This note highlights a key change introduced by the new UK competition law block exemption for vertical agreements in relation to the treatment of parity obligations.
Vertical agreements are agreements between businesses that operate at a different level of the supply chain, such as a manufacturer and a distributor.
Prior to the UK’s exit from the EU, the old EU vertical agreements block exemption applied in the UK. Following the UK’s exit from the EU, the old EU block exemption continued to apply until its expiry at the end of May 2022. On its expiry, the UK introduced a new UK block exemption for vertical agreements. This provides an automatic exemption from the UK law which prohibits anti-competitive agreements (the Chapter I prohibition of the Competition Act 1998) for vertical agreements that meet the conditions of the block exemption.
The UK competition authority (the CMA) has also issued guidance to accompany the UK block exemption, which provides guidance on the scope of the UK block exemption and the application of the Chapter I prohibition to vertical agreements that do not benefit from the block exemption.
The news rules applied as from 1 June 2022, although there is a transitional period of one year applying to vertical agreements that met the conditions of the old EU block exemption but do not meet the conditions of the new block exemption.
Parity obligations, also known as Most Favoured Nation (MFN) clauses, are restrictions that require one party to an agreement to offer the other party goods or services on terms that are no worse than those offered to third parties.
The term retail parity obligation is used to describe restrictions that apply in the retail context where a party is offering, selling or reselling goods or services to end users.
All types of parity obligations were covered by the old EU block exemption.
Parity obligations and the new UK block exemption
Under the new UK block exemption, wide retail parity obligations are treated as a hardcore restriction. This means that an agreement which includes such an obligation does not benefit from the block exemption.
A wide retail parity obligation for these purposes is a restriction by reference to any of the supplier’s indirect sales channels (whether online or offline, for example online platforms or other intermediaries), which ensures that the prices (or other terms and conditions) at which a supplier’s products are offered to end users on a sales channel are no worse than those offered by the supplier on another sales channel.
Wide retail parity obligations are often contrasted with narrow retail parity obligations, which only apply to the supplier’s direct sales channels (such as its own website).
The UK guidance confirms that, with the exception of wide retail parity obligations, which are treated as hardcore restrictions, the UK block exemption applies to all other types of parity obligations in vertical agreements, including narrow retail parity obligations.