New law: New UK anti-competition laws for businesses in supply chains

Since most businesses are in a supply chain, and therefore parties to a vertical agreement, the changes are important.

Until 31 May 2022 the EU rules on vertical agreements apply in the UK (despite Brexit). However, from 1 June 2022 the UK Competition and Markets Authority (CMA) proposes to introduce a set of UK rules to replace the existing EU laws. From that date, there will also be changes to the EU laws themselves.

Both sets of new rules will continue to follow the same basic framework – that vertical agreements will enjoy a block exemption from the rules banning anti-competitive agreements if:

• the market share of each party to the vertical agreement in its relevant market is not more than 30%; and
• there are no ‘hardcore’ restrictions in the relevant agreement. There are five hardcore restrictions which, if included in a vertical agreement, take it outside the scope of the block exemption – for example, price-fixing.

As now, if the block exemption does not apply, vertical agreements will be assessed for infringements of competition law on a case-by-case basis.

Some of the changes proposed for the UK will bring more vertical agreements within the block exemption, including the following:

• If you are a wholesaler you will be able to charge different prices for your products (called ‘dual pricing’), depending on whether retailers buying them from you are going to sell them on to end users in a physical ‘bricks and mortar’ store, or online.
• If you are a manufacturer using a selective distribution system (ie you only supply to approved distributors, who meet your selection criteria) you will be able to set different criteria for appointing distributors, dependent on whether they sell the relevant products online or offline, and to use both exclusive and selective distribution systems in the same or different territories.
• If you are a member of a selective distribution system, you can be given greater protection against sales from outside the relevant territory to unauthorised distributors in the territory.
• A manufacturer will be able to appoint more than one ‘exclusive’ distributor per territory or customer group – known as ‘shared exclusivity’.
• If you are a wholesaler you can restrict the resale of your products on online marketplaces, even if they are not luxury products and/or highly technical products requiring advice/support.

The CMA is saying that restrictions (called ‘indirect sales channel parity obligations’ in the new rules) in a supplier’s agreement for one sales channel, which prevent anyone from offering the supplier’s product or service on better terms on any indirect sales channel (such as an online platform or other intermediary), will be hardcore restrictions, so the agreement will not automatically benefit from the block exemption. This will be a new restriction, which does not apply under the current EU rules.

However, restrictions by a supplier requiring that prices of its product or service in one sales channel are no worse than those offered on any of its direct sales channels (called ‘direct sales channel parity obligations’) will not be hardcore except in exceptional circumstances.

The new UK rules also impose additional obligations on parties to vertical agreements, such as to provide information to the CMA within ten days of being asked to.

Note also that there are particular new rules aimed at online intermediaries with retail partners, who sell products on their own account on their own platforms in competition with those retailers.

Operative date

• 31 May 2022

Recommendation

• Businesses in supply chains should keep informed on the proposed new UK anti-competition laws and consider whether their vertical agreements are affected – for example, whether they are still within the block exemption - or should be renegotiated.