HomeMarketsVertical Restrictions on Competition, Reg. UE 2022/720 and EC guidelines. The ABC

Vertical Restrictions on Competition, Reg. UE 2022/720 and EC guidelines. The ABC

The reg. UE 2022/720 - so-called VBER, Vertical Block Exemption Regulation, in force since 1.6.22 - updates the rules on exemptions from vertical restraints to competition (1,2).

The new discipline of vertical agreements, to which the European Commission has dedicated
specific Guidelines, also deserves attention in the context of the agri-food chain. The ABC to follow.

1) Introduction. Vertical restrictions on competition, TFEU

The Treaty on the functioning of the European Union, TFEU, establishes the general principles to guarantee free competition in the internal market. For this purpose, specific prohibitions are defined - which result in the nullity of agreements between operators - and some exemptions.

1.1) Prohibitions

'They are incompatible with the internal market and all agreements between companies, all decisions by associations of companies and all concerted practices which may affect trade between Member States and which have the object or effect of preventing, restricting or distorting competition are prohibited within the internal market and in particular those consisting of:

a) directly or indirectly fix purchase or sale prices or other transaction conditions,

b) limit or control production, outlets, technical development or investments,

c) share markets or sources of supply,

d) apply, in commercial relations with other contracting parties, dissimilar conditions for equivalent services, so as to determine a disadvantage in competition for the latter,

e) make the conclusion of contracts subject to the acceptance by the other contracting parties of supplementary services which, by their nature or according to commercial usage, have no connection with the subject of the contracts themselves' (TFEU, art. 101.1).

1.2) Exemptions

'The agreements or decisions, prohibited by virtue of this article, are automatically void.
3. However, the provisions of paragraph 1 may be declared inapplicable:

- to any agreement or category of agreement between companies,

- to any decision or category of decisions of business associations, e

- to any concerted practice or category of concerted practice,
that contribute to improving the production or distribution of products or to promoting technical or economic progress, while reserving users a fair share of the resulting profit, and avoiding

(a) to impose restrictions on the undertakings concerned which are not indispensable for achieving these objectives;
b) to give these undertakings the possibility of eliminating competition in respect of a substantial part of the products in question'(TFEU, 101.3).

2) EU Reg. 2022/720

2.1) Field of application

Regulation (EU) 2022/720:

- prohibits certain restrictive practices of competition, from a buyer protection perspective that the UTPs directive (Unfair Trading Practices, dir. UE 2019/633) only partially considers (3,4),

- updates the system of exemptions from the prohibitions of restrictive agreements between operators operating in different sectors of the supply chain, whose individual share of the relevant market does not exceed 30%.

The discipline it also applies to agreements between competing companies if, in the single contract, they operate in a relationship between supplier and buyer (eg sale of dairy products from one producer to another).

2.2) General and individual exemptions

VBER (Vertical Block Exemption Regulation) defines two types of exemptions from the prohibition of restrictive agreements established in the TFEU:

- a general exemption, cd safe harbor (literally, safe harbor), for all vertical agreements that comply with the requirements of reg. EU 2022/720,

- an exemption and following the best practices, the so-called 'individual exemption', which can instead be applied on a case-by-case basis (TFEU, art. 101.3).

2.3) Black list

Il safe harbor strictly excludes a series of contractual clauses, which entail the nullity of the entire agreement, indicated in the Blacklists following:

- restrictions on resale prices (resale price maintanance, RPM). It is prohibited to impose a fixed or minimum resale price on the distributor / reseller. On the other hand, it is possible to impose a maximum price, or to recommend - without ever imposing - the application of retail price lists,

- restrictions on the territory of resale or on the customers who are allowed to resell the products. Without prejudice to a series of exceptions (linked to exclusive, selective and territorial distribution relationships) which effectively nullify the prohibition (EU regulation 2022/720, article 4.1.b, c, d),

- 'prevent the effective use of the internet by the buyer or its customers to sell the contract goods or services, as this practice limits the territory in which, or the customers to whom, the contract goods or services can be sold’,

- the restriction of the right to sell spare parts to end users, repairers, wholesalers or other service providers.

2.4) Gray list

La gray list includes some practices that may be exempted from the prohibition of restrictive agreements, under certain conditions, or lead to the only partial nullity of the agreement. First of all, we refer to the non-competition or exclusivity agreements imposed on the distributor or reseller, which are allowed as long as they have a defined duration and not exceeding 5 years. Subject to:

- the longer duration of contracts which include the use by the purchaser of premises,

- restrictions, allowed ad libitum, the use and dissemination of know-how that is not in the public domain (Article 5).

