On July 12, the CMA published its final guidance (the Guidance) accompanying the UK’s block exemption for vertical agreements (VABEO). The VABEO came into force on June 1, replacing the retained EU framework. The Guidance supplements the VABEO for agreements not covered by the block exemption. The VABEO and the Guidance largely maintain the status quo, with a few important divergences from the previous EU rules.
The Guidance aims to help businesses self-assess whether their vertical agreements comply with competition law. If a vertical agreement meets the conditions of the VABEO, it benefits from an automatic exemption from competition law scrutiny. Vertical agreements that do not meet the conditions for the block exemption must instead be individually assessed.
The publication of the VABEO and the Guidance follows a year-long consultation. The CMA published draft versions and invited comments earlier this year. The Government explained in its response to the consultation that changes made to the draft version of the VABEO were only minor points of technical drafting. But there are in fact a few interesting amendments in the CMA’s final Guidance, including new areas of divergence from EU rules on vertical agreements. In summary:
Online Platform Economy. The draft version of the Guidance had suggested that suppliers of online intermediation services (e.g., app stores or online marketplaces such as Amazon) cannot be seen as agents. This threatened to create ambiguity, implying that merchants using such platforms could no longer set the terms and conditions for the products they sold via the platform.
The Guidance now refers to “undertakings active in the online platform economy,” clarifying two points: First, agreements with such undertakings are “generally unlikely” to be categorised as agency agreements falling outside the scope of competition law, but not categorically excluding it. Second, for undertakings that provide online intermediation services, the Guidance clarifies that restrictions they impose on buyers (in this case, the merchants, who buy the services) are subject to the rules on hardcore restrictions.
Accordingly, a supplier of online intermediation services is not allowed to set a fixed or minimum sale price for merchants selling on its platform (although maximum or recommended sales prices may be allowed). It is, in other words, in principle for the merchant to set the price for the goods and services it sells via the platform.
Information exchange in dual distribution. The draft Guidance had retained the exemption for dual distribution, where suppliers sell directly, in competition with their distributors. It provided a list of examples of types of information exchange between a supplier and a buyer that may or may not benefit from the block exemption in a dual distribution scenario. In the final Guidance, the CMA has updated its description of non-aggregated data that may not benefit from the block exemption. Previously, the draft Guidance had referred to “customer-specific” data as a type of information likely to restrict competition by object. The Guidance now refers instead to information “identifying end users of the contract products”. This helpfully excludes resellers.
Territorial and Customer Restrictions. Vertical agreements that restrict the territory into which a buyer can sell, or the customers to whom a buyer can sell, generally remain hardcore restrictions. But like the revised EU Vertical Guidelines, the VABEO and Guidance allow: (i) the combination of exclusive and selective distribution; (ii) shared exclusivity (where two or more semi-exclusive distributors are appointed); (iii) greater protection for members of selective distribution systems against sales from outside the geographical area to unauthorized distributors inside the area; and (iv) the restriction of a buyer’s place of establishment.
Otherwise, the Guidance carries over the same departures from EU rules as were contained in the draft version. These include:
- Online sales and dual pricing. A supplier charging different prices depending on whether the buyer is reselling online or offline will no longer be regarded as a hardcore restriction. Suppliers relying on selective distribution will also have greater freedom to impose criteria for online sales that differ from those for brick-and-mortar shops. This eliminates the more favoured treatment of online retailers. The revised EU Guidelines contain similar changes.
- Parity obligations or most favoured nation clauses (MFNs). In contrast to the new EU on vertical agreements, the VABEO includes clauses that ban suppliers from offering better terms on any other platform (so-called ‘wide parity’ or ‘wide MFN’ provisions) in the list of hardcore restrictions. So-called ‘narrow MFNs’ that ban suppliers from offering better terms on their own websites but allow them to offer better terms on other platforms will continue to benefit from the block exemption.
 See The Competition Act 1998 (Vertical Agreements Block Exemption) Order 2022.
 The retained EU Vertical Agreements Block Exemption Regulation and accompanying vertical guidelines expired on May 31, 2022. The EU’s new Vertical Agreements Block Exemption Regulation and accompanying guidelines also came into force on June 1, 2022.
 See also our previous Alert Memorandum on the draft guidance to VABEO: Cleary Gottlieb Steen & Hamilton, “CMA Seeks Comments on Draft Guidance for its Proposed Vertical Agreements Block Exemption Order” (April 11, 2022).
 See CMA, Review of the VBER and Vertical Guidelines (June 17, 2021). See also, Cleary Antitrust Watch, Cleary Gottlieb, CMA Publishes Consultation To Replace the Retained Vertical Agreements Block Exemption Regulation ( June 17, 2021).
 See Department for Business, Energy & Industrial Strategy, Government Response to Consultation (May 2022).
 See CMA, Draft Guidance: Vertical Agreements Block Exemption Order, paras. 4.19 to 4.21.
 See Guidance, para. 6.35.
 See Guidance, para. 6.26(b).
 Note, though, that “where a vertical agreement only concerns restrictions relating to exports outside the UK or imports/reimports from outside the UK, the CMA is unlikely to regard it as having the object of restricting competition within the UK.” (Guidance, para. 8.32)