The Draft VABEO is finally published – the new competition law regime for supply chain agreements

You can access the full text here.

The Draft VABEO sets out the application of UK competition law to vertical (supply chain) agreements. The Draft VABEO comes with an accompanying explanatory memorandum but without the CMA’s Guidance which will also deserve close scrutiny. The Draft VABEO gives effect to the CMA’s recommendations (previously summarised here).

As anticipated:

• Dual distribution will be expanded to cover wholesalers and importers. Unlike the current EU proposals, the UK will not be introducing an additional joint 10% threshold for the benefit of the block exemption in relation to information exchange.
• The combination of exclusive and selective distribution will be made easier and the concept of shared exclusivity will be introduced allowing for the appointment of more than 1 exclusive distributor in a territory. This matches the EU’s position.
• Dual pricing will no longer be a hardcore restriction.
• Equivalence principle (the imposition of criteria for online sales that are not overall equivalent to the criteria imposed on brick-and-mortar shops in a selective distribution system), will also no longer be treated as a hardcore restriction.
• Wide parity obligations will become hardcore restrictions. However, wide parity obligations that apply to business-to-business markets (wholesale) will not be hardcore restrictions, a stricter approach than the EU.
• Narrow parity obligations will become excluded restrictions.

Crucially, the CMA will have the power to “cancel” the block exemption in respect of an agreement if it is not one which is exempt as a result of Section 9 of the Competition Act 1998 (see Section 13 Draft VABEO). This is a new tool for the CMA, which in conjunction with an additional power to request information from businesses in connection with vertical agreements within 10 working days, adds a touch of uncertainty to the safe harbour created by the Draft VABEO and puts businesses on notice that enforcement action may follow.

The CMA hinted at a conference this week that it will publish the VABEO Guidance in the next few weeks. We will be producing a fuller analysis on the brand-new UK regime once we have sight of the guidance. Stakeholders have until 16 March 2022 to comment on the Draft VABEO.

This piece also links into the recent announcement about the new working group of international competition authorities (including the CMA, US Department of Justice and ACCC), which have put companies involved in global supply chains on notice not to collude. This follows concerns about higher prices resulting from supply chain disruption across the global economy. Not least the ‘Five Eyes’ Group will meet regularly to develop and share intelligence to detect and investigate suspected anti-competitive behaviour and collusion.

Authors: Ariane Le Strat & Amy Donlevey & Saskia King