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Competition section: Focus on the new Vertical Restraints Exemption Regulation

On May 10, 2022, the Commission adopted the new block exemption regulation applicable to vertical agreements (Exemption Regulation), in force since June 1, 2022, and the new Guidelines specifying its application.

For the record, vertical agreements are agreements between two or more companies operating at different levels of the production and distribution chain. In practice, this includes all distribution agreements (selective, exclusive, franchising, etc.).

Under the exemption regulation, such agreements are exempt from the prohibition on cartels, provided they meet the market share threshold and do not contain any hardcore or excluded restrictions.

Each newsletter contains an update on the main changes.

The notion of agency and platforms under the new regulation on vertical restraints – What are we talking about?

As an exception to the principle of the prohibition of cartels, agents are not, under certain conditions, considered as economic operators independent of their principal. In this case, they form a single economic entity with the principal as regards the agent’s sales or purchasing function (limitations on the territory and customer groups covered by the agency contract, and above all on prices and sales and purchasing conditions), which rules out the existence of a cartel in the absence of an agreement between two or more companies.

To benefit from this exception, the agent must not bear any significant financial or commercial risk (risks specific to each contract, to market-specific investments or to other activities carried out on the market).

The previous versions of the Exemption Regulation and the Guidelines on Vertical Restraints, dating from 2010 and therefore predating the accelerated development of platforms, did not specify the fate of platforms in the definitions of vertical agreements and the scope of the exemption. In practice, this has led to divergent assessments by competition authorities. Some authorities considered platforms to be agents within the meaning of competition law, whose agreements were likely to escape the prohibition on cartels. For other authorities, they could not be considered as forming a single economic entity with their principals, given their characteristics, and the agreements were therefore fully subject to competition law.

The qualification of contracts concluded by platforms is now governed by the new Exemption Regulation and the new Guidelines. Point 46 of the new Guidelines specifies that agreements concluded by platforms generally do not qualify as agency contracts. Such agreements would therefore not escape the cartel prohibition principle laid down in Article 101(1) of the Treaty on the Functioning of the European Union (“TFEU”), for the following reasons:

  • They generally act as economic operators independent of sellers;
  • Relations with sellers are often marked by an imbalance, leading, for example, to the terms of sale being determined by the platform and not by the seller;
  • The sellers served by platforms are often numerous, which prevents platforms from forming a single economic entity with any one of these sellers;
  • Platforms make significant investments specific to their markets (software, advertising, etc.).

Who is affected by this clarification?

If a vertical agreement concluded with a platform does not meet the conditions of an agency contract within the meaning of the Exemption Regulation, the analysis of the contract will depend on whether the platform qualifies as a provider of online intermediation services (within the meaning of Regulation no. 2022/720, the so-called “Platform-to-Business” Regulation). This is the case for e-commerce marketplaces, app stores, price comparison tools and social media services.

In this situation, the platform will be considered as a supplier with regard to the provision of online intermediation services (e.g. for agreements relating to the use of the marketplace by sellers), and agreements relating to this provision can in principle benefit from the exemption (point 67 of the Guidelines).

What are the consequences?

Platforms may not :

  • Set selling prices (fixed or minimum) for sales facilitated by the use of the platform in question;
  • Restrict the territory or customers to whom goods or services may be sold via the platform;
  • Impose on sellers an obligation of parity with other platforms.

Finally, where the platform performs a hybrid function, i.e. sells goods and services in competition with the companies to which they provide their services, their agreements will not be exempted under the Exemption Regulation applicable to vertical agreements, but will have to be analyzed under the guidelines applicable to horizontal agreements, including with regard to exchanges of information.

These new rules, inspired by the practices of certain major platforms, are likely to create enforcement difficulties, precisely because of the diversity of the platforms to which they now apply.

In practice, each platform’s operating model needs to be assessed to ensure compliance with the new rules.

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