UK: The UK's Vertical Agreements Block Exemption Order - Thinkhouse (Video)

The UK's new vertical block exemption regime came to force on 1 June 2022, with a one-year transition period for existing arrangements, and businesses affected need to be prepared.

Samuel Beighton outlines the new vertical block exemption regime, identifying key changes and points of difference with the new EU regime, and considers how businesses can seek to benefit from the opportunities resulting from these changes.

Transcript

Sam Beighton: Good morning my name is Sam Beighton, I am a partner at Gowling WLG and I will be talking this morning about the new vertical regime that we have within the UK. Hopefully this is what you signed up for and expected, if it is not obviously now is the time to drop off and save yourself an hour. If it is, then hopefully there will be things within this presentation that are of interest and of note.

Just to kick off then in terms of what could be of interest and of note. As a starting point what I would like to do this morning is just outline the function of the new Block Exemption Order, to think a little bit about what we have now in terms of the old and the regimes. We are familiar with the old, we are welcoming in the new but what are the key similarities between these different regimes? I then want to touch on areas of evolution and in particular focusing upon exquisite distribution and selected distribution. Now these are models that we are well familiar with but there are some areas where these have evolved in the context of the new UK order.

There is another aspect to flag which is an obligation to provide information to the Competition and Markets Authority (CMA) arising under the new order and I just want to touch briefly upon the transitional provision before onto questions and I am conscious this obviously is a new area; I think there will be lots of questions for us as practitioners, there are questions around how this will play out in practice, so questions, it is on me then to leave time to make sure we have questions and time to deal with those.

But without further ado what I would like to start off with is perhaps a little bit of housekeeping before we go into the substance of the session and on the slide before you, you will see I suppose a visual representation of our new Block Exemption Order and ambitiously when I set about preparing for this session I thought we could perhaps cover all the bit of the iceberg that is above the water there. I think having stood back from this and seen how wide this is and how it applies I think realistically we will probably be covering the little red bit circled there.

We will look at that, we will go into that in some detail, but it is important to note this is the tip of the iceberg, there are lots of other issues and areas arising round the Block Exemption Order which I am sure you will come across in your business and obviously we are very happy to help with those as and when they arise but this session unfortunately, in the time available, it cannot cover the full breadth of the Block Exemption Order, so what I will not be covering and again this gives you an opportunity to log off if these were particular points of interest for you, what I will not be covering are wide retail parity obligations which have now moved to being a hardcore restriction under the new order. I will not be touching upon agency, I think we could probably have a session in itself upon agency so I will not be looking at agency, whether that is genuine, non-genuine or of a dual role agency model that we see emerging under the new order and I also will not be touching upon resale price maintenance or fulfilment contracts, so those aspects I will not be covering today unfortunately.

I think another point of housekeeping as well is just to flag that the area being what it is I am afraid that there will be technical level concepts that are discussed. I have tried to make these as accessible as possible. It is not possible to strip them out of the session entirely, hopefully these will make sense but if there are points which do not then I am happy to pick those up after the session if that will be helpful.

Jumping in then to the substance of this and thinking about the new order in terms of its function so what we have as we are familiar in terms of a regime is a regime that is applicable to vertical arrangements and the new order does exactly that; it applies to vertical arrangements between different undertakings which are primarily at different levels of the supply chain and those arrangements cover how the parties purchase and sell products and services.

What the block exemption does is it creates automatic exemption from Section 2 of the Competition Act, the chapter one prohibition and this creates a safe harbour for arrangements that satisfy the criteria of the order. Helpfully for business this safe harbour principle affords them greater certainty and there is efficiency of operation as well, if you know you have a safe harbour that is available that is certainly something to aim for and I am conscious the CMA when it was considering where the UK should go in terms of a vertical regime, the feedback, the very clear feedback from business was the safe harbour concept works well and it should be continued going forwards post Brexit.

So against that background what we often see where we have clients that are considering entering into vertical arrangements is they will often seek to draft their agreement, their arrangement, for the benefit from block exemptions. They will go through, they will look at the applicable criteria and they will craft their arrangement around those. I think a really important starting point before you jump into block exemptions though is to actually think about the arrangement at hand; first question to ask is would it actually be caught by the chapter 1 prohibition? And for many things they will be, but there are some arrangements that perhaps would not be because the parties' market shares are perhaps low enough they could benefit from de minimis exemption for example.

If you do not actually find yourself with a situation where the arrangement is caught by the prohibition then obviously the benefit of the block exemption is not legally required. You do not need to have the exemption if something does not apply and if that is the case that may give greater commercial freedom so when you are thinking about structuring the arrangement not having to consider the application of chapter 1 rather than jumping straight in to the block exemption assuming it applies; that may then give greater commercial freedom to the structuring of that arrangement.

