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Reform in the Secondary Legislation of EU Competition Law

Reform in the Secondary Legislation of EU Competition Law

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The European Commission (“Commission") has been in the process of what can be called a reform of secondary legislation for the last few years. The Commission has issued several legislative developments that have reformed European competition law. After a long period of work, in May 2022, The Commission launched the new VBER with extensive changes. This year, the Commission made further changes on the EU Merger Regulation, extended the EU Motor Vehicle Block Exemption Regulation (MVBER), introduced the new EU Revised Horizontal Block Exemption Regulation, introduced Guidelines on Exclusionary Abuses, and announced public consultation under Digital Markets Act (DMA).

Vertical Guidelines and Vertical Group Exemption Regulation (VBER)

In May 2022, The European Commission adopted new Vertical Guidelines and Vertical Group Exemption Regulation (VBER). VBER is the regulation that provides exemptions from certain competition law rules for certain types of agreements between companies operating at different levels of the supply chain. It focuses on vertical agreements, which are agreements between businesses that operate at different levels of the distribution chain, such as agreements between manufacturers and distributors or suppliers and retailers. 

The New Vertical Guidelines and VBER entered into force on June 1, 2022. The revised rules generally aimed to provide businesses with clearer and up-to-date guidance in line with the last decade. In addition, the new rules shed light on supply/distribution agreements and their assessment of compliance with EU competition rules, particularly in the context of e-commerce and online sales. 

The changes introduced by the revised rules are as follows:

  • Agreements between companies operating at different levels of the production or distribution chain are exempted from the prohibition in Article 101(1) of the Treaty on the Functioning of the European Union (TFEU), subject to certain conditions.
  • The new rules provide a safe harbor from which certain agreements are exempted. Accordingly, the new amendments focus on adjusting the safe harbor so that it is neither too wide nor too narrow.
  • The scope of the safe harbor has been narrowed in relation to (i) dual distribution (both distributor and direct sales), i.e. where a supplier sells its goods or services through independent distributors and at the same time directly to end customers, and (ii) equality obligations, i.e. essentially obligations to ensure that the supplier does not offer its customer terms that are more disadvantageous than those offered to another customer. This means that certain aspects of bilateral dispatch and certain types of parity are no longer exempt under the new VBER, but must instead be assessed separately under Article 101 TFEU.
  • The scope of the safe harbor has been extended in relation to (i) certain restrictions on a buyer's ability to actively approach individual customers (ii) certain practices in relation to online sales, i.e. different wholesale pricing for products to be sold online and offline to the same distributor and different criteria for online and offline sales in selective distribution systems. These restrictions are now exempted under the new VBER, provided all other conditions for exemption are met.

Observing the changes, the updated VBER regulations have been made clearer and more straightforward, aiming to enhance their usability for individuals applying them in their daily work. These rules have undergone targeted revisions, particularly concerning the evaluation of online limitations, agreements within the platform economy, and accords pertaining to sustainability goals, among other aspects. Furthermore, the accompanying instructions furnish comprehensive direction on various subjects including selective and exclusive distribution, as well as agency agreements.

EU Merger Regulation

The European Commission adopted a package to further simplify and expand the scope of the Commission's review process of unproblematic mergers (‘simplified cases') under the EU Merger Regulation. The package includes (i) a revised Merger Implementing Regulation (‘Implementing Regulation'), (ii) a Notice on Simplified Procedure (‘Notice'), and (iii) a Communication on the transmission of documents (‘Communication').

The new package contributes to achieving the Commission's objective to reduce reporting requirements by 25%, as announced in its Communication on the Long-term competitiveness of the EU. It aims to simplify and expand the scope of the Commission's review process of unproblematic mergers (‘simplified cases'). It also seeks to reduce the amount of information required for notifying transactions in all cases and to optimize the transmission of documents.

