The long-awaited new European regulation on the distribution of goods, the so-called Vertical GVO 720/22 or Block Exemption Ordinance to exempt vertical agreements from the ban on cartels, came into force on June 1, 2022. In the future, it will be quoted under the abbreviation Vertical GVO 720/22 and will have a lasting influence on contract design in e-commerce, every distribution system and stationary trade. Manufacturers, importers and suppliers, and buyers, i.e. in particular retailers and their customers, must adapt to changes in online retail, in the respective sales system and in the exchange of information.
The old Vertical BER 330/2010 expired on May 31, 2022. The European Commission therefore had the opportunity to re-regulate the previously applicable regulations for the sale of goods and services by commercial agents, dealers or the supplier's own sales company. Here, the European Commission focused on online trading as a well-established form of sales and case law on product sales. Of course, the Vertical GVO 720/22 also applies to the sale of services. The European Commission's draft for the new regulations remains essentially unchanged; there were only adjustments to the exchange of information and exclusive distribution.
Vertical GVO 720/22: The most important changes at a glance
The Vertical BER 720/22 and the guidelines leave many regulations on offline trade essentially unchanged. From the point of view of the European Commission, these regulations have proven their worth under antitrust law. Changes in stationary business relate to two-track sales, the exchange of information between seller and authorized dealer, exclusive sales and protection against gray market imports.
A selective distribution system also remains optional. The manufacturer also has the right to set qualitative criteria for the, according to which he determines the respective authorized dealer. A selective distribution system will therefore remain a preferred form of distribution for brand manufacturers. He can continue to control trade via the Internet, the e-commerce of his authorized dealers and digital sales in general using selection criteria and regulate the sales rights of his customers and the cooperation qualitatively in his interest.
The changes in online trading, e-commerce and digital sales are more serious. The Vertical BER and its guidelines take up in particular the new case law of the ECJ (European Court of Justice) on the restriction of sales on third-party digital platforms.
Minor changes in price specifications
No changes affect the inadmissibility of price targets to the "second hand", i.e. to the authorized dealers. Price specifications in the form of minimum or fixed prices also remain under the new one Vertical GVO 720/22 and its guidelines are prohibited. This applies both to the direct setting of prices and to measures that have an indirect effect. Indirect measures are intended to induce retailers to maintain a certain price level. Such measures appear in the form of discounts and other advantages or in the form of disadvantages such as refusal to deliver, delivery delays or price monitoring. All of this remains unacceptable. This applies regardless of the distribution system used. If the manufacturer wants to make price specifications for customers, he has to work with commercial agents. This is particularly useful for the high-priced segment of its product portfolio.
Despite good arguments, the commission could not bring itself to accept specifications for the minimum advertised price, the so-called street price, allow. Specifications for minimum price marking and generally for street prices remain inadmissible as in the past. Here the Commission deviates from the legal situation in Great Britain and the USA with its new block exemption regulation and its guidelines. There are street price-Specifications exempt from antitrust law. In international distribution law, manufacturers and buyers must therefore adapt to different legal regulations.
However, an innovation regarding price specifications was introduced: Often a supplier negotiates the conditions for the purchase of products with an end customer, such as a retail chain. Under the new Vertical GVO 720/22, the company is now entitled to use a dealer who supplies the end user on these agreed terms. In this case, the supplier may also specify the prices for the retailer – as part of the negotiated conditions. The prerequisite, however, is that the end customer refrains from selecting the dealer from whom he would like to purchase the products himself. The end customer is bound to the dealer specified by the provider as a source of supply.
No relaxation of the ban on restricting online trade
Although the Online trade established in the meantime and is therefore no longer in need of protection per se, the vertical BER 720/22 remains tough as far as the restriction of online trade is concerned. Any restriction on the effective use of the Internet as a sales channel is now a hardcore restriction and remains prohibited. This still applies in particular to the total exclusion of e-commerce, regardless of whether the supplier operates a selective distribution system or chooses another form of distribution.
