14 March, 2022
On 21 February 2022, the Department of Business, Energy and Industrial ("BEIS") published its awaited draft of The Competition Act 1998 (Vertical Agreements Block Exemption) Order 2022 ("draft VABEO") which will replace retained EU law - the retained Vertical Agreements Block Exemption Regulation ("VABER") when it expires on 31 May 2022. This follows on from the Competition and Markets Authority's ("CMA") recommendation to BEIS in November 2021 that the retained VABER should be replaced with a UK specific Order. BEIS is running a technical consultation on the draft VABEO which will be open until 16 March 2022.
Under competition law, agreements which prevent, restrict or distort competition are prohibited. Agreements may be exempt from the prohibition where they produce benefits that outweigh any restrictive effects on competition. A "block exemption" provides an exemption from the prohibition for a whole category of agreements, provided the conditions set out in the block exemption are met.
A "vertical agreement" is one entered into between two or more parties, each of which operates at a different level of the production chain, and that relates to the conditions under which the parties may purchase, sell or resell certain goods or services. These types of agreements, such as distribution or franchise agreements, are ubiquitous across the UK economy and represent a fundamental route for businesses to reach consumers.
In November 2021, the CMA issues its recommendation to BEIS to replace the retained VABER with a block exemption order under the Competition Act 1998. The CMA recommended that the new provision should largely preserve the existing exemption for vertical agreements, while also identifying some important amendments to improve on the existing legal framework and ensure the rules are the most effective and appropriate for the UK market.
BEIS has now published its draft VABEO for technical consultation. The stated purpose of the draft VABEO is to ensure that businesses are not prevented or disincentivised from entering into agreements that the CMA considers to be beneficial and not anticompetitive.
The draft largely preserves the existing approach to vertical agreements under the retained VABER, in accordance with the CMA's recommendation. The key changes however are summarised below:
The draft VABEO reflects the CMA's recommendations to BEIS, and is positive news for businesses that have relied on the safe harbour offered by the current rules for their supply and distribution agreements over the past 10 years since the current regime came into effect.
The proposed changes in the draft VABEO reflect significant market changes including the exponential growth of online sales and increased direct-to-consumer sales over that time, whilst not departing wholesale from the existing, familiar rules. The UK Government is consulting on the legal wording of the draft VABEO and parties who wish to respond may do so by 16 March 2022. It is anticipated that the CMA will also publish further guidance to accompany the legislation in due course.
There is also a transitional period of one year to allow businesses to adapt their practices, which would mean, in effect, that agreements already in force on expiry of the retained VABER will not fall foul of competition law. Despite this transition period, businesses may wish to begin factoring in the upcoming changes as contracts come up for renewal, which is something that our Solicitors within our Commercial Department can assist with.
For more information contact John Pickervance in our Commercial department via email or phone on 0333 207 1134. Alternatively send any question through to Forbes Solicitors via our online Contact Form.
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