EU’s new rules on companies’ supply and distribution agreements

EU’s new rules on companies’ supply and distribution agreements

The European Commission (EC) has adopted a regulation block exempting agreements between manufacturers and distributors for the sale of products and services.The regulation and accompanying guidelines, announced by the EC on April 20 2010, "take into account the development, in the last 10 years, of the internet as a force for online sales and for cross-border commerce, something that the Commission wants to promote as it increases consumer choice and price competition," a media statement said.The basic principle, according to the EC, "remains that companies are free to decide how their products are distributed, provided their agreements do not contain price-fixing or other hardcore restrictions, and both manufacturer and distributor do not have more than a 30 per cent market share".Approved distributors are free to sell on the Internet without limitation on quantities, customers' location and restrictions on prices.EC Competition Commisioner Joaquin Almunia said that a "clear and predictable application" of competition rules to supply and distribution agreements was essential for the competitiveness of the EU economy and for consumer welfare."Distributors should be free to satisfy consumer demand, whether in brick and mortar shops or on the Internet. The rules adopted today will ensure that consumers can buy goods and services at the best available prices wherever they are located in the EU while leaving companies without market power essentially free to organise their sales network as they see best," Almunia said.The EC said that the regulation "block exempts" distribution and supply agreements at different levels of the production and distribution chain.There are hundreds of thousands of such "vertical" agreements and, therefore, the revision of the rules is important for business and consumers, the EC said.The existing Vertical Restraints Block Exemption Regulation (VRBER) and accompanying guidelines are 10 years old.Manufacturers remain free to decide how to distribute their products, according to the EC."But in order to benefit from the block exemption, they cannot have a market share in excess of 30 per cent and their distribution or supply agreements must not contain any hardcore restrictions of competition, such as fixing the resale price or re-creating barriers to the European Union's single market," the statement said.The new rules introduce the same 30 per cent market share threshold for distributors and retailers to take into account the fact that some buyers may also have market power with potentially negative effects on competition."This change is beneficial for small and medium-sized enterprises (SME's), whether manufacturers or retailers, which could otherwise be excluded from the distribution market," the statement said.This does not mean agreements between companies with higher market shares are illegal, according to the EC. "Only that they must assess whether their agreements contain restrictive clauses and, whether they would be justified."The new rules also specifically, address the question of online sales.Once authorised, distributors must be free to sell on their websites as they do in their traditional shops and physical points of sale.For selective distribution, this means that manufacturers cannot limit the quantities sold over the Internet or charge higher prices for products to be sold online. The guidelines further clarify the concepts of "active" and "passive" sales for exclusive distribution, the EC said.Terminating transactions or re-routing consumers after they have entered their credit card details showing a foreign address will not be accepted."With the new rules in force, dealers will now have a clear basis and incentives to develop online activities to reach, and be reached, by customers throughout the EU and fully take advantage of the internal market," the statement said.Manufacturers can choose distributors on the basis of quality standards for the presentation of the products regardless of whether they operate off- or online.They may decide to sell only to dealers that have one or more "brick and mortar" shops, so that consumers can physically see and try or test their products. "However, in this regard, the Commission will be particularly attentive to concentrated markets to which price-discounters either online only or traditional may not have access."The new rules will come into force in June and will be valid until 2022, with a one-year transitional phase. The new Block Exemption Regulation can be found at: detailed guidelines will be published after the finalisation of the different linguistic versions, the EC said.

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