BELGIAN BUSINESS LAW

European Commission adopts revised competition rules for vertical agreements

On 20 April the European Commission announced that it had adopted the text of its new Block Exemption Regulation for vertical agreements between manufacturers and distributors for the sale of products and services. The new Regulation, which replaces the existing Vertical Restraints Block Exemption adopted in 1999 and which expires on 31 May 2010, will come into effect on 1 June 2010 and will be valid until 2022.

The Block Exemption Regulation for vertical agreements exempts certain agreements between undertakings which are operating on different levels of the distribution chain that could otherwise be prohibited for their effect on competition. To benefit from the exemption the agreements need to meet certain conditions as set out in the Block Exemption.

As is the case with the 1999 Block Exemption, the new Block Exemption Regulation is based on the premise that, in the absence of high market shares, vertical agreements not between competitors do not generally give rise to competition concerns. Like the 1999 Block Exemption, the new Regulation exempts vertical agreements where the market share does not exceed 30% on any relevant market provided the agreement does not contain any hardcore restrictions. However, unlike the 1999 Block Exemption, the 30% threshold applies for all vertical agreements not only to the manufacturer but also to the distributor. Thus, agreements concluded with a powerful purchaser or distributor which has a 30% or more market share, including but not limited to exclusive supply agreements, will not benefit from the new Block Exemption.

With regard to hardcore restrictions, which are restrictions which may not be included in any agreement in order for the agreement to benefit from the exemption, the new Block Exemption Regulation takes over virtually verbatim the list contained in the 1999 Block Exemption. Likewise, the rules in relation to non-compete clauses, which, subject to certain exceptions, are excluded from the benefit of the Regulation, are for all intents and purposes identical to the rules contained in the 1999 Block Exemption.

As was the case previously, the new Block Exemption does not apply to agreements between competing companies. However the clause in the 1999 Block Exemption that allowed the Exemption to be applied to agreements between competing companies where the turnover of the Buyer was less than 100 million € has been omitted in the new Block Exemption regulation.

Concerning selective distribution systems, the Commission has made it clear that the existing rules will remain largely unchanged.

The Commission has yet to publish its Guidelines on the application of the New Block Exemption. The Guidelines do not have the legal force of the Regulations but they offer a much more detailed view on what the Commision’s likely position will be vis-à-vis vertical agreements. In practice they matter as much as the Regulation.

It is already clear that the new Guidelines these will include indications on how the Commission intends to apply the new Block Exemption to online sales. Restrictions of the use of the Internet by distributors generally are considered as hardcore restrictions. For example, any obligations on distributors to automatically reroute customers located outside their territory, or to terminate consumers' transactions over the Internet if their credit card data reveal an address that is not within the distributor's territory, will be treated as hardcore restrictions. Similarly, any obligation that dissuades distributors from using the Internet, such as a limit to the proportion of overall sales which a distributor can make over the Internet, or the requirement that a distributor pay a higher purchase price for products or services sold on-line as opposed to off-line ("dual pricing"), will also considered as a hardcore restriction.

New Transparency Rules for holdings in unlisted companies

From February, 5, 2010, a new article 515bis has been inserted into the Companies Act, requiring anybody who owns more than 25% of bearer or dematerialised securities with voting rights in an unlisted limited liability company (“naamloze vennootschap/société anonyme”) to notify the board of directors of the transaction that causes the 25% threshold to be exceeded. The obligation only applies to bearer securities or to dematerialised securities since they are the only ones that can be transferred without the knowledge of the company. Bearer securities are set to disappear on December 31, 2013. From then on the obligation will only concern dematerialised securities.

The obligation concerns all securities with voting rights whether or not they represent the statutory capital of the company. The acquisition of securities to which only limited voting rights are attached, such as preferential shares, warrants or convertible bonds, to which no actual voting rights are attached, does not need to be notified.