Well let us assume that we have an arrangement that is caught by the chapter 1 prohibition. So it is the case that the block exemption is available then as I mentioned previously there will be the automatic exemption from that prohibition. If the arrangement falls outside the block exemption for any reason the question then is whether or not individual exemption is a possibility for the parties and when we are thinking about individual exemption we are touching here upon Section 9 of the Competition Act and in this context it is for the parties to evidence the four cumulative conditions that are listed within Section 9 and in summary what the parties need to demonstrate, or be capable of demonstrating, is that there are efficiencies that result from the arrangement, the consumers receive a fair share of these efficiencies, the restrictions in question are actually necessary for the achievement and attainment of these efficiencies and the restrictions in question do not allow the opportunity for the parties to eliminate competition and this is where the parties have the obligation to self-assess. This is not something the CMA is going to do for the parties and you know as you are aware this is an issue for self-assessment. We do have the draft guidance accompanying the new order, that has been issued by the CMA. We are awaiting a final version of that but nevertheless the draft I think indicates a direction of travel enabling parties to consider and self-assessment whether they do have arrangements that would fall outside block exemption and we are also awaiting CMA guidance on sustainability agreements. That has been flagged by the CMA as a point it will develop. We do not have a timescale for that but I think it, well within the existing guidance for the block exemption there are references there to this future guidance and sustainability agreement so there will be other aspects in there which I think would lend support to possible case individual exemption; so self-assessment required but guidance is out there.

And just by way of a timeline I think this is worth flagging just for a point of policy. We have here outlined a brief timeline of what we had before so the vertical agreement block exemption regulation which emanated from the EU which entered into force on 1 June 2010. We fast forward 12 years, we have the new order entering into force in the UK, that replaces what became the retained block exemption. So post Brexit the existing EU regulation is rolled over into UK law, the new order fully replaces that and in parallel we have within the EU a new block exemption entered into force on 1 June. Now interestingly the EU block exemption is due to expire in 2034; the new order in the UK is due to expire in just under six years' time now and that was a very deliberate policy choice. When the new order was recommended to the Secretary of State there was a lot of thought going into how markets may evolve, how technologies may develop which may then mean further revisions are required to the applicable order in the shortish term to ensure that this drives forward interest for the UK economy.

So as we will see going through the presentation, at present we do have a broad alignment between the new order in the UK and the EU block exemption, however it will be really interesting to see in six years' time whether we still have that alignment or whether there is further divergence taking into account the position and direction of travel within the UK economy and the role of the block exemption in the UK in furthering the interest of the UK economy.

So following that background what I want to touch on now is a bit of a compare and contrast between the old and the new regimes that apply in the UK. So just touching upon some of the key similarities from that.

I think the first thing to flag is that the new order reads very differently to the old retained block exemption that we inherited post Brexit. Anyone who has had the opportunity to read the new order, it has a very different look and feel to it. It is not immediately recognisable as what we would call a block exemption, it has been sort of recrafted, redrafted and as I say has a very different look and feel.

However, once you get past that initial reaction to something that looks so different what you find is that many of the concepts actually remain the same and as I mentioned previously there are also very clear similarities between the new order we have in the UK and the new EU block exemption applying on obviously the European Union member states. So very clear similarities, there is a lot that is actually staying the same within this even though this is obviously a new regime coming into force.

So one of the key similarities is parties. Now the new order primarily applies to non-competitors vertical agreement block exemption however where you have the block exemption there is the possibility for this to apply to non-reciprocal arrangements between competitors, that is subject to certain conditions being satisfied. So it can apply to arrangements between competitors if the supplier is a manufacturer and a distributor and the buyer is just a distributor so they are competing at a downstream level. Equally if the supplier is a multi-level service provider and the buyer is active at the retail level only again you just have the competition at the retail these; those arrangements being non-reciprocal could still potentially benefit from the new order and that is consistent with the position that we had under the old block exemption in the UK.

What the new order does it goes a little bit further. It expands the approach and allows the order to apply to situations where the supplier is perhaps a wholesaler and distributor and the buyer is just a distributor and where the supplier is an importer and a distributor, sorry the supplier is an importer and distributor and the buyer is just a distributor so again you have competition only at the retail level, they are competitors but there are these exemptions which allow the Block Exemption Order to cover those scenarios where other conditions are also satisfied.

This greater breadth application I think is to be welcomed, I think under the previous regime there were some grey areas where it was not quite clear based upon the definition of the supplier, whether or not the agreement could benefit from block exemption, so as I say greater breadth application I think is to be welcomed, it also is consistent and aligns with the approach under the new EU block exemption.

