Competition | Regulatory Outlook July 2022

Subsidy Control Act – statutory guidance

As we have previously reported, the Subsidy Control Act is due to enter into force in autumn 2022. The government has issued a consultation on the statutory guidance which is to accompany this Act. The aim of this guidance is to help public authorities develop appropriate subsidies and subsidy schemes and to support subsidy recipients in understanding the requirements.

The consultation runs until 10 August 2022 and asks broad questions on the structure of the guidance as well as whether explanatory products or teaching sessions would be helpful and should be provided by the Subsidy Advice Unit (SAU).

The guidance is primarily aimed at helping public authorities navigate the new regime but may also be of use to the recipients of subsidies. The guidance places an emphasis on making sure that the business case for a subsidy (public sector grant, investment, loan) and the accompanying legal advice on the subsidy control position are closely aligned. In this new world of a "principles-based" approach to subsidy regulation, early engagement between commercial and legal teams working on the bid/application/project will be more important than under the previous EU State aid regime in which a more technical and detached approach to legal compliance could be followed.

For more details on the Subsidy Control Act and draft guidance please read Marc Shrimpling's blog post.

Any businesses that are likely to directly or indirectly receive public funding in the future should consider responding to this consultation.

CMA focus on retail price maintenance

On the 1 July 2022 the Competition and Markets Authority (CMA) published a blog on retail price maintenance (RPM). The blog post considers the risks associated with this practice. RPM is where a supplier requires a retailer not to sell below a certain price. It is considered to be a hardcore breach of UK and EU competition law and as such carries with it the potential for fines of up to 10% of worldwide turnover for businesses involved in RPM practices (which covers both direct and indirect RPM).

This follows on from the CMA fining Dar Lighting £1.5 million for limiting the discounts that its retailers were permitted to offer to online customers. This is just the latest in a long line of RPM fines issued by the CMA in recent years across range of sectors including musical instruments, domestic lighting and bathroom fittings. The CMA's RPM blog notes that it now uses a "digital data monitoring tool" to assist in tracking and detecting possible instances of RPM online.

The Dar Lighting case is particularly noteworthy as the company's fine was increased by 35% for ignoring two separate warning letters from the CMA. In its report on this case, the CMA notes that it will not always issue a warning or advisory letter before commencing an investigation.

This case and the CMA's blog serves as reminder for businesses in any sector of the consequences of engaging in RPM at any level of the supply chain.  They also demonstrate that the CMA continues to focus on this area, especially in light of the continued growth of e-commerce.

Competition investigations into Amazon

The CMA has launched an investigation into Amazon for a potential abuse of a dominant position in relation to its practices on Amazon Marketplace.

The CMA will examine whether Amazon has a dominant position in the UK and whether it is abusing that position and distorting competition by giving an unfair advantage to its own retail business or sellers that use its services, compared to third-party sellers on the Amazon UK Marketplace.

The investigation focuses on three main areas:

• The collection and use of third party seller data by Amazon.
• How Amazon sets criteria for suppliers to be the preferred/first choice in the "Buy Box".
• How Amazon sets the eligibility criteria for selling under the Prime label.

This investigation follows on from two European Commission investigations covering the same topics but which, post-Brexit, do not extend to the UK. The CMA intends to liaise with the European Commission in connection with its own investigation into Amazon's conduct in the UK. At the time of publication, the Commission is seeking feedback on the commitments offered by Amazon to address these issues. Interested parties are invited to submit their views on the proposed commitments before 9 September 2022.

The Commission's and CMA's investigations both concern areas likely to be affected by the EU's Digital Markets Act and, in the UK, the proposed Digital Markets Unit, which will be part of the CMA (but which currently only exists in interim form). Both of these are intended to control the influence of dominant businesses in the online retail & tech sectors, and it is expected that that Amazon will be assessed as one of these dominant players.

Businesses who use Amazon to sell or distribute their products should watch for the outcomes of these cases as they potentially could have significant repercussions across the e-commerce and logistics sectors.

Vertical agreements

On 12 July 2022, the CMA published the final version of its guidance  accompanying the Vertical Agreements Block Exemption Order (VABEO). This follows on from a CMA consultation on this guidance, discussed in our previous Regulatory Outlook.

The VABEO replaces the retained EU Vertical Agreements Block Exemption Regulation (retained VABER), which expired on 31 May 2022. The regulations guide businesses as to how vertical arrangements (such as supply, distribution and franchising agreements) between manufacturers, distributors and retailers can be structured in order to avoid breaching competition law.

The guidance contains useful and detailed information on how the VABEO functions in addition to detailed analysis of a number of specific types of vertical agreements, including exclusive distribution, selective distribution, category management and parity obligations, among others. It also assesses the impact of online marketplaces in the context of vertical agreements.

The VABEO applies from 1 June 2022 and, unless extended, will cease to have effect on 1 June 2028. It is important for businesses to be aware of these issues and seek appropriate legal guidance when structuring agreements between entities active at different levels of the supply chain.

Digital Markets Act

As reported in previous Regulatory Outlooks (including in May 2022), the Digital Markets Act is progressing in the EU. The act was adopted by the Council of the European Union on 18 July 2022 after a first reading in the European Parliament earlier in the month.

As reported previously, the act will impose a set of "do's and don’ts" on designated large providers of "core platform services" (called "gatekeepers"). The act aims, among other things, to prevent gatekeepers from ranking their own products or services higher than those offered by third parties; ensuring that gatekeepers provide business users with access to data that the business users generate in their use of the gatekeeper's platforms; and preventing gatekeepers from imposing unfair or discriminatory conditions on business users.

The rules set out in the act will become applicable six months after the act enters into force, which is currently expected to be October or November 2022.