{"id":2864,"date":"2019-10-16T17:53:23","date_gmt":"2019-10-16T15:53:23","guid":{"rendered":"https:\/\/www.d-kart.de\/?p=2864"},"modified":"2019-10-16T18:10:00","modified_gmt":"2019-10-16T16:10:00","slug":"quo-vadis-vertical-ber-the-bundeskartellamts-background-paper","status":"publish","type":"post","link":"https:\/\/www.d-kart.de\/en\/blog\/2019\/10\/16\/quo-vadis-vertical-ber-the-bundeskartellamts-background-paper\/","title":{"rendered":"Quo vadis Vertical BER? – The Bundeskartellamt\u2019s Background Paper"},"content":{"rendered":"\n

The Bundeskartellamt just held its annual meeting with professors and judges, this time discussing the Vertical Block Exemption Regulation. In preparation, the German authority issued a background paper. Florian Wagner-von Papp read the paper. Here is his report!<\/em><\/p>\n\n\n\n

A note from the editor:<\/em> On Monday, we posted a synopsis and translation of some important rules in the draft bill (GWB-Referentenentwurf) in our blog. There were a few mistakes in that document that we have now corrected. Apologies. We kindly ask you to work with this document <\/a>and delete the other version from your files if you saved it (not to be mistaken in the future). Thanks! Now – back to Florian’s report!<\/p><\/blockquote>\n\n\n\n

I recently left the UK just in time to\nescape Brexit, but did so with a heavy heart (I miss the daily contact with my\nfabulous colleagues at University College London and in the British competition\nlaw scene). But, on the other hand, I did gain delightful new colleagues at the\nHelmut Schmidt University in Hamburg. As an additional sweetener, my new Chair\nat a German university appears to have qualified me for the Bundeskartellamt\u2019s\nannual conference of the \u201cArbeitskreis\nKartellrecht<\/a>\u201d \u2014 otherwise known as the \u201cProfessors\u2019 Conference\u201d, so\ncalled because private practitioners are excluded by design and the audience\nconsists mostly of (nearly all) German-speaking professors with competition law\nexpertise (well, and me), but also judges and representatives from various\ncompetition authorities, most prominently of course the Bundeskartellamt\nitself, with its Vice President Konrad Ost in the Chair.<\/p>\n\n\n\n

This year, the conference\u2019s theme was the\nrevision of the vertical Block Exemption Regulation (vBER), with a particular\nfocus on new challenges in the digital economy. As every year, the\nBundeskartellamt had compiled in advance a very helpful background paper which\ntouched on practically all points that were eventually discussed at the\nconference (the background\npaper can be accessed here (in German)<\/a>). <\/p>\n\n\n\n

Given the concise nature of the background\npaper (it covers a lot of ground in just 34 pages), those of you with German\nreading proficiency will probably prefer to read the background paper\nyourselves (as you should!). But there are people in this world who consider\nthe word \u201cVertikal-Gruppenfreistellungsverordnung\u201d to be one of those German\nwords \u201cso long that they have a perspective\u201d (although Mark\nTwain is unlikely to have had this word in mind when he coined the phrase<\/a>.\nTo be fair, even Germans abbreviate Gruppenfreistellungsverordnung as \u201cGVO\u201d\u2014\nbut, they are allowed to use the extended form when playing Scrabble). <\/p>\n\n\n\n

\"\"
This paper was discussed by the panel pictured above – from left to right: Petra Pohlmann (University of M\u00fcnster), Christian Wey (University of D\u00fcsseldorf – DICE), Konrad Ost, Silke Hossenfelder, Arno Rasek (all three Bundeskartellamt), Stefan Thomas (University of T\u00fcbingen) and DG COMP’s Marieke Scholz (at the microphone). <\/figcaption><\/figure>\n\n\n\n

