#CompetitionLawBrief I Vertical Agreements

15.07.2022 #CompetitionLawBrief I Vertical Agreements

By Associate Augustė Linauskaitė

On 1 June 2022 new rules on vertical agreements entered into force and brought some regulation changes which are relevant to all participants of the distribution chain, including suppliers and distributors on both wholesale and retail levels.

GENERAL RESTRICTIONS OF ONLINE SALES

Let’s start with the standard restriction of online sales imposed by suppliers on its distributors. Such restriction is not by itself breaching competition laws. However, a general rule is that distributors should be entitled to online sales.

"The new vertical guidelines establish a so-called “effective use of the internet” test. This test means that the restriction may benefit from the block exemption and may be lawful, as long as it does not indirectly prevent the effective use of the internet by the authorized distributor to sell the goods to particular territories or customers," says Augustė Linauskaitė, Associate at TGS Baltic.

Therefore, the legitimacy assessment of every restriction of online sales should start with this test. The new rules do not provide very detailed guidelines based on what criteria such test should be applicable, thus, in the beginning, the parties might feel a bit lost when trying to assess their vertical agreements.

THIRD-PARTY MARKETPLACE BANS

Restricting the use of third-party marketplaces (e.g. Amazon) for distribution does not by itself infringe competition laws. New vertical guidelines highlight the existing case law and establish that such restriction may benefit from the block exemption and may be legitimate due to certain quality criteria, especially in the case of a selective distribution system applicable to luxury goods.

However, a third-party marketplace ban will not be justified if it de facto restricts all online sales. Such restriction will also not be justified when it applies not to all distributors, the supplier itself sells via third-party marketplaces or the marketplace operator is a member of the respective selective distribution system.

PRICE COMPARISON TOOLS

Sometimes suppliers have the need to restrict the distributors from using price comparison services as an advertising tool. Such restriction does not by itself infringe competition laws. It may be legitimate due to certain quality criteria, e.g. to protect the brand, especially in the case of a selective distribution system, or when the quality is more important than the price.

The restriction may be justified in case of the legitimate restriction of active sales because price comparison services are considered to be a type of advertising. However, prohibiting the use of the most widely used price comparison services may not be justified if the remaining advertising services are de facto not capable of attracting customers. In any case, the restriction shall be appropriate, and proportionate, and the restrictive effect shall be assessed.