The notification must be sent within 5 business days following the date of the acquisition of the securities causing the threshold of 25% to be exceeded. If the participation falls below the 25% threshold following a transfer of voting securities, a new notification is required.

All holders of voting securities holding on 5 February 2010 25% or more of the total voting rights in a non-listed limited liability company which has issued bearer shares or dematerialised shares, must notify the company before August, 5, 2010.

A holder of voting securities who has not complied with an obligation to notify at the latest 20 days prior to a shareholders’ meeting, cannot exercise the voting rights attached to these securities at the meeting. In addition, any other holder of voting securities or the company itself can request the president of the commercial court of the company’s registered office to suspend all or part of the voting rights attached to the securities for a maximum of one year, to suspend a general meeting that has been convened or to impose a sale of the un-notified voting securities to a third party which is not affiliated to the holder in breach.

The Act of 18 January 2010, which inserted 515bis in the Companies Act, amends the Act of 11 January 1993 on the prevention of the use of the financial system for the purpose of money laundering and the financing of terrorism. Pursuant to anti-money laundering legislation, financial institutions are required to identify their clients. If a client is a legal entity, financial institutions must also verify the identity of the legal entity’s ultimate owner, who is defined as the person holding a participation representing more than 25% of the total voting rights or exercising control over the company. Art. 515bis ensures that companies know who are their owners and are in a position to identify them.

New Law on market practices and consumer protection

The new Law of 6 April 2010 on Market Practices and the Protection of the Consumer will enter into force on 12 May 2010. This Law is a reform and restatement of the previous Law of 14 July 1991 on Trade Practices. The new Law was necessary, inter alia, in order to modify the previously existing prohibitive rules on combined offers of joint services or products which had been declared illegal by the European Court of Justice in its VTB decision.

The Law applies to enterprises, which are defined as being any physical or legal person which carries out economic activities on a lasting basis. This is a very wide definition which corresponds to the definition used in Belgian and EU competition law and which includes not only tradesmen and commercial companies but also any other company or association, federation or body, including government owned companies, which carries on an economic activity. So-called liberal professions (lawyers, doctors, dentists, architects etc) are however not covered by the Law but will be covered by a separate new Law that the government is still preparing.

The new Law sets out new, generally more liberal, rules with regard to announcements in relation to price promotions and reductions. Promotions that refer to the sellers’ own past prices and promotions during sales remain subject to (relatively strict) rules. There are also new rules with regard to sales. Sales are no longer limited to goods previously sold in the same point of sale, internet sales are allowed, the black-out period on promotions preceding the sales is considerably shortened. Under the new Law manuals and warranty certificates no longer need to be in the language(s) of the regions where the product is sold but need to be in a language comprehensible to the average consumer living in that region. This may matter for at least some specific product categories.

The previous generally applicable prohibition on combined offers (so called “offre conjointe” or “gezamenlijk aanbod”) is abolished and replaced by a general requirement that any such offer must be fair and not misleading. Combined offers which include a financial service remain however prohibited, subject to certain exceptions.

New rules are also introduced with regard to distance selling. Thus, the previous prohibition on obtaining any payment from the consumer before the end of the right of withdrawal period is abolished. Also, the right of withdrawal period during which the consumer can retract his offer to purchase without any penalty is extended from 7 working to 14 calendar days.

With regard to on-line sales, there is a new rule which prohibits opt-out systems where the consumer is obliged to opt-out, failing which he is deemed to agree to purchase additional products or services. Under the new rules the consumer will have to opt-in and opt-out systems become illegal.

Last but not least, the rules relating to the obtaining of cease and desist orders have been somewhat modified and their scope somewhat extended. Furthermore the existing rules are codified in a new separate Law of 6 April regulating certain procedures in the context of the Law on Market Practices and Consumer Protection. Thus, for instance, as was already the case previously, a company may obtain a cease and desist order with regard to a competitor who is operating without having the required license or who is employing so-called “black” workers who have not been declared to the social security administration.