Brand Control or Competition Restriction? What Up & Running v Deckers means for selective distribution

The Court of Appeal overturned the Competition Appeal Tribunal’s decision on Deckers’ selective distribution system for HOKA running shoes, confirming that such systems may protect brand image without amounting to anti-competitive resale price maintenance. The judgment stresses the need for context-sensitive, holistic analysis, consistent objective criteria, and careful design, particularly for online sales and discount channels, while noting that market share thresholds remain relevant to exemptions such as the vertical block exemption.

Selective Distribution Systems (SDS)

A SDS is a model in which suppliers sell their products exclusively through authorised distributors that meet defined minimum criteria. An SDS helps suppliers protect brand image, ensure consistent service, and prevent free‑riding.

Some SDS arrangements fall outside the Chapter I / Article 101(1) prohibition where they meet established Metro safe harbour criteria (see below). Otherwise, they must comply with the prohibition on anti‑competitive agreements.

Where compliance is required, an SDS may still be permitted if they meet exemption conditions provided market share thresholds are satisfied and no “hardcore” restrictions are included. This is most commonly under the Vertical Block Exemption (VBE).

Background to the case

Deckers supplied HOKA running shoes (HOKA Products) to the retailer “Up & Running” (the Retailer) and had an SDS in place, with certain contractual provisions permitting the onward sale of goods, provided that certain criteria were met. The Retailer was already approved by Deckers to sell HOKA Products but had later decided they wanted to sell HOKA Products using an additional website, specially for discounted stock only, called Running Shoes. This was not supported by Deckers, which led to disagreements between the parties and ultimately the termination of their supply agreement.

The appeal addresses a key issue for suppliers of luxury, fashion and consumer goods: when controls over sales outlets, which may reduce price competition within an SDS, amount to a competition law infringement.

Notwithstanding the quality or brand positioning of HOKA Products, the appeal considered the context of the practices and permissible restrictions that Deckers have for approving the onward sale of the HOKA running shoes. The Court of Appeal (CoA) judgment provides helpful clarity on the application of competition law to certain SDS practices and underscores the importance of assessing the specific market context and factual circumstances in each case.

Previous Competition Appeals Tribunal (CAT) decision

The CoA ultimately overturned the CAT decision because of misapplication of the law. The CAT had previously held that Deckers’ restrictions amounted to a ‘by object’ infringement of competition law with resale price maintenance (RPM). The CAT found that the Metro criteria were not met; however, the CoA’s decision turned primarily on the incorrect application of the ‘by object’ test rather than the Metro analysis.

In Metro v Commission (C-26/76), resellers must be selected using objective, qualitative criteria, with the following conditions forming the Metro safe harbour criteria:

• These criteria must be applied consistently to all potential resellers without discrimination.
• The nature of the products must justify the need for an SDS.
• The criteria must be proportionate and not exceed what is necessary.
• If these conditions are met, the agreement will not breach Article 101 or the Chapter I prohibition.

The CoA overturned the CAT’s ruling, finding that the CAT had misapplied the legal test highlighting the following:

• The CAT found that the Metro safe harbour criteria were not met in Deckers.
• The assessment of SDS restrictions must take proper account of the economic and commercial context in which they operate.
• A common-sense approach is required for when assessing whether arrangements amount to a restriction of competition by object. The CAT initially held that when a supplier’s practice had an objective or purpose of muting price competition, it was to be categorised as RPM, which is a hardcore restriction of competition.
• The fact that a restriction may limit price competition or protect a distribution model does not, without more, mean it constitutes resale price maintenance or a hardcore restriction; the CoA rejected the CAT’s characterisation on this basis.

What does this mean for you?

The judgment clarifies a more constrained approach to ‘by object’ infringements and emphasises the need for context-sensitive analysis.

• Context is critical and restrictions should be assessed holistically, not in isolation.
• Businesses can structure a SDS to protect brand positioning, provided the overall arrangement does not objectively restrict price competition to a sufficient degree to amount to an infringement.
• Businesses should therefore continue to ensure that SDS criteria and controls are: clearly stated; consistently applied; and objectively justified. This remains crucial for compliance.
• The decision also suggests the courts may be less willing to characterise restrictions as ‘by object’ infringements without a careful analysis of their purpose and effects.

Key takeaways for businesses

While the judgment is helpful for suppliers, it does not remove risk in this area. Careful design and documentation of SDS arrangements (particularly around online sales and discounts channels) remain important.

Where both the supplier and relevant retailers have market shares below 30%, SDS operators can rely more confidently on the VBE, provided they avoid hardcore restrictions. The CoA’s judgment indicates that the concept of a hardcore restriction should not be applied overly broadly. In particular, where retailers remain free and in a real and practical sense to discount products and customers can access products (actively or passively), restrictions are less likely to be characterised as a hardcore restriction, though this remains fact-specific.

Where market shares exceed 30% (or where the VBE is otherwise unavailable), a fuller competition law assessment is required. The CoA emphasised that this must include consideration of the economic and commercial context, even when assessing whether a restriction amounts to an infringement ‘by object’.