The Serbian Commission for Protection of Competition (“Commission“) has launched a short public consultation process on the drafts of four new block exemption regulations:
(i) Regulation on categories of vertical agreements exempted from the prohibition of restrictive agreements (VBER);
(ii) Regulation on categories of technology transfer agreements exempted from the prohibition of restrictive agreements;
(iii) Regulation on categories of vertical agreements on repair and maintenance of motor vehicles and agreements on the sale of spare parts in the motor vehicle sector exempted from the prohibition of restrictive agreements; and
(iv) Regulation on categories of agreements in the railway and road transport sector exempted from the prohibition of restrictive agreements.
The last three regulations introduce for the first time the specific block exemptions for new categories of agreements, namely in the areas of technology transfer, repair and maintenance of motor vehicles, and railway and road transport, in line with the relevant EU block exemption regulations. The new Serbian VBER is set to replace the one adopted in 2010. The draft reflects the developments in the areas of online trade and digital platforms and clarifies the existing rules on block exemption for vertical agreements.
While the draft VBER is mostly aligned with the EU VBER and has a clearer structure than the existing Serbian regulation, it still contains several deviations from its EU counterpart, notably with respect to market shares and the conditions for exclusive distribution.
Market share thresholds for group exemption of vertical agreements
Notably, the draft VBER still requires that neither the supplier nor the buyer may have a market share of more than 25% on their respective relevant markets in order for the vertical agreement to be eligible for group exemption. The Commission did not provide the reasons for why it chose to stick with a stricter market share threshold than the one applicable in the EU as well as in the majority of jurisdictions in the region (such as Montenegro, Bosnia and Herzegovina, North Macedonia and Albania).
Exclusive distribution
Another deviation from the EU VBER relates to exclusive distribution. Under the current VBER, the privileges of exclusive distribution are reserved for one exclusive distributor per territory or a customer group only. Draft new VBER introduces the concept of joint exclusivity by allowing the supplier to appoint up to three exclusive distributors per territory or customer group. Under the EU VBER, the ceiling is set at five exclusive distributors per territory or customer group.
Free distribution
Draft VBER introduces the concept of free distribution, unknown under the current VBER. Free distribution is defined as a situation where supplier operates neither an exclusive distribution system nor a selective distribution system. The draft VBER specifies that a free distribution agreement may contain active or passive sales restrictions under the same conditions that are applicable to an exclusive distribution agreement.
Exceptions from hard-core restrictions now allow suppliers to combine the exclusive and selective distribution systems in different territories and to protect their customers within these systems from selling into each other’s territories.
Active and passive sales restrictions
Under the current VBER, online sales are categorised as passive sales. As a consequence, prohibition of online resale is not covered by the group exemption. Draft new VBER nuances this rule by providing that actively and specifically targeting certain territories or customer groups online constitutes active sales. This will be the case when, for example, an undertaking advertises or promotes its goods or services through price comparison services or search engines targeting indirect buyers in specific territories, manages a website with a top-level domain corresponding to specific territories, or enables the use of languages on the website that are commonly used in the targeted territories and are not commonly used in the territory where the direct buyer operates. As a consequence, the seller may impose on the buyer a restriction of active sales of this type into a territory or to a customer group reserved for the seller itself or allocated to a maximum of five other exclusive distributors in the same territory, regardless of whether the seller operates an exclusive, selective, or free distribution system.
The current VBER allows an imposition on active sales restriction only on the direct distributor of the supplier and prohibits the supplier from imposing an obligation on its distributor to roll-over the active sales restriction to its own customers. Тhe draft VBER liberalizes this rules by allowing suppliers to not only impose an active sales restriction on their direct distributors but also to require them to prohibit their direct customers from actively selling into territories or customer groups that the supplier has allocated exclusively to other distributors or reserved for itself, or into territories in which the supplier has established a system of selective distribution.
Under the draft, suppliers which operate a selective distribution system can impose a restriction of active or passive sales by the members of the selective distribution system and their customers (regardless of their seat) to unauthorised distributors located within the territory where the selective distribution system is operated.
The definition of passive sales is expanded in the draft VBER to include sales resulting from participating in public procurement or responding to private invitations to tender. Accordingly, group exemption does not cover restriction of resale in these contexts.
Dual distribution
Dual distribution exists when a supplier sells its goods or services both through third party distributors and through its own distribution network, thus competing with the independent distributors. The current VBER provides for a safe harbour for vertical restraints in dual distribution agreements (non-reciprocal agreements between competitors). However, the exemption applies only to situations where (i) the supplier is a manufacturer and a distributor of goods, while the buyer is a distributor and not a competing undertaking at the manufacturing level, or (ii) the supplier is simultaneously a service provider in the wholesale market and the retail market, and the buyer sells goods or provides services in the retail market but does not provide interchangeable services in the market where it purchases the services that are the subject of the agreement.
