On July 12, 2022, the UK Competition and Markets Authority published final guidance for its new antitrust rules governing vertical agreements. The new rules provide additional flexibility for the design of distribution agreements, although companies will have to manage some discrepancies between the EU and UK systems.
What are VABEO and CMA Guidance?
Until 1 June 2022, the 2010 EU Vertical Agreement Block Exemption (VBER) applied to vertical agreements in the UK, as VBER was retained in UK law following the UK’s exit United of EU. This provided parties to vertical agreements (agreements made between companies operating at different levels of the supply chain) with clarity on the compatibility of their agreements with UK antitrust law, by creating a safe harbor exemption, until the UK government decides how to change the rules governing vertical agreements in a post-Brexit environment.
On June 1, 2022, the old VBER expired and new rules came into effect in the EU and UK. The EU 2010 VBER has been replaced by a new VBER (see our previous alert here), and the UK now has its own separate exemption after introducing a new Block Exemption Order for Vertical Agreements (VABEO).
The VABEO has a transitional period of one year, during which agreements concluded before June 1, 2022 and complying with VBER 2010 will remain exempt until June 1, 2023.
The VABEO will be in force for 6 years until June 1, 2028. This is a shorter duration than that foreseen for the new VBER which will be in force for 12 years. This provides flexibility to see how the new rules impact business in practice, and opens up the possibility for the UK to review its approach to vertical agreements much sooner than the European Commission, with the possibility of a further divergence between the EU and the UK on the road. .
The Competition and Markets Authority (CMA) guidance on VABEO aims to help companies assess for themselves whether their deals benefit from VABEO or otherwise comply with UK antitrust law.
Below is an overview of the main features of the new UK vertical scheme. In some respects the VABEO retains concepts familiar to UK companies from the old VBER, but in other respects there are now different rules to those which apply under the new VBER (we highlight the main differences with the new VBER in bold).
The VABEO can give companies operating in the UK more flexibility in how to structure their vertical agreements, compared to the equivalent EU rules under the new VBER. However, as many EU and UK businesses will continue to operate in both the UK and the EU (including Northern Ireland where EU rules continue to apply apply), the discrepancy between the VABEO and the new VBER may cause difficulties, as different rules may apply. to their distribution agreements depending on the territories in which they are supposed to operate.
Multinational companies may be accustomed to operating under different rules (for example, between the EU and the US), but for companies typically solely focused on Europe, the divergence can lead to start-up problems. Some companies may adopt a single model for vertical agreements covering both the EU and the UK, incorporating the most restrictive rules from each of the new VBER and VABEO. This may be easier for businesses, but then consumers may not benefit from some of the changes introduced by the new VBER or VABEO. So while the rules may now diverge, it remains to be seen whether companies seek to change their arrangements to make the most of them.
1 Non-reciprocal means, for example, that when a manufacturer becomes a distributor of the products of another manufacturer, the latter does not become a distributor of the products of the first manufacturer.