CMA commences UK competition law review of the retained EU Vertical Agreements Block Exemption

 

Following the end of the Brexit transition period, seven EU block exemption regulations in force on 31 December 2020 were retained under UK law. The block exemptions include the retained Vertical Agreements Block Exemption Regulation (VABER).

In the UK, the Competition and Markets Authority (CMA) advises the Secretary of State for Business, Energy and Industrial Strategy (BEIS) on varying or revoking retained block exemption regulations, or replacing them with UK legislation when they expire. As VABER is due to expire on 31 May 2022, the CMA announced on 10 February 2021 that it is reviewing VABER in order to make a recommendation to the Secretary of State about whether to replace it. The consultation closes on 6 July 2021.

Background: application of VABER

The Competition Act 1998 prohibits agreements and arrangements between businesses that restrict competition in the UK (unless they meet the conditions for exemption or are otherwise excluded). An agreement is exempt from that prohibition if it creates sufficient benefits to outweigh any anti-competitive effects.VABER is the block exemption regulation for ‘vertical agreements’. Vertical agreements are entered into between businesses operating at different levels of the production or distribution chain, such as agreements between manufacturers and wholesalers or retailers. VABER provides a ‘safe harbour’ and automatically exempts agreements which satisfy its conditions. In other words, vertical agreements that meet the conditions of VABER are presumed to be lawful under UK competition law.In particular, VABER provides a general exemption for most vertical agreements entered into between businesses with market shares of 30% or less. However, an agreement will not benefit from the block exemption if it contains any so-called ‘hardcore restrictions’. These include provisions imposing fixed or minimum resale prices (‘resale price maintenance’) or restrictions on the territory into which – and the customers to whom – goods or services can be sold (subject to exceptions). Other restrictions, such as non-compete clauses exceeding 5 years, are ‘excluded’ and must be assessed individually.

The CMA’s consultation process 

The CMA has now invited views on VABER as part of its review and will be carrying out a series of roundtable discussions in spring 2021. The CMA then plans to consult on its proposed recommendation in summer 2021.For its part, the European Commission has been carrying out its own review of VABER. The CMA has indicated it will draw on relevant evidence from the Commission’s evaluation as part of its review.The CMA has specifically invited views from:

• businesses with operations in the UK that rely on the retained VABER (for example, suppliers of goods and services, distributors/retailers of goods and services, and platforms/intermediaries active in e-commerce)
• law firms or other advisers advising businesses on the application of competition law to vertical agreements in the UK
• industry associations
• consumer organisations with an interest in the UK market

The consultation closes on 6 July 2021 and presents an opportunity for businesses and other stakeholders to shape the future application of UK competition law to supply and purchase arrangements.

Opportunity for divergence? 

The Competition (Amendment etc.) (EU Exit) Regulations 2019 enable the Secretary of State to renew or replace block exemptions as they expire. This can now be done independently of the EU, as the UK has a separate competition regime. This review, therefore, marks an early opportunity, since Brexit, for the CMA to recommend divergence from EU competition law.While the CMA will be reviewing the other retained block exemption regulations in due course in order to make a recommendation to BEIS, this is the first opportunity for the CMA to assert a new direction of travel away from established EU competition law. We await with interest to learn whether or not the CMA will recommend any substantive departure from the existing terms of the retained VABER.

Meanwhile, if you would like Freeths to make a submission to the CMA incorporating your views on reform of VABER in the UK, please contact our Competition team.

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