The main changes to the previous rules seek to simplify and streamline both the simplified and normal merger review procedures. In particular, the new rules:

  • Expand and/or clarify which cases can be treated under the simplified procedure.
  • The Notice identifies two new categories of cases that can benefit from simplified treatment. These are cases where under all plausible market definitions:
  • The individual or combined upstream market share of the merging parties is below 30% and their combined purchasing share is below 30%; and
  • The individual or combined upstream and downstream market shares of the merging parties are below 50%, the market concentration index (‘HHI delta') is below 150, and the company with the smallest market share is the same in the upstream and downstream markets.

The Notice also grants the Commission discretion to treat certain cases under the simplified procedure even if they do not fall under any of the default categories for such treatment. In particular, the Notice includes the following flexibility clauses:

  • For horizontal overlaps where the combined market shares of the merging parties are 20-25%;
  • For vertical relationships where the individual or combined upstream and downstream market shares of the merging parties are 30-35%;
  • For vertical relationships where the individual or combined market shares of the merging parties do not exceed 50% in one market and 10% in the other vertically related market; and
  • For joint ventures with turnover and assets between €100 million and €150 million in the European Economic Area (‘EEA').

It also provides a clearer and more detailed list of circumstances in which the Commission may investigate a case that technically qualifies for simplified treatment under the normal review procedure.

In order to streamline the review of simplified cases, the Implementing Regulation introduces a new notification form (“tick-the-box” Short Form CO). This form includes primarily multiple-choice questions and tables, and streamlined questions on both the jurisdictional and substantive assessment of cases. The Notice also identifies categories of cases that can benefit from a “super-simplified” treatment, whereby parties are invited to notify directly without prior engagement with the Commission.

In terms of the streamlining the review of non-simplified cases the Implementing Regulation reduces and clarifies the information requirements in the notification form (Form CO). This now includes clearer information on waiver possibilities, introduces tables for information on affected markets, and eliminates certain information requirements.

As it is seen, the said regulation aims to optimize the transmission of documents to the Commission, by introducing electronic notifications by default. All these changes entered into force on  1 September 2023 and they are expected to simplify pre-notification contacts overall, further reduce the time needed for these discussions.

Other than the EU, The Federal Trade Commission and the Department of Justice also released a draft update of the Merger Guidelines on July 19th, which describe and guide the agencies’ review of mergers and acquisitions to determine compliance with federal antitrust laws. The objective of this update is to enhance the alignment with modern economic practices in assessing the impact of mergers on competition and to provide a more comprehensive evaluation of proposed mergers according to existing laws. This is achieved by describing the frameworks established in prior versions and delving deeper into the methodology, including the tools utilized in merger analysis for each guideline. It is important to emphasize that these updates do not replace the law itself nor do they introduce new rights or obligations. Both agencies encourage the public to review the draft and provide feedback through a public comment period that will last 60 days which is until September 18, 2023. 

EU Motor Vehicle Block Exemption Regulation (MVBER)

In May 2023, the European Commission extended the duration of the Motor Vehicle Block Exemption Regulation (MVBER) for an additional five years, meaning it will remain in effect until 31 May 2028. Moreover, the Supplementary Guidelines for the automotive sector have been revised to assist companies in evaluating the compliance of their vertical agreements with the competition rules of the European Union. These updated guidelines also guarantee that aftermarket operators, such as garages, will retain the necessary access to vehicle-generated data for repair and maintenance purposes.

The Commission's decision to extend the regulation allows for timely responses to potential market changes resulting from vehicle digitalization, electrification, and new mobility patterns. The revised Supplementary Guidelines include the following:

  • Emphasize that data produced by vehicle sensors can be crucial for providing repair and maintenance services. In accordance with Article 101 of the Treaty on the Functioning of the European Union (TFEU), authorized and independent repairers should have equal access to this data. The existing principles for sharing technical information, tools, and training necessary for repair and maintenance services now explicitly cover vehicle-generated data.
  • Specify that vehicle suppliers should apply the principle of proportionality when deciding whether to withhold inputs, including vehicle-generated data, due to potential cybersecurity concerns.
  • Highlight that Article 102 TFEU may apply if a supplier unilaterally denies independent operators access to an essential input, such as vehicle-generated data.

