HP-2020-000016 - [2025] EWHC 1451 (Ch)

Cabo’s final argument on the scope of the VBER was that the agreements in the present case constituted indefinite non-compete obligations within the meaning of Article 5(1)(a), such that they were excluded from the exemption under the block exemption. The submission was that a “non-compete obligation” as defined in Article 1(d) encompasses any agreement not to sell competing products, including those limited to the competing products of a particular supplier.

MGA disputed that interpretation. Its submission was that the definition of a “non-compete obligation” in the first half of Article 1(d) refers to a single-branding obligation, i.e. an obligation not to sell competing brands in general, rather than an obligation not to sell particular competing brands.

MGA’s interpretation of Article 1(d) is, in my judgment, correct. The definition in Article 1(d) refers to a direct or indirect non-compete obligation alongside an obligation to purchase more than 80% of the buyer’s total purchases of the contract goods or services and their substitutes from the supplier (or undertaking designated by the supplier). That alignment indicates that the harm being addressed is a situation where, whether framed as a non-compete obligation or a minimum purchase obligation, competing goods or services can only make up less than 20% of the buyer’s total requirements. That is the interpretation set out in the Commission’s 2010 Guidelines on Vertical Restraints (the Vertical Restraints Guidelines)[2010] OJ C 130/1, which state at §66:

“Non-compete obligations are arrangements that result in the buyer purchasing from the supplier or from another undertaking designated by the supplier more than 80% of the buyer’s total purchases of the contract goods and services and their substitutes during the preceding calendar year … thereby preventing the buyer from purchasing competing goods or services or limiting such purchase to less than 20% of total purchases.”

The Article 5(1)(a) exclusion of non-compete obligations, as defined by Article 1(d), must also be read in the context of the further exclusion in Article 5(1)(c) which relates to obligations not to sell particular competing brands when imposed on the members of a selective distribution system. If Article 5(1)(a) were to be interpreted as encompassing any type of non-compete obligation, including an obligation not to sell a particular competing brand, Article 5(1)(c) would be redundant. The wording of Article 5(1)(c) therefore strongly indicates that Article 5(1)(a) is not intended to extend to obligations not to sell specific competing brands. Rather, it is apparent that a distinction is being drawn between an obligation not to sell competing brands in general (Article 5(1)(a)) and an obligation not to sell particular competing brands, which is excluded when that obligation arises in the context of a selective distribution system (Article 5(1)(c)).

The Commission’s explanation of Article 5(1)(c), at §69 of the Vertical Restraints Guidelines, reinforces that distinction:

“The Block Exemption Regulation covers the combination of selective distribution with a non-compete obligation, obliging the dealers not to resell competing brands in general. However, if the supplier prevents its appointed dealers, either directly or indirectly, from buying products for resale from specific competing suppliers, such an obligation cannot enjoy the benefit of the Block Exemption Regulation. The objective of the exclusion of such an obligation is to avoid a situation whereby a number of suppliers using the same selective distribution outlets prevent one specific competitor or certain specific competitors from using those outlets to distribute their products (foreclosure of a competing supplier which would be a form of collective boycott).”

The only academic commentary addressing the scope of Article 5 of the VBER, to which I have been referred by the parties, is Wijckmans and Tutschaever, Vertical Agreeemnts in EU Competition Law (3^rd ed, 2018). That likewise describes the obligation defined in the first half of Article 1(d) as a single branding obligation, and explains the relationship between that and the “80 percent rule” in the second half of Article 1(d) as follows (§§7.25 and 7.32, emphasis in original):

“The first type of non-compete obligation under Article 1(1)(d) of Regulation 330/2010 is a particular category of single branding. It covers those obligations which cause the buyer not to manufacture, purchase, sell or resell goods or services which compete with the contract products. …

… single branding is when the buyer is restricted to manufacture or trade any competing products. If the buyer is required not to manufacture or trade certain competing products only, it will depend on what percentage of the total sales of the buyer that the sale of those competing products represents in order to determine whether there is a non-compete obligation in the sense of the 90 per cent rule or instead whether the clause escapes the scope of Article 1(1)(d) of Regulation 330/2010.”

The agreements in the present case were not single branding agreements, requiring the toy retailers not to stock competing brands in general; nor did they require the retailers to take more than 80% of their stock of LOL Surprise and substitutable products from MGA. Rather, they only prohibited the retailers from stocking Worldeez (or at least the Worldeez globe). As such they could only have been excluded from the VBER under Article 5 if the retailers were members of a selective distribution system used by MGA, so as to engage Article 5(1)(c). That was not the case here.

The Article 5(1)(a) exclusion is not, therefore, applicable to the agreements between MGA and the toy retailers. It is not necessary, in the circumstances, to address MGA’s further point that the duration of the agreements was not explored in the evidence at the trial, and cannot be treated as having been indefinite (as contended by Cabo) on the basis of mere assertion.