Post-Brexit changes on the horizon for UK Competition Law on Vertical Agreements

09 July 2021

Author: Richard Gray
Practice Area: Corporate - M&A
Sector: Brexit

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The Competition and Markets Authority (‘CMA’) published a Consultation document on 17 June setting out possible changes to competition law on vertical agreements (which are essentially agreements between players at different levels of the supply chain) in the UK. This signals a potential deviation from EU competition rules in post-Brexit times.

When the UK was a member of the EU, vertical agreements were governed by the EU Vertical Agreements Block Exemption Regulation (‘VABER’), which is essentially a code for the treatment of vertical agreements under EU competition law. At the end of the Transition Period on 31 December 2020, the UK retained the current EU regime on vertical agreements until 31 May 2022 as part of its domestic law. After this date the UK will have discretion on how it chooses to legislate in this area and whether to maintain a consistent approach similar to the EU rule or not.

Against that background the CMA is consulting on a new UK Vertical Agreements Block Exemption Order (‘VABEO’). It is anticipated that this would replace the VABER. It is considered that whilst many of the proposed changes would essentially follow the retained EU provisions under VABER, some changes will potentially provide manufacturers and brand owners with greater control over distribution channels and on how they conduct business with retailers and suppliers in the UK.

What is the Vertical Agreement Block Exemption?

Anti-competitive agreements are banned under Article 101 of the Treaty on the Functioning of the EU and Chapter 1 of the UK’s Competition Act 1998. VABER provides an EU automatic exemption to that prohibition, or a safe harbour for vertical agreements which meet the criteria listed in it. These include the following:

  • The parties must be party to a vertical agreement;
  • The market share of each party to the agreement must not exceed 30%; and
  • Any ‘hardcore’ restrictions identified in VABER are banned in the agreement and are considered automatically anti-competitive.

CMA Proposals

A table which can be found here summarises some of the areas that may be subject to change under the CMA’s proposals.

Conclusion

The Consultation undertaken by the CMA is a significant insight into how the future of competition law and the treatment of vertical agreements will be considered in the UK post 31 May 2022. The CMA’s introduction of a VABEO will help bring welcomed certainty for suppliers and business owners if the Government adopts the proposals. However, any divergence from EU law will bring more complexity for suppliers and businesses operating across multiple territories. The level of complexity will not be fully known until the introduction of changes to the VABER by the EU Commission which is anticipated in the near future. The CMA has stated it intends to maintain a consistent legal regime to the EU’s approach to avoid added cost to business and unnecessary complexity. The CMA will publish VABEO guidance either later this year or early next year with the deadline for feedback on the proposals concluding on 22 July 2021. The VABEO and VABEO guidance is to be formally adopted by 31 May 2022.

If you have any questions on how this might affect your business or if you want more information, please do not hesitate to contact Richard Gray.

*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.

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