What is New Under the UK Vertical Agreements Block Exemption Order 2022 (VBEO)?

Following Brexit, the UK retained as part of domestic UK law, EU block exemption regulations including the Vertical Agreements Block Exemption (retained VBER) under UK law. The retained VBER expired on May 31, 2022.

Here are some key provisions in the VBEO.

1. Can I have RPM clauses?

RPM (i.e., restrictions on the buyer’s ability to determine its sales price without prejudice to the possibility of the supplier imposing a maximum sale price or recommending a sale price) remains a hardcore restriction under the VBEO. 

2. Can I restrict active sales?

The restriction of the geographical area into which, or of the customer groups to whom, one or a limited number of buyers may actively or passively sell the contract goods or services remains a hardcore restriction, except restriction of:

• active sales into the exclusive geographical area or to an exclusive customer group reserved to the supplier or allocated by the supplier to another buyer, where such a restriction does not limit sales by the customers of the buyer;
• active sales or passive sales to end users by a buyer operating at the wholesale level of trade;
• active sales or passive sales by the members of a selective distribution system to distributors not authorized by the supplier, located within the geographical area where the distribution system is operated; and
• the buyer’s ability to sell components, supplied for incorporation, to customers who would use them to manufacture the same type of goods as those produced by the supplier.

The VBEO contains the definitions of “active sales”:

• actively targeting customers by direct means of communication;
• targeted advertising and promotion, utilizing print, or digital media, offline or online, including online media, price comparison tolls or advertising on search engines targeting customers in specific geographical areas or customer groups;
• advertisement or promotion that is only attractive for the buyer if it reaches a specific group of customers or customers in a specific geographical area;
• offering on a website language options different from the ones commonly used in the geographical area in which the distributor is established; or
• using a domain name corresponding to a geographical area other than the one in which the distributor is established.

3. Can I restrict passive sales?

The restriction of the geographical area into which, or of the customer groups to whom, one or a limited number of buyers may actively or passively sell the contract goods or services will be treated as a hardcore restriction, except:

• the restriction of active sales or passive sales to end users by a buyer operating at the wholesale level of trade; and
• the restriction of active sales or passive sales by the members of a selective distribution system to distributors not authorized by the supplier, located within the geographical area where the distribution system is operated.

The VBEO contains the definitions of “passive sales”:

• sales in response to unsolicited requests from individual customers;
• general advertising or promotion that reaches customers in other distributors’ geographical areas or customer groups; or
• participating in a public procurement exercise following the relevant regulations.

4. Can I share information with competitors and monitor my distribution network?

The CMA is expected to provide guidance on information exchange issues relating to vertical agreements when the VBEO enters into force.

5. Are there any restrictions on MFN clauses?

The VBEO treats wide retail parity obligations (i.e., parity obligations that typically specify that a product or service may not be offered on better terms on any other channels including, for example, a supplier’s website or through other intermediaries such as other distributors or online platforms) as hardcore restrictions.

The hardcore restriction will also apply to measures that have the same effect as a wide retail parity obligation contained in a contractual provision. Such equivalent measures will include any course of action, including entering into agreements or engaging in concerted practices, which have the object of replicating the anti-competitive effects of a wide retail parity obligation.

Other MFNs (known as narrow MFNs) are not included in the list of hardcore or excluded restrictions.

6. How do I deal with online marketplaces?

The retained VBER originated with an EU regulation that was adopted on June 1, 2010. Since then, there have been many changes in the UK market.  In particular, online distribution channels, including online marketplaces, have become effective channels for reaching a greater number and variety of customers than traditional distribution channels.

Consequently, under the VBEO, dual pricing (i.e. charging the same distributor a higher price for products intended to be resold online than for products intended to be sold offline) will no longer be regarded as a hardcore restriction and the imposition of criteria for online sales that are not overall equivalent to the criteria imposed on brick-and-mortar shops in a selective distribution system will no longer be regarded as a hardcore restriction.

7. Are there any changes to exclusive distribution systems?

The VBEO makes certain changes to the current regime by giving businesses more flexibility to design their distribution systems according to their needs. 

Specifically, the list of exceptions to the hardcore restriction will permit the following to be included in agreements captured by the block exemption:

• the combination of exclusive and selective distribution in the same or different geographical areas;
• shared exclusivity in a geographical area or for a customer group by allowing the allocation of a geographical area to more than one distributor; and
• the provisions of greater protection for members of selective distribution systems against sales from outside the geographical area to unauthorized distributors inside that geographical area.

These changes are expected to offer increased business opportunities and foster innovation by making it possible to design a broader range of distribution systems.

8. Are there any changes to selective distribution systems?

The VBEO provides greater protection for members of selective distribution systems against sales from outside the geographical territory to unauthorized distributors inside that geographical area.

In addition, further clarity is provided about the scope of active and passive restrictions in relation to the selling of goods and services online. Hardcore restrictions in this regard include restrictions on sales by members of a selective distribution system.

9. Can I compete with my distributors?

The VBEO exempts dual distribution but adds two more exceptions in relation to dual distribution by wholesalers and importers.

10. Can my agreement be saved by sustainability objectives?

The CMA is expected to provide guidance on environmental sustainability and vertical agreements when the VBEO enters into force.

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Steptoe’s antitrust team would be happy to support you in any assessment of your distribution networks and answer any specific questions you may have on the new VBER.