Vertical Block Exemption post Brexit – Are we taking back control?
The UK Competition and Markets Authority (CMA) has announced it will be conducting a review of the Vertical Block Exemption Regulation (VBER) to make a recommendation to the government in summer 2021 whether to renew, replace or amend the regulation. The EU VBER was retained in UK law after the end of the Brexit transition period and will expire in May 2022.
The current opinion of the CMA is that the VBER largely delivers what it was intended to deliver, but it needs to be ensured that UK specific features are being considered to serve the interest of UK businesses and consumers.
The review will include roundtables in spring 2021 with the relevant stakeholders. Contributions from interested parties are also welcomed. Additionally, the CMA will draw on relevant evidence from the Evaluation of the European Commission. The Commission’s evaluation has started in 2018 and the results of its evaluation have been published in September 2020. The EU VBER will also expire in May 2022.
Vertical agreements are agreements between different levels of the production or distribution chain, for example between manufacturers and retailers relating to the purchase, sale, or resale of goods.
Generally, agreements which restrict competition are prohibited according to the Competition Act. Certain types of agreements are automatically exempt from this prohibition if they satisfy specific conditions – this is known as a block exemption. The VBER provides a general exemption for many vertical agreements, if the businesses entering into them have a market share of 30% or less and the agreements don’t contain any ‘hardcore restrictions’ listed in the VBER (e.g. fixing minimum resale prices).
Considering that the CMA will be drawing on the evidence gathered by the Commission it is worth having a closer look at their evaluation so far.
The Commission’s evaluation has shown, that although the VBER and its guidelines are a useful tool, the market has changed significantly since the VBER were first introduced in 2010 and the regulation and its guidelines will need to be adapted to reflect these changes.
Highlighted issues include a lack of clarity when it comes to the rules defining agency agreements, difficulties to apply rules on online sales as well as gaps in rules or missing guidance when it comes to new players such as online platforms (e.g. the use of price comparison websites).
Online sales are currently not exempt under the VBER, as they are generally considered a form of passive sale. Restrictions to prevent distributors from selling online are considered hardcore restrictions. The same approach applies to certain indirect measures that make online sales more difficult (e.g. charging same distributor higher wholesale price for products intended to be sold online than for products sold offline – dual pricing).
Keeping in mind that Online sales have become a well-established sales channel over the last decade, it is only understandable, that some stakeholders involved in the Commission’s Evaluation, find that, not being able to differentiate wholesale prices based on the costs of each channel is preventing them from incentivizing related investments, notable in physical stores. One possibility to reflect these changes in the industry, would be to no longer regard dual pricing as a hardcore restriction.
Further issues that the Commission is looking to address are dual distribution issues, active sales restrictions as well as parity obligations.
Interested stakeholders are invited to contact [email protected] (the consultation is set to close on the 6 July).