Exceptions only exist in such constellations in which the use of the Internet itself is not prohibited, for example in the case of requirements for online trading of a qualitative nature, if these requirements do not exceed the required level. The vertical GVO 720/22 now expressly allows the authorized dealer to be prohibited from selling the products on third-party platforms, thereby implementing the case law of the ECJ. A selective distribution system, for example, may prohibit the sale of goods via eBay or Amazon.
What is also new in this respect is that the quality specifications for online trading, particularly in the context of a selective distribution system, no longer have to be equivalent to those for offline trading. What has not been legally feasible in practice to date is now being relaxed so that manufacturers can set different quality specifications for offline and online retailers. However, the quality specifications for the buyer's online trade must not be so strict that the retailer is practically forced to refrain from online sales, for example because the implementation of these specifications would be too expensive.
Every brand manufacturer still has the right to exclude pure online dealers from purchasing and selling their products and services. The manufacturer may require that a stationary shop is operated. Pure online retailers may therefore have difficulties in being supplied with branded products under the new vertical BER 720/22 and the vertical guidelines.
Dual pricing is permitted
In addition, the so-called dual pricing now permitted under certain conditions. Dual pricing means that the selling company may charge a different, often lower, price from its buyer for products intended for sale in stationary trade than for products intended for online trade. However, the prerequisite is that this does not result in a restriction of online trading. In addition, it is necessary for the selling company to dual pricing would like to support the dealer's investments in the favored sales channel, for example in fitting out the shop.
Vertical GVO 720/22: Innovations in exclusive distribution
At the exclusive distribution or exclusive sales - both terms mean the same thing - there are innovations with regard to the number of dealers used per area and the transfer of restrictions on active sales. Active sales means all sales measures in which customers are actively approached, for example through targeted advertising, promotions, letters, emails or phone calls, regardless of whether these actions are carried out in print or digitally or through social media. The vertical guidelines now contain more detailed explanations on this.
Under the old Vertical Block Exemption Regulation, exclusive distribution meant that a dealer was exclusively assigned a specific contract territory or a specific customer group. Other dealers were then prohibited from being active in these areas with their own sales efforts or from approaching these customer groups. This is now relaxed. The company is now allowed to use up to five dealers exclusively in one and the same sales area, who compete with each other. However, non-resident dealers are still prohibited from active sales in this area.
The principle that so-called passive sales in an exclusively assigned area or to an exclusively assigned customer group remain permissible has also remained unchanged. Passive means that customers actively approach the non-resident trader. A website or web shop are still considered passive forms of distribution. So if a non-resident customer supplies customers in an exclusive territory of another dealer based on online orders, the latter cannot demand injunctive relief either from the non-resident dealer or from the supplier.
The old Vertical Block Exemption Regulation allowed the manufacturer to prohibit the buyer from forms of active distribution. This right to prohibit such active sales measures continues under the new Vertical BER 720/22 and is expanded: The provider can demand from his dealers that they also agree identical restrictions on active sales with their customers. As a result, the distribution rights of these customers are consequently restricted. The vertical agreement carries through to the next level of trade. The brand manufacturer thus has the opportunity to implement restrictions on gray market imports that are permissible under antitrust law even more efficiently.
Vertical BER 720/22: Parallel forms of distribution
The new vertical BER 720/22 now expressly permits parallel forms of distribution within the EU. A brand manufacturer can therefore set up a selective distribution system for a part of the European Union, while bundling other areas under an exclusive distribution system. These different parallel forms of distribution may also be protected from one another, for example to prevent gray market imports. It is now permissible to protect territories with exclusive distribution against active sales by dealers who are authorized within the framework of a selective distribution system in another territory or who are not subject to any form of distribution at all. Mind you, this only applies to active sales. Passive sales, i.e. in particular the activation of websites and the handling of online orders, must not be prohibited.
A selective distribution system, on the other hand, may be protected against active and passive sales by an authorized dealer who is located in an area with exclusive distribution or for which no particular form of distribution (selective distribution or exclusive form) applies. However, the combination of exclusive and selective sales in one and the same sales area remains prohibited.
