Wide retail MFNs
The CMA recommends that wide retail MFNs (i.e. where a supplier must not offer the product/service on better terms on any other platform or channel, including the supplier's own website) are a hardcore restriction (i.e. bringing a vertical agreement outside of the scope of the UK VABEO). However, conversely, the CMA recommends that narrow retail MFNs (i.e. where a supplier must not offer the product/service on better terms on its own website) remain block exempted by the new UK VABEO.
The hardcore restriction would be confined to wide retail MFNs (i.e. business to business MFNs would not be included within the scope of the hardcore restriction) and would apply to both online and offline intermediation services.
In contrast, under the European Commission's proposals, only those wide retail MFNs that are imposed on purchasers of online intermediation services (i.e. imposed on sellers by online platforms such as price comparison websites) would be excluded from the benefit of the VABER. (Note: the Commission proposes to treat these wide MFNs as excluded, rather than hardcore, meaning that they are severable from the rest of the vertical agreement and fall to be assessed under the individual exemption provisions of Article 101(3)). In line with the UK position, narrow retail MFNs will continue to be block exempted.
The CMA therefore proposes to take a stricter approach than the Commission – wide retail MFNs will, if the recommendation is implemented, be considered hardcore in the UK, but the same clause would not be automatically prohibited in the EU (except potentially where imposed by online platforms).
Under the CMA's recommendations, dual distribution (i.e. agreements between manufacturers and retailers where the manufacturer is both a retailer – i.e. sells directly to consumers - and also a wholesaler of its branded products) would continue to be block exempted under the new UK VABEO. In addition, the CMA proposes to extend the benefit of exemption to dual distribution by wholesalers and importers who are also active downstream. In welcome news for business, the CMA has also stated that it will provide guidance on horizontal information exchange issues in dual distribution scenarios.
Whilst the European Commission agrees with extending the benefit of the VABER to wholesaler and importer dual distribution scenarios, it also proposes to introduce a stricter combined (10%) market share threshold at the retail level to benefit from the exemption. This would mean that the block exemption would apply to all aspects of a dual distribution system, even any horizontal restrictions resulting from the exchange of information between the competing parties. Nevertheless, whilst the proposed market share change has attracted criticism from a variety of stakeholders, the proposals provide that, if the combined market share of the parties at the retail level exceeds 10%, but the combined share is lower than 30% on the relevant purchase or sale market (i.e. the usual basis on which the market share threshold is calculated under the VABER), the block exemption would still apply to the vertical agreement but not to any exchange of information (the latter would need to be assessed under the EU rules on horizontal agreements). The CMA has explicitly decided against introducing a stricter market share threshold.
The CMA recommends that the treatment of non-compete obligations under the UK VABEO remains the same as the current position under the VABER (i.e. 5 year general rule).
In contrast, the European Commission's proposals would allow some non-compete obligations which are tacitly renewable beyond five years to benefit from block exemption, i.e. if the buyer can effectively renegotiate or terminate the contract with reasonable notice and at reasonable cost.
The UK VABEO would come into force in June 2022 and last for six years: a shorter duration than the new EU VABER, which is to expire in May 2034 (i.e. after 12 years).