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What should a UK-specific Vertical Agreements Block Exemption Regulation contain? Have your say

  • United Kingdom
  • Competition, EU and Trade

06-07-2021

On 17 June 2021, the UK Competition and Markets Authority (“CMA”) launched a consultation on whether the retained Vertical Agreements Block Exemption Regulation (“retained VABER”)[1] should be replaced, when it expires on 31 May 2022, with a UK-specific Vertical Agreements Block Exemption Order (“VABEO”). The retained VABER sets out the framework for considering so-called “vertical” agreements (between parties at different levels of the supply chain, such as a distribution agreement) under UK competition law, and is considered to be a useful tool for many businesses.  

The aim of the consultation is to inform the CMA’s overarching approach to the retained VABER and its proposed recommendation to the Secretary of State. The CMA is keen to ensure that the new UK regime, if adopted, will be tailored to meet the needs of businesses operating in the UK and UK consumers, and will take account of market developments, such as the growth of digital or sustainability concerns.

Background

When the UK left the EU, the UK retained the EU Vertical Block Exemption Regulation (“VBER”)[2], as the retained VABER, until it expires on 31 May 2022.  As such, the UK competition rules currently mirror those in the EU but this could change from 1 June 2022.

The CMA’s consultation on the retained VABER follows a number of consultations already undertaken by the European Commission (“Commission”) on the VBER and its accompanying guidelines. As set out below, many of the issues identified in the CMA’s consultation document are also being considered by the Commission. 

In preparation for the launch of its consultation, the CMA hosted five roundtables and four bilateral meetings with interested parties between 29 March 2021 and 11 June 2021.

Main topics for consultation

The CMA considers that the retained VABER is beneficial for both businesses and the CMA.  Therefore, it is of the view that it should be replaced on expiry but with certain amendments to reflect current market conditions.  Like the Commission, however, the CMA does not consider that large-scale and fundamental changes are needed to the current competition regime for vertical agreements.

The main issues addressed in the CMA’s consultation are summarised below:

  • Dual distribution: “dual distribution” refers to the situation where the supplier is both a manufacturer and a distributor of goods, and distributes in competition with its network of third party distributors.  This situation has become more prevalent as manufacturers have become more involved in direct distribution to consumers, e.g. on their own websites, while still maintaining a network of distributors/retailers selling to consumers. The CMA’s proposal is for the UK VABEO to include an exception for dual distribution which will also apply to dual distribution by wholesalers and importers. This is one of the policy options explored in the Commission’s consultation earlier this year. The CMA’s rationale is that it appears reasonable to extend the exemption to situations which are not essentially different from dual distribution by a supplier. The CMA is also considering whether it should provide more guidance on information exchanges in the context of dual distribution; this is a point of particular concern for businesses and any further guidance would be welcome.
  • Resale Price Maintenance (“RPM”): while the CMA’s provisional view is that the current treatment of RPM as a “hardcore” restriction of competition (i.e. amongst the most serious of competition law breaches) is justified, respondents to the consultation are encouraged to provide examples of efficiencies arising from RPM.
  • Territorial and customer restrictions: the CMA’s current thinking appears to be in favour of continuing to treat absolute territorial and customer restrictions on distributors as hardcore restrictions and maintaining the distinction between active and passive sales. However, some fine-tuning is likely to be needed in terms of drawing the line between passive and active sales, in particular in the online context. In addition, the CMA is proposing additional flexibility for businesses by allowing them, for example, to combine both exclusive and selective distribution, or to grant ‘shared exclusivity’ to more than one exclusive distributor.
  • Online sales: similar to the Commission, the CMA is considering whether dual pricing and the imposition by suppliers of criteria for online sales by distributors should no longer be treated as hardcore restrictions.
  • Parity obligations: parity obligations have been a focus for competition authorities, including the CMA, over the past few years. The CMA’s current recommendation is that indirect sales channel parity obligations (i.e. an agreement that a product or service may not be offered on better terms on any other channels including the supplier’s own website) should be treated as a hardcore restriction. This is in line with the position the CMA has previously taken on wide parity obligations[3].  Some additional clarity on the treatment of parity clauses would be a positive development.
  • Excluded restrictions: while the CMA is minded to maintain the five-year limit for non-compete obligations, it is open to respondents’ views on whether any amendments may be needed due to market developments such as the growth of online sales.
  • Agency: participants at the CMA roundtables noted the need for more clarity on the definition of agency. Currently, the test is based on the allocation of risk which, it is felt, is not particularly helpful in situations of tripartite agency agreements or arrangements with online platforms. The CMA is consulting on whether additional guidance will be needed for businesses. This would be very much welcomed by business.

Next steps and how Eversheds Sutherland can help

Parties interested in replying to the consultation can do so by 22 July 2021. The CMA is then expected to publish the final version of its recommendation to the Secretary of State and a summary of the responses received. There is likely to be further consultation on the content of guidelines to accompany the UK VABEO.

Eversheds Sutherland will respond to the CMA consultation in due course. We are happy to discuss any points of concern for your business and to support you in developing your position on the CMA’s consultation.


[1] The retained VABER is one of the ‘retained exemptions’ created by a combination of the operation of the European Union (Withdrawal) Act 2018 and the Competition (Amendment etc.) (EU Exit) Regulations 2019 (as amended by the Competition (Amendment etc.) (EU Exit) Regulations 2020).

[2] Commission Regulation (EU) No 330/2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices.

[3] For example, in November 2020, the CMA fined ComparetheMarket £17 million for breaching competition law through wide MFN clauses.  Please see our client briefing here.  

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