To promote competition and the market benefits it brings, both the UK and the EU prohibit anti-competitive agreements and conduct by entities that constitute an abuse of a dominant market position. Anti-competitive agreements may be unenforceable, and those involved can be fined substantial sums.
The competition regime naturally applies to agreements between competitors but also applies to vertical agreements: agreements between two or more parties which each operate (for the purposes of the agreement) at different levels of the supply chain for the purpose of purchasing, supplying, or reselling goods or services. Distributors, suppliers, agents and resellers, and licensors and licensees should therefore be alert to the types of provisions restricted in vertical agreements under the competition regime.
Following separate review and consultation in both the UK and the EU, new rules for vertical agreements came into force on 1 June 2022 and will result in significant changes to the current competition legal framework. This article explores the main changes introduced by the new rules and the next steps for those engaged in vertical agreements in both the UK and the EU.
In the UK (as in the EU), agreements which have as their object or effect the prevention, restriction, or distortion of competition in the market are, as a general rule, prohibited. This general restriction would apply, for example, to an agreement where a supplier prohibits its distributor from distributing goods sourced from a competitor of the supplier or from selling the goods into specified territories.
However, both UK and EU law allows certain agreements to be exempt from the general prohibition, provided that specified requirements are satisfied.
The UK has approved a new exemption, known as the Vertical Agreement Block Exemption Order (VABEO), which came into effect on 1 June 2022. By complying with VABEO, businesses involved in vertical agreements can distribute their products and services without infringing UK competition law. For UK businesses, VABEO effectively replaces the EU block exemption for vertical agreements (see below) that applied previously but introduces some new principles that should be noted.
New powers for the Competition and Markets Authority (CMA) - The CMA will have the power to request additional information from businesses in connection with vertical agreements, such information to be provided within ten working days. Failure to respond may result in the CMA removing the exemption under VABEO for such an agreement, resulting in difficulties enforcing its terms and potential dispute.
The corresponding exemption in the EU is known as the Vertical Block Exemption Regulation (VBER). The previous version expired on 31 May 2022 and was replaced with the new Vertical Block Exemption Regulation (New VBER) from 1 June 2022.
Both UK and EU regimes commenced on 1 June 2022 and have a one-year transitional period. During this time, businesses should consider the following action: