The Competition Act 1998 (Vertical Agreements Block Exemption) Order 2022

Made: 4th May 2022

Laid before Parliament: 9th May 2022

Coming into force: 1st June 2022

The Secretary of State has decided to give effect to the recommendation without modifications and makes the following Order in exercise of the powers conferred by sections 6(2), (5), (6) and (7) and 71(3) of the Act.

Citation and commencement

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This Order—

• (a) may be cited as the Competition Act 1998 (Vertical Agreements Block Exemption) Order 2022, and

• (b) comes into force on 1st June 2022.

Interpretation

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• (1) In this Order—

• “block exemption” means the exemption from the Chapter 1 prohibition[^f00004] arising by virtue of this Order for the category of agreements specified in this Order;

• “buyer” means the purchaser of the contract goods or services and includes an undertaking which, under an agreement to which the Chapter 1 prohibition applies, sells goods or services on behalf of another undertaking;

• “connected undertakings”, in relation to a party to an agreement, means— undertakings in relation to which the party to the agreement, directly or indirectly— has the power to exercise more than half the voting rights, has the power to appoint more than half the members of the supervisory board, board of management or bodies legally representing the undertaking, or has the right to manage the undertaking’s affairs; undertakings which directly or indirectly have, in relation to the party to the agreement, any of the rights or powers listed in paragraph (a); undertakings in relation to which an undertaking referred to in paragraph (b) has, directly or indirectly, any of the rights or powers listed in paragraph (a); undertakings in relation to which the party to the agreement together with one or more of the undertakings referred to in paragraph (a), (b) or (c), or in relation to which two or more of the undertakings referred to in paragraph (b) or (c), jointly have any of the rights or powers listed in paragraph (a); undertakings in relation to which any of the rights or the powers listed in paragraph (a) are jointly held by— parties to the agreement or their respective connected undertakings referred to in paragraphs (a) to (d), or one or more of the parties to the agreement or one or more of their respective connected undertakings referred to in paragraphs (a) to (d) and one or more third parties;

• “the contract goods or services” has the meaning given in article 3(2);

• “customer”, in relation to a buyer, means an undertaking not party to the agreement which purchases the contract goods or services from a buyer which is party to the agreement;

• “excluded restriction” has the meaning given in article 10(2);

• “hardcore restriction” has the meaning given in article 8(2);

• “know-how” means a package of non-patented practical information, resulting from experience and testing by the supplier, which is— not generally known or easily accessible, significant and useful to the buyer for the use, sale or resale of the contract goods or services, and described in a sufficiently comprehensive manner so as to make it possible to verify that it fulfils the criteria in paragraphs (a) and (b);

• “online intermediation service” means a service that allows undertakings to offer goods or services to other undertakings or to end users with a view to facilitating direct transactions between such undertakings or between such undertakings and end users, irrespective of whether and where those transactions are ultimately concluded and that constitutes an information society service within the meaning of Article 1(1)(b) of Directive (EU) 2015/1535 of the European Parliament and of the Council of 9 September 2015 laying down a procedure for the provision of information on the field of technical regulations and of rules on Information Society services (codification)[^f00005];

• “selective distribution system” means a distribution system where the supplier undertakes to sell the contract goods or services, either directly or indirectly, only to distributors selected on the basis of specified criteria and where these distributors undertake not to sell such goods or services to distributors not authorised by the supplier within the geographical area reserved by the supplier in the agreement in order to operate that system;

• “supplier” includes an undertaking that provides online intermediation services irrespective of whether it is a party to the transaction it facilitates;

• “vertical agreement” has the meaning given in article 3(2);

• “vertical restraint” means a restriction on competition in a vertical agreement to which the Chapter 1 prohibition applies.

• (2) In this Order, references to “the agreement” are to be read as references to the vertical agreement claiming the benefit of the block exemption.

• (3) For the purposes of this Order, the terms “undertaking”, “supplier” and “buyer” include their respective connected undertakings.

Block Exemption

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• (1) The category of agreements identified in paragraph (2) as vertical agreements is specified for the purposes of section 6 of the Competition Act 1998[^f00006].

• (2) Subject to paragraphs (3), (4), (5) and (6), for the purposes of this Order vertical agreements are agreements or concerted practices entered into between two or more undertakings each of which operates, for the purposes of the agreement or the concerted practice concerned, at a different level of the production or distribution chain, and relating to the conditions under which the parties may purchase, sell, or resell certain goods or services (“the contract goods or services”).

• (3) Vertical agreements entered into between an association of undertakings and its members, or between such an association and its suppliers, are specified provided—

• (a) all members of the association are retailers of goods, and

• (b) subject to article 4(2), the annual turnover of each individual member of the association, when combined with the annual turnover of its respective connected undertakings, does not exceed £44 million.

• (4) Vertical agreements containing provisions which relate to the assignment to the buyer or use by the buyer of intellectual property rights are specified provided that—

• (a) those provisions do not constitute the primary object of such agreements and are directly related to the use, sale or resale of goods or services by the buyer or its customers, and

• (b) in relation to the contract goods or services, those provisions do not contain restrictions of competition having the same object as vertical restraints which are not exempted by virtue of this Order.

• (5) Vertical agreements entered into between competing undertakings are specified only to the extent that they are non-reciprocal, and the supplier—

• (a) is a manufacturer and a distributor of goods, while the buyer is a distributor and not a competing undertaking at the manufacturing level,

• (b) is a provider of services at several levels of trade, while the buyer provides its goods or services at the retail level and is not a competing undertaking at the level of trade where it purchases the contract services,

• (c) is a wholesaler and a distributor of goods, while the buyer is a distributor and not a competing undertaking at the wholesale level, or

• (d) is an importer and a distributor of goods, while the buyer is a distributor and not a competing undertaking at the level of trade where it purchases the goods or at the importation level.

• (6) This Order does not apply to—

• (a) vertical agreements the subject matter of which falls within the scope of any retained block exemption regulation[^f00007] or of any block exemption order[^f00008], unless otherwise provided for in such a regulation or order;

• (b) rent and lease agreements where no goods or services are being sold by the supplier to the buyer.

• (7) In this article—

• “actual competitor” means an undertaking active on the same relevant market;

• “competing undertaking” means an actual competitor or a potential competitor;

• “intellectual property rights” includes industrial property rights, know-how, copyright and neighbouring rights;

• “potential competitor” means an undertaking that, in the absence of the agreement, would, on realistic grounds and not just as a mere theoretical possibility, be likely to undertake, within a short period of time, the necessary additional investments or other necessary switching costs to enter the relevant market.

Calculation of annual turnover

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• (1) For the purpose of calculating the combined annual turnover within the meaning of article 3(3)—

• (a) the turnover achieved during the previous financial year by the relevant member of the association and the turnover achieved by its connected undertakings in respect of all goods and services, excluding all taxes and other duties, are to be added together;

• (b) no account is to be taken of dealings between the member of the association and its connected undertakings or between its connected undertakings.

• (2) The block exemption remains applicable where, for any period of two consecutive financial years, the combined annual turnover does not exceed the combined annual turnover threshold by more than 10%.

Conditions and consequences of breach of conditions

Block exemption subject to conditions and obligation

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The block exemption has effect subject to the conditions and the obligation specified in articles 6 to 12.

Market share thresholds

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• (1) The block exemption applies on condition that—

• (a) the market share held by the undertaking which is party to the agreement and which is a supplier does not exceed 30% of the relevant market on which it sells the contract goods or services, and

• (b) the market share held by the undertaking which is party to the agreement and which is a buyer does not exceed 30% of the relevant market on which it purchases the contract goods or services.

• (2) For the purposes of paragraph (1), where in an agreement involving more than two parties an undertaking purchases the contract goods or services from one undertaking which is party to the agreement and sells the contract goods or services to another undertaking which is party to the agreement, the market share of the first undertaking must respect the market share threshold provided for in that paragraph both as a buyer and a supplier.

Rules for applying market share thresholds

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• (1) For the purposes of applying the market share thresholds provided for in article 6 the following rules apply—

• (a) the market share—

• (i) of the supplier is to be calculated on the basis of market sales value data (including sales to all vertically integrated distributors for the purposes of resale), and

• (ii) of the buyer is to be calculated on the basis of market purchase value data,

and where market sales value or market purchase value data are not available, estimates based on other reliable market information, including market sales and purchase volumes, may be used to establish the market share of the undertaking concerned;

• (b) the market share is to be calculated on the basis of data relating to the preceding calendar year.

• (2) If a market share is initially not more than 30% but subsequently rises above that level without exceeding 35%, the block exemption continues to apply for a period of two consecutive calendar years following the year in which the 30% market share threshold was first exceeded.

• (3) If a market share is initially not more than 30% but subsequently rises to more than 35%, the block exemption continues to apply for one calendar year following the year in which the level of 35% was first reached.

• (4) The benefit of paragraphs (2) and (3) may not be combined so as to exceed a period of two calendar years.

• (5) The market share held by the undertakings referred to in paragraph (e) of the definition of “connected undertakings” in article 2(1) are to be apportioned equally to each undertaking having the rights or the powers listed in paragraph (a) of that definition.

Hardcore restrictions

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• (1) The block exemption applies to the agreement on condition that it does not contain a hardcore restriction.

• (2) A hardcore restriction is one or more provisions which, directly or indirectly, in isolation or in combination with other factors under the control of the parties, have as their object—

• (a) the restriction of the buyer’s ability to determine its onward sale price, without prejudice to the possibility of the supplier imposing a maximum sale price or recommending a sale price, provided that any such provisions do not amount to a fixed or minimum sale price as a result of pressure from, or incentives offered by, any of the parties;

• (b) where the supplier operates an exclusive distribution system, the restriction of the geographical area into which, or of the customer groups to whom, one or a limited number of buyers, to which an exclusive geographical area or customer group has been allocated, may actively sell or passively sell the contract goods or services, but are not excepted restrictions set out in paragraph (3);

• (c) where the supplier operates a selective distribution system—

• (i) the restriction of the geographical area into which, or of the customer groups to whom, the members of the selective distribution system may actively sell or passively sell the contract goods or services, but are not excepted restrictions set out in paragraph (4),

• (ii) the restriction of cross-supplies between the members of the selective distribution system operating at the same or different levels of trade, or

• (iii) the restriction of active sales or passive sales to end users by members of the selective distribution system operating at the retail level of trade, except in the situation set out in paragraph (4)(a);

• (d) where the supplier operates neither an exclusive nor a selective distribution system, the restriction of the geographical area into which, or of the customer group to whom, a buyer may actively sell or passively sell the contract goods or services, but are not excepted restrictions set out in paragraph (5);

• (e) the restriction, agreed between a supplier of components and a buyer who incorporates those components, of the supplier’s ability to sell the components as spare parts to end-users or to repairers, wholesalers or other service providers not entrusted by the buyer with the repair or servicing of its goods;

• (f) a wide retail parity obligation or measure that has the same effect as a wide retail parity obligation (which includes any course of action, including entering into agreements or engaging in concerted practices, which has the object of replicating the anti-competitive effects of a wide retail parity obligation).

• (3) The excepted restrictions referred to in paragraph (2)(b) are—

• (a) the restriction of active sales by the exclusive distributor, or the exclusive distributor and its customers that have entered into a distribution agreement with the supplier or with a party that was given distribution rights by the supplier, into a geographical area or to a customer group reserved to the supplier or allocated by the supplier exclusively to one or a limited number of other buyers,

• (b) the restriction of active sales or passive sales by the exclusive distributor, or the exclusive distributor and its customers to unauthorised distributors located in a geographical area where the supplier operates a selective distribution system for the contract goods or services,

• (c) the restriction of the exclusive distributor’s place of establishment,

• (d) the restriction of active sales or passive sales to end users by an exclusive distributor operating at the wholesale level of trade, and

• (e) the restriction of the exclusive distributor’s ability to actively sell or passively sell components, supplied for the purposes of incorporation to a product, to customers who would use them to manufacture the same type of goods as those produced by the supplier.

• (4) The excepted restrictions referred to in paragraph (2)(c)(i) are—

• (a) the restriction of active sales by the members of the selective distribution system, or the members of the selective distribution system and their customers that have entered into a distribution agreement with the supplier or with a party that was given distribution rights by the supplier, into a geographical area or to a customer group reserved to the supplier or allocated by the supplier exclusively to one or a limited number of buyers,

• (b) the restriction of active sales or passive sales by the members of the selective distribution system or their customers to unauthorised distributors located within the geographical area where the selective distribution system is operated,

• (c) the restriction of the place of establishment of the members of the selective distribution system,

• (d) the restriction of active sales or passive sales to end users by members of the selective distribution system operating at the wholesale level of trade, and

• (e) the restriction of the ability to actively sell or passively sell components, supplied for the purposes of incorporation into a product, to customers who would use them to manufacture the same type of goods as those produced by the supplier.