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DEADLINE OF 1 JUNE 2023 – ENSURING COMPLIANCE WITH NEW UK VERTICAL BLOCK EXEMPTION

The Competition Act (1998)
This act prohibits any agreement or concerted practice which prevents, restricts or distorts competition within the UK. ‘Block exemptions’ have been a feature of both the UK and EU competition regimes and exempt vertical agreements (i.e. those between parties operating at different levels of the supply chain) that meet certain conditions, thereby creating a safe harbour for compliant agreements. Agreements which do not meet the conditions of the block exemption will fall to be individually assessed under the relevant competition regime.

Brexit
Prior to Brexit, the UK’s block exemption mirrored that of the EU, the Vertical Block Exemption Regulation (“VBER”), meaning a vertical agreement which satisfied VBER would also be automatically exempt from the UK regime.

VBER was retained in the UK under domestic law post Brexit. That position has now changed, with the coming into effect of UK’s new Vertical Agreement Block Exemption Order (“VABEO”) on 1 June 2022.

MFN Clauses
One of the key changes is the prohibition on wide retail parity obligations, or Most Favoured Nations (MFN) clauses. MFN clauses are restrictions that prevent a party to an agreement from offering its goods or services on better terms on any other platform or sales channel. Relevant terms and conditions in this respect include, by way of example, prices, inventory and availability. As a result, an obligation designed to ensure that products offered for sale on a sales channel are on terms that are no worse than those offered by the supplier on another sales channel will fall outside the safe harbour.
The rationale for this is that the operators of the relevant platform/sales channel have no incentive to improve their terms of service, safe in the knowledge that the supplier cannot offer the goods to any of its competitors on better terms.

VABEO agreement dates
UK operators who enter into a vertical agreement after 1 June 2022 will of course have to comply with VABEO. Agreements entered into before the commencement of VABEO, which complied with VBER have the benefit of a 12 month transition period, but will need to be reassessed to ensure compliance with VABEO by 1 June 2023.

Any agreement not compliant with VABEO by that date runs the risk of falling foul of UK competition law, exposing the parties to a fine of up to 10% of their global turnover.

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Brandsmiths is a trading name of Brandsmiths S.L. Limited which is authorised by the Solicitors Regulatory Authority, SRA No: 620298. Founding Partner: Adam Morallee

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