When, where and why should the law intervene in the distribution of a product? This perennial and highly practical question is open for consultation as of 10 February 2021 (see more here).
During its EU membership, the UK was required to apply the EU’s Vertical Agreements Block Exemption, which applied a relatively strict approach to distribution restraints by global standards. Aspirations towards a single market put a premium on not only banning, but punishing, certain restrictions in distribution systems that prevented cross-border trade, regardless of the economic efficiency of intervention.
The UK has for now retained the Block Exemption itself under the terms of the Withdrawal Act. However, the meat and potatoes of the interpretation was always in the EU’s Guidance. Much of this guidance speaks to the integration of the EU single market, which the UK has left. There is scope to argue that some of the interventions were based on single market concerns which are on longer relevant to the UK, since the UK is already an integrated market.
Two particularly relevant areas which might well change relate to online sales bans and RPM. In a world where the high street is struggling, and seeking to innovate, RPM bans like the one in the prominent Ping case may be hard to justify: why not allow competition over quality by the high street, at least where inter-brand competition is strong?
Similarly, the rule against restrictions on online sales in the existing framework might well come under pressure from the reality that websites rather than physical stores are now the primary distribution function, such that they should no longer be considered ancillary “passive” sales channels as in the existing EU framework. If the website is an active channel, then more control is logically merited in line with the treatment of other active sales channels. More control by the brand over the distribution system may again be wise, at least if inter-brand competition is strong.
Looking to other common law jurisdictions, there is a diversity of practice on vertical restraints. The U.S. position can be quickly summarized: there is no per se prohibition on any vertical restraint, at least under federal law. Yet American consumers have easy access to products, a well-integrated market, and strong consumer outcomes, raising a question about the wisdom of retaining the existing framework.
There is a strong case that parts of the VABER should change, or even that it should be abolished. Will Britain look across the Channel or across the Atlantic in this review? Those whose interests are affected should take note and engage.
Please contact us, if you have any questions about the VABER consultation.