by Becket McGrath
On 17 June, the UK Competition and Markets Authority (‘CMA’) published a keenly awaited consultation document setting out its proposed recommendations to Government for the UK’s new competition law regime for vertical agreements. Essentially, the CMA is proposing to adopt an approach that remains closely aligned with the EU verticals regime, which is itself about to undergo a refresh to take account of market and legal developments since its last update in 2010. This is a welcome development, as it should reduce the potential for material divergence between the two regimes, which would reduce legal certainty and increase costs for businesses trading in both the EU and UK.
Background
The need for this consultation has arisen now, as the post-Brexit transitional arrangements for vertical agreements (such as selective and exclusive distribution agreements) are about to expire. To summarise the legal position, while the UK was an EU Member State the analysis of vertical agreements in UK competition law was largely determined by the EU Vertical Agreements Block Exemption Regulation (‘VBER’). This sets out the circumstances in which a vertical agreement is protected from challenge under Article 101 of the Treaty on the Functioning of the European Union (‘TFEU’). Importantly, the VBER also defines certain ‘hardcore’ restrictions that render an agreement presumptively unlawful. Together with the accompanying European Commission Guidelines, the VBER effectively serves as a complete code for the treatment of vertical agreements in EU competition law.
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Since the direct application of EU competition law in the UK ceased at the end of the Brexit transition period on 31 December 2020, new arrangements were needed urgently to determine the status of vertical agreements in UK competition law from that point. The immediate solution adopted by the UK Government was essentially to continue the pre-Brexit approach, by incorporating the current EU VBER in UK domestic law, as a ‘retained block exemption’, at least until the VBER’s expiry on 31 May 2022. Since that date is now approaching, the Government needs to decide what to do. At the same time, the Commission is part way through its own review of the VBER and Guidelines, as it needs to decide the extent to which the EU regime should be updated after 1 June 2022.
While it may be tempting to continue with the UK’s current approach of aligning completely with EU law in this area (which broadly works), unlike the last time the VBER was reviewed in 2010 UK Government and CMA officials no longer have any input on the text of the EU VBER and Guidelines. As a result, a decision simply to follow the (revised) EU regime from June 2022, whatever its form, would hardly be a ringing endorsement of the UK’s new found freedom to diverge from EU rules. On the other hand, the Government and the CMA need to bear in mind that diverging from EU law in this area for its own sake would introduce complexity for the large number of businesses that trade in the UK and EU. To introduce further complexity, many of the core principles of EU law competition law as applied to vertical agreements rest on EU-specific policy priorities arising from the need to create a single European market. It was unclear how far these priorities should continue to determine the shape of UK competition law, post-Brexit, especially since the UK is no longer part of the Single Market. Given this uncertainty, the UK CMA consultation document is an important step forward.
To read about key recommendations and next steps, download the full briefing here.