Dual distribution is a situation where a supplier sells goods or services both directly and via independent distributors, thereby competing with these independent distributors on the downstream market. A classic example would be a clothing manufacturer that sells its products in its own stores while also relying on independent retailers to sell the clothing in their shops.
Dual distribution is by no means a new phenomenon. As early as 2010, it was already being applied by manufacturers for various reasons: to set an example for their independent distributors in so-called "flagship stores," to offer more choice to end customers, etc. Over the past decade, however, dual distribution has become increasingly important due to the significant rise of online sales.
The increased use of dual distribution has led the European Commission to examine whether the existing legal framework still corresponds to changing market conditions. It has, however, also prompted stakeholders to point out certain shortcomings in the legal framework. This Countdown discusses the exchange of information in the context of dual distribution.
The exchange of information between supplier and buyer is indispensable for the proper performance of a vertical agreement, and such exchanges fall under the VBER if the vertical agreement itself benefits from the VBER ‘safe harbour’.
According to Article 2(4), first sentence, VBER, vertical agreements between competitors do not benefit from the ‘safe harbour’. Only certain cases of dual distribution do. In other words, according to Article 2(4), second sentence, non-reciprocal vertical agreements benefit from the block exemption if the supplier is a manufacturer and distributor of goods, or a service provider operating at different levels of trade, while the buyer is a distributor, not a manufacturer, or offers its goods or services at the retail level and is not a competitor at the level of trade where it purchases the contract services.
The draft text of the new VBER states that information exchanges in dual distribution will not be exempted if the parties have a combined market share exceeding 10% of the relevant retail market. In such cases, the exchange of information will be assessed under the Horizontal Guidelines (Article 2(5) draft VBER).
The exchange of information in dual distribution not covered by the exemption must be individually assessed under Article 101 TFEU. Other provisions of the vertical agreement may, however, still benefit from the exemption.
The adjustment of the rules on information exchange in dual distribution is a welcome development. However, the European Commission has concerns that a dual distribution scenario may lead to "false positives." The introduction of an additional market share threshold is not an appropriate way to address this concern.
We are counting down to 1 June 2022 and aim to provide you with regular updates and the necessary legal knowledge to fully prepare your business for the future. Also have a look at the Distribution Law Center platform and our LinkedIn page for much more information on the laws applicable to vertical agreements, both in the field of competition and commercial law.