Context matters - UK Court of Appeal overturns CAT ruling on selective distribution and “by object” restrictions

The UK's Court of Appeal has overturned a Competition Appeal Tribunal ruling that had previously found that a supplier's selective distribution system included a restriction of competition "by object" in the form of resale price maintenance and restrictions on internet selling. The Court of Appeal's judgment emphasises the need to assess the legality of selective distribution systems in their wider economic context, including where the restriction concerns online or discount retail channels.

At a Glance

• On 8 May 2026, the Court of Appeal overturned a Competition Appeal Tribunal ("CAT") decision concerning Deckers' selective distribution system for HOKA-branded running shoes. The CAT had previously found that prohibiting an authorised retailer from setting up a new, unbranded, discount website constituted resale price maintenance ("RPM") and a restriction on internet selling and was a restriction of competition "by object".
• The Court of Appeal took the opportunity, after a review of both EU and UK case law on the assessment of "by object" restrictions, to clarify the UK legal test for the assessment of selective distribution systems.
• The judgment emphasises the importance of economic context when assessing selective distribution systems and "by object" infringements.
• Brand owners, retailers and other operators of selective distribution systems in the UK should consider the practical consequences of the judgment. Brand owners may find that the Court of Appeal's reasoning opens the door to a little more flexibility in their current distribution systems to protect brand value including in the online context, whilst remaining within the limits of UK competition law.

The Dispute

The case centres on a dispute between Deckers, a manufacturer of HOKA-branded running shoes and Up & Running, a retail partner within its selective distribution system. When Up & Running, already an approved retailer, sought permission to launch a new, unbranded, website (runningshoes.co.uk) to sell pandemic-era surplus stock at a discount, Deckers withheld its approval. Notwithstanding Deckers's refusal, Up & Running went ahead and launched the website, listing discounted HOKA products among its offerings. Deckers terminated its contract with Up & Running with 12 months' notice, citing Up & Running's failure to comply with its terms and conditions.¹ Up & Running disputed the legitimacy of that decision and pursued a damages claim, contending that Deckers's distribution terms constituted a "by object" restriction of competition on two bases:

• the terms and conditions limited Up & Running's freedom to market and sell HOKA products through online channels; and
• in practical terms, Deckers's refusal to allow the sales on the website amounted to RPM, deployed to maintain higher prices for HOKA products.

Despite the fact that the agreement did not include an explicit or total ban or online sales and the supplier did not impose a minimum or fixed resale price, the CAT found for Up & Running on both issues. The CAT held that the terms and conditions (as applied) amounted to a "by object" restriction of competition because they:

• sought to prevent retailers in Deckers' selective distribution system from making passive sales to consumers and pursued no plausible material objective other than the restriction of intra-brand competition; and
• were an attempt to indirectly fix selling prices and constituted resale price maintenance which is a "by object" infringement. 

The CAT also concluded that the selective distribution system did not meet the well established Metro criteria (see below), because they lacked transparency, and that the EU Vertical Agreements Block Exemption Regulation ("VBER") offered no safe harbour either, given that the arrangements involved "hardcore" restrictions (RPM and a restriction on passive sales).

Deckers appealed. The Competition and Markets Authority ("CMA") was admitted as an intervener, aligning itself with Deckers and urging the Court of Appeal to bring greater clarity to the law governing restrictions "by object". In its submissions, the CMA stressed the importance of considering the relevant economic context when analysing selective distribution systems. 

What is a Selective Distribution System?

A selective distribution system is a model under which a supplier restricts sales of its products to a curated network of authorised retailers who meet defined criteria (e.g. minimum service standards or after-sales support requirements) and who, in turn, agree to sell only to end consumers or other approved distributors within the network. The commercial logic behind such arrangements is to enable suppliers to protect brand integrity and ensure a consistent consumer experience, whilst guarding against free-riding by retailers unwilling to make the necessary investment in quality.

Where a selective distribution system satisfies the criteria² laid down in Metro v Commission (Case 26/76), it falls entirely outside the reach of the prohibition on anti-competitive agreements under Chapter I of the Competition Act 1998 and Article 101 of the Treaty on the Functioning of the European Union. Selective distribution systems also benefit from a safe harbour under the VBER (or its UK counterpart, the Vertical Agreements Block Exemption Order ("VABEO")) provided that the parties' market shares do not exceed 30% on the downstream or upstream market and that the agreement does not include any "hardcore" restrictions. Where those criteria are not met, the selective distribution system remains subject to competition law scrutiny and must avoid restricting competition by either object or effect.

