EC Proposes Amendments to Block Exemption for Supply, Distribution Agreements

This posting was written by Pete Reap, Editor of CCH Business Franchise Guide.

The European Commission (EC) proposed a revised Block Exemption Regulation and Guidelines on supply and distribution agreements, including franchise and other types of vertical agreements, on July 28. The proposed amendments would address recent market developments, including the increased buying power of large retailers and Internet sales.

Block exemptions create safe harbors from EC competition law for categories of agreements, relieving the contracting parties from the need to individually analyze the legality of those agreements under the general EC rules regarding vertical agreements. The current block exemption for those types of agreements (Commission Block Exemption Regulation N° 2790/1999) is due to expire in May 2010.

Proposed Amendments

Based on its analysis of the existing supply and distribution agreement block exemption, which has been in effect since 1999, and on stakeholders' comments, the EC found that the existing rules are working well overall and should not be fundamentally modified.

However, in light of recent market developments, the EC suggested amending the existing regulation and guidelines to take into account the increased buying power of big retailers and the evolution of Internet sales.

To address those developments, the EC proposed that the block exemption be available only to vertical agreements in which the supplier's market share does not exceed 30 percent.

The EC's proposal also refined, in the context of Internet sales, the distinction between sales made as a result of active marketing and “passive sales” made as a result of the consumer taking the initiative.

In addition, the proposed amendments address certain conditions imposed in relation to Internet sales, such as a requirement imposed by a supplier that the distributor should have a "brick and mortar" shop before engaging in Internet sales.

Commission Statement

Of the proposed revision, EC Competition Commissioner Neelie Kroes stated:

"Competitive and efficient distribution are essential for consumer welfare and for our economy. The review launched today aims to ensure that the assessment of supply and distribution agreements under the competition rules takes account of recent market developments, namely further increased market power at the level of buyers and new forms of distribution including the opportunities brought by the Internet."

The Commission invited interested parties to submit comments about the proposed revisions by September 28, 2009.

A press release on the proposal appears here on the European Union’s Europa web site. Further information on the proposal—and instructions on how to submit written comments—appear here.