Distribution