Changes to non-competition clauses
Non-competition clauses also remain permissible. However, they may not be valid for more than five years, including tacit renewals. However, tacit renewals are permitted if the Merchant is granted the right to renegotiate the contract and terms or to terminate the Merchant Agreement after the tacit renewal with a reasonable notice. A tacit extension with the ordinary right of termination is therefore permitted under the Vertical GVO 720/22. A tacit extension by another five years without a right of termination, on the other hand, remains inadmissible. In addition, an ordinary termination must not be associated with disproportionate costs for the customer. The retailer would have to bear such costs if he had to sell the rest of his range back to the supplier at a considerable discount.
Changes in dual distribution
In the case of dual or two-pronged sales, the manufacturer sells its products through independent dealers and through its own sales efforts. The brand manufacturer thus competes with its dealers. This competition, for example in the case of a selective distribution system, is desired by the Commission. On the other hand, this can lead to an exchange of information that is critical under antitrust law. As a result, the EU Commission has, in principle, exempted dual distribution in the European Union internationally from the ban on cartels. However, the vertical BER 720/22 only permits dual distribution if the following requirements are met:
– The customer himself is not at the same time a supplier of products that compete with those of the supplier. Several manufacturers or importers can therefore not use each other as dealers of their respective products.
– The combined market share on the affected product market must be less than 30%. This is stricter than the general requirement that the respective individual market share of manufacturer and buyer on the respective regional product market concerned must not exceed 30%.
– The exchange of information may only include data that is absolutely necessary for the execution of the dealership agreement and the efficient marketing of the products.
"Required Information" means technical data, delivery-related information, anonymized and aggregated information on customer purchases and customer preferences, retail prices and reports on marketing activities or the use of online advertising channels. In this context, information about the products and sales measures of other sellers whose brands the dealer also sells, or about the future pricing of the authorized dealer or the marketing of his own brands should not be permitted. In practice, this is where most of the legal ambiguities are likely to arise in the future.
When exchanging information, it should be noted that the distribution cartel law does not restrict the provisions of commercial law, in particular the right to compensation. If the authorized dealer is obliged to pass on customer data, in particular digitally, to the entrepreneur, there may be a claim for compensation. Address data will not be information relevant to antitrust law. However, the other requirements of data protection and commercial law remain unaffected.
On the sales function of commercial agents
According to the regulations of the Vertical GVO 720/22, commercial agents remain permissible in principle under antitrust law. However, it is still necessary that the commercial agent does not have to bear any economic risks like a dealer, in particular no sales risk. The vertical BER 720/22 now also creates a framework that allows the parallel use of a dealer as an independent dealer and as a commercial agent. The prerequisite is that the activity as a dealer can be clearly separated from that as a commercial agent. These new regulations relate in particular to constellations in which the dealer sells part of the range as a dealer and therefore has to remain free in pricing and sells a part of the range, usually the high-priced products, as a commercial agent. In the latter case, the entrepreneur can determine the sales price because the customer does not buy from the authorized dealer, but directly from the entrepreneur. In this case, the dealer only acts as an intermediary. This does not have to be disclosed in the product presentation and marketing in general. This duplication remains permissible, but is now linked to stricter regulations for which the company bears the burden of proof: under the Vertical BER 720/22, the customer must be free to choose whether he wants to work as a commercial agent or not. In addition, the entrepreneur must bear all the risks of the commercial agent or compensate the commercial agent accordingly for his investments.
Vertical BER 720/22: summary
The new Vertical BER leaves the essential principles of distribution cartel law essentially untouched, but would like to achieve a modernization of exceptions to the cartel ban. In particular, it allows new options for the sales structure, such as different forms of sales in parallel and the respective protection against each other, dual sales, the dual pricing and allowing multiple buyers in one sales territory. The companies should now carefully examine what leeway the Vertical Block Exemption Regulation 720/22 opens up for them in sales and what doors it may close. In particular due to the protection against gray market imports, selective sales should continue to be very attractive.
Important to know: A transitional period of one year applies to an existing sales contract. By May 31, 2023, existing contracts must be adapted to major changes in the new Vertical Block Exemption Regulation 720/22 and the new Vertical Guidelines. However, new contracts must be concluded immediately, taking into account the vertical BER 720/22. The remaining antitrust law, commercial law, the compensation claim of the authorized dealer and the commercial agent and aspects of company law must also be included in the sales law advice.
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