The background paper starts by pointing to\nthe Commission\u2019s current public consultation process regarding the review of\nthe vertical BER when the current BER 330\/2010 expires on 31 May 2022. The\nintroduction also highlights the volume of e-commerce in Germany: in 2018, a\nturnover of \u20ac53.3bn (a nearly 10% increase from 2017), with Amazon alone\naccounting for \u20ac20bn. The background paper identifies three strands of new\nchallenges for the application of the vBER in the digital economy: (1) the\nchanging and new roles of actors in the digital economy; (2) new business\npractices (and new variations on old practices); and (3) a need to\nreadjust the balance between flexibility and legal certainty.<\/p>\n\n\n\n


(1) The changing and new roles of actors in the digital economy<\/strong><\/h2>\n\n\n\n

First,\nplatforms act as intermediaries either by simply matching the two sides of the\nmarket or by acting as an intermediary distribution layer. <\/p>\n\n\n\n

This raises questions to what extent the\nvBER is applicable to the various types of platforms (a question that was\ndiscussed, with varying results, in a number of hotel booking platform cases),\nwhat the relevant market(s) for the determination of market shares is (are),\nand what the criteria for distinguishing between different types of platform\nare. <\/p>\n\n\n\n

The background paper suggests that the most\nimportant relevant factors are: the degree of involvement in the transaction\nand the (legal and factual) responsibility for the transaction; a merely\nindicative function of the qualification in the platform\u2019s terms and conditions;\nand whether the platform is necessarily<\/em>\ninvolved in entering into the transaction. The provision of after-sale services\nby the platform is said to be ambivalent, because it shows, on the one hand,\nthe platform\u2019s interest in the individual transaction, but could also be\nexplained, on the other hand, by the platform\u2019s general interest in raising the\nvolume of transactions so as to benefit from cross-platform network effects. <\/p>\n\n\n\n

Secondly, more producers nowadays sell directly\nto end-consumers (online or in new brick and mortar shops, such as flagship\nstores), and hybrid platforms act as both matchmaker between the two sides of\nthe market on account for the supplier and as a reseller on their own account.\nThis raises the question how to approach the vertical and horizontal\nrelationships in these cases of dual distribution. It is said that the new\ndevelopments may require a rethink of the solution in the second sentence of\nArticle 2(4) vBER, that is, to apply the safe harbour of the block exemption to\nthese cases of dual distribution. (My own view is that it is not the new\ndevelopments that make a rethink necessary \u2013 the vBER was always wrong entirely\nto disregard the horizontal aspect \u2013 but that is another story).<\/p>\n\n\n\n

Thirdly, the paper raises the question to what\nextent platforms may rely on the privilege for genuine sales agents, given that\nthey are often acting for several \u201cprincipals\u201d, that the normal hierarchical\nrelationship between principal and agent is, if anything, reversed, and that\nthey are usually not integrated into the principal\u2019s undertaking. <\/p>\n\n\n\n


(2) New (and new variations on old) business practices<\/strong><\/h2>\n\n\n\n

The digital economy has introduced some new\nforms of restrictions, but has also provided a new slant on a few old-time\nfavourites. These concerns were already summarised in the Commission\u2019s\nFinal Report on the e-commerce sector enquiry (paragraph 15)<\/a>, and\nthe background paper considers these concerns from the viewpoint of (mainly\nGerman) case practice.<\/p>\n\n\n\n


RPM<\/strong><\/h3>\n\n\n\n

RPM, for example, is not a particularly new\npractice. However, as the background paper explains, in the digital economy its\nassessment may change somewhat. The background paper points out that the\neffects of the enforcement of RPM against an aggressively pricing maverick may\nbe magnified by the use of \u2018spiders\u2019 that crawl the internet for competitors\u2019\nprices: even enforcing RPM against only a few particularly aggressively competing\ndistributors may therefore have knock-on effects not only on other distributors\nof the same brand, but indirectly even on distributors of other brands (and\nhence on interbrand competition). <\/p>\n\n\n\n

