerous new elements and opportunities, VBER 2022 brings to the table.

The Safe Harbour principle of VBER 2022

As long as commercial operators in the EU act in compliance with the contents of VBER 2022 (and its guidelines), they sail in calm waters and can be pretty sure not to violate any EU competition law provisions (the so-called “Safe Harbour” principle). Yet it has to be noted that VBER 2022 does not apply for transactions/arrangements/conduct between/of companies, where the market share of one of the operators involved exceeds 30%. In practice experience shows that the determination of ‘the relevant market’ in a concrete case may well lead to diverging opinions of companies/brands on one hand and of the public institutions such as courts and federal cartel offices on the other hand.

Wider interpretation

While the public sector tends to define the relevant market in a very narrow sense, since this provides a broader base for interventions, private operators try to convince their counterparts that a wider interpretation should be accepted. A concrete example would be to argue that the relevant market are bicycles as such, while courts and competition authorities may argue in a certain case that e.g. a separate market for brakes or saddles exist. In cases where on the other hand the combined/aggregate market shares of the commercial operators involved in the EU do not exceed 15%, the restraints of competitions may not be noticeable, always provided the respective concrete acts or omissions are not intended to unduly restrict competition within the European Union/the EEA.

Biggest change concerns online sales

VBER 2022 reflects in numerous respects the changed policy of the European authorities in the area of online sales. Whilst in the past decade the Commission (same as the vast majority of national competition authorities and courts) had viewed the online distribution channels, notably marketplaces, as a positive vehicle in particular for smaller brands and retailers to significantly increase their visibility and reach, this is obviously very much different now. The online sales channel is now regarded by the Commission as a mature channel, which does no longer deserve specific protection by the EU lawmakers. To the contrary, it has now been acknowledged that the traditional brick & mortar trade needs to be strengthened.

Grey market imports and dual distribution

The new revised set of law will afford a higher standard of protection against grey market imports for suppliers/brands in terms that it will now be permissible to contractually interdict sales into territories, where a selective distribution system is in place or where e.g. one or several exclusive distributors have been appointed. Further, it will be allowed to contractually oblige a marketing partner to pass on such obligations to its own customers.

Active and passive sales

For a better understanding, active and passive sales are now defined in the Regulation, and active sales activity would e.g. be the operation of a website in a different language and/or by using a different top level generic domain than spoken/used locally (with the exception of English). For the first time it will now be possible to appoint up to five co-exclusive distributors in a certain territory. Non-compete clauses may be under certain circumstances legally valid beyond the maximum period of five years. Resale price maintenance practices remain strictly forbidden in most of the cases with three exceptions.

Dual distribution problematic

In those cases where a supplier/brand sells its goods at the same time directly to consumers and to the retail trade (so-called dual distribution schemes) the EU Commission has maintained in its final version of VBER 2022 the principle that the communication between the commercial operators (brand and retailers) needs to be restricted, since they meet each other than as intra-brand competitors at the same horizontal level. It remains however quite unclear where such communication is still permissible and where it would already constitute a hardcore competition law infringement. An obvious example of competition law infringement would be the exchange of a planned pricing policy of a new collection of products between a brand and a retailer, while the provision of aggregate anonymous data of already completed sales by retailer to a brand would be permissible.

About the author

This article was written by Dr. Jochen M. Schaefer, a practicing attorney based in the Munich area of Germany. For numerous years he represents both the World Federation of the Sporting Goods Industry (WFSGI) and the European Federation of the Sporting Goods Industry (FESI) as their Legal Counsel while he is also chairing the WFSGI’s Legal Committee and co-chairing FESI’S digital working group. He is a specialist in national and international distribution topics, intellectual property (IP) and risk management issues and in the drafting and negotiation of comprehensive contracts at operational level, in particular in the area of European selective distribution schemes. For questions he can be contacted via at sj@sjlegal.de