The Court of Appeal Judgment

The Court of Appeal allowed Deckers's appeal, finding that its selective distribution arrangements did not constitute a "by object" restriction of competition.

Principles from the Case Law

The Court of Appeal conducted a detailed review of both the EU and UK case law relevant to the assessment of "by object" restrictions. This reflected the operation of section 60A of the Competition Act 1998, under which pre-Brexit judgments of the Court of Justice remain presumptively binding on UK courts, whilst post-Brexit EU decisions may be considered as persuasive authority.

The key principles identified by the Court include the following:

• The test of whether an agreement can in fact be classified as a restriction "by object" depends on whether it presents "a sufficient degree of harm" to competition. In an object case, there is no need to investigate or establish actual effects.
• The test of whether an agreement reveals a sufficient degree of harm must be applied "strictly and restrictively". "Unsubstantiated allegations or assertions will not suffice". The judgment comments that "[c]ompetition law should not interfere unless there is a need to interfere". It notes that "[t]here is a public interest detriment in false positives which may be especially acute in object cases", and that this is because "if there is no clear cut restriction by object there is always the effects based prohibition to fall back upon, which can ride to the rescue of a market if needs be". The judgment warns that where competition law is applied too restrictively, "it can hinder effective competition by undermining legal certainty and taking away from suppliers the contractual levers and mechanisms they need and rely upon to compete".
• A four-part test applies to the examination of both horizontal and vertical agreements. It is necessary to examine the impugned measure's (i) content (ii) objectives, (iii) legal context, and (iv) economic context. The four components of the test are cumulative.

The CAT Applied the Wrong Legal Test

The Court of Appeal concluded that the CAT had erred in its application of the test of what constitutes an infringement "by object". In particular, it pointed out the following:

• A restrictive objective is not determinative. The mere existence of a restrictive objective does not make an agreement an object restriction if, but for that purpose, the agreement does not exert a sufficient degree of harm to competition.
• Falling outside the Metro safe harbour does not mean restriction "by object". A selective distribution agreement, that fails to meet the Metro criteria, does not amount to (or be very likely to amount to) a restriction of competition by object. The full four-part test, assessing the content, objective, legal context, and economic context of the agreement, must be applied in every case.
• "Hardcore" restrictions in the block exemptions and "by object" restrictions are not synonymous. The categorisation of a clause as a "hardcore" restriction in a block exemption does not mean that it should be treated or presumed to be a restriction "by object". A court must still assess whether the agreement presents a sufficient degree of harm to competition, and cannot treat exclusion from the block exemption as a proxy for an object infringement.
• A discretion capable of being used for an anti-competitive purpose is not automatically unlawful "by object". A contractual provision that confers a supplier with an unfettered power that could potentially be used for an unlawful, restrictive, purpose does not automatically restrict competition "by object".³

Having determined that the CAT had applied the wrong legal test, the Court of Appeal declined to remit the matter and concluded instead, on the facts as found, that Deckers's termination of supply did not have the object of restricting competition. In reaching that conclusion, it applied the four-part test as follows:

• Content. The restriction was narrow in scope. It targeted a single tranche of clearance stock, and did not curb discounting practices across physical stores and branded websites more generally.
• Objective/purpose. Deckers's conduct was to protect the integrity of its selective distribution system by controlling the use of anonymised websites. It was no part of Deckers's objective to restrict discounting through physical stores or branded websites.
• Legal context. In relation to decisional practice and case law, the Court noted that: (i) restrictions inherent in a selective distribution system will inevitably mute some price competition without thereby infringing competition law; (ii) restrictions on the use of the internet are not in and of themselves, to be seen as object restrictions; (iii) "hardcore" restrictions under a block exemption are not co-extensive with "by object" restrictions; and (iv) "it is not the function of competition law to save parties from bad bargains, or deals they come to regret".
• Economic context. The agreement was vertical, limiting intra-brand competition only. The CAT had found that the parties' market shares were unlikely to be significant.⁴ The relevant question, which was whether the restriction sufficiently harmed competition in the relevant product market, was to be answered in the negative in the light of the limited scope of the restriction and the modest market shares.⁵

Application of VBER

Even though the Court of Appeal concluded that no by object restriction had been established, the Court went on to examine whether the restriction at issue could be exempted under the VBER. The Court disagreed with the CAT's conclusion that the VBER⁶ did not apply to the restriction in issue. The Court stated that an examination of the scope of the restriction was required followed by an examination of whether "in a real and practical ("usual") sense" retailers could discount freely and customers could access the goods passively or actively. The Court considered that the findings of fact made by the CAT provided the answer on the following grounds:

• Retailers can sell at whatever price they chose through physical stores and branded websites - therefore, there was no hardcore RPM restriction under Article 4(a) VBER.
• Consumers can buy actively and passively from dealers' branded websites and brick and mortar stores – therefore, there was no excluded restriction on passive sales under Article 4(c) VBER.

