What?
Online sales restrictions are strictly scrutinized by the European Commission and national competition authorities. It is widely recognized that total online sales bans are seen as hardcore restrictions, which cannot benefit from the VBER.
However, companies must also act with caution with respect to other online sales restrictions. In a selective distribution system, brand owners can set online sales criteria to protect their brand when distributors sell online. The European Commission provides that such criteria imposed by a brand owner or supplier with respect to online sales must be broadly equivalent to those imposed for offline sales in a selective distribution system. This is referred to as the "equivalence principle."
If these online criteria are not deemed equivalent to the offline criteria, the VBER position means that brand owner distributors are prevented from using the Internet to reach more customers. This amounts to an illegal restriction of active or passive sales.
Now?
Article 4(c) VBER prohibits the restriction of active or passive sales to end users by members of a selective distribution system. According to the European Commission, selective distributors within a selective distribution system must be free to sell (both actively and passively) to all end users, including through the Internet. In particular, with respect to Internet sales, the European Commission considers any obligation that discourages members of a selective distribution system from using the Internet by imposing criteria for online sales that are not broadly equivalent to those imposed for offline sales as hardcore restrictions. This means that the system cannot benefit from the VBER.
The current Vertical Guidelines explicitly state that the equivalence principle does not require that the criteria imposed for online sales must be identical to those imposed for offline sales, but rather that they must pursue the same objectives and achieve similar results. The difference between the criteria must be justified by the different nature of these two distribution modes. This is illustrated by a number of examples in the current Vertical Guidelines.
The future as of June 1, 2022?
Regarding the principle of equivalence, the European Commission seems to be moving in a new direction by focusing on the actual restriction of the use of the Internet. In the current proposals for the Vertical Directives, the equivalence test for hybrid distribution scenarios will be abolished.
The current proposals of the Vertical Guidelines establish a closer link with respect to preventing the effective use of the Internet. Given the different characteristics of online and offline sales, a supplier operating a selective distribution system may impose online criteria on its authorized distributors that are not identical to the offline criteria, provided that the authorized distributors are not directly or indirectly prevented from effectively using the Internet in selling the contract goods.
The current proposals of the Vertical Guidelines include the following practical example:
A supplier may impose specific online requirements to ensure compliance with certain service quality standards, including (i) the establishment and operation of an online after-sales help desk, (ii) a requirement to cover the costs of customers returning the product, or (iii) the use of secure payment systems. Under the current proposals of the Vertical Guidelines, such requirements do not constitute a blacklist customer or territorial restriction.
In practice?
The equivalence test will be abolished and replaced by a new "effective use of the Internet" test under the new VBER regime.
Assessment?
We welcome the elimination of the equivalence test and the introduction of a closer link to the effective use of the Internet restriction. While the equivalence principle is not unreasonable, the new "effective use" test serves legal certainty.
For example, it is often difficult to judge what is (not) equivalent, given that online and offline sales are in different worlds (e.g., is a 7/7 after-sales service in a web shop "equivalent" to a less demanding after-sales service in a physical store?). It can also be difficult to compare online and offline requirements in the absence of a relevant "offline" counterpart (e.g., requirements related to the use of search engines and web analytics software). These interpretation issues will be resolved with the new test, which will benefit many companies' hybrid distribution strategies.
Want to know more? Stay tuned...
Leading up to June 1, 2022, we aim to provide you with regular updates and the legal knowledge you need to fully prepare your business for the future. Also be sure to take a look at the Distribution Law Center platform and our LinkedIn page to learn more about the laws related to vertical agreements, including both competition and commercial law. 27 specialized teams from across the EEA are working hard to make the platform your favorite source of guidance and information.
A translation of this Countdown newsletter is available in the following languages: Czech, Portuguese, Slovak, Swedish.
Read the available DLC Countdown newsletters about the expected changes here.