Another familiar area in the context of vertical block exemptions is market shares. The new order in the UK again is based upon the satisfaction of certain market share thresholds. These have not moved so these will be well familiar. We have initially, the market share that is applied is obviously 30% and the market share by this reference is the relevant market on which the supplier sells the contract products and services. Similarly the market share of the buyer must not exceed 30% and again this is the relevant market upon the buyer purchases the contract products or services. In terms of market definition and this really is what underpins those shares the CMA's guidance is going to be relevant in this context; it is relatively old guidance that the CMA has adopted from the Office of Fair Trading but it is expressly endorsed within the accompanying guidance of the new order so that approach to market definition remains relevant. And when the parties are thinking about their shares this is by reference to each party's corporate group, so it is one entity in the context of a wider corporate group, you are thinking about actually what are the activities of that entire corporate group rather than just the contracted entity. And where relevant the shares should include the supplier's vertically integrated sales so if the supplier is active within its own group making sales downstream to parties acting as distributors, those need to be wrapped up in terms of its market shares; and shares to be calculated using ideally value data so if there is third party data considering market size that is going to be really helpful; if that is not available then the parties' substantiated estimates can be used in this context and the shares are calculated by reference to the preceding calendar year, so we have there methodology outlined in the new order which again is consistent with both what we had before in the UK and also the new vertical block exemption within the EU, so this kind of bedrock of how you go about assessing market shares, how you go about thinking about the application of the order, that has not changed. That remains consistent throughout; that again is a really helpful point.

Hardcore restrictions, the new order may apply provided the arrangement does not include hardcore restrictions. Now I have not listed all of these out here, I have just picked out a few examples, so we have resale price maintenance, the old chestnut in terms of a hardcore restriction and certain restrictions upon sales into territories and types of customer and absolute bans on internet sales all of which would be seen as hardcore restrictions. The hardcore list under the new order is a little bit different to what we had previously and what we see and we will touch upon this later in the session, is that the new order is more permissive of differing treatments of online and offline channels. So the quite rigid approach taken in the old block exemption and the accompanying guidance for online/offline has gone in this new order, which again is to be welcomed and what we see with the hardcore list under the new UK order is again perhaps unsurprisingly it is broadly consistent with the direction of travel in the context of the EU new block exemption as well.

Excluded restrictions, again this is a concept that I think we will be well familiar with and I have put here what I think is probably the classic excluded restriction under the vertical block exemption regime and that is that the non-compete obligation that exceeds five years, so I think everyone has come across that previously. The new order in the UK does not apply to severable excluded restrictions, so there is a list in order and the order will not benefit, will not apply, or not protect those in terms of the safe harbour concept. So if you have something that is a severable excluded restriction the question then is, OK it does not benefit from the order but can it benefit from individual exemption so we go back to Section 9 and think about the cumulative criteria. A lot of these types of restrictions if they are outside the order may well find themselves capable of individual exemption under Section 9, so it is not something which is outright prohibited.

I think what is quite interesting in the context of the new order though is it makes really clear that if an excluded restriction cannot be severed the entire agreement will lose the benefit of the Block Exemption Order and to my mind that is the first time I have seen that articulated as clearly as that. I think it is something that you may find people then when they are thinking about their drafting, they may want to put in some wording there just to make expressly clear that if they do have excluded restrictions in their agreement that these are being identified and flagged as things that the parties intend to be severable so that these are clearly severable and therefore they are excluded restrictions that can be severed, the agreement should then benefit from the Block Exemption Order absent those restrictions. So that is I think a point that we may see more emerging in the drafting as a matter of practice.

The restrictions list though it does not really move the dial, it is consistent with what we had previously in the UK and again it is broadly consistent with the new block exemption regime within Europe. So again we are seeing this running theme of yes it is a new regime but actually there are a lot of things here that are building upon what we had previously.

So the overall structure then in the context of the new order is it is available where the parties are not competitors or they are permitted competitors, the parties' market shares do not exceed 30%, the agreement does not include any hardcore restrictions or exclude the restrictions that cannot be severed. As I mentioned previously this overall structure, it looks familiar, it feels familiar and it is broadly aligned with the new EU block exemption, so there is a lot of comfort around here in terms of this is an evolution rather than a revolution. We have things that look and feel familiar with some developments and nuances but it is not starting again from scratch in terms of a brand new novel UK regime.

So thinking then about areas of evolution. I think the first point to pick up on and I think this is probably something which we have now as a consequence of where we are post Brexit but it is something that I think we can expect change in as well, so I think this is a point where we have already had some evolution; I think we can expect some further evolution around this particular issue. So the chapter 1 prohibition applies to arrangements that are implement or intended to be implemented in the UK. Obviously that is much more limited in scope that the application of Article 101 under the treaty of the functions in the European Union so the old EU provisions that we have.

