No, this isn't a bizarre reference to EastEnders, it's an update on one of the most useful and eagerly awaited new pieces of regulation to emerge from Brussels to update the 10 year old Vertical Agreements Block Exemption (VABE) that expired on 31st May 2010. The new Block exemption will last for slightly longer than 10 years to expire 31st May 2022.
A vertical agreement is one between organisations at different levels in the supply chain e.g. between a manufacturer and a wholesaler or a manufacturer and a distributer/dealer and is recognised for this very reason as being by its very nature less likely to "offend" the basic principles of competition law enshrined in the Treaty of Rome.
The new Block Exemption carries on much where the old left off but there are a few amendments and subtle updates to make sure that these regulations last for the 12 year life span without becoming out of date.
The current regulatory regime
Competition law for Europe is enshrined in the Treaty of Rome/the EC Treaty, Articles 81 & 82. These apply to the EC Member States and it is then for each Member State to introduce legislation for that Member State to implement the EC Treaty. The current embodiment of this legislation is the Competition Act 1998, Chapter 1.
The Office of Fair Trading (OFT) has the power to apply and enforce Articles 81 & 82 of the EC Treaty in the UK and the Competition Act 1998.
The Vertical Agreements Block Exemption (abbreviated to "VABE") was introduced in 1999 and has now been reviewed and updated with effect from 1st June 2010. This creates a "safe harbour" for a great number of vertical agreements so that an agreement falling within the VABE is automatically exempt from Article 81 and Chapter 1 prohibitions. It is clearly the "goal" to ensure that the VABE is available to you as fully as possible.
Vertical Agreements
Vertical agreements are the most frequently encountered commercial agreement. They are those entered into between two or more firms operating at different levels of the market, for example, between a manufacturer and distributor, where the primary purpose of the agreement is to purchase, sell or resell goods or services.
Vertical agreements that satisfy the criteria of the VABE are exempt from competition law scrutiny.
Vertical agreements include distribution (exclusive and selective), franchising, supply and agency arrangements between non-competitors (i.e. those who do not compete in the product market which is the subject of the agreement). The VABE provides for agreements between competitors to benefit from the VABE only in very limited circumstances.
The New Regulatory Regime
As with the current/old VABE, compliance will bring the agreement into a regulatory "safe harbour". So why do you need a safe harbour? You need not be concerned about the minute terms or nitty gritty detail of your agreement other than to ensure that it does not offend the VABE. If it doesn't offend, then the agreement will be in the "safe harbour" and you need not have any other concerns beyond the normal concerns of any commercial enterprise, of course.
The new provisions refer to a market share threshold of 30% which is now relevant for both seller and buyer rather than the old threshold just for the supplier.
There is now a new entitlement to make restrictions requiring a physical showroom/sales outlet rather than just having an internet presence and these types of restrictions are sometimes inaccurately referred to as "brick and click".
Whilst sales targets themselves are not banned as such, great care needs to be taken in terms of how these might be interpreted. For example, it is an absolute howler to prohibit any form of passive selling and the internet now makes passive selling far more of a practical issue for any dealer or distributor. It would infringe, for example, to have a website that automatically diverted any sales enquiry from outside an allocated area and refused to deal in such circumstances. Active selling is slightly different and would involve taking some definite steps, normally through a sales or marketing campaign beyond the internet itself. The internet is a truly global sales medium and the practical limitations will be driven by the end-user/buyer rather than the supplier. Is it viable for me to travel to Germany to buy a new product rather than source a far more local supplier who is far more convenient?
The EU Commission works closely with the OFT in the UK to ensure strict compliance with the regulations and the penalties for "getting it wrong" can be and frequently are extremely harsh - fines of up to 10% of word-wide turnover.
If in doubt, dig the agreement out and check it doesn't flout...