EU Revised Horizontal Block Exemption Regulation

At the beginning of June, the Commission delivered its most innovative and reforming decision in recent times. The European Commission adopted a revised Horizontal Block Exemption Regulation in terms of Research and Development (R&D) and Specialization Agreements (HBER). The Regulation and the Guidelines aim to provide clearer and more up-to-date guidance to help businesses assess the compliance of horizontal cooperation agreements with EU competition rules and recent enforcement practices. Accordingly, the changes introduced by the new revised rules are as follows;

  • The scope of the Specialization Group Exemption Regulation has been extended to cover more types of production agreements concluded by more than two parties and guidance has been provided.
  • Clarity and flexibility regarding the calculation of market shares under the R&D Group Exemption Regulation have been increased and guidance has been provided. Accordingly, the Commission and national competition authorities are authorized to withdraw the right to benefit from the group exemption in cases where it is not possible to calculate the market share which aims to protect the innovation competition.
  • The preamble of the Horizontal Guidelines has been updated in line with recent case law, followed by new guidance on the application of Article 101 TFEU to agreements between joint ventures and their parent companies.
  • A new chapter on Mobile Telecommunications Infrastructure Sharing Agreements has been published, setting out the factors for assessing these agreements and including a list of minimum conditions to be complied with in order for companies to reduce their risk of infringing competition rules.
  • The section of the Guidelines on Purchasing Agreements has been expanded to reflect recent practice. This section clarifies the distinction between joint purchasing and buyer cartels and clarifies that joint purchasing includes arrangements in which buyers jointly negotiate the terms of their purchases, as well as arrangements in which each buyer makes purchases independently.
  • The section of the Guidelines on Commercialization Agreements has been expanded to create a new section on procurement consortia and to include guidance on the bid-rigging distinction.
  • The section of the Guidelines on Information Exchange has been expanded to provide guidance on (i) the concept of commercially sensitive information; (ii) the types of information exchange that may objectively amount to a restriction of competition; (iii) the potential pro-competitive effects of data repositories; (iv) indirect forms of information exchange, including hub-and-spoke arrangements; (v) anti-competitive signaling through public announcements; and (vi) measures that firms can take to avoid infringements.
  • The section of the Guidelines on Standardization Agreements has been revised to provide that (i) it is not anti-competitive for the parties to a standardization agreement to disclose the maximum cumulative royalty rate and (ii) participants must disclose their relevant intellectual property rights.
  • A new section on sustainability agreements has been added to the Horizontal Guidelines to clarify that antitrust rules do not prevent agreements between competitors for sustainability purposes. The new rules provide a soft safe harbor for sustainability standardization agreements that meet certain conditions. In addition, the types of benefits that can be taken into account are defined and it is also clarified how a sustainability agreement can be exempted.

Overall, the Regulation and the Guidelines provide a safe harbor where certain agreements are exempted from competition rules.

EU Guidelines on Exclusionary Abuses

The Commission has launched a Call for Evidence to gather comments on the adoption of Guidelines on exclusionary abuses of dominance. In parallel, it has issued a Communication (and Annex) updating its 2008 Guideline on enforcement priorities for exclusionary abuses. The package was announced at the end of March and is the first significant policy move since 2008 in the area of abuse of dominance laws (Article 102 of the TFEU). Article 102 TFEU is one of the few areas of European competition law where no Guidelines define its applicability.

The Commission stated that since 2008, the EU Courts have delivered 32 judgments on the exclusionary abuses framework, as well as decisions of the competition authorities of the Member States, all of which have developed the case law in favor of the effects-based enforcement of TFEU 102. It is also stated that, unlike other competition law areas, the Commission has no guidelines on applying Article 102 TFEU; the Commission only published guidelines on its enforcement priorities in the area of exclusionary abuses in 2008, which does not constitute a statement of law, does not comment on the concept of abuse of dominant position, and only sets out the Commission's approach to the selection of cases that it intends to pursue as a priority. The new guideline is intended to increase transparency on the principles underpinning the Commission's approach and to reflect developments in the Commission's case law over time.

