What Are the new United Kingdom Vertical Restraint Rules?

by | Jun 21, 2023 | Antitrust

United Kingdom Vertical Restraint Rules

The United Kingdom has enacted a new block exemption which governs vertical restraints. Article 101 TFEU, of course, no longer applies in the United Kingdom, which has left the European Union. The new UK’s new vertical agreements block exemption came into force on 1 June 2022, and the revised rules will be enforced in the United Kingdom after a one-year transition period.

This new provision of UK law is in many ways similar to the vertical restraints block exemption of EU competition law. This is perhaps not surprising, since both block exemptions are based on the old EU block exemption. The new UK block exemption, like its EU counterpart, exempts from antitrust law, and thus approves, certain vertical restraints. And, like its comparable provision of EU competition law, it too does not exempt vertical restraints which will almost certainly harm competition; it too bans what it calls a hardcore restriction.

UK competition law thus bans, as a hardcore restriction, resale price maintenance provisions. In fact, the United Kingdom competition authority aggressively stops suppliers from setting retailers’ price. The UK competition authority will therefore almost always consider a provision of a distribution agreement which sets the minimum advertised price of a retailer to be, in effect, a resale price maintenance provision.

The United Kingdom’s vertical guidelines also regulate dual distribution systems. A dual distribution system is one in which a manufacturer also sells its own products, and is thus in competition with its retailers. Online sales have made this a very common practice, and thus a focus of both the European Commission and the UK competition authority. Under the UK’s block exemption, however, online sales can enjoy the full benefit of the block exemption. This is in contrast to the EU block exemption, which requires the European Commission to review some dual distribution systems which involve an online platform. The UK competition act also, in contrast to that of the European Union, is also slightly more willing to allow the parties to a dual distribution agreement to enter into an information exchange as part of their vertical arrangement.

The United Kingdom’s block exemption will also regulate a selective distribution system, but also in way which slightly differs from the EU’s block exemption. A selective distribution system is a distribution arrangement in which the supplier will only sell goods to a distributor who meets certain criteria. Under the revised rules a UK supplier may now forbid not only passive sales but also an active sale to unauthorized distributors within the geographic area of the selective distribution system. Further, the revised rules in the United Kingdom allow a supplier to now establish both a selective distribution system and an exclusive distribution system in the same geographic area. This is in contrast to the European rules, which do not allow a supplier to operate both systems in the same geographic area.

The UK vertical guidelines will also regulate a parity obligation, but again in a way which differs slightly from the EU vertical agreements block exemption. Under the new rule in the UK if an online platform requires sellers to offer it the best terms it offers any online platform, then the block exemption will find that it is a hardcore restriction, and prohibit the entire vertical agreement. EU competition law would not enforce that one restraint, but would not ban the entire vertical agreement.

Thus, although the United Kingdom has left the European Union its vertical guidelines are similar to those of the European Union. Firms doing business in both jurisdictions will probably find that their law firm recommends that they include a vertical agreement the more restrictive clause of either jurisdiction. The difference will not be significant, and the firm can then relax with the knowledge that neither competition authority will find that they enter into anti competitive agreements.