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

In light of my conclusion on abuse of dominance, it is not strictly necessary to consider the separate allegation of unlawful agreements. I will, however, address this issue since it was fully argued at the trial, and in case my conclusion above on abuse of dominance is wrong.

As with the abuse of dominance claim, Cabo’s claim that MGA’s conduct amounted to unlawful agreements is brought under both the Chapter I prohibition and Article 101 TFEU; and again no material difference is identified in the scope of these provisions.

The Chapter I prohibition is set out in s. 2 of the 1998 Act. Section 2(1) provides that agreements between undertakings, decisions by associations of undertakings or concerted practices which may affect trade within the UK, and which have as their object or effect the prevention, restriction or distortion of competition within the UK, are prohibited unless they are exempt under the relevant provisions of the Act.

Section 2(2) specifies that ss. (1) applies in particular to agreements, decisions or practices which (among other things) “(b) limit or control production, markets, technical development or investment” and “(e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts”.

Section 9 provides for the exemption of certain agreements from the Chapter I prohibition, as follows:

“(1)

An agreement is exempt from the Chapter I prohibition if it –

(a)

contributes to –

(i)

improving production or distribution, or

(ii)

promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit; and

(b)

does not –

(i)

impose on the undertakings concerned restrictions which are not indispensable to the attainment of those objectives; or

(ii)

afford the undertakings concerned the possibility of eliminating competition in respect of a substantial part of the products in question.”

Article 101(1) TFEU sets out essentially the same prohibition as in s. 2 of the 1998 Act, save that (as with Article 102 TFEU) the requirement is for the conduct to affect trade between Member States. Article 101(3) TFEU corresponds to the exemption in s. 9 of the 1998 Act.

In the version of the 1998 Act in force at the relevant time, s. 10 provided for a “parallel exemption” from the Chapter I prohibition if the relevant agreement was exempted from Article 101(1) by virtue of an EU Regulation. Those Regulations included the VBER. The main relevant provisions of that Regulation (in the version in force at the relevant time were the following:

“Article 1 Definitions

1.

For the purposes of this Regulation, the following definitions shall apply:

(a)

‘vertical agreement’ means an agreement or concerted practice entered into between two or more undertakings each of which operates, for the purposes of the agreement or the concerted practice, at a different level of the production or distribution chain, and relating to the conditions under which the parties may purchase, sell or resell certain goods or services;

(b)

‘vertical restraint’ means a restriction of competition in a vertical agreement falling within the scope of Article 101(1) of the Treaty;

…

(d)

‘non-compete obligation’ means any direct or indirect obligation causing the buyer not to manufacture, purchase, sell or resell goods or services which compete with the contract goods or services, or any direct or indirect obligation on the buyer to purchase from the supplier or from another undertaking designated by the supplier more than 80% of the buyer’s total purchases of the contract goods or services and their substitutes on the relevant market, calculated on the basis of the value or, where such is standard industry practice, the volume of its purchases in the preceding calendar year;

…

Article 2 Exemption

1.

Pursuant to Article 101(3) of the Treaty and subject to the provisions of this Regulation, it is hereby declared that Article 101(1) of the Treaty shall not apply to vertical agreements.

This exemption shall apply to the extent that such agreements contain vertical restraints.

…

Article 3 Market share threshold

1.

The exemption provided for in Article 2 shall apply on condition that the market share held by the supplier does not exceed 30% of the relevant market on which it sells the contract goods or services and the market share held by the buyer does not exceed 30% of the relevant market on which it purchases the contract goods or services.

…

Article 5 Excluded restrictions

1.

The exemption provided for in Article 2 shall not apply to the following obligations contained in vertical agreements:

(a)

any direct or indirect non-compete obligation, the duration of which is indefinite or exceeds five years;

…

(c)

any direct or indirect obligation causing the members of a selective distribution system not to sell the brands of particular competing suppliers.

For the purposes of point (a) of the first subparagraph, a non-compete obligation which is tacitly renewable beyond a period of five years shall be deemed to have been concluded for an indefinite duration.

…

Article 7 Application of the market share threshold

For the purposes of applying the market share thresholds provided for in Article 3 the following rules shall apply:

(a)

the market share of the supplier shall be calculated on the basis of market sales value data and the market share of the buyer shall be calculated on the basis of market purchase value data. If market sales value or market purchase value data are not available, estimates based on other reliable market information, including market sales and purchase volumes, may be used to establish the market share of the undertaking concerned;

(b)

the market shares shall be calculated on the basis of data relating to the preceding calendar year;

…

(e)

if a market share is initially not more than 30% but subsequently rises above 35%, the exemption provided for in Article 2 shall continue to apply for one calendar year following the year in which the level of 35% was first exceeded; …”

As with the abuse of dominance claim, the basic legal framework is not in issue in the present case. The issues in dispute are (i) whether Cabo has established that anticompetitive agreements were indeed concluded with any of the toy traders; (ii) whether any such agreements had as their object or effect a restriction of competition; (iii) if so, whether they were exempted by virtue of the VBER, and (iv) if not exempted under the VBER, whether they were exempt pursuant to s. 9 of the 1998 Act and Article 101(3) TFEU.

The focus of the debate on both sides was the VBER issue. The other issues were addressed only briefly in the parties’ closing submissions.