Insights Competition and Markets Authority publishes its recommendation to the Secretary of State in relation to the Vertical Block Exemption Regulation

The current Vertical Agreements Block Exemption Regulation was retained from EU law when the UK left the EU. It is due to expire on 31 May 2022.

In June 2021, the CMA launched a consultation seeking views on its proposed recommendation to the Secretary of State to renew the block exemption and on certain proposed changes to the current regime. The consultation ran until 22 July 2021. The CMA received 37 responses from a wide variety of stakeholders who suggested areas where the block exemption could be improved or adapted.

The CMA says that having carefully considered the various issues, it recommends that the Secretary of State for Business, Energy and Industrial Strategy replaces the retained Regulation with a UK Vertical Agreements Block Exemption Order that will last for six years. Although the CMA does not consider it appropriate to introduce fundamental changes to the current exemption, it has proposed some important amendments, including:

  • agreements with associations of undertakings should continue to benefit from the UK Order under the same conditions as the retained Regulation;
  • the benefit of dual distribution should be extended to cover dual distribution by wholesalers and importers (not just dual distribution involving a manufacturer, as is currently the case);
  • resale price maintenance should remain a “hardcore restriction”;
  • the current rules for other hardcore restrictions should remain the same, except for:
    • territorial and customer restriction: to clarify (primarily through Guidance) where the boundary between active and passive sales should be, in the light of market developments such as the growth of online sales, as well as to give businesses more flexibility in order to design their distributions systems according to their needs;
    • indirect measures restricting online sales: to remove the prohibition of dual pricing and the requirement for overall equivalence from the list of hardcore restrictions;
    • parity obligations (or “most favoured nation” clauses): to add wide retail parity obligations to the list of hardcore restrictions;
  • the current rules for excluded restrictions should remain, including in relation to the treatment of non-compete obligations;
  • clarifications should be made on the following issues that are not addressed in the retained Regulation:
    • agency agreements: clarification in the UK Order that providers of online intermediation services are to be defined as suppliers for the purposes of the block exemption, and clarification in the Guidance of other issues relating to online platforms, fulfilment contracts and dual role agents
    • environmental sustainability: provide advice on environmental sustainability issues in the Guidance, in particular in relation to the criteria for admission to selective distribution systems;
  • the UK Order should expire after a period of six years;
  • the UK Order should also contain:
    • a transitional period of one year to allow businesses time to adjust to the changes;
    • a provision that, if the CMA considers that a particular agreement is not an agreement which is exempt from the Chapter I prohibition as a result of s 9 of the Competition Act 1998, it may withdraw the benefit of the block exemption in respect of that agreement; and
    • a provision specifying that the block exemption is subject to an obligation to provide information if requested.
  • The CMA recommends that the following provisions regarding the scope of the retained Regulation remain unchanged in substance in the UK Order:
    • definitions (Article 1 of the retained Regulation), other than in the case of either the addition of new definitions, or amendments to existing definitions required to implement the recommendations;
    • exemption (Articles 2 and 8 of the Regulation), other than as mentioned above; and
    • market share thresholds (Articles 3 and 7 of the retained Regulation).

To access the CMA’s recommendation, click here.