What this means though is that as drafted arrangements that are implemented outside of the UK would not be caught by the chapter 1 prohibition and that is quite a big thing and that is something which in the UK we do not currently have a comparable doctrine of qualified effects as exists under EU law. So under EU law you can have things that are implemented outside the EU which have certain effects in the EU and are still caught therefore by EU competition law. We do not have something comparable under the chapter 1 prohibition at the moment. There is a proposal to revise the chapter 1 prohibition and what this revision would do would extend its application to indeed cover certain arrangements that were implement outside the UK if these gave rise to specific types of effect in the UK, so greater territoriality in terms of the reach of the prohibition from the UK to arrangements outside of the UK.

I think there is a really big question here which will become I think more important for businesses that are active in both the UK and the EU because if this revision does take place what does then mean in terms of both the application of the chapter 1 prohibition and also the application of the Block Exemption Order, because that would then bring in certain restrictions that are taking place outside of the UK if they have effects in the UK, that is likely to see them perhaps falling within the remit of the prohibition and therefore we may need to think more about how the Block Exemption Order would apply to those sorts of arrangements. So that is an area where obviously we are looking at the revision, we do not know a timescale for that yet, but if and when that does happen we will, I think, have to see further changes in terms of the Block Exemption Order and how this applies in practice.

I need to frame the next couple of slides, it is probably helpful for me just to outline a couple of the core distribution models that we see considered within the new UK order. The first one and you will be well familiar with this is the basic model of exclusive distribution whereby we have a supplier allocating geographic areas and/or customer groups either to itself or to a distributor and having allocated those areas or groups what the supplier can then do is restrict active sales being made into those areas. The exclusive distribution we are thinking about a degree of territorial protection in the context of the sale of contract goods or services.

The other model just to pick up here is quantity of selective distribution that I will refer to as selective distribution and in this context we are thinking about a different model, a limited number of distributors have been selected, they are not allocated exclusive areas or customer groups but they exist in a network and those selective distributors they cannot make active or passive sales to any unauthorised resellers in the area in which the network operates, so in the context of selective distribution traditionally we have been thinking about more brand protection or value protection rather than territorial protection.

I mentioned in the preceding slide active and passive sales. I think just to confirm what we mean in this context, so when we are thinking about active sales we are thinking about the active targeting of customers and the new order has expanded this ever so slightly just to make clear that active sales would include things like using website language options that do not coincide with the allocated area, if you think about exclusive distribution and also the use of different geographic domain names so if you are using a .Wales domain name to make sales to customer based in Wales then that is actively selling into Wales as compared to say a .co.uk domain name, which is just a more general domain name, not actively targeting a specific customer base.

When we are thinking about passive sales we are thinking about responding to customer requests that are unsolicited and what we have as a general wraparound is that the new order in the UK makes it really clear that suppliers should not prevent distributors or their customers from effectively using the internet to make active or passive sales as they are permitted to do so. So we see, and I will touch upon this, the internet being viewed still by competition authorities as a key space within which customers consumers search for and attain value when they are purchasing products.

So touching first when we are thinking about evolution and what the order brings to us now on the issue of exclusive distribution. What we see is a step change from where we were before is that the new order permits a supplier to exclusively allocate more than one distributor to a geographical area or a customer group so exclusive does not mean one any more, exclusive can mean more than one distributor.

What this then means is where you have the allocation of an area to more than one distributor that distributor in the area must be able to make active and passive sales in the area, so when they have been allocated an area and there is more than one of them they must all be able to make active and passive sales in their allocated area. Just by way of an example we have territory 1 which is Bristol in England and this has been exclusively allocated to three distributors, there they are, one, two, three, and these three distributors must be able to make active and passive sales in Bristol which is their allocated area.

What is also permitted under the new order, as with the old, is that the supplier can prevent an exclusive distributor from making active sales to an area or group that has either been exclusively allocated to one or more distributors or has been reserved to the supplier, even if the supplier itself is not active in that area the supplier can reserve an area, say that is going to be me when I decide to actually move into that area. On that basis you cannot sell actively into that area. What we see under the order is a development of this theme whereby it is possible for the supplier to prevent the exclusive distributor's customers from making active sales into these areas of customer groups and again that has been positioned to seek to strengthen the protection around exclusive distribution as a model, so you do not have a situation where the exclusive distributor cannot make sales actively but its customers can circumvent that by buying and then selling themselves actively into an area.

