10 key points in the CMA's proposed new Vertical Agreements Block Exemption Order

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The Competition and Markets Authority (CMA) has now published its final recommendation for a UK Vertical Agreements Block Exemption Order (VABEO). The VABEO would set out how UK competition law applies to vertical agreements from 1 June 2022, replacing the Vertical Agreements Block Exemption Regulation (Retained VABER) which was retained in UK law following Brexit. The CMA's recommendation differs in some respects from both the Retained VABER and proposed new EU Regulation on vertical agreements.

Here are 10 key points to note in the CMA's recommendations:

  1. Dual distribution (i.e. where a manufacturer both retails and wholesales its branded products): Dual distribution would continue to be exempted under VABEO, and would additionally include dual distribution by wholesalers and importers. In contrast to the European Commission's (EC) proposals, the CMA does not recommend introducing additional (tighter) market share thresholds for this exemption to apply. The CMA will also provide guidance to businesses on horizontal information exchange issues in dual distribution scenarios – although it notes that information barriers and clean teams can usually address these concerns. 
  2. Wide retail price parity provisions (wide "most favoured nation" clauses (MFNs)) are recommended to be a hardcore (forbidden) restriction, but narrow MFNs would remain block exempted by VABEO. This means that all obligations specifying that a product or service may not be offered on better terms on any other platform or channel (including the supplier's own website) would be prohibited. This is slightly stricter than the approach taken by the EC, which proposes to ban only those wide MFNs which are imposed on buyers of online intermediation services (i.e. online platforms such as price comparison websites).
  3. Resale price maintenance (RPM) (i.e. agreements restricting the buyer's ability to determine its sale price) would remain a hardcore restriction under the VABEO.
  4. Territorial and customer restrictions: Restrictions on territories into which a buyer can sell would continue to be a hardcore restriction, and the current exception allowing the restriction of "active" (but not "passive") sales would also be continued. The CMA will also offer further guidance on categorising sales as "active" or "passive" and permit businesses more flexibility when designing their distribution systems.
  5. Dual pricing (i.e. charging the same distributor or reseller a higher price for products intended to be sold online, than for products intended to be sold offline) would no longer be a hardcore restriction; and there would no longer be a requirement for overall equivalence on criteria between online and offline sales in the context of selective distribution systems. This is in response to the growth of e-commerce and the increased challenges faced by bricks-and-mortar retail.
  6. Non-compete obligations: The UK rules would remain the same as under the Retained VABER. This marks a shift from the EC's approach, which recommends allowing some non-compete obligations which are tacitly renewable beyond five years to benefit from exemption.
  7. Agency agreements: Similar to the EC, the CMA proposes that online intermediaries are considered as suppliers of online intermediation services, rather than agents. The CMA will address this and related agency issues (such as dual-role agents) in its guidance.
  8. Environmental sustainability: The CMA will provide guidance on environmental sustainability and vertical agreements, particularly on the criteria for admission to selective distribution systems.
  9. Transition: The VABEO would come into force in June 2022 and last for six years (less than the new EC Regulation, which is to expire in May 2034). There would be a one year transitional period, during which agreements that satisfy the Retained VABER remain exempt.
  10. Divergence from the EU: While the proposed VABEO is generally aligned with the EC's proposed VABER, it shows some important signs of divergence between the UK and the EU. In some respects the UK regime would be more permissive (for example, the UK would exempt dual distribution without imposing a 10% market share threshold, as proposed by the EC). In other ways, it is more restrictive (the UK would not permit any form of wide MFN, whereas the EC will only block wide MFNs imposed on sellers by online platforms). This lack of alignment between legal systems may present challenges to multinational businesses, which will be required to comply with rules which are not always consistent.

Alongside the VABEO itself, the CMA intends to consult on accompanying guidance later in 2021 or early 2022. The final legislative text of the VABEO is also expected next year.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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