When is a “hardcore” restriction of competition not actually an infringement of competition law?

In May 2026, the Court of Appeal handed down a landmark judgment in the case of Deckers UK Limited v Up and Running (UK) Limited [1], in which it overturned the previous finding of the Competition Appeal Tribunal (CAT) that aspects of Deckers’ selective distribution system through which it distributed its increasingly popular HOKA brand of running shoe constituted a “by object” infringement of competition law, finding an infringement without examining any evidence of restrictive effects.  In a welcome judgment, the Court of Appeal found that the CAT had erred in its application of the test regarding whether conduct constitutes a “by object” infringement, including by ignoring the relevant economic context concerned.  

Against the background of administering its selective distribution system, Deckers had refused permission for Up and Running (U&R) to resell its excess, out of season, stock of HOKA running shoes at discounted prices on a new generically named website “runningshoes.co.uk” on the basis that the proposal was inconsistent with the “fundamental principles of [their] brand strategy” and contrary to its terms. U&R went ahead with its plan regardless, leading Deckers to ultimately terminate its contract with U&R.

The CAT had found that the objective or purpose behind the termination included to prevent undue discounting of HOKA branded shoes via U&R’s anonymised website and concluded that this was a form of RPM to be treated as a hardcore restriction of competition to which automatic exemption under the Verticals Block Exemption was not available.

The CAT had acknowledged the very limited nature of the restriction insofar as it impacted this one retailer’s pricing freedom on this one particular, anonymised website, against a wider context where retailers were not otherwise restricted (including U&R) with regards to the resale prices for HOKA trainers, neither within their bricks and mortar stores nor on their own branded websites.  However, whilst acknowledging the “very limited nature of the restriction” the CAT found that even this limited restriction was an “obvious infringement” according to its application of the “by object” test, which centred around the objective of the measure as the sole test.

In its judgement, the Court of Appeal agreed with the appellant, finding that the CAT had erred in law in the test it had applied as to whether conduct amounts to a “by object” infringement by focussing solely on the objective of the restriction.

What is the correct test?

Following long-established European case law, the Court of Appeal confirmed that the correct test is a four-part test as to whether the conduct in question reveals a sufficient degree of harm to competition to constitute a “by object” infringement, such that the “actual” effects do not need to be investigated or established. 

The four-part test involves an examination of:

(a) the content of the agreement;

(b) its objectives;

(c) the legal context e.g. relevant case law and decisional practice, whether the agreement is horizontal or vertical and whether there are any legal or regulatory barriers to entry

(d) the economic context e.g. the nature of the goods or services affected and the actual conditions of the functioning and structure of the market or markets in question, including the nature and extent of inter-brand competition, and market shares in particular are an important aspect of economic context for this purpose.  

The author of this article made very similar arguments (on the basis of the same European case law) as have now been accepted by the Court of Appeal here to be correct, to the Competition and Markets Authority (CMA) some years ago. In that case, submitting that the CMA could not ignore the background economic context of a longstanding joint venture and the fact that the parties were not actual or potential competitors when the joint venture was entered into, in later finding a “by object” market sharing arrangement between competitors from the same arrangement, thereby avoiding the need to examine/establish any appreciable restriction of competition by effect.  In that case, the ultimate overall discount on financial penalty removed the commercial incentive for the client in the case to incur further costs in appealing the decision.

What is the “by object” or “effects” distinction in competition law, what is the significance of conduct being classed “hardcore” and what does this all mean for businesses who have the legitimate aim of protecting their brand?

By Object vs By Effect 

Chapter 1, section 2 of the Competition Act 1998 prohibits agreements or understandings between businesses which have an appreciable prevention, restriction or distortion of competition as either their “object” or “effect” (the “Prohibition on Anti-competitive Agreements”).  

The Prohibition on Anti-competitive Agreements therefore mandates two alternative tests for establishing whether an agreement or understanding constitutes an appreciable restriction of competition, i.e. whether there is a restriction of competition established “by object” or following an examination of the actual “effects”. 

By Object – The relevant test is whether the agreement can “in fact” be classed as a restriction by object on the basis that the agreement or practice in question presents a “sufficient degree of harm” to competition (applying the four-part test set out above), such that there is no need to examine the effects i.e. the restrictive effects are presumed.

By Effect – The alternative test is whether there are actual adverse effects on competition stemming from the agreement i.e. where the test in question focusses on an examination of the effects of the arrangement and how that impacts competition in the market.

“Hardcore” restrictions

Hardcore restrictions are certain identified categories of restriction, which if present, preclude an automatic exemption that would otherwise apply to restrictions in agreements between suppliers and distributors within certain parameters under relevant vertical “block exemptions” (including in the UK under the Vertical Agreements Block Exemption Order).  Examples of such hardcore restrictions include resale price maintenance, certain geographic area and customer group resale restrictions such as those conferring absolute territorial protection and wide retail parity obligations, also known as Most Favoured Nation (MFN) clauses.

It is an error in competition law to conflate the concepts of a “hardcore” restriction with a “by object” restriction of competition, but one which is often made by both practitioners and regulators and, in this case, the CAT.  As noted by the Court of Appeal in the Deckers case, “there is no principle that because an agreement or practice is categorised as a hardcore restriction in a block exemption it is to be treated as presumed to be a restriction by object”.

What does this all mean for businesses who have the legitimate aim of protecting their brand through selective distribution systems and beyond? 

Competition law, and particularly in relation to how it applies to restrictions in vertical agreements e.g.  the restrictions a brand supplier may wish to impose on its distributors, can be highly complex, and the Deckers case addresses a particularly nuanced technical aspect of this. 

The case highlights a greater than is often appreciated scope for vertical restrictions to be established as compliant with competition law outside of the parameters of the automatic exemption provided for by various vertical block exemptions. 

For example, in relation to selective distribution systems, there may be said to be three levels of analysis:

(a)  Does the selective distribution system fall within the Metro Safe Harbour and so outside of the Prohibition on Anti-competitive agreements?

(b) If not, does the block exemption apply?

(c)  If not, then is there a restriction of competition by object or effect, established to the required standard, applying, in each case, the correct test?

Added to this, the greater flexibility introduced under the revisions made to the verticals block exemption in 2022, there has been no better time for brands to reconsider their distribution strategy with greater freedom to implement some controls, with the legitimate aim of protecting their brand.

However, with the complexity of the law in this area and with the potential for disgruntled retailer complaints, this is not an endeavour to be undertaken without the proper expert legal support. Get in touch with our experts if you are a supplier that wishes to explore options for redesigning your distribution system.