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European Commission consultation has implications for parties to supply and distribution agreements

The Commission has published, and is seeking comment on, a revised draft Block Exemption Regulation and revised Guidelines on supply and distribution agreements. The current EC Block Exemption Regulation, which affords a legal “safe harbour” for supply and distribution agreements from the full application of the EC competition rules, is due to expire on 31 May 2010.

For the most part the rules will remain the same. However, a number of important amendments taking account of recent market developments, such as the increased buyer power of large retailers and the evolution of on-line sales, have been proposed by the Commission.

The current Block Exemption Regulation only applies if the supplier’s market share does not exceed 30%. However, in the case of exclusive supply agreements it is the buyer’s market share which must not exceed 30%. To take account of the increased buyer power of large retailers, the Commission proposes that for a supply or distribution agreement to benefit from the block exemption, both the supplier’s and buyer’s market share should be 30% or below.  This could have the effect of bringing agreements currently covered outside the scope of the exemption.

The Commission also proposes updating the current Guidelines to reflect the realities of Internet selling. The revised draft Regulation retains the distinction between active sales (targeted sales in another party’s exclusive territory, which may be restricted) and passive sales (sales in response to unsolicited orders, which may not be restricted). The revised draft Guidelines outline the distinction between active and passive sales on the Internet. Active sales on the Internet are sales to customers and into territories reserved by exclusive agreements, which result from targeted promotions, such as unsolicited e-mails. Passive sales on the Internet are sales which result from general advertising and promotion on the Internet, such as a general website. The revised draft Guidelines also provide that it not permissible to require an exclusive distributor to prevent customers located in another exclusive territory from viewing its website or to re-route or terminate transactions with customers in another country. Finally, the revised draft Guidelines provide that the supplier may impose quality standards for Internet sites used to resell his goods. 

Interested parties are invited to submit comments until 28 September 2009. Once finalised, the revised draft Regulation and Guidelines are due to come in to force on 1 June 2010.

In light of the proposed changes (in particular regarding market shares) parties to supply and distribution agreements should monitor the outcome of the consultation to ensure future compliance.