The UK Court of Appeal's judgment in Deckers provides helpful guidance on how to manage selective distribution systems in a competition law compliant manner.

Selective distribution systems are a core tool for consumer goods brands. The Court of Appeal’s decision in Deckers UK Limited v Up & Running (UK) Limited (Deckers) confirms that, as a starting point, these are vertical agreements which typically restrict only intra-brand competition (i.e. competition between retailers of the same brand), while leaving inter-brand competition (i.e. between competing brands) intact. Both economically and legally, such vertical arrangements are generally less harmful than horizontal coordination between competitors.

The Court of Appeal’s decision in Deckers is a reminder that not every restriction linked to pricing or online sales will breach competition law. For consumer goods businesses operating selective distribution, the case clarifies when controlling discounting and sales channels is permissible, and when it is not, particularly when read alongside Ping Europe Limited v Competition and Markets Authority (Ping).

In particular, the Court's ruling indicates that restrictions in vertical agreements, including resale price maintenance (RPM), may be permissible where the parties operate in a competitive market and have low market shares. 

Background

Deckers operated a selective distribution system for HOKA running shoes, allowing authorised retailers to sell through their stores and branded websites, subject to certain controls. After COVID, one retailer, Up & Running (U&R), built up surplus stock and wanted to sell it cheaply through a new, anonymous “clearance-style” website. Deckers refused consent, considering that this would undermine its distribution model and brand positioning. U&R went ahead anyway, and Deckers terminated the relationship.  U&R challenged this, arguing that Deckers was effectively trying to stop discounting, which amounted to unlawful RPM.

The Competition Appeal Tribunal (CAT) agreed with U&R, finding that Deckers’ decision was partly driven by a desire to stop U&R selling at lower prices on the new website. On that basis, it treated the conduct as a form of RPM and therefore automatically unlawful. In essence, the CAT took a direct approach: if the purpose is to limit discounting, then it is (almost always) illegal and an infringement of competition law "by object", such that there is no need to prove that the agreement had anticompetitive effects.

Crucially, the CAT’s approach effectively treated “hardcore” restrictions (such as RPM under the Vertical Block Exemption Regulation (VBER)) as synonymous with “object” infringements. The Court of Appeal rejected this approach.

Court of Appeal's judgment

The Court of Appeal reframed the analysis around the settled “object” framework. It emphasised that the question is not simply whether a practice has the objective of limiting discounting, but whether it reveals a “sufficient degree of harm” when assessed across all four of the elements: (i) the content of the measure; (ii) its objective; (iii) its legal context; and (iv) its economic context.

This directly diverged from the CAT’s approach, which had effectively reduced the test to a single question of purpose – whether the objective was to restrict competition (i.e., limb (ii) of the above).

At the same time, the Court of Appeal addressed the role of VBER, which provides a “safe harbour” for vertical agreements. Importantly, the Court of Appeal clarified that the categorisation of a restriction as “hardcore” under the VBER does not automatically mean it is a restriction “by object”. The two concepts are not equivalent and must be assessed separately.

In assessing whether Deckers' decision to terminate its contract with U&R met the four limbs of the object test, the Court of Appeal relied heavily on the CAT’s own factual findings. If found that those factual findings pointed strongly against the practice demonstrating a sufficient degree of harm to competition:

1. This was a very narrow restriction as the conduct only affected one retailer, one specific website, and one batch of surplus stock (i.e. this was not a wider attempt to control prices across the network);
2. Retailers could still discount freely in their branded shops and websites (i.e. price competition remained available through the main sales channels) and in fact did, including U&R itself via its main website; and
3. The market was competitive – the CAT found that: Deckers' market share was less than 15%, there were many competing brands, and consumers could easily switch.

These findings fed directly into the “content” and “economic context” limbs of the object analysis: the restriction was limited in scope and operated in a competitive market with strong inter-brand competition.

The Court of Appeal therefore concluded that the conduct could not realistically cause a “sufficient” level of harm to competition.

Ping

To take further practical guidance from Deckers, it is necessary to understand what happened in a previous case, Ping.

Ping, a golf equipment manufacturer, imposed a rule that banned online sales of its golf clubs by retailers. Retailers could advertise online but could not complete sales via their websites, with the result that: (i) retailers could not compete online; (ii) consumers were limited to local stores; and (iii) price competition and transparency were reduced.

Applying the same four-part object framework (content, objective, legal, and economic context), the Court of Appeal in Ping found that a total online sales ban, across the entire network, revealed a sufficient degree of harm to competition.

The Court of Appeal held that this removed a key channel of competition and was therefore inherently harmful. In Ping, the restriction on sales/ distribution changed how the market operated. In Deckers, it did not.

The key contrast is therefore not simply about “discounting” vs “non-discounting”, but about where each case falls within the structured object analysis: in Ping, when assessed across the content, objective, legal, and economic context, the restriction revealed a sufficient degree of harm; in Deckers, the same structured assessment pointed against such harm.

The contrast between Ping and Deckers:

Is resale price maintenance now legal in the UK, if market shares are low?

The Court of Appeal found (contrary to the CAT) that Deckers' conduct did not amount to RPM. However, its approach to assessing the legal and economic context of Deckers' restrictions appears to apply to all restrictions in vertical distribution agreements, including RPM. In particular, the Court of Appeal considered that more extensive evidence was required to find that a vertical restriction is a "by object" infringement and that "market shares will be important" to any assessment of the economic context of the restriction.

This suggests that suppliers with low market shares in competitive markets now have more freedom to engage in RPM in the UK, particularly if they apply it to only a portion of their sales.

In this respect, the Court of Appeal's ruling goes further than the case law of the EU Courts, which have largely refrained from suggesting that low market shares can excuse an otherwise by object infringement, to avoid blurring the line between by object infringements and those that require an assessment of their effects.

Key Takeaways

Object ≠ purpose alone – a restriction is not automatically unlawful simply because it is intended (in part) to limit discounting. The correct test requires a structured assessment of content, objective, legal context, and economic context.

Hardcore in the VBER ≠ object infringement – classification as a “hardcore restriction” removes the block exemption but does not automatically mean the conduct is unlawful by object.

Context is everything – scope, market structure, market shares and remaining competitive constraints (e.g. ability to discount elsewhere, competing brands) are critical to the assessment. Limited, targeted, vertical, restrictions are far less likely to qualify as object infringements.

Complete removal of a sales channel across a network (as in Ping) are more likely to satisfy all elements of the object test, whereas more limited controls within a functioning selective distribution system are less likely.