The Vertical Block Exemption – how we got where we are

On 10 May 2022, the European Commission published its new Vertical Block Exemption Regulation (VBER), which will enter into force in June. Many have published very good summaries on the rules. Some also welcomed the very late changes that were made with regard to information exchange in the context of dual distribution. In this post, we want to look into the history of the Vertical Block Exemption Regulation and also give a brief overview of the key milestones for the latest version. Warning: This block is written for antitrust nerds who want to review the history of the creation of the VBER (and maybe for students if they are asked about the legal nature of the VBER in their oral exam).

Legal nature of the Vertical Block Exemption Regulation

We have already blogged about the different functions of the European Commission, however,  leaving out its legislative function. Art. 103 TFEU stipulates the right of the Council of the European Union to lay out regulations or directives that give effect to the principles set out in Art. 101 and 102 TFEU. The Council has partially transferred this competence to the European Commission and authorized it to issue regulations in certain areas. For the VBER, the competence was transferred by Council Regulation of 2 March 1965 on the application of Article 85(3) of the Treaty to certain categories of agreements and concerted practices (No 19/65/EEC), amended by Council Regulation of 10 June 1999 (No 1215/1999).

Legally, the VBER is a regulation within the meaning of Art. 288 TFEU. Thus, the VBER is generally binding in its entirety and directly applicable in all Member States, taking precedence over national law. The goal of the VBER is to provide legal certainty, by defining “safe harbours” for certain vertical restraints.

A short history of the VBERs

The 2022 VBER had two predecessors, VBER 330/2010, which remains in effect until 31 May 2022 and became effective 1 June 2010, and VBER 2790/1999, which was in force from 1 June 2000 until 31 May 2010. Before issuing the first VBER in 2000, the European Commission had issued a Green Paper in 1996, in which it discussed potential ways of dealing with vertical restraints. The paper asked for comments on the envisaged approach and the publication of the paper was followed by lengthy discussions.

The emergence of the 2022 VBER and the underlying process

The evaluation phase for the 2022 VBER was launched on 3 October 2018. The purpose of the evaluation phase was to determine whether the then (and for a few days still) current VBER 330/2010 should be lapsed, prolonged, or revised in order to take into account new market developments. The European Commission published its evaluation roadmap on 8 November 2018. There were 24 submissions made on the evaluation roadmap. The subsequent consultation phase lasted from 4 February 2019 to 27 May 2019, and a total of 164 submissions were made to the European Commission. Most of the submissions (93) were from business associations, followed by submissions from companies/business organisations (42).

On 8 September 2020, the European Commission published its Staff Working Document on the VBER, summarising the results of the evaluation on 233 pages. Most importantly, the European Commission confirmed that the rules of the VBER 330/2010 needed to be adapted to “recent” market developments, in particular online sales and platforms.

After publishing the Staff Working Document, the European Commission launched the so-called “impact assessment phase”, in order to assess policy options for a potential revision of the VBER in certain areas and to address the problems identified during the evaluation phase. On 23 October 2020, the Commission published the VBER inception impact assessment (“IIA”), which was the first milestone in the impact assessment phase. Feedback period for the IIA lasted from 23 October 2020 to 20 November 2020 and 45 submissions were made. On 18 December 2020, the European Commission published a questionnaire to get more detailed feedback, in particular on the impact of the policy options set out in the IIA on numerous parameters. The deadline for providing feedback was 26 March 2021 and 118 stakeholders filled out the questionnaire. While still collecting the feedback, the European Commission published a Working Paper on 5 February 2021, outlining its preliminary views on distributors that also act as agents for certain products for the same supplier. Furthermore, the national competition authorities submitted their feedback and the European Commission also sought feedback from three expert groups.

Taking (more or less) all of the received feedback  into account, the European Commission published drafts of the revised VBER and Vertical Guidelines for stakeholder comments on 9 July 2021. Interested parties had the opportunity to provide feedback by 17 September 2021 and the European Commission received 152 submissions. Because many submissions in particular discussed the proposed rules on information exchange in dual distribution, the European Commission decided to launch an additional public consultation with regard to those rules from 4 to 18 February 2022 to which 61 stakeholders responded (also see our post). Apparently, the feedback led to the European Commission re-considering its approach and implementing some last minutes changes regarding the information exchange in dual distribution into the new 2022 VBER, which will expire on 31 May 2034.

Summary and Outlook

This post (and even more so the author’s research on it) first of all shows one thing: In times when different political systems compete with each other and in many instances the downsides of democracy are also emphasized, a transparent (yet complicated) legislative process, in which those affected also have several opportunities to comment, is a large benefit. That should be appreciated.

However, the length and expense of the process may also be a reason why the 2022 VBER is to be valid for 12 years this time. This time span is criticized for reasons that are not the subject of this post. In an era of ever more rapidly changing industries, distribution models, and the way companies collaborate at all stages of the supply chain, 12 years can seem incredibly long. Here, a more flexible approach (or a shorter validation period) might have been the more appropriate solution. On the other hand, changing the VBER on a daily basis would not give the companies the legal safeguards they need to conduct their businesses.