So that exists as an additional nuance and just to pick that up in the context of territory 2, so here we are thinking about Newport in Wales. This has been exclusively allocated to one distributor. The distributor in Bristol, they cannot make active sales into Newport because that has been allocated exclusively to somebody else so their Welsh language website, that is off the table, they cannot be doing that because that would be actively selling. What they can do though is make passive sales into Newport. So if they invest in general advertising and that happens to reach customers in Bristol and also customers in Newport, that would be passive selling, that would not be an issue in the context of this model.

And we have the same principle applying for the distributor in Newport vis a vis Bristol. So again the distributor in Newport cannot make active sales into Bristol, that has been exclusively allocated, albeit to a number of distributors rather than to one. However if we think about territory 3 this is Bath in England; this has not been exclusively allocated to any distributors and it has not been reserved by the supplier for itself, so on this basis the distributors in Bristol and Newport they can make active sales into Bath so if they wanted they could actually engage in some really quite targeted online search engine advertising to really look for customers within Bath who would be interested; they can also make passive sales into Bath by, as I say, general advertisements that also reach consumers customers within that particular area.

Another development in the context of the new order is there is now greater clarity about where the supplier operates exclusive and selective distribution models in different areas. So what the supplier can do in this context, if a supplier has these different models in operation within the UK it can prevent an exclusive distributor and its customers from making active or passive sales to any unauthorised resellers who are located where the selective distribution network operates. So you have that protection being afforded, it is not possible for an unauthorised reseller who is located in that distribution network to reach out to an exclusive distributor and passively purchase from them goods that can then be resold to undermine the selective distribution network. However it would still be possible for that exclusive distributor to make active and passive sales into the area covered by the network, so you do not have complete protection there. You have protection from sales to unauthorised resellers undermining the network but the selective distribution network can still be the subject of both active and passive selling by an exclusive distributor in the UK.

A really interesting feature of the new order, and I think this is where the new order in the UK I think goes some way to really open up possible new models, possible new approaches to channels, is that it allows the combination of exclusive and selective distribution in the same area of the UK at different levels of the supply chain and this is something that the EU block exemption never permitted previously, it does not permit now, this is a feature of the UK regime. So what this envisages is at the wholesale level you would have an exclusive distribution model whereby you would have perhaps different wholesalers being allocated certain territories and within those they are protected from active selling into those territories and at the retail level you have a selective distribution model in operation. So as I say this is more permissive than what we had previously in the UK and what is now in place in the EU but I do think that despite these options being on the table I think the implications of them would need to be carefully considered. I think it is quite tempting where you have new things being put forward to businesses for people to act on to really dig into those but I think with all of this you are thinking about perhaps replacing or developing existing networks and it is a case of really sitting down and working through, you know, what would this all mean in practice because for a lot of these different areas we have points that perhaps have not been tested so far and they will need careful thought before implementation.

Moving on then to cover some points on selective distribution. In this context as I mentioned previously, it is possible for a supplier to prevent the distributor and its customers from making active or passive sales to unauthorised resellers that are located where the network operates. But as with the quid pro quo of selective distribution to be admitted to the network you have to agree as a distributor you are not going to make any sales to unauthorised third parties who are then going to undermine brand the product, the reputation, effectively your own investments in being a member of the network.

In addition we have the possibility under the new order of preventing selective distributors from making active sales into areas or groups that have been reserved for the supplier or allocated to distributors so again we now have fully embedded in the order the notion of having exclusive distribution and selective distribution in different areas in the UK and you can require your selective distributors to respect your exclusive network. They can still make passive sales into the exclusively allocated territories but they cannot actively sell into those areas. So that is a real key framework within the order, this possibility of having both existing in conjunction and as we are all familiar with and as is confirmed by the order where we have selective distribution those appointed distributors they must be able to make active and passive sales, firstly to end users if the network is operating at a retail level and also to other distributors who have been appointed to the network. They must always be free to make those active and passive sales and the new order in the UK retains that status quo, that is unchanged by what we have.

What we do have though as a slight curiosity in the context of the new order is a situation where neither exclusive nor selective distribution is considered and in this context where a supplier is selling to a distributor who is not part of an exclusive distribution model and are not a selective distributor that supplier can prevent the distributor and its customers from making active sales to reserve the exclusive appointed network so that exists, the possibility again of protecting active selling, passive sales will still be permitted by the distributor. It is possible to put in place restrictions to reserve the exclusive network and also the distributor who is neither exclusive nor selective, they can be prevented from making active or passive sales again to unauthorised resellers that are located where the selective distribution network operates. Again the distributor itself could make active or passive sales into the selective distribution area but they cannot make sales to unauthorised resellers who are then potentially going to harm the brand, harm the value of the products in question. That is an interesting development that we see within the new order and as a result we have the possibility of at least three different models co-existing in the UK and we have touched upon exclusive, selective and neither exclusive nor selective. So the new order is really seeking to set out a range of different options here that businesses may then wish to explore, but as I mentioned previously I think with the benefits of these different models and how they interact with each other they really will require very careful consideration as we plot our new course through this landscape.

