Let's talk antitrust - Vertical challenge – how to improve the Block Exemption Regulation?
United Kingdom | Video | May 2019 | 08:45
Video Details
| Shaha El-Sheemy | Hi Richard, I wanted to talk to you today about the wonderful world of vertical agreements. Obviously, most businesses will enter into some form of a vertical agreement when bringing its goods or services to market. And the rules around this in the competition law arena have been fairly stable for a while now, in that they have tried to balance between protecting individual businesses’ commercial freedom when setting their sales and distribution strategies with the, kind of, competition law goals around promoting competition and increasing customer choice. So the rules have been stable, but I was keen to talk about this with you today particularly because of the European Commission’s decision to review these rules. So, perhaps we could set the scene by talking about the current position. |
| Richard Whish QC | Yes, well as you say, it is a pretty stable regime and there is the existing Block Exemption 330/2010 with the accompanying vertical guidelines. But the point is, of course, that that Block Exemption expires – I think it’s 31 May 2022 – so it was always foreseen that there would be a need for a review, possibly reform. Subsequently, of course, the Commission did its market study into e-commerce which reported in 2017, and it’s a very good piece of work I think, and the Commission looked at the new ways in which people distribute online, what kind of restrictions are there in typical online agreements. I think probably the Commission found more restrictions than they thought they were going to do and the move towards selective distribution and so on and so forth, so a lot was learned from that. And now, of course, the Commission has moved on to an enforcement phase and in June of last year it adopted four decisions on online RPM, if I can shorthand the cases in that way. In December, was it, they adopted the decision in Guess, online cross-border restrictions etc., and there are further cases in the pipeline now on geo-blocking and so on. So, that’s where we have got to so far and one would imagine that that experience, together with the consultation that the Commission has now launched, will lead into a pretty detailed debate, I can only assume, over the couple of years leading to, I would assume, a new Block Exemption and certainly a new set of guidelines in 2022. And I think we have to remind ourselves, in a way, 2022 is not that far away by the time one has had the consultation and then any Green Papers or White Papers etc. that follow. |
| Shaha El-Sheemy | So, what would you say has worked particularly well in the previous regime, and the one that is currently in force? |
| Richard Whish QC | Well, I am an admirer of the Block Exemption in the sense that there must be a very large percentage of vertical agreements as defined, there must be a very large percentage of them that are simply compliant with the Block Exemption – you know, below 30 per cent market share, nothing hard-core, we’re there. I think that is pretty good, it’s a pretty safe harbour, but obviously the things that are coming up now and the kind of cases that we are getting in the Court of Justice, Pierre Fabre and Coty, our case on Ping here, they are addressing new and different phenomena. It is very interesting to see the huge increase in cases investigating what used to be called MFN clauses – not an expression I like, most favoured nation, let’s call them price parity, non-price parity clauses – lots of those kind of cases, cases on forbidding people to use third party market places, a case in the United Kingdom in the High Court on whether it is legitimate to have a requirement for online sales that I must maintain a bricks-and-mortar outlet, so there are lots of issues that are being tested and probed and that will all feed into this review. |
| Shaha El-Sheemy | So, with this increase in e-commerce and, as you mentioned, the kind of focus now on particularly online sales and platforms and how this will operate going forward, how realistic will it be for the new set of rules to capture every single scenario that can be envisaged here? |
| Richard Whish QC | Well, you can never define sin in detail, of course. You will never be able to address everything because you can’t foresee everything, but the point of this next couple of years is to build on the experience already obtained from the market study and the individual decisions, and the cases currently going through the system, and a consultation in which people will articulately express their concerns. And then out of that the Commission has to make some kind of sense and come up with a final proposal, but I think it will be pretty intense. Patterns of distribution are infinitely complicated. They are much more complicated than in the old days when I was teaching my students – supplier, wholesaler, retailer, customer – you know, nice vertical lines, and let’s look at this agreement, and let’s look at this agreement. It’s very different nowadays and you start trying to do these diagrams and you come up with trapeziums and rhombuses, so it’s a more complicated world than it used to be. |
| Shaha El-Sheemy | Another area that’s, I think, quite prominent when it comes to analysing vertical agreements is the role of the national competition authorities, and whether you think that as part of this consultation the outcome will be a more unified response? |
| Richard Whish QC | Well, that is interesting obviously and we know that there have been variations from one Member State to another as to some of these of these issues. And we know that Germany has disagreed with the prevailing mood in relation to, for example, hotel booking, and what is and what is not a luxury good and what is the ambit of the Coty judgment. There are differences, and I would imagine that this process will lead to a greater homogenisation. I see the Commission’s job as being to set the agenda at the EU level and then for the NCAs and the national courts then to implement those rules. So, I would imagine that one would get some homogenisation. I think it’s reasonable to also say, however, that it may be that the way in which vertical practices, say, impact in one geographical market may be different from how they impact in another geographical market. I don’t take it as inevitable that one has to apply the law in exactly the same way in every corner of the EU, and there may be ways of adapting the rules according to local circumstances. I just don’t know, but that’s the point of having a consultation, of course. |
| Shaha El-Sheemy | And, related to that, is there any guidance that you would suggest or advice to businesses interested in the outcome of this consultation? |
| Richard Whish QC | Well, I mean, certainly keep an eye on it, keep more than an eye on it, watch it closely. Obviously, there is always a question, should I as a business invest my time in making submissions? And it may be that your business is sufficiently like lots of other businesses that your voice is going to be heard anyway. If, on the other hand, if you look at this debate and say, yes but that is not how it works in widgets, if there’s a widget story to be told, frankly, I think you have got to get your story into the Commission. You can’t stay silent and then in four years from now complain that the rules don’t take into account your circumstances, that’s why we have consultations. |
| Shaha El-Sheemy | Thanks very much, Richard. |
Senior Associate
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shaha.el-sheemy@nortonrosefulbright.com