VBER vs VBEO
You can be forgiven for not knowing what VBER stands for, and even if you were aware that it stands for Vertical Block Exemption Regulation you can still be forgiven for not having a clue why it was important.
We will therefore have a crack at offering some form of explanation. It is fairly well known that anti-competitive behaviour is considered a big ‘no-no’ within the EU. Under Article 101 of the Treaty of the Functioning of the European Union (and mirrored in Chapter 1 of the UK Competition Act of 1998), anti-competitive agreements are generally prohibited.
The VBER provides a ‘block’ exemption from these clauses specifically for ‘vertical’ agreements between businesses operating at different levels of the supply chain, such as a Manufacturer and a Reseller. For the VBER to be applied the market share of each of the parties to the agreement must not exceed 30%, and the agreement cannot include any so-called ‘hard-core’ restrictions (such as resale price maintenance or an outright ban on the distributor making sales in certain territories or to certain customers).
The old VBER regulations expired on the 31st May 2022, so we now get onto VBEO, which has replaced these regs.
Whilst the current VBER was maintained in full following the UK’s exit from the EU, from the 1st June 2022, the UK started to operate within a new VBEO – Vertical Block Exemption Order. Practically speaking it is very closely aligned to the new VBER being introduced in Europe, but it is important to recognise that the UK is now free to deviate from the EU Regulation as it sees fit.
What does seem to be becoming clear is that whilst both the VBEO (UK) and the VBER (EU) are very similar, they both reflect a shift in recognising recent market developments. In essence, what this means is a relaxation of some of the ‘hard-core’ restrictions, making it easier to implement agreements that support the activities of Bricks & Mortar retailers.
This clearly represents a shift from the thinking behind the VBER, which allowed for very little differentiation between Online & Offline sales. It would certainly seem to be a recognition of the changes in consumer behaviour both ‘generally’ – as an evolution over time’ and ‘specifically’ – as a result of the unique circumstances brought on by COVID lockdowns.
What to look out for
Here are some of the key developments in the VBEO;
- It is now possible for manufacturers to engage in “dual pricing” – i.e. to set different cost prices depending on whether the products are to be sold in-store vs online.
- There is greater freedom for manufacturers to expressly exclude sales on online marketplaces if they wish to do so, and
- There is greater freedom also for manufacturers to set more exacting requirements for online sales – e.g. obligation offer live chat function or equivalent if selling specialist products online.
As the VBEO has been drafted on its recommendations, the CMA seems to have accepted that physical stores are in need of some extra protection, and as such, this is a step in that direction.
Of course, it isn’t as simple as enacting the VBEO, and as if by magic clauses, like these become the norm. Distribution Agreements between Manufacturers and their Resellers will have to be amended for such changes to take effect and of course, Manufacturers will have to determine whether they consider such amendments necessary. But it sets a framework for those things that the CMA will consider to be exempted within vertical block arrangements, and as such will be free from investigation.