Another area of I think evolution and I think in some respects this is perhaps where we have seen more changes than in others, is the treatment of online and offline sales. So what the new order makes really clear is that it is possible for certain restrictions to benefit from exemption of the order and I will just pick out a few of these here. So as a starting point, and again this is what we had under the previous regime, it is possible to require a distributor in any network form to have a physical store in a specific location so that is capable exemption. It is possible for a supplier to charge a distributor different prices depending upon whether the products are to be resold online or offline. Now in the old regime that was a hardcore restriction so that was something that would lose the benefit of the block exemption. In the new order given the development, the evolution, the explosion we have had of ecommerce it is now quite clear to competition authorities that online is a separate channel in its own right and therefore there can be good reasons why a distributor should pay different prices depending upon the channel they are making sales via. So that exists as something that is possible benefiting from exemption under order, equally imposing quality standards on a distributor and that would include exclusive distributors and using different quality standards for online and offline sales. Now that latter part again under the old regime that would have been a hardcore restriction because the intention was that you had effectively equivalence of standards being used between the online and the offline worlds. Once you decouple those channels and you acknowledge that actually online is potentially reaching a very different audience to a brick and mortar store, then having different quality standards starts to make a lot more sense and it starts to be something that actually could be very pro-competitive in terms of driving sales via those online channels, reaching new audiences, potentially you know, investment in a new product etc. So this idea of having different quality standards for online and offline, that is something that would be capable of exemption in certain circumstances.

It is also possible to restrict a distributor's use of digital comparison tools provided their use is not prevented. So it would be possible, for example, to impose certain quality standards perhaps to protect the look and feel of a particular product, the positioning of a brand, you could then use those standards to shape how a distributor would use digital comparison tools such as price comparison sites provided that the use of those sites would not be prevented and it is also possible to impose direct or indirect bans on the use of marketplaces and the big kind of caveat wraparound all of this is all these things are possible and capable of exemption, provided that distributors are not prevented from effectively using the internet to make active or passive sales as they are permitted to do so. I think, for example, if you think about price comparison websites, if it was the case that a supplier was saying to its distributors outright ban, you cannot use price comparison websites, none of our products would ever appear on a price comparison website, that is I think very likely be seen by a competition authority as preventing the effective use of the internet because consumers would tend to use things like price comparison websites to try and find the best available deal and that is the sort of thing which I think could then find the benefit of the block exemption being lost in those circumstances if that was categorised as a hardcore restriction. So I think all these things are possible but we just need to have in mind that there is this catch all about you can do it provided that that does not then prevent the effective use of the internet in those circumstances.

So a couple of what I call hot topics that I just want to cover in the remaining time that we have and the first is in relation to online marketplaces and this is an issue where for a number of years following the judgement of the European Court of Justice in Coty and subsequent guidance from the Commission we have had a number of questions as practitioners, as businesses about what can happen in terms of the use of online marketplaces. When we think about online marketplaces the new order in the UK is quite clear what it thinks an online marketplace is, it thinks of this as being a platform that does something which is connecting resellers with customers and the reason it does that is to enable direct purchasers, so enabling that connection to achieve a direct purchase means an acknowledgement that suppliers may want to restrict distributors activities in relation to online marketplaces and what we see within the new order in the UK is that it is possible to have exemptions for restrictions and that would cover things like quality standards whereby you perhaps limited the use of your distributors availability of these types of marketplaces, you impose quality standards, maybe one or two can still be used or it could go so far as to say there is to be an outright ban on the use of online marketplaces. What we see from the new order and the accompanying guidance is that exemption would be available subject to the conditions being satisfied, supplier could ban a distributor using online marketplaces, they could just say none of our distributors are to use them and that will be capable of benefitting from the exemption. Implicitly we also glean from the guidance that exemption should also be available if the supplier bans some distributors from using online marketplaces but permits others to do so and there is within at least the UK's law a very clear concept that within selective distribution models you do not, for example, have to treat all distributors equally, you can have different standards being applied to different distributors for different reasons. So following that through implicitly it would be capable of exemption if a supplier prevents some distributors using online marketplaces but permits others to do so.