While the background paper for the most\npart argues for a stricter approach to many vertical practices, and in\nparticular RPM (a position not entirely surprising given that it was drafted by\nthe Bundeskartellamt), the paper also suggests that the Vertical Guidelines\ncould be revised to include specific case scenarios of RPM in which an\nindividual application of Article 101(3) TFEU appears likely.<\/p>\n\n\n\n


Selective Distribution<\/strong><\/h3>\n\n\n\n

Another old practice that, in the\nBundeskartellamt\u2019s view, presents new challenges in the digital economy is\nselective distribution. While the background paper acknowledges the benefits of\nselective distribution schemes, it considers some selective distribution\nschemes to be a means for stifling aggressive competition. It suggests that a\nrevised vBER could include more demanding requirements before the carve-out for\nselective distribution schemes from the hardcore restriction is applied (a\nsolution that would, of course, only apply to selective distribution schemes\nthat do not already conform to the Metro\nI<\/em>-criteria). The background paper notes that the Commission has never\nfollowed up on the threat in the Vertical\nGuidelines<\/a> (para. 176) that the benefits of the vBER could be\nwithdrawn if the requirements are unnecessarily restrictive in view of the\nproduct in question.<\/p>\n\n\n\n

One big question already in the discussions\npreceding the 2010 vBER and Guidelines was the question to what extent internet\ndistribution may be prohibited in the context of selective distribution, and\nmore generally (because of the qualification of internet sales as \u201cpassive\nsales\u201d) either completely or partially, in particular by prohibiting the use of\nparticular platforms such as Amazon or ebay, for example with the justification\nthat this would ruin the brand image. Cue the inevitable citations of the Court\nof Justice\u2019s decisions in Pierre\nFabre<\/a><\/em> and Coty<\/a><\/em>,\nand the German Bundesgerichtshof\u2019s decision in Asics<\/a><\/em>\n(and the questions if \/ how the decisions in Coty <\/em>and Asics <\/em>can be\nreconciled, a question which was implicitly discussed in a Competition\nPolicy Brief in April 2018<\/a>), but also to a more recent case in\nFrance in which Stihl <\/em>required\n\u201cpersonalised distribution\u201d of dangerous gardening equipment in order to ensure\nthat Freddy Krueger receives proper instructions on how to use a chainsaw on\nElm Street<\/s> customers are properly instructed how to use it safely (see the Autorit\u00e9 de\nConcurrence\u2019s decision<\/a> (in French); however, the appeals\ncourt in Paris has stayed the execution<\/a> (in French)); the background\npaper notes that the German, Swiss, and Swedish competition authorities had\ndeclined to exercise their discretion to take up this case. <\/p>\n\n\n\n

The background paperalso raises the\nquestion to what extent and how differing regional market circumstances with\nregard to consumer preferences and consumer behaviour can be taken into account\nin the assessment of platform prohibitions, such as the question whether\ncustomers can still find distributors sufficiently easily despite their being\nbanned from particularly popular platforms. <\/p>\n\n\n\n


Brand-bidding restrictions<\/strong><\/h3>\n\n\n\n

Furthermore, the background paper raises\nthe question whether brand-bidding restrictions (in the German original:\n\u201cbrand-bidding restrictions\u201d) should be categorised as a hardcore restriction\nin the revised vBER. On the one hand, it points to the Commission\u2019s Guess\ndecision<\/a><\/em> and the Bundeskartellamt\u2019s\nAsics<\/em> decision<\/a>. On the\nother hand, it acknowledges that the British CMA considered the pros and cons\nto be more finely balanced, depending on the specific market conditions,\nleading only to the recommendation\nthat non brand bidding should be kept under review<\/a> (para. 5.29 and\nrecommendation\/action 13). <\/p>\n\n\n\n


