The Vertical Block Exemption: What Distribution Agreements Are Automatically Safe?

The vertical block exemption is the most practically useful instrument in competition law: a safe harbour that lets ordinary distribution agreements be drafted with confidence. Knowing where the harbour ends — the share thresholds, the hardcore list, the excluded restrictions — is the difference between a routine contract and a fine. This guide walks the VBER and its Turkish counterpart, as part of the vertical-agreements pillar of our Competition & Antitrust hub.

How does the block exemption actually work?

It creates a presumption of legality for a whole category of agreements, so businesses can draft distribution contracts without an economic assessment of each clause. Meet three conditions — the parties are not competitors (with limited exceptions for dual distribution), both shares are at or below 30%, and the agreement contains no hardcore restriction — and the agreement is exempt from Article 101(1) altogether.

Two structural cautions. The share test applies to both sides and to the relevant markets on which each operates — growing suppliers routinely cross 30% without re-reviewing the contract estate that was drafted when they were small. And a single hardcore clause removes the exemption from the entire agreement, not just the offending term: one RPM sentence in an otherwise impeccable distribution contract makes the whole contract exposed. That severity is why clause libraries and periodic contract sweeps belong in every distribution-heavy business’s compliance program.

What changed in the 2022 VBER?

Four shifts matter commercially. Dual distribution (suppliers selling both through distributors and directly) stays exempt, but information exchange between supplier and distributor is only covered where it is directly related to implementing the agreement and necessary to improve production or distribution — a real constraint on data sharing with retail partners. Parity (MFN) clauses: wide retail parity — requiring a seller not to offer better terms on rival platforms — lost the block exemption entirely; narrow parity (own direct channel only) remains covered.

Online sales gained clearer protection: restrictions that have as their object preventing effective use of the internet are hardcore, but dual pricing (charging a distributor different wholesale prices for online and offline sales) and different criteria for online and offline channels became permissible where they do not prevent effective internet use — a meaningful liberalisation for brand owners. Active sales restrictions were rationalised across exclusive, selective and free distribution, with shared exclusivity (up to five distributors per territory) now possible. Türkiye’s regime, updated in parallel, retains its 40% threshold and similar hardcore list — but the details diverge enough that EU-drafted templates need Turkish review rather than assumption.

Which restrictions can you lawfully impose?

More than most suppliers realise. Within the harbour you may: appoint exclusive distributors and protect them from other distributors’ active sales into their territory (passive sales must always stay free); operate selective distribution with objective quality criteria and prohibit sales to unauthorised resellers; impose non-compete obligations up to five years; require minimum purchase quantities; set maximum resale prices and recommend prices; allocate customer groups (with the same active/passive distinction); and restrict a wholesaler from selling to end users.

What you may not do: fix minimum resale prices; block passive sales — a customer’s unsolicited order must be servable; prevent cross-supplies between authorised members of a selective network; restrict a buyer’s ability to sell spare parts to independent repairers; or restrict effective use of the internet. The active/passive distinction is the concept practitioners most often get wrong, and it is where the 2022 rules did most of their tidying — the operational detail sits in our selective and exclusive distribution guide and the online-sales rules in platform bans and online restrictions.

What happens when you outgrow the safe harbour?

You move to individual assessment, not illegality. Above 30% (or 40% in Türkiye), each restraint is weighed on its effects: does it foreclose rivals from distribution, soften inter-brand competition, or facilitate collusion — and are there countervailing efficiencies (service investment, free-rider prevention, launch support) that satisfy Article 101(3)? Many restraints survive; the burden and the cost simply shift to the company.

Two additional exposures arrive with scale. Cumulative foreclosure: parallel networks of exclusivity or non-competes across an industry can foreclose entry even where each supplier’s own share is modest, and authorities assess the market-wide effect. And abuse of dominance: past roughly 40–50%, exclusivity, loyalty rebates and distribution restrictions face the far stricter Article 102 analysis, where the vertical rules stop helping. Growing companies should therefore trigger a distribution-contract review at defined share milestones — 25%, 35%, 45% — rather than discovering the transition through an investigation.

How do you audit a distribution contract estate?

Systematically, and by clause rather than by contract. Build a clause inventory across all templates and live agreements — pricing terms, territory and customer restrictions, online rules, non-competes, parity clauses, information-exchange provisions — then map each against the hardcore list and the share position of the relevant business. Most estates contain three or four legacy clause types repeated across hundreds of agreements, so the remediation is template-level rather than contract-level.

Prioritise by exposure: hardcore clauses first (they taint whole agreements and attract by-object treatment), then excluded restrictions (non-competes over five years, post-term restrictions), then clauses that are lawful now but sit close to the share threshold. Re-paper through side letters or amendment notices where full renegotiation is impractical, and record the remediation dates — the audit trail is what demonstrates good faith if the historical position is ever examined.

How does the block exemption interact with dominance?

It does not protect against Article 102 at all. An agreement can be squarely inside the vertical safe harbour and still be an abuse if the supplier is dominant — the block exemption addresses the agreement prohibition, not unilateral-conduct rules. Since the harbour tops out at 30% and dominance typically starts around 40%, the two regimes rarely overlap on the same facts; the gap between them, roughly 30-40%, is where individual assessment under Article 101(3) does the work.

For a growing supplier the sequence is therefore: safe harbour up to 30%, effects analysis from 30%, and abuse analysis from around 40% — with exclusivity, rebates and refusal decisions becoming progressively harder to justify at each step, as our dominance guide sets out. Building the review triggers into the commercial planning cycle is what prevents a company from crossing all three lines with the same contract.

What about agreements between competitors?

The block exemption generally does not apply to agreements between competing undertakings — vertical agreements between rivals are excluded, save for the dual-distribution carve-out where a supplier also sells directly in competition with its distributors. That exception is narrow and, since 2022, does not extend to information exchange beyond what implementing the agreement requires.

Where competitors do contract vertically outside the exception (a manufacturer supplying a rival manufacturer, reciprocal distribution arrangements), the horizontal rules apply and the analysis moves to our information-exchange and cartel frameworks. Supply relationships between rivals are common and lawful, but they need firewalls and drafting discipline that ordinary distribution contracts do not.

How do you use the harbour when drafting?

Start from the model, not the clause. Decide whether the network is exclusive, selective, free or agency; confirm the share band; then draft from a template built for that combination, with the hardcore boundaries flagged in comments so commercial teams cannot negotiate across them unknowingly. The most valuable single artefact is a one-page ‘what we may and may not agree’ sheet for the sales organisation, because most problematic clauses enter through side letters and negotiated addenda rather than the master template.

Two drafting habits pay repeatedly: a severability clause that isolates any restriction later found unlawful (limited use given hardcore taint, but useful for excluded restrictions), and an express statement of the distributor’s pricing freedom in the pricing article — which costs nothing and, in more than one national case, has been the document that persuaded an authority the supplier’s monitoring program was not RPM.

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