Similarly from the guidance we glean that the supplier may also decide it is going to use online marketplaces itself but it is going to ban its distributors from doing so and from we have so far that again would be capable of benefiting from block exemption under the order where parties' shares are both 30% etc. I think with all of this we need to remember the wraparound and the wraparound is these things will be possible provided the distributors are not then prevented from effectively using the internet to make sales and I think that is where we have the order, we have the draft guidance, we have this space being left for arguments to be made and I think where people are thinking about online marketplace restrictions it is worth just bearing in mind that there is room to manoeuvre there for parties who are perhaps dissatisfied with decisions that are made so if you are implementing something that could be viewed as being discriminatory vis a vis certain distributors, then it may be possible given the current language and the lack of any caselaw issued in practice for certain distributors to mount a challenge to that based upon competition arguments and say well actually this restriction, it does prevent us from effectively using the internet and therefore it should not be omitted under the block exemption. So I think this is an area where although we have now a clearer position to my mind this is not settled and I think we will see further debates going on around the use of online marketplaces and how this can be positioned and structured.

I think another area that is worth touching upon is the issue of information exchange and this is an area which has been a reasonably hot topic as we have seen in recent years, I think more brand owners moving into the retail level themselves. There has more head to head competition between brand owners and their established distribution networks. So what is clear is when you do have this competition at retail level and you do have exchanges of information between competing suppliers and their distributors there is an acknowledgement by competition authorities that actually information does need to be exchanged, yes they are competing at retail level but nevertheless there does need to be an exchange of information between those competitors, not least because the distributor is selling the supplier's products, they need to think about how they maximise sales, that is both in the supplier's interests, the distributor's interests and ultimately you would hope the consumer's interests. So there does need to be an exchange of information between the parties. What we have in the guidance that accompanies the new order is we have a categorisation of different types of information which should generally benefit from exemption under the order. So I have just picked up a few of them here. So where we have exchanges of information that relate to marketing for example, so information on perhaps new contract products or new promotional campaigns for those products, that should be permitted in the circumstances. In the context of customer related information we are thinking here, and I think this is important, so aggregated information about customer purchasers, information generally around customer preferences and feedback, again you can see why that is valuable information in the context of improving the distribution of products and therefore it is appropriate for that to be shared between supplier and their competing distributor and certain performance related information and again we are thinking here given the sensitivity, aggregated information and that could cover things like the marketing and sales activities of other distributors, so at an aggregated level where you are perhaps using this for benchmarking purposes, that would be something that would generally benefit from exemption under the new order in the UK.

When we are thinking about things that would be unlikely to benefit although a fact specific assessment is required the general categories would include things like retail pricing information, and I think you could argue positions and carve outs there about intended promotions that are going to be consumer facing, low price, limited time period but otherwise more general sharing of future pricing information, you could see why that would be a cause for concern and also we are thinking about customer specific information, where this is disaggregated so we get into the granular information about the parties' sales to individual customers, again given that competitive dynamic between supplier and distributor at the retail level it is clear why that could give rise to concerns and therefore be unlikely to benefit from exemption under the order.

If it is the case that aspects of the exchange would not benefit from exemption, and there is a question there about whether or not individual exemption may be available, but I think more practically and this is where I think a lot of businesses would instinctively go to is, OK firstly do we need the information in its current format, can we revise, can we restructure, so we pull this back from where it is and we get ourselves comfortable that what we are operating with day to day is actually something that by aggregating, for example, we can get ourselves within that safer space of exemption under the order. So my suspicion is that is where, if companies are not already, that is where we will perhaps see a revision of some of that information exchange and a restructuring of some of those formats.