Dual pricing<\/strong><\/h3>\n\n\n\n

The background paper devotes less than a\npage to dual pricing, but it turned out to be one of the <\/em>bones of contention at the conference. Dual pricing refers to\nthe practice of charging different prices to those who sell online and those\nwho sell in brick and mortar stores. The Bundeskartellamt has a very negative\nview on dual pricing and suspects that it has effects similar to online-selling\nbans, reducing competition online (and indirectly softening competition\noffline), see the cases Gardena, Bosch\nSiemens <\/em>and LEGO<\/em>. The\ncounter-argument is that dual pricing may simply be an attempt to create a\nlevel playing field between online and offline competition, rewarding services\nin brick and mortar stores that are valued by customers but would, in the\nabsence of dual pricing, be crowded out by free riding. <\/p>\n\n\n\n

\"\"
Somehow, this represents a vertical restriction. Madou Tower, Brussels.<\/figcaption><\/figure>\n\n\n\n

Currently, dual pricing is considered to be\na hardcore restriction as a restriction of passive sales (Vertical\nGuidelines<\/a> para. 52, fourth indent), although fixed fees are\npermissible (see ibid.) and, of course, in principle one could attempt to rely\non Article 101(3) TFEU in the individual case (Vertical\nGuidelines<\/a> para. 64); however, this latter path is a dangerous one\n(see below part (3) on the deficiency of the safety valve Art. 101(3) TFEU). <\/p>\n\n\n\n


Price parity \/ MFN clauses<\/strong><\/h3>\n\n\n\n

Another issue that was predictably\ncontroversial at the conference were wide and narrow price parity\/MFN clauses\n(wide MFN clauses prohibit offering more favourable terms on any other platform;\nnarrow MFN clauses prohibit only better terms on the supplier\u2019s own website).\nWith regard to wide MFN clauses, the background paper points to the\nBundeskartellamt\u2019s assessments in Amazon,\nHRS, <\/em>and Verivox<\/em>, the CMA\u2019s\ninvestigations in car and home insurance products, and the Commission\u2019s cases Apple <\/em>and Amazon <\/em>(regarding ebooks) and Amadeus,\nSabre <\/em>(air ticket distribution), and considers classifying wide MFN clauses\nas hardcore restrictions. <\/p>\n\n\n\n

With regard to narrow MFN clauses, the\nbackground paper notes their generally more nuanced effects. However, the\nbackground paper also points out that not only do they prevent the supplier\nfrom passing on efficiencies of direct online sales to its customers, but also\nthey force the supplier, if it contracts with several platforms that each use a\nnarrow MFN, to use on its own website the highest price asked for on any of the\nplatforms, which reduces the supplier\u2019s incentive to charge different prices on\nthe various platforms, thereby softening competition between platforms. The\nBundeskartellamt had issued an infringement decision against the narrow MFN\nclause used by booking.com in 2015; however, in June 2019, the OLG D\u00fcsseldorf\nquashed that decision, arguing that the restriction was a necessary ancillary\nrestraint without which the booking platform could not operate (an English\ndiscussion of the case can be found here<\/a>,\ncalling the Court\u2019s reliance on the ancillary restraints doctrine \u2018unusual\u2019).\nThe Bundeskartellamt is seeking leave to appeal to the Bundesgerichtshof. <\/p>\n\n\n\n


Exclusivity<\/strong><\/h3>\n\n\n\n

In CTS\nEventim<\/em>, the Bundeskartellamt considered an exclusivity clause imposed by a\nconcert ticketing platform, and prohibited its use (affirmed on appeal). The\nvBER did not apply to that case because the platform exceeded the market share\nthreshold. The background paper considers that exclusivity clauses are more\npernicious in platform markets, because there, in addition to the usual\nforeclosure effects of exclusivity clauses, they also prevent multi-homing and\nthereby reduce the scope of indirect network effects for competing platforms.\nThe background paper therefore raises the question whether the timeframe\nenvisaged for temporary exclusivity clauses in Article 5 lit. a vBER should be\nshortened to prevent a tipping of the market, given the network effects and the\ngenerally rapid developments in digital markets.<\/p>\n\n\n\n