3) EC guidelines

The European Commission - in its Guidelines, even if without formal legal value (5) - clarifies its point of view on the application of the VBER (EU Reg. 2022/720).

3.1) Price Restrictions

The cd fulfillment agreement - that is to say, the agreements under which the supplier designates a distributor for the execution of a supply already agreed with a customer - must not be construed as subject to the prohibition of setting the resale price, in the opinion of the Commission.

The case is different in which it was the customer who contacted the distributor. In this case it is forbidden for the supplier to impose the resale price, as this can restrict competition between distributors of the same product or service.

3.2) Territorial and customer restrictions, active and passive sales

Restrictions territorial and customers, as mentioned (v. supra, paragraph 2.3, second point), may be limited in practice when it comes to active sales and not also in cases of passive sales (except to wholesalers and members of selective distribution systems).

For active sales 'it means contacting customers in an active and targeted manner through visits, letters, e-mails, telephone calls or other means of direct communication or through targeted advertising and promotion, offline or online [...]'.

Passive sales are instead those 'carried out in response to spontaneous requests from individual customers, including the delivery of goods or the provision of services to the customer, without the sale having been initiated by actively soliciting particular customers, customer groups or territories, including sales resulting from participation in public tenders or from the response to private calls for tenders'(EU Reg. 2022/720, art.1.1.l, m).

3.3) Sales Restrictions online and

La Blacklists, as we have seen (v. supra, paragraph 2.3, first point) includes the prohibition of the supplier to prevent distributors from doing 'effective use of the internet'. However, this prohibition is subject to some exceptions since, under certain conditions, the following cases are allowed:

- online marketplace ban, that is the prohibition imposed by the supplier on the distributor to sell the products through the so-called online marketplaces (eg. Amazon, eBay),

- dual pricing (dual pricing), i.e. the application to the distributor of different prices for products intended for online sale and in physical stores,

- parity clause, i.e. the supplier's prohibition on the buyer from offering the same products on competing platforms or sites at cheaper prices.

3.4) Limits to the use of sales platforms online and

Are allowed the supplier's prohibitions to the distributor from making sales through online and marketplaces, according to the Commission, 'provided they are not indirectly intended to prevent the actual use of the Internet by the buyer to sell the contract goods or services in certain territories or to certain customers'.

'Restrictions online sales generally do not serve that purpose if the buyer remains free to manage their online store and advertise online. In these cases, the buyer is not prevented from making effective use of the internet to sell the contract goods or services'.

3.5) Online marketplaces, critical issues

The interpretation offered by the Commission, on closer inspection, does not consider the operating conditions of SMEs. Many of which, following the lockdown and the greater attitude of consumers to make purchases online and, have managed to survive thanks to the use of various marketplace. However, without having adequate resources to organize and index the website its own sales channel online and or in any case to find an alternative.

Any legitimation of the prohibitions to resort to performing platforms such as Amazon, in the cases described above, translates into a real Internet Ban. On this aspect, careful supervision by the national competition and market authorities (Antitrust) is therefore expected. In fact, it is essential to verify, on a case-by-case basis, the impact of supplier bans on sales via platforms online and on the economy of distributors. And if applicable, declare it null and void.

3.6) Dual pricing

Il dual pricing has registered a real turnaround. This practice, in the previous version of the Guidelines, was classified as restrictive (without prejudice to the hypothesis of double pricing agreed between the supplier and its distributors, considering the higher costs of logistics for direct shipments from the supplier to end customers). On the other hand, dual pricing is now accepted in the exemption regime as it can incentivize or reward an adequate level of investment in sales channels. online and o offline, provided it is not intended to limit sales to particular territories or customers.

Differentiated prices, according to the Commission, they benefit from the derogation from the prohibition when reasonably linked to the differences in the investments and costs incurred by the buyer to carry out sales in the different channels. Conversely, they are not allowed when they hinder the actual use of the internet by the buyer to sell goods or services in certain territories or customers. That is when the wholesale price makes the sale online and unprofitable or financially unsustainable, or when the dual pricing limit the quantities of products available to the buyer for sales online and.

3.7) Dual pricing, critical issues

The reform of dual pricing therefore replaced the 'equivalence test' - whereby the prices imposed by the supplier for online sales had to be overall equivalent to those imposed for sales offline - with the test 'on the actual use of the internet'as a basic condition for the legitimacy of the practice.