But to summarise I think then what we see under the order and the guidance is, as I mentioned before, we have a basis here for the first time stating really clearly of the co-existence of these updated core models in the UK. We have a more permissive approach to differing treatments of online and offline sales which I think could give rise to lots of opportunities for businesses. We have greater clarity regarding the permissible restrictions upon distributors' use of online marketplaces. As I said I do not think the debate is settled but we do have a direction of travel and greater clarity in that regard. So greater certainty about permissible exchange of information where we have competing suppliers and distributors at the retail level. I think it is worth flagging there that all these restrictions should be considered on a case by case basis even more so when we are thinking about direct and indirect restrictions in the online world and the other point again we need to keep an eye on now but also have an eye on in the future is what is the approach going to be where you have a business which acquires arrangements implemented both within the UK and also in the EU so will you lean towards having one agreement that is compatible with both, taking the most restricted as a baseline or will you have separate agreements for each ad that is going to be commercial isn't it and based upon where the most value is going to be and if there is more value having a bespoke UK style agreement because of the importance of that particular space then obviously other businesses will go, I think it is worth thinking about now so that if you need to have aspects that are tailored but that has been done in advance rather than kind of 11^th hour in the context of a project. A couple of points then before we pick up some of the questions that we have had through I think one point to note in the context of the new regime is a new power for the CMA so the CMA is empowered by the new UK order to request information from parties and persons are required to supply information that the CMA requests in relation to agreements and they must do so within ten working days of receiving written notice or, and I think in practice this is what we will see, a longer period as may be agreed with the CMA. If a party fails to comply without reasonable excuse then the CMA is able to cancel the benefit of the block exemption order in relation to any agreements which the request relates so there is that I suppose the stick approach of we would like you to provide this and if you do not provide it we could ultimately cancel the benefit of the block exemption order. In reality that may not affect businesses particularly if you are maybe quite comfortable that actually if the order was cancelled we are OK thanks very much because we can still fall back on the possibility of individual exemption under section 9 but I think reputationally there will be an issue there to make sure that parties are seen to be cooperative with the authority and there is a question here about is this something which the CMA starts to use on a regular basis or is this something which is yes it exists in theory but actually in practice the CMA doesn't invoke this power, and then to wrap up in terms of the session itself as we have the sun setting on the old regime and you know rising the next morning on the new, we have the transitional provision which is captured within the order and what this does is effectively gives comfort to the businesses that if you have an arrangement that was entered into before 1 June which is obviously when the new order came into force and it did not benefit from exemption at that time immediately prior to the order entering into force the agreement did benefit the exemption under the old regime that was in place then what you have is a period of one year within which that arrangement will be treated as benefitting from the new order so in effect you have a year to align yourself in the new regime and to make sure that you are comfortable and confident that you are compliant with the relevant provisions in those circumstances so mindful of time, that does leave us a few minutes for questions.

Let me just pull one up OK so a question here about re-sale process maintenance in terms of the new regime, is it more permissive in relation to resale price maintenance so as I say, I wasn't talking about issues around resale price maintenance but having picked this up, and just to give some colour to that so resale price maintenance, I think there was perhaps an expectation that with a new UK regime, there may be some more flexibility around the use of resale price maintenance in certain circumstances, where we have landed is resale price maintenance is still very much positioned as a hard-core restriction where there is an acknowledgement that resale price maintenance in certain circumstances can give ruse to certain efficiencies but I am afraid that we what we had is the efficiencies and in effect being reprised from the earlier guidance around verticals so we are thinking there about things like a low cost short term promotional offer where a s fixed price is set or the launch of a new product where a fixed price is set to enable investment return investment to support the launch of a product but we have not seen any further development of thinking around possible locations so that kind of sits almost as it did under the old regime. We have a question here about market shares so what happens if you enter into the agreement and market shares at the time of the low 30% but then go both 30% afterwards. That is a really good question I should have made clear that in terms of 30% that is not something whereby you enter the agreement at 30% and therefore you will always benefit from block exemption. This is something as we will know within markets whose shares can indeed fluctuate if parties find that their share does go above 30%, there are certain grace periods available so if their share goes above 35% for example, they would then have a grace period of 12 months within which the block exemption order would continue to apply and once that expires if they are still in a position whereby they are outside the market share threshold it would then be a case of thinking about the possibility of individual exemption under section 9 of the Competition Act and again going through those accumulative criteria with the assistance of things like the guidance that companies in the new order to self-assess in that context to ensure that you are where you think you are in terms of compliance but I think it is a really good point in terms of particularly some of these markets where we see big changes around participants that can obviously lead to shifts in shares, the view to businesses just to keep self-assessing and make sure that basically their agreements are benefiting from the exemption so far as it is available.

I am mindful of time but I think we may have time for perhaps one more question. There is a question here about OK so this goes to the point about passing on obligations to customers and as I say this is a new parameter that we are seeing under the UK order. It is quite thin in terms of how this would work in practice so I think the notion of pass on is that either the distributors customers arrangement or agreement with the supplier or the distributor will enter into an agreement with its own customers to ensure that these obligations around the sales restrictions for example are then honoured by the customers in question. I think in practice that may work really, really well in certain sectors and it maybe something that well-respected, self-policing, signing up to it, I think in other sectors it could be really challenging to get customers to agree to that. It could hold up transactions. It could prompt more questions, more issues, so I think what that translates into in terms of our real world commerce, I think is goes to vary sector by sector. I think going to the theme of giving different options to businesses. It exists as an option so it something businesses can now seek to do which they did not have the option to do previously. I think in that respect it is a welcome development. The question then is how do you go about implementing that and I think that is as part of all of our brave new world with new order?

I am mindful of time. I will close the session now. If I have not had a chance to respond to questions, I will pick those up after the sessions. In the meantime, thank you very much for joining. Hope that's of interest and look forward to speaking with you and meeting with you in person at future Thinkhouse events.

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