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New competition rules for distribution agreements enter into force

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United Kingdom

New competition rules governing distribution agreements in the UK and Europe enter into force today, 1 June 2022, replacing the EU's old Vertical Agreement Block Exemption Regulation ("VBER").

The purpose of the VBER is to reduce the compliance burden on businesses by giving them legal certainty over the compatibility of certain categories of agreement with EU competition law.  In particular, the VBER provides an automatic exemption for vertical agreements (i.e. agreements between parties operating at different levels of the supply chain) from the EU competition rule that prohibits agreements that restrict competition, in circumstances where:

  • The parties each have a market share below 30%; and
  • The agreement does not contain any hard-core restrictions (such as fixing resale prices). 

The old VBER has now been replaced with an updated VBER, which applies to distribution agreements operating across the EU, and a new UK Vertical Agreement Block Exemption Order ("VBEO"), which applies to distribution agreements operating across the UK.

The updated VBER and the new VBEO mostly retain the same structure and substance as the old EU block exemption, but there are some nuances that businesses will need to be aware of to ensure that their distribution arrangements benefit from exemption at both the UK and EU level.

The key changes include:

  • Restrictions of online sales or online advertising which effectively prohibit the use of the internet as a sales channel are hard-core restrictions. This includes both direct and indirect sales restrictions, such as (amongst others): requiring the distributor to seek prior approval from the supplier before making individual online sales transactions; prohibiting the distributor from using the supplier's trademarks or brand names on its website; or prohibiting the distributor from using an entire online advertising channel such as search engines or price comparison services
  • Across-platform retail parity obligations (i.e. wide parity obligations) by providers of online intermediation services are now excluded restrictions (and at the UK level, they will be considered hard-core restrictions)
  • Dual distribution remains exempted, except in the context of online intermediation services by a provider that also competes at the retail level.  Under the EU rules, there is an additional caveat - information exchanges in dual distribution models benefit from exemption only where they are directly related and necessary to improve the production or distribution of the contract goods or services
  • Dual pricing (i.e. where a supplier sets different wholesale prices for online and offline sales of the same distributor) is now exempted
  • Online marketplace bans are now exempted (provided they do not effectively prevent the use of the internet as a sales channel)
  • In the context of selective distribution, the criteria imposed for online sales no longer need to be broadly equivalent to those imposed on physical outlets

We are running a series of webinars for clients to discuss the new rules in detail and provide practical guidance on possible adaptations to distribution strategies and agreements that you might wish to make in order to help you achieve your commercial goals. 

If you would like to find out more, or if you wish to attend any of our webinars, please contact us here jessica.gardner@fieldfisher.com.

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