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BEIS consults on new Vertical Agreements Block Exemption

The Department of Business, Energy and Industrial Strategy (BEIS) has now launched its consultation on the proposed Competition Act 1998 (Vertical Agreements Block Exemption) Order 2022 (the UK VABEO), which gives effect to the recommendation by the Competition & Markets Authority (CMA) that we reported on here. BEIS invites responses by 16 March 2022 and has also issued an explanatory memorandum on the draft legislation.

The UK VABEO will enter into force on 31 May 2022, then replacing the previous Vertical Agreements Block Exemption Regulation, which was made under EU law and retained in UK law after the UK’s withdrawal from the EU. The UK VABEO will expire on 1 June 2028 to then be reviewed.

Key changes to be aware of include:

  • As regards territorial and customer restrictions, clarifying the definitions of active and passive sales and giving businesses more flexibility in designing distribution systems, e.g. allowing for:
    • combining exclusive and selective distribution in the same or different territories; and
    • "shared exclusivity" in a territory or for a customer group by allowing the allocation of a territory to more than one "exclusive" distributor.
  • With regard to restricting online sales, in recognition of the evolving e-commerce landscape and increased pressure on bricks-and-mortar retailers, no longer regarding the following as "hardcore" restrictions:
    • dual pricing – i.e. charging a distributor more for products that will be sold online than products that will be sold offline; and
    • imposing criteria for online sales that are not overall equivalent to criteria imposed on bricks-and-mortar shops.
  • As regards parity obligations, i.e. obligations that require one party to an agreement to offer the other party terms that are no worse than those offered to third parties (so-called "most favoured nation clauses", MFNs), including "wide" retail parity obligations as "hardcore" restrictions.

Whilst the UK VABEO will have a one year transitional period until 1 June 2023, it would be prudent to review any vertical agreements that contain restrictions as soon as possible to assess whether they will benefit from the safe harbour of the new UK VABEO. If you have any questions in relation to this, please do not hesitate to get in touch.