Public consultation on review of competition rules for distribution sector

The European Commission is calling for comments on its proposal for a revised Block Exemption Regulation and Guidelines on supply and distribution agreements (vertical restraints). The current Regulation is due to expire in May 2010. Based on its experience in their application and on stakeholders' comments, the Commission considers that the rules are working well overall and should not be fundamentally modified. The main suggestions for amendments intend to take account of recent market developments, in particular the increased buyer power of big retailers and the evolution of on-line sales on the Internet. Interested parties are invited to submit comments until 28^th September 2009.

Competition Commissioner Neelie Kroes stated: "Competitive and efficient distribution are essential for consumer welfare and for our economy. The review launched today aims to ensure that the assessment of supply and distribution agreements under the competition rules takes account of recent market developments, namely further increased market power at the level of buyers  and new forms of distribution including  the opportunities brought by the Internet".

Commission Block Exemption Regulation N° 2790/1999 ensures that supply and distribution agreements that comply with its provisions benefit from an exemption from the EC Treaty's ban on restrictive business practices (Article 81(1). The current Block Exemption Regulation on vertical restraints expires in May 2010. The Commission's preliminary assessment of its application, based on experience and feedback from stakeholders, found that the current rules have worked well in practice.

At the time of its adoption in 1999, the Regulation aimed at considerably reducing the regulatory burden on companies, in particular companies without the ability to raise prices without a loss of profit (i.e. with no market power), like SMEs, and at introducing an effects-based approach to the assessment of vertical restraints. These objectives and concerns remain valid today.

Two major developments have marked the ten-year period following the entry into force of the current rules: a further increase in large distributors' market power and sales on the Internet.

To take account of these developments, the Commission proposes that for a vertical agreement to benefit from the block exemption, not only the supplier's market share (as is currently the case) but also the buyer's market share should not exceed 30%.

Regarding on-line sales, on the one hand there is a need to protect consumers' possibilities to purchase to their advantage across borders, which is greatly facilitated by the Internet. On the other hand, certain sales restrictions that aim at limiting or preventing distributors from taking unfair advantage of marketing and brand promotion undertaken by others (i.e. free riding) may enable consumers to benefit from better services. The Commission's suggested approach therefore refines, in the on-line context, the distinction, between sales made as a result of active marketing and sales made as a result of the consumer taking the initiative (i.e. between active and passive sales), and explains how the revised Regulation would deal with conditions imposed in relation to internet sales, such as a requirement imposed by a supplier that the distributor should have a "brick and mortar" shop before engaging in online sales.

The Commission invites interested third parties to comment by 28^th September 2009. The consultation covers all issues dealt with by the Regulation and the Guidelines, but the Commission seeks in particular comments on the overall functioning of the current rules, the extent to which recent market developments should impact on the Regulation and the Commission's suggested approach concerning buyers' market power and restrictions on on-line sales. The draft revised Block Exemption Regulation and Guidelines are available on the Europa website at:

http://ec.europa.eu/competition/consultations/2009_vertical_agreements/index.html