Insights from the European Commission’s Workshop on Verticals Reform

In November, the European Commission ran a two-day workshop in Brussels, to gather more feedback on its proposed revision of the Vertical Block Exemption Regulation (VBER) and corresponding Guidelines. The EC’s summary of the workshop is available here. Linklaters took part in this workshop, together with around 100 participants representing, luxury brands, manufacturers, retailers, associations, pure online players and marketplaces, who had previously responded to the written public consultation. Linklaters responded to the consultation earlier this year, and also reported on the EC’s summary of all written responses.

The interactive format made for a series of fruitful discussions on current “hot” topics in the verticals world. This included selective distribution, online sales, resale price maintenance (RPM) and information exchange in a vertical setting.

Focus on consumers

The focus was on changes to the VBER and Guidelines that would primarily benefit consumers. The general message from participants was that they would welcome more clarity. While the EC was mostly in listening mode, the stakeholders attending the event actively shared their thoughts on the issues to be addressed in the revised VBER and Guidelines.

Unsurprisingly, the “hot” topics broadly aligned with the written submissions already made in response to the VBER consultation. A general consensus emerged among the stakeholders, that the Guidelines relating to selective distribution, RPM, e-commerce and dual distribution require more clarity, and a more consistent application across the EU.

The main areas of concern with the existing regime

Selective distribution

Safeguarding selective distribution was the top priority for suppliers operating selective distribution networks at the European level. A number of them have repeatedly highlighted the need to protect their brand image and their off-line networks, while acknowledging the need to adapt to digitalisation. The top three areas of concern were:

• free riding by pure (online) players;

• the enforcement policy against unauthorised retailers; and

• further clarity on the possibility of combining exclusive distribution at the wholesale level with selective distribution at the retail level.

With divergent views from stakeholders on whether the Coty-based rules on online platform bans should be extended to non-luxury goods, the final word is expected in the upcoming revised Guidelines.

The rise of online sales

Second on the list of priorities was the need to update the VBER and Guidelines to reflect new consumer purchasing behaviours (and in particular the online sales boom). A consensus was reached on the fact that the rules are outdated in this respect, and there is a need for a standalone section addressing digitalisation. But diverging views persist in relation to the treatment of pure players and marketplaces, especially in the context of rising fears over the “death of the high street”.

Resale price maintenance

RPM, as always, is at the top of the agenda, and remains a much-debated topic between suppliers and retailers. Suppliers call for European competition authorities to depart from a policy focusing on prices, and to take into account other factors such as product quality, innovation or choice. Retailers see retail prices as the key driver of consumer benefits. The debate is more open, however, when it comes to clarifying and providing a more flexible framework.

Dual distribution

Information exchange in the context of dual distribution was an important topic. Retailers are increasingly turning into competitors of their suppliers for private label products, and suppliers are starting to operate their own distribution networks in competition with their retailers. While the participants acknowledged that some precautions should be taken by both suppliers and retailers in this new competition era, they also asked the EC to depart from its standard line of referring to the horizontal guidelines in such situations, and to adopt a more flexible approach.

Next steps

Discussions from the workshop will feed into the EC’s staff working paper – the next official step in the roadmap – which is expected at the end of 2020. In the meantime, the EC will continue its consultation process, including consulting with EU national competition authorities and an external evaluation study. This is aimed at distilling market trends on topics such as RPM, e-commerce, platforms and national enforcement.

Once the staff working paper is published, we can expect additional consultations on the draft revised VBER and Guidelines.