The draft VBER extends the benefits of block exemption to dual distribution situations involving importers and wholesalers as either suppliers or buyers, irrespective of whether any of them is a manufacturer of the contract goods, under the condition that the buyer is not the supplier’s competitor at the upstream market where it buys the contract goods. However, according to the draft, the benefit of the exemption will not available to vertical agreements between online intermediation platforms and their customers, where the online intermediation platform at the same time provides intermediation services to third party suppliers and competes with them (“hybrid platforms”).
Dual distribution exemption does not cover any exchange of information between competitors that is neither directly related to the implementation of the vertical agreement nor necessary to improve the production or distribution of the contract goods or services.
Non-compete clauses
Non-compete obligation is an obligation on the buyer not to manufacture, purchase or sell goods that compete with the contract goods, or to purchase from the supplier more than 80% of the buyer’s total requirements for the contract goods. Under the current VBER, non-compete obligations cannot benefit from the exemption if their duration exceeded five years. This limitation remains in place. However, the draft VBER provides that a non-compete that is tacitly renewable beyond the initial period of up to five years can continue to benefit from the exemption on the condition that the buyer can effectively renegotiate or terminate the non-compete following its renewal, i.e. that the termination notice period and cost of termination on the buyer are reasonable. The aim of the provision is to ensure that the distributor is allowed and effectively able to switch the supplier at the end of the five-year period. This will require careful drafting of renewal clauses.
Price parity obligations
Parity obligations, known also as the most favoured nation clauses, are contractual provisions requiring suppliers to offer their good/services to the buyer on commercial terms no less favourable than those offered to another buyer. In the context of online intermediation platforms, wide price parity obligations typically require retailers to offer to the online intermediary commercial terms at least as favourable as those offered in any other sales channel, while narrow price parity obligations typically require retailers to offer to the online intermediary commercial terms which are at least as favourable as those offered on the retailer’s own website. The draft VBER removes the benefit of block exemption from both types of price parity obligations.
Other types of parity obligations, including parity obligations at the level of selling goods or providing services to end customers through direct sales channels, remain covered by the exemption.
Rules applicable to online sales
The draft VBER provides more precise rules related to online sales, online intermediation services and online advertising. Online intermediation services is defined as information society services which allow undertakings to offer goods or services: (i) to other undertakings, with a view to facilitating the initiating of direct transactions between those undertakings, or (ii) to final consumers, with a view to facilitating the initiating of direct transactions between those undertakings and final consumers, both irrespective of whether and where the transactions are ultimately concluded. Information society services cover any service normally provided for remuneration, at a distance, by electronic means and at the individual request of a recipient of services. Providers of online intermediation services are explicitly defined as suppliers.
Restriction preventing direct buyers or their customers from effectively using the internet to resell online the contracted goods or services in a particular territory or to a particular customer group is defined as hardcore, meaning that the agreement containing such restriction does not enjoy the benefit of block exemption. Other limitations on online sales and online advertising that do not prevent the use of the entire online advertising channel are covered with the block exemption. This means online resale restrictions will require careful assessment of their compatibility with the new VBER, once it is adopted.
Draft VBER does not specify what constitutes an effective use of internet. This will be a matter of assessment in each particular case. It is expected that the Commission will interpret these provisions in line with the new EU Vertical Guidelines that have been adopted with the new EU VBER. The rationale behind the relaxation of rules on online sales restrictions under the EU VBER was that the online sales have in the recent years developed into a well-functioning sales channel that no longer needs special protection. This should mean that the dual pricing provisions pursuant to which a supplier charges its distributor a different wholesale price for the products that are intended to be sold online and offline are permitted, provided that the difference in price reflects the different level of investments by the distributor required to resell the product through the two channels.
Agreements concluded by associations of retailers
The current VBER provided for an exemption of vertical agreements entered into between an association of undertakings and an individual member, or between such an association and an individual supplier, only if all the members of the association are retailers of goods and if no individual member of the association, together with its connected undertakings, has a total annual turnover exceeding EUR 2 million. The draft VBER increases the threshold for this exemption from EUR 2 million to EUR 8 million, which is the maximum amount of turnover which an undertaking can generate to remain classified as a small undertaking pursuant to the accounting regulations in Serbia).
Conclusion
The draft VBER represents a welcome alignment of the regime applicable to group exemption of vertical agreement with the modernised EU VBER. Even though the regulation is brief and does not elaborate the concepts it refers to, it is expected that the Commission, and thus the parties to vertical agreements, will rely on the EU Vertical Guidelines when assessing vertical agreements and their compliance with the draft VBER.
However, it remains unclear why the Commission opted to keep the 25% market share threshold for the availability of the group exemption. The increase if the threshold is called for especially considering that self-assessment of restrictive agreements in still not available in Serbia and that each agreement between the parties one of which has a market share above 25%has to be submitted to the Commission for an individual exemption.
