Deckers UK Limited v Up & Running (UK) Limited

A restriction by object under section 2 of the Competition Act 1998 must reveal a sufficient degree of harm to competition. The inquiry is strict and requires consideration of the measure’s content, objective, legal context and economic context. A restrictive purpose is relevant but is not, by itself, conclusive.

The same approach applies to vertical restraints and resale price maintenance. A restriction classified as hardcore under a block exemption is not automatically a restriction by object. In a selective distribution system, limited controls protecting network integrity may be legitimate. The narrow, vertical restriction in this case lacked sufficient capacity to harm competition and was therefore lawful by object. It was also exempt under the applicable vertical block exemption.

Deckers operated a selective distribution system for HOKA running shoes. Its terms required approval for online sales and restricted sales through internet marketplaces. After Up & Running proposed selling surplus stock through an anonymised clearance website, Deckers refused permission and terminated supply.

The Competition Appeal Tribunal found that the termination pursued, in part, an objective of preventing discounting. It treated the conduct as resale price maintenance and as a restriction by object contrary to section 2 of the Competition Act 1998. It also held that the conduct was excluded from the EU Vertical Block Exemption under articles 4(a) and 4(c) of Commission Regulation (EU) No 330/2010. The appeal concerned the correct object-restriction test and the application of the block exemption.

The appeal was allowed unanimously. Lord Justice Green gave the leading judgment, with Lord Justice Snowden and Lord Justice Zacaroli agreeing.

1. The CAT applied the wrong legal test. Object and effect are alternative routes to infringement. An object restriction must, in fact, reveal a sufficient degree of harm to competition. The test is strict and restrictive. Actual effects need not be proved, but a mere possibility, non-fanciful capacity or unsubstantiated allegation is insufficient.
2. The required inquiry is cumulative and concerns the content of the measure, its objective, its legal context and its economic context. The objective is assessed objectively. A restrictive intention is relevant but neither necessary nor decisive. The analysis applies to vertical as well as horizontal agreements.
3. Economic context includes the nature of the goods, the functioning and structure of the market, market shares, barriers to entry, inter-brand competition and the real-life scope of the restriction. Vertical restraints in selective distribution generally present less systemic risk than horizontal restraints.
4. The CAT’s findings showed a narrow, one-off restriction concerning surplus stock sold through one anonymised website. Deckers and Up & Running had modest market shares, there were many competing suppliers, strong inter-brand competition and no material barriers to entry. The restriction therefore could not reveal a sufficient degree of harm to competition. It was not a restriction by object under section 2 of the Competition Act 1998.
5. Alternatively, the conduct was exempt under Commission Regulation (EU) No 330/2010. A hardcore restriction under that regulation is not automatically a restriction by object. Articles 4(a) and 4(c) required examination of the practical scope of the restriction. Retailers remained free to discount through their ordinary stores and branded websites, and consumers retained active and passive access to HOKA products.

1. Court of Appeal (Civil Division): allowed Deckers’ appeal and held that the termination was not a restriction by object. It further held that the conduct would in any event have been exempt under Commission Regulation (EU) No 330/2010.
2. Competition Appeal Tribunal: in [2024] CAT 61, found that Deckers infringed section 2 of the Competition Act 1998 through the Online Sales Restriction and RPM Restriction, and held that the block exemption did not apply.