The criticality most evident is the burden of proof. Indeed, it should be clarified which criteria and parameters can be adopted by distributors (and / or supervisory authorities) to demonstrate that the higher price for the products to be resold online and prevent the effective use of the internet, without getting lost in complex economic analyzes.

3.8) Parity clause

La parity clause entails a ban on brokerage platforms online and (as a provider of the related services) to require the buyer not to offer better prices on other brokerage platforms.

This practice, today in gray list (see par. 2.4), is allowed only when the intermediary limits himself to prohibiting the distributor from the so-called free riding. That is to say the application of lower prices, to the same products, on its direct sales channels.

4) Vertical restrictions and unfair commercial practices in the agri-food chain

More clarifications on the interaction between the reg. UE 2022/2161 and the dir. EU 2019/633, on unfair commercial practices in the agri-food chain, would be very useful. All the more so when we consider the recent intervention of the Antitrust Authority (AGCM, so-called Antitrust) on the fixing of milk prices (6) and the uncertain application of the prohibition on selling below cost, entrusted among other things to a different entity (ICQRF. See note 7).

4.1) Peculiarities of the sector

The agro-industrial sector remains dominated by lobby so powerful that they have already achieved specific derogations from the competition rules established in the TFEU. As we have seen, for example, in the cases of production quotas - or rather, position rents - on aged PDO cheeses. Where the Commission and the Member States persist in tolerating the systematic application of exceptions instead linked to crisis contexts. (8)

The specialty principle however, it entails the application of the prohibitions and conditions set out in the UTPs directive (Unfair Trading Practices), in relation to the supply of agricultural and food products. Even if the commercial practices applied are compatible with the regulation in question. Moreover, it remains effective, even in the agri-food sector, apart from cases of apparent conflict of rules with the aforementioned directive.

Maria Rosaria Raspanti and Dario Dongo

Notes

(1) reg. EU 2022/720, on the application of Article 101 (3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices. On Europa-Lex, https://bit.ly/3NvpmSI

(2) The reg. UE 2022/720 repeals the reg. EU 330/2010, implementing the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices. https://bit.ly/3wLoHWx. See also https://bit.ly/39Jn7w9https://bit.ly/3ahciC0

(3) Dario Dongo. Unfair commercial practices, the EU directive 2019/633. GIFT (Great Italian Food Trade). 4.5.19, https://www.greatitalianfoodtrade.it/mercati/pratiche-commerciali-sleali-la-direttiva-ue-2019-633

(4) Dario Dongo. Unfair commercial practices in the agri-food chain, Legislative Decree 198/2021. The ABC. GIFT (Great Italian Food Trade). 26.2.22, https://www.greatitalianfoodtrade.it/mercati/pratiche-commerciali-sleali-nella-filiera-agroalimentare-d-lgs-198-2021-l-abc

(5) European Commission.  Communication on informal guidance for new or unresolved issues relating to Articles 101 and 102 of the Treaty on the Functioning of the European Union raised by individual cases (guidance letters). Draft for consultation, published on 24.05.22 https://ec.europa.eu/competition-policy/public-consultations/2022-informal-guidance-notice_en

(6) AGCM, opinion 22.12.21. AS1815 - Memorandum of Understanding of the national dairy supply chain for the protection of Italian farms, available https://www.agcm.it/competenze/tutela-della-concorrenza/attivita-di-segnalazione/lista-segnalazioni-e-pareri

(7) Dario Dongo. Promotional sales, poor protection of producers and consumers. GIFT (Great Italian Food Trade). 24.5.22, https://www.greatitalianfoodtrade.it/vendite-promozionali-scarsa-tutela-di-produttori-e-consumatori

(8) Dario Dongo. Parmigiano Reggiano, Grana Padano and production quotas. #Clean shovels GIFT (Great Italian Food Trade). 5.2.22, https://www.greatitalianfoodtrade.it/idee/parmigiano-reggiano-grana-padano-e-quote-di-produzione-vanghepulite

AGCM, provision 12.11.2019 n. 27991, AL22 - Marketing of Senatore Cappelli wheat, as well as AL15E - AUCHAN-GDO / Bakers, available on https://www.agcm.it/competenze/tutela-della-concorrenza/delibere/

Victoria Daskalova. The New Directive on Unfair Trading Practices in Food and EU Competition Law: Complementary or Divergent Normative Frameworks? (Journal of European Competition Law and Practice). 24.8.19

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Dario Dongo, lawyer and journalist, PhD in international food law, founder of WIISE (FARE - GIFT - Food Times) and Égalité.

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