Sharing economy<\/strong><\/h3>\n\n\n\n

Lastly, the background paper raises the\nissue of various emanations of the sharing economy, and the question whether\nthe issue is one of horizontal coordination between those delivering the\nservices (the platform as a hub & spoke conspiracy), or whether there is a\nvertical relationship between the platform and those who deliver the service\n(possibly including vertical price fixing). The background paper considers the\nvertical relationship to be more likely. It also indicates that the competition\nissue is less problematic if the platform only recommends prices to\npredominantly non-professional users who offer their services (such as\nAirbnb.com) than if more and more of those delivering the services do so on a\nprofessional basis (as tends to be the case with Uber drivers). <\/p>\n\n\n\n


(3) A need to readjust the balance between flexibility and legal certainty? <\/strong><\/h2>\n\n\n\n

As a third strand, the background paper\nraises the fundamental question whether the balance between legal certainty\n(both in the sense of the safe harbour below the market share threshold and in\nthe sense of the hardcore restrictions) on the one hand and flexibility on the\nother hand needs to be struck differently in the digital economy. <\/p>\n\n\n\n

In theory, the easy answer is that the\nsystem of the vBER contains a nice mechanism to balance legal certainty with\nflexibility: if a practice is in the safe harbour, but it turns out to be\nproblematic in the specific market circumstances, the vBER may be disapplied\nunder Article 6 vBER or the benefits of the vBER may be withdrawn under Article\n29 Regulation 1\/2003; and if a practice falls under a hardcore restriction, but\nits efficiency aspects outweigh the competitive restriction, the application of\nArticle 101(3) TFEU in the individual case allows us to take this into account.\n(And then there is, of course, Article 5 vBER).<\/p>\n\n\n\n

However, the background paper notes that in\npractice the safety valves of non-application and of the withdrawal of the\nbenefits of the BER under Article 6 vBER and Article 29 Regulation 1\/2003,\nrespectively, are of hardly any practical relevance. (It could be added \u2013 and,\nindeed, was added at the conference by Petra Pohlmann \u2013 that this is similarly true\nfor the safety valve of the individual application of Article 101(3) TFEU in\nthe case of hardcore restrictions; and, as mentioned above, in the background\npaper itself there is a nod in this direction in the discussion of RPM). The\nBundeskartellamt notes in particular that the possibility for NCAs of\nwithdrawing the benefits of the BER under Article 29(2) Regulation 1\/2003 is\nhampered by the fact that the relevant geographic market would have to be\nconfined to one Member State, which makes the provision unusable for the\nBundeskartellamt (at the conference, it was made clear that this is because the\nrelevant geographic market in most cases covers at least the German-speaking\nMember States). The background paper suggests that if the case allocation\nmechanism allows NCAs to take up cases with relevance in other Member States,\nthe possibility to withdraw the benefits of a BER should likewise not be\nconfined to cases where the relevant market is confined to one Member State.<\/p>\n\n\n\n

The background paper raises a number of issues\nwhen it comes to the balancing of legal certainty and flexibility, ranging from\nthe fundamental (do we need a BER at all, or should we just rely on Guidelines?\n\u2013 a passing thought that was (rightly) quickly dismissed at the conference) to\nthe practical. <\/p>\n\n\n\n

Among these practical issues is, for\nexample, the question how we should determine market shares on platform\nmarkets. On one level, this entails the question to what extent online and\noffline distribution are substitutes to each other. On another level it raises\nthe question whether turnover is the right measure to indicate market power; in\nthis respect, the paper mentions access to data, network effects, and the\nextent of multi-homing, and suggests that in addition to turnover thresholds,\nthe number of unique visitors and\/or the number of transactions might be a\nuseful indicator. <\/p>\n\n\n\n

