Online Sales Restrictions in Vertical Agreements

Up to 01 June 2022, the 2010 EU Vertical Agreements Block Exemption ("VBER") applied to vertical agreements in the UK, since the VBER was retained in UK law following the UK's exit from the EU. This provided parties to vertical agreements (agreements entered between businesses operating at different levels of the supply chain) with clarity about the compatibility of their agreements with UK antitrust law, by creating a safe harbour exemption, pending the UK Government deciding how to amend the rules governing vertical agreements in a post-Brexit environment.

On 01 June 2022, the older VBER expired and new rules came into force in both the EU and UK. The 2010 EU VBER was replaced by a new VBER, and the UK now has its own separate exemption having introduced a new Vertical Agreements Block Exemption Order ("VABEO"). The VABEO has a transitional period of one year, during which agreements that were entered into before 1 June 2022 and comply with the 2010 VBER, will remain exempt until 1 June 2023.

We thought it would be useful to provide an overview as to the new online sales restrictions the VABEO provides and how this can affect you.

Online Sales Restrictions

The general rule is that a buyer should be allowed to approach individual customers actively (active sales) and to respond to unsolicited requests from customers (passive sales).

Similarly in line with the EU's position, restrictions which prevent the effective use of the internet as a sales channel will be deemed hardcore. The guidance provides concrete examples of such restrictions including the requirement for a distributor not to use a supplier trademark or brand name on its website. Likewise, a restriction on the use of online advertising channels or a ban on using a supplier's trademarks for bidding to be referenced in search engines such as Google AdWords, will be treated as hardcore. The CMA recognises that access to search engines, such as Google, is crucial to the use of the internet as an effective sales channel and the guidance therefore reflects that commercial reality.

The general prohibition is, however, softened by the fact the CMA clarifies that suppliers can give instructions to their distributors on how their products should be sold, such as using quality requirements/criteria, irrespective of the distribution model applied, so long as such requirements do not have as their object the prevention of the use of the internet as an effective sales channel. Importantly, the guidance also confirms that a direct or indirect ban on sales through online marketplaces (described as 'online intermediation services') are blocked exempted.

It may also be possible to place restrictions on the way in which online sales are conducted, including dual-pricing, i.e., differential pricing as between physical and online stores. The key requirement is that these restrictions do not prevent the effective use of the internet. The new VABEO takes a similar approach: restrictions should not have the object of preventing the effective use of the internet by the buyer.

Our Comment

The changes in the 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.

There is a transitional period of one year to allow businesses to adapt their practices, which would mean, in effect, that agreements already in force from expiry of the VBER will not fall foul of competition law. During this transition period, businesses should start to begin factoring in the new changes as contracts come up for renewal, which is something that our Solicitors within our Commercial Department can assist with.

The Commercial Department at Forbes Solicitors are specialists in drafting and reviewing agreements but can also provide specialist advice on the new online sales restrictions under the VABEO to ensure your business complies with these