As a result, the Commission issued a Call for Evidence to develop Guidelines on the applicability of Article 102 TFEU to exclusionary behavior which will be open for comments from all interested parties for four weeks. The Commission intends to provide a draft of the Guidelines for public comment by the middle of 2024, with the goal of adopting them in 2025.

Until the final Guidelines are adopted, the Commission clarifies its approach for determining whether to pursue complaints of exclusionary conduct on a priority basis. In order to revise some sections of the 2008 Guidelines, the Commission has adopted a communication. The modifications reflect substantial advances in EU court case law on Article 102 TFEU while also considering market trends. With respect to abusive exclusionary conduct, it intends to increase clarity about the values that guide the Commission's enforcement priorities following the notion of good administration.

The Amending Communication has revised the Guidance on enforcement priorities as follows, with the objective of providing stakeholders with increased transparency on the Commission’s priority setting:

  • it is appropriate to clarify that the concept of ‘anti-competitive foreclosure’ refers not only to cases where the dominant undertaking’s conduct can lead to the full exclusion or marginalization of competition but also to cases where it is capable of resulting in the weakening of competition, thereby hampering the competitive structure of the market to the advantage of the dominant undertaking and the detriment of consumers. 
  • it is not appropriate, as regards price-based exclusionary conduct of a dominant undertaking, to pursue as a matter of priority only conduct that may lead to the market exit or the marginalization of competitors that are as efficient as the dominant undertaking in terms of their cost structure.
  • the price-cost “as-efficient competitor test” is only one of several methods for assessing, together with all other relevant circumstances, whether conduct is capable of producing exclusionary effects. The Court of Justice has also clarified that the use of an ‘as efficient competitor test’ is optional and that a test of that nature may be inappropriate depending on the type of practice or the relevant market dynamics.
  • it is important to distinguish situations of outright refusal to supply from situations where the dominant company makes access subject to unfair conditions (“constructive refusal to supply”). In situations of constructive refusal to supply, it is not appropriate to pursue as a matter of priority only cases concerning the provision of an indispensable input or access to an essential facility.

it is not appropriate to pursue as a matter of priority margin squeeze cases only where those cases involve a product or service that is objectively necessary to be able to compete effectively on the downstream market.

The Digital Markets Act (DMA)

The Commission is seeking feedback on a proposed template for reporting consumer profiling techniques used by platforms, known as gatekeepers, as part of their obligations under the Digital Markets Act (DMA). Gatekeepers are required to submit this description to the Commission. The goal is to increase transparency and accountability in profiling methods, preventing deep consumer profiling from becoming the industry norm and enabling competitors to offer better privacy protection.

The draft template outlines the minimum information gatekeepers should provide to enhance transparency. It also requires an independent audit of the description, which must be annually updated and published in a meaningful and non-confidential manner. All interested parties, including potential gatekeepers, consumer interest groups, data experts, national competent authorities, platform business users, and auditors, are encouraged to provide feedback within the six-week consultation period ending on 15 September 2023.

By collecting stakeholder input, the Commission aims to consider all relevant aspects of consumer profiling, ensuring effective supervision and transparency. The gatekeepers will be officially designated under the DMA by 6 September 2023, and they will have six months to comply with the DMA's obligations and prohibitions once designated.

In conclusion, the steps taken by the authorities offer many innovations both in terms of regulations and by laws and their harmonization. In this context, it would not be wrong to conclude that especially the Commission's perspective has also evolved and developed. In general, amendments aimed at providing guidance to make regulations clearer and more understandable as well as providing easier examinations for the authorities.

By Metin Pektas, Partner, Beyza Saripinar, Associate, and Zeynep Berfin Kiziltas, Legal Intern, Nazali Tax and Legal