Another issue criticised is that even\nfalling short of the 30% threshold by just a minor delta takes the undertaking\ninto the safe harbour, even if the market is overall fairly highly\nconcentrated. The paper concedes that in principle Articles 6 vBER and Article\n29 Regulation 1\/2003 are meant to kick in precisely in these cases, but it\nnotes that these safety valves are not used in practice. The paper therefore\nsuggests that it should be considered to strengthen these instruments and\/or to\nintroduce additional oligopoly thresholds (it may be that \u00a7 18 of the\nGerman ARC was an inspiration there).  <\/p>\n\n\n\n


Conclusion<\/strong><\/h2>\n\n\n\n

The background paper was written by members of a competition authority, and so it is not astonishing that in many cases the suggestions (even if formulated in the form of questions to be raised) tend to go into the direction of making enforcement easier, for example, by introducing new hardcore restrictions. However, in some cases the paper also raises issues that might lead to less strict enforcement, for example when the paper suggests that the Vertical Guidelines should be amended to include concrete examples under what conditions RPM benefits from the application of Article 101(3) TFEU in the individual case. Economists at the conference with whom I spoke tended to fault the paper and the discussion at the conference for not sufficiently taking into account the potential efficiencies of practices such as dual pricing or MFN clauses, and for being insufficiently interested in empirical evidence before calling for new hardcore categories. At least as a criticism against the background paper, this is unfair; it was only meant to establish a framework for the discussion to follow, and this objective was perfectly achieved: the discussion at the conference hardly ever touched on points that were not already mentioned in the background paper \u2014 and this still left plenty of space for very divergent views on most topics. <\/p>\n\n\n\n

\n\n\n\n
\"\"<\/figure><\/div>\n\n\n\n

Florian Wagner-von Papp is Professor of Private and Business Law (including Contract Design) at the Helmut Schmidt University for the Armed Forces in Hamburg. <\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

The Bundeskartellamt just held its annual meeting with professors and judges, this time discussing the Vertical Block Exemption Regulation. In preparation, the German authority issued a background paper. Florian Wagner-von Papp read the paper. Here is his report! A note from the editor: On Monday, we posted a synopsis and translation of some important rules in the draft bill (GWB-Referentenentwurf) in our blog. There were a few mistakes in that document that we have now corrected. Apologies. We kindly ask…<\/p>\n

Read More Read More<\/span><\/a><\/p>\n","protected":false},"author":11,"featured_media":2868,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[9,55,294,298],"class_list":["post-2864","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-allgemein","tag-bundeskartellamt","tag-professorentagung","tag-vber","tag-vertical-restraints"],"translation":{"provider":"WPGlobus","version":"3.0.0","language":"en","enabled_languages":["de","en"],"languages":{"de":{"title":true,"content":true,"excerpt":false},"en":{"title":false,"content":false,"excerpt":false}}},"_links":{"self":[{"href":"https:\/\/www.d-kart.de\/en\/wp-json\/wp\/v2\/posts\/2864","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.d-kart.de\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.d-kart.de\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.d-kart.de\/en\/wp-json\/wp\/v2\/users\/11"}],"replies":[{"embeddable":true,"href":"https:\/\/www.d-kart.de\/en\/wp-json\/wp\/v2\/comments?post=2864"}],"version-history":[{"count":8,"href":"https:\/\/www.d-kart.de\/en\/wp-json\/wp\/v2\/posts\/2864\/revisions"}],"predecessor-version":[{"id":2911,"href":"https:\/\/www.d-kart.de\/en\/wp-json\/wp\/v2\/posts\/2864\/revisions\/2911"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.d-kart.de\/en\/wp-json\/wp\/v2\/media\/2868"}],"wp:attachment":[{"href":"https:\/\/www.d-kart.de\/en\/wp-json\/wp\/v2\/media?parent=2864"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.d-kart.de\/en\/wp-json\/wp\/v2\/categories?post=2864"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.d-kart.de\/en\/wp-json\/wp\/v2\/tags?post=2864"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}