An overview of parity obligations

For years, parity obligations, also called “most favoured nation clauses” or “MFNs”, were hotly debated. There was a policy element to how different regulators treated MFNs, and not least because the European Commission decided to leave enforcement to national regulators, rules across the EU differed (in particular regarding online platforms). The new Vertical Block Exemption Regulation (VBER) and the accompanying Vertical Guidelines should put any remaining dispute to rest. Here is a quick overview of the rules.

We have already blogged about the new VBER (here) and do not intend to run through all of (or even most) of its topics. Still, I have come across parity obligations in different shapes and forms over the years and thought a short summary of what the VBER and the Vertical Guidelines say might be useful. In essence, with a parity obligation, a customer binds a seller not to offer its goods/services to another party or on another sales channel on more favourable terms (e.g., a lower price) than those offered to the customer. So, no one will get a lower price or better terms than the party benefiting from a parity obligation.

General rules

Generally, all types of parity obligations are exempted from EU competition law if the prerequisites of the VBER are met (in particular if the respective market shares of the seller and the buyer do not exceed 30%) – I will get to why that might sound easier than it is in practice. The only clear exception are so-called across-platform retail parity obligations. Yet, the Vertical Guidelines do not only deal with those, but rather distinguish between rules on four kinds of parity obligations:

• Across-platform retail parity obligations
• Retail parity obligations relating to direct sales channels
• Upstream parity obligations
• Most favoured customer obligations
  
  

Across-platform retail parity obligations

Retail parity obligations cover the conditions applicable to goods/services offered to end users. When they are imposed by “online intermediation services” (essentially meaning online platforms) and restrict a seller from offering more favourable terms to end users on another platform (so-called “wide” parity obligations), these kinds of across-platform retail parity obligations are not exempt from EU competition law under the VBER.

This means that such obligations have to be analysed on a case-by-case basis, and that there is no safe harbour. At the same time, the Vertical Guidelines confirm that anti-competitive effects will “generally only be attributed to the parity obligations of providers whose market share exceeds 5%”. I.e., there should at least be some room for manoeuvre below this threshold.

Retail parity obligations relating to direct sales channels

These obligations are also called “narrow” parity obligations. They are “only” imposed by online intermediations services to prevent sellers from offering more favourable conditions on their own sales channels – e.g., preventing a hotel from offering better terms on its own website than on a particular online booking platform.

While the German regulator and German courts cannot be described as fans of these obligations, these narrow parity obligations are generally exempt from EU competition law if the prerequisites of the VBER are met.However, the exemption may, e.g., be withdrawn where narrow parity obligations are applied by the three largest providers of relevant online intermediation services and the combined market share of these three providers exceeds 50%.

Upstream parity obligations

Upstream parity obligations relate to the conditions under which goods/services are offered to other customers than end users. These kinds of obligations are generally exempted from EU competition law if the prerequisites of the VBER are met.

Most favoured customer obligations

Most favoured customer obligations are basically “traditional” parity obligations. They are imposed by manufacturers, wholesalers or retailers to ensure that they get at least as favourable conditions as other customers. These kinds of obligations are generally exempted from EU competition law if the prerequisites of the VBER are met.

What to keep in mind

Outside of the online platform world and within the VBER (market share) thresholds, parity obligations should generally not raise concerns. Sound easy, right? Well, in practice, confirming that the market shares of the parties are below the thresholds and that the VBER is applicable, and having a parity obligation drafted the right way can be a complex task for companies.

Above the thresholds, the assessment differs in any event. In particular for companies with higher market shares and/or close to or within market dominance, parity obligations can be (even more) difficult to navigate – especially when they are demanded by customers (which happens more often than one might think).

[Photo by Kindel Media]