VBER and Vertical Guidelines leave question open on what restrictions are permissible in Internet sales
Article 4 lit. e) VBER, newly introduced with the 2022 reform of the VBER, regulates a hardcore restriction for all forms of distribution that is specifically geared to Internet commerce, and is now central for the evaluation of by object restrictions on Internet commerce. The requirements are explicitly related to Internet commerce and form a uniform standard of review that is in principle free of contradictions. Together with the Internet-related explanations in the European Commission's Vertical Guidelines, this leads to an increase in legal certainty for the companies concerned. However, the Vertical Guidelines do not appear to be completely consistent.
Distinction between sales and advertising restrictions
The VBER 2022 and the Vertical Guidelines take into account the special importance of the retailer's right to advertise on the Internet. Anyone who merely opens a website on the Internet for resale is not readily visible and cannot, as a rule, effectively conduct Internet commerce. Online marketing is therefore indispensable for effective use of the Internet. Restrictions on online advertising can, however, simply equal plain sales restrictions. The VBER and the Vertical Guidelines also take this approach. According to Art. 4 lit. e) VBER, both by object restrictions on online sales and those on online advertising can prevent the effective use of the Internet to sell contract goods or services. However, upon closer examination, the treatment of the restriction of online sales channels and the treatment of online advertising channels in the Vertical Guidelines is not consistent.
By object restrictions on online sales
The Vertical Guidelines list various examples of de facto Internet sales restrictions. In particular, the following use cases can be classified, which require closer examination in individual cases, but do not necessarily constitute prohibited online sales bans:
- Sale only in a physical space or in the physical presence of specialised personnel;
- Reservation of permission and unrestricted discretion of the seller;
- Significant reduction in the aggregate volume of online sales;
- Internet-related geoblocking measures;
- Dual pricing systems; or
- Requirements for the manner of sale with the new Vertical Guidelines abandoning the equivalence principle.
Third-party platform bans do not constitute a hardcore restriction within the meaning of Art. 4 lit. e) VBER. The Vertical Guidelines declare that indirect or direct bans on the use of online marketplaces are permissible. Such a prohibition restricts the use of a certain online sales channel, but other online sales channels remain open to the buyer. In particular, despite a restriction or a ban on sales on online marketplaces, the buyer could continue to sell the contract goods or services via its own online store and other online channels. In addition, the retailer could use search engine optimisation techniques or advertise online, including over third-party platforms, to increase the visibility of the online store or other sales channels. The Vertical Guidelines do not clarify what exactly other sales channels are. One might consider sales via messenger services such as WhatsApp or via social media channels, which as such do not have the quality of an online store.
By object restrictions on the use of online advertising channels
In addition to sales restrictions, the second area of application of Art. 4 lit. e) VBER are restrictions on the use of online advertising channels, which have the object of preventing the use of an entire online advertising channel and are thereby a de facto equivalent to an Internet sales ban. Online advertising channels are online services that (unlike sales channels such as online stores and the sales function of online marketplaces) do not provide direct purchasing functionality, but instead re-direct customers to the websites where customers purchase goods and services. The Commission distinguishes price comparison services and other search engines such as Google as independent advertising channels. In fact, the transitions are fluid. Third-party platforms such as Amazon and price comparison services such as Idealo also contain search engines. Nevertheless, the Commission wants to assign price comparison services and other search engines to different advertising channels. This, in itself, seems inconsistent if not contradictory.
Based on its own classification, the Commission considers the prohibition for the buyer to use an entire online advertising channel to be hardcore restrictions within the meaning of Art. 4 lit. e) VBER. The same shall be true for restrictions which indirectly prohibit the use of an entire online advertising channel (e.g. allegedly obliging the buyer not to use the supplier's trade marks or brand names for bidding to be referenced in search engines, such as Google Ads) or a restriction on providing price-related information to price comparison services.
Restrictions on online advertising that do not have the object of preventing the use of an entire online advertising channel are permissible. This refers, for example, to (i) requirements that online advertising meets certain quality standards or includes specific content or information; or (ii) requirements forbidding the buyer to use the services of particular online advertising providers that do not meet certain quality standards. In this respect, the Vertical Guidelines address price-comparison services and the use of trade marks on third-party websites.
Restriction on cooperation with price-comparison services
In the Commission's view, price-comparison services represent an independent advertising channel and, in any case, not a sales channel. According to the Vertical Guidelines, an impermissible hardcore restriction is the general prohibition of the use of price-comparison services or the prohibition on the use of the most widely used price-comparison services in a particular online advertising channel if the remaining services in that advertising channel are de facto not capable of attracting customers to the buyer's online store. The Vertical Guidelines leave open what this means in quantitative terms. In this respect, the general standard of preventing the effective use of the Internet remains.
In the Commission's view, a prohibition on the use of particular price-comparison services is generally not a hardcore restriction if the buyer can use other online advertising services to draw attention to its online sales activities (i.e. if the remaining services in the advertising channel concerned are actually still able to attract customers to the buyer's online store). Again, it remains open what this means in quantitative terms and why customer acquisition via other channels/search engines should be disregarded.
Restriction on the use of search engines outside of price-comparison services and third-party platforms
Already the indirect prohibition on the use of an entire online advertising channel through the retailer's obligation not to use "the supplier's trade marks or brand names" so that they will not be referenced in search engines represents a hardcore restriction within the meaning of Art. 4 lit. e) VBER, according to the 2022 Vertical Guidelines. The prohibition on the use of particular search engines – and the restriction on the use of trade marks for such search engines – does not constitute a hardcore restriction as a rule, since the buyer can use other online advertising services (the Commission means "search engines") to draw attention to its online sales activities. This, in turn, is supposed to be different in the case of a ban on the use of the most widely used advertising services in the respective online advertising channel, if the remaining services in that advertising channel are de facto not capable of attracting customers to the buyer's online store. Moreover, the Commission's standard is strongly aimed at taking market conditions into account, which leads to legal uncertainties. A ban on using a certain brand for the advertising service of Bing or Yahoo could be permissible, according to this. Regarding Google Ads, this seems more problematic due to Google's high market share of over 90% of the general search engine market/online advertising channel "general search engines" in most EU member states. However, according to the Vertical Guidelines, it remains open whether the search engine's advertising channel includes all search services or whether, in line with the Google Search (Shopping) decision, a distinction should be made between the advertising channel of general search services and that of specialised search services.
It remains open whether the Vertical Guidelines permit a ban on the use of certain brand names (e.g. Nike is permitted to use the brand name "Nike", but not the use of the brands of individual shoe series, such as "Air Jordan", "Kobe" or "Air Max"). The Vertical Guidelines are silent on this. Ultimately, the question will also have to be asked whether the retailer, when using the permitted brands, is still in a position to attract sufficient customers for its online store so that it can continue to use the Internet effectively.
Inconsistency of treatment between online sales channels and online advertising channels
According to the interpretation of the Vertical Guidelines, the term online "advertising channel" only covers very specific, essentially identical offers (i.e. price comparison services are one advertising channel and search engines are another. The basically understandable argument of the supplier that the buyer could still generate sufficient traffic via search engine advertising, via effective search engine optimisation (in the form of backlinks on third-party websites), via the placement of advertisements or banner ads on third-party websites, and/or via social media/influencer marketing, despite the ban on the use of the most widely used price comparison service, would not prevail, according to this. The prohibition of a specific service within an advertising channel would be inadmissible despite the opening of various other and possibly even more effective advertising channels. It would run counter to the general standard of review of Art. 4 lit. e) VBER (i.e. intended prevention of the effective use of the Internet) if the sole purpose of eliminating an entire online advertising channel is considered problematic, but effective opportunities to use the Internet, nevertheless, remain. Moreover, in the case of online advertising, the Commission would be arguing diametrically to its assessment of restrictions on online distribution and third-party platform bans. The Commission allows third-party platform bans because, although they prohibit a particular online sales channel, other online sales channels would still be open to the buyer (i.e. essentially only the buyer's own online store). One might want to protect the possibility of online advertising in particular because such advertising alone makes the sale possible. However, the Vertical Guidelines are contradictory and too strict in their assessment of restrictions for online sales channels and online advertising channels.
For more information on VBER and the Vertical Guidelines, contact your CMS client partner or CMS experts.
