Vertical agreements are for the sale and purchase of goods or services between businesses operating at different levels of the production or distribution chain, for example, between manufacturers and wholesalers or retailers. So-called block exemption exempt organisations from competition in certain circumstances.
Following the UK’s departure from the EU, seven EU block exemptions were retained in UK law, with six due to expire in coming years. Last year, the Competition and Markets Authority reviewed the retained Vertical Agreements Block Exemption Regulation, which expires in May 2022. It then recommended that BEIS replace it with a Vertical Agreements Block Exemption Order, making certain amendments to the current regime tailored to the needs of UK consumers and businesses. The government says that most respondents to the CMA’s consultation agreed with the CMA recommendation to make such a block exemption.
The block exemption Order under section 6 of the Competition Act 1998 gives effect to the CMA’s recommendation that certain specified agreements should be exempt from the prohibition in Chapter I of the Act which prohibits agreements between firms that prevent, restrict or distort competition.
The purpose of the Order is to ensure that businesses are not prevented or disincentivised from entering into agreements that the CMA considers to be beneficial and not anticompetitive.
The vertical agreements aim to benefit consumers by encouraging efficiencies, investment and innovation by:
- removing wide retail parity obligations from the exemptions. These obligations specify that a product or service may not be offered on better terms on any other indirect sales channels, including through intermediaries, such as other distributors or online platforms. For example, currently a travel agent might require a hotel not to offer its rooms on any other sales channel at a better price or on better terms and conditions, limiting the incentives for travel agents to compete;
- creating a more level playing field for high streets and brick-and-mortar retailers by expanding the exemptions to cover agreements that treat online and offline sales differently. This includes charging the same distributor a higher price for products intended to be resold online than for products intended to be sold offline;
- more flexibility for businesses to design their distribution systems, for example by allowing a business to combine distribution rights by allowing multiple retailers of its product in one geographical area while having an exclusive arrangement with another retailer in another area.
The CMA will publish further guidance to accompany this legislation in due course.
The government is consulting on the draft Vertical Agreements Block Exemption Order. The consultation ends on 16 March 2022.
