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Will Brussels Be Threatening Your Current Distribution Model?

Laws & Regulations

Will Brussels Be Threatening Your Current Distribution Model?
Brussels is taking close look at online and offline sales practices. Bike sector is advised to play active role in this process. – Photo European Union

BRUSSELS, Belgium – Since late last year Brussels is evaluating the General Vertical Block Exemption Regulation 2010 (hereinafter referred to as ‘VBER’). The question is whether this Regulation should be prolonged, revised or allowed to lapse. It contains overarching legislative framework on the EU’s general competition rules. Nearly all distribution schemes are covered by this Regulation. Leading brands in the sporting goods sector described the VBER revision as being of key importance for the continued existence and even survival of their current distribution model.

Especially omni-channel issues play a substantial role in this evaluation process. Brussels is taking a close look at online and offline sales practices, pricing, advertising and other commercial terms and conditions.

Applying to EU and European Economic Area

VBER 2010 will expire on 31 May 2022. It also prohibits agreements and concerted practices between undertakings, that unduly restrict competition, unless the procompetitive effects of such practices outweighed the anti-competitive effects. This includes also vertical agreements and practices between commercial operators, who are part of different levels of the production and/or distribution chain. VBER 2010, which applies in all (currently still) 28 Member States of the European Union and in the European Economic Area, contains more specific rules what is permissible or not under this regulatory framework including the listing of several hard-core competition law violations.

The most likely outcome of Brussel’s VBER 2010 evaluation process will be a comprehensive revision of the existing EU piece of legislation together with its accompanying guidelines, since when the present version of VBER 2010 had been created, the world had still looked different in particular in the area of online sales, Internet advertising, social media and the like.

Omni-channel issues

Nearly all distribution schemes are covered by this Regulation, be it at wholesale and/or retail level. Its reform will significantly affect brands/manufacturers, importers, distributors, retailers and also end consumers same as any other purchasers of bicycles and components within the whole supply chain. Especially omni-channel issues play a substantial role in this evaluation process as Brussels is taking a close look at online and offline sales practices, pricing, advertising and other commercial terms and conditions.

Vertical supply chain issues

Several verdicts of national and European courts same as a number of rulings of national competition authorities and of the European Commission are based on the grounds of the VBER 2010 and on Articles 101 and 102 TFEU, plus on provisions of national competition laws within the European Union and the European Economic Area. This applies e.g. for restrictions imposed by brands on retail customers to participate in price search engine activities, the very controversially discussed contractual ban of retailers in the framework of selective distribution systems to be active on third-party open platforms such as eBay and Amazon, the scope and limitations of commercial terms and conditions in the area of granting specific incentives and financial benefits such as discounts to brick-and-mortar retailers. National and European Cartel Offices pay more and more attention on vertical supply chain issues as proven by an increased number of substantial fines imposed on manufacturers, who disregarded in particular price resale maintenance prohibitions.

VBER revision is of key importance

It is therefore not exaggerated, when leading brands in the sporting goods sector described the actual VBER revision of the EU Commission as being of key importance for the continued existence and even survival of their current distribution model. This does also include cross-border distribution schemes such as the grant of exclusive rights to distributors at wholesale level in a certain geographic territory.

Current status

On May 27, 2019, the EU Commission has closed a public consultation phase, which had started on February 4, 2019, where numerous industry and trade federations same as individual companies had used the opportunity to articulate their point of view relating to the VBER reform, which also included a position paper of the European Sporting Goods Federation FESI with my active contribution.

Leading brands in the sporting goods sector described the actual VBER revision of the EU Commission as being of key importance for the continued existence and even survival of their current distribution model.

According to the Commission’s public statements, the whole evaluation process has the objective to check whether VBER 2010 is still effective, efficient, relative and in line with other EU legislation and whether it adds value. It had been announced by the Commission that prior to summer of this year an evaluation support study would be published, but until to date (midst of August 2019) it did not yet happen to my best knowledge.

The Commission further plans to organize a dedicated stakeholder workshop for the fall of this year followed by the publication of a staff working document in the second quarter of next year. The remaining time of approximately twenty-four months until the lapse of the current VBER 2010 in May 2022 will then be used for the so-called impact assessment phase.

Key Points of FESI’s Position Paper:

  • To represent 1,800 European manufacturers of sporting goods and European level, which corresponds to approximately 85% of the European market (with 70 to 75% SMEs). The total number of persons employed in this industry sector amounts to more than 650,000, who generated a total annual turnover of 66 billion euro;
  • A strong pleading for the further continuation of essential elements of the VBER 2010 also after 2022;
  • To maintain a fair balance and equilibrium between the interests of the manufacturers/brands, the retailers and the consumers;
  • A change of the wide-spread mindset that instruments applied by manufacturers such as recommended retail prices, price statistics and the like are regarded with general suspicion of (prohibited) price-fixing at the diverse sales levels;
  • The removal of diverging interpretations of antitrust laws and rules and of court verdicts by national competition law authorities (with the German FCO on the forefront), which impede cross border trade;
  • The continued acknowledgement of the legitimacy of selective distribution systems and the recognition of the freedom of choice of any manufacturer (including market strong and market dominating brands) to determine with whom they want to trade with and in which distribution channels they want to be represented;
  • To honour the principle that brick-and-mortar retailers do quite frequently incur higher cost for the distribution of sporting goods than pure online players with the consequence that the grant of differentiated conditions and incentives in this area should be permitted.

Lobbyists of the online trade put massive financial and other efforts into the influencing of this legislative evaluation process

Online trade lobbyists

It certainly is anything else but surprising that the lobbyists of the online trade put massive financial and other efforts into the influencing of this legislative evaluation process in Brussels to fight for an abolition or at least a substantial reduction of currently still existing privileges of manufacturers of branded products. This includes numerous lobbying groups of Silicon Valley giants such as Amazon and Google, but also the Alibaba Group and diverse online retailer associations – in the latter category again with the German Bundesverband Onlinehandel (BVOH) at the forefront.

Distribution model could be at risk

Consequently: Your current distribution model could be at risk, if far-reaching modifications of the existing VBER 2010 were the result of this EU Commission evaluation process to the disadvantage of manufacturers and importers of bicycles and bicycle components and of the qualified special retail trade.  AND: in contrast to an EU Directive, an EU regulation does not leave any room and flexibility for the national legislative bodies for any variation but will apply directly in any EU member state and within the European Economic Area after it will have come in into force. May 2022 may still sound far away, but it is already at the doorstep of entrepreneurial planning, investments and strategies. The bicycle sector is well-advised to play an active role in this process and to get actively involved – THE TIME IS NOW!

About the author:

Dr. Jochen M. Schaefer is a German practicing attorney with based in the Munich area. Since numerous years he represents both the World Federation of the Sporting Goods Industry (WFSGI) and the European Federation of the Sporting Goods Industry (FESI) as their Legal Counsel while he is also chairing the WFSGI’s Legal Committee and co-chairing FESI’S digital working group. At individual client level he represents brands within and beyond the sporting goods sector, including well-known bicycle industry brands. He is a specialist in national and international distribution topics, intellectual property (IP) and risk management issues and in the drafting and negotiation of comprehensive contracts at operational level. In case of any questions about this article (and in general) he can be reached at sj@sjlegal.de  and +49-151-(0)16407932

 

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