Key Takeaways

The judgment provides an important framework for brand owners, retailers, and operators of selective distribution systems seeking to manage their distribution arrangements and protect brand integrity without falling foul of competition law. The Court of Appeal has confirmed that a restrictive purpose is not sufficient on its own, and that a contextual assessment is required before a restriction can be characterised as a by object infringement. 

The CMA's intervention in support of Deckers appears to reflect its considered position that the economic context is central to the assessment of the potential for negative effects upon intra-brand competition, whilst also emphasising the importance of market power and inter-brand competition in vertical restraints cases: "[a] loss of intra-brand competition is only problematic where inter-brand competition is limited". 

The judgment will make relevant reading for the European Commission and EU national competition authorities. In some senses, the Court of Appeal simply restates classic principles of EU competition law reflecting the basis economic premise that vertical distribution agreements generally promote competition and choice and, absent obvious market power, will necessarily involve some forms of restriction to preserve the quality of the product and sales experience at all levels of the supply chain. However, the precise role of inter-brand competition in cases involving so-called "hardcore" intra-brand restrictions is a question that is currently before the Court of Justice of the European Union, following a preliminary ruling request from the Dutch Trade and Industry Appeals Tribunal ("CBb").⁷ [1] The CBb has asked the Court of Justice to clarify whether competition authorities are required to consider the economic context — including the effects of inter-brand competition — before classifying a vertical agreement, such as resale price maintenance, as a restriction of competition by object.

^{1 Under Deckers's terms and conditions, retailers were required to obtain Deckers's approval before making HOKA products available for purchase online. Deckers permitted authorised retailers to sell freely through their own websites, so long as the domain name was identical or similar to the one under which they operated their physical retail outlets. Where a retailer wished to sell through a website operating under a different or unrelated name, prior approval from Deckers was required before doing so.
2 Under the Metro criteria, a selective distribution system falls entirely outside competition law if: (i) resellers are selected on the basis of objective, qualitative criteria; (ii) those criteria are laid down uniformly and applied in a non-discriminatory manner; (iii) the nature of the product makes selective distribution necessary; and (iv) the criteria do not go beyond what is necessary for that purpose.
3 The Court of Appeal dismissed the CAT's interpretation of the European Court's judgment in Superleague (Case C-333/21) stating that the reasoning in Superleague "does not support the proposition that, in the abstract and divorced from economic context, unfettered contractual discretion in a selective distribution system must be viewed necessarily as a restriction by object simply because, in theory, it could be used for an improper purpose".
4 According to the Court of Appeal, there was evidence that Deckers was equal 6th (on the basis of the numbers of models of shoes offered for sale) and that there were about ten suppliers that shared approximately 70% of the market.
5 See, however, the European Commission's recent Decision in Case AT.40840 – Gucci, which finds a restriction by object in a vertical distribution agreement, without regard to market shares generally, and in relation to one product that would have accounted for only a very small percentage of the relevant market.
6 Although the VABEO now governs the availability of block exemption protection for vertical agreements in the UK, the Court of Appeal's analysis focused on the VBER (Commission Regulation (EU) No 330/2010) — the instrument in force at the time of the relevant conduct. The substantive provisions of the two instruments are closely aligned, and the Court's analysis of the block exemption issues is equally applicable to agreements assessed under the VABEO.
7 Case C-50/26, Samsung Electronics Benelux. The CBb has asked the CJEU to answer the following two preliminary questions:}

<sup>1. Must Article 101(1) TFEU be interpreted as meaning that, in order to establish the existence of a (vertical) restriction of scope, the examination of the economic and legal context must take into account not only whether an agreement or concerted practice between a supplier and retailers of the same brand is in itself sufficiently harmful to competition between those retailers (intra-brand competition), but also, in principle, whether that agreement or concerted practice is in itself sufficiently harmful to competition between different brands on the relevant market or markets (inter-brand competition)? 
2. If the answer to Question 1 is in the affirmative: (a) must it then be examined in all cases whether the agreement or concerted practice is in itself sufficiently harmful to inter-brand competition, or is this not necessary in specific types or categories of cases, for example hardcore restrictions, and (b) can this part of the examination of the economic and legal context then be limited to, for example, the market share of the brand and its development during the implementation of the agreement or concerted practice, or must it also extend to other competition parameters, depending on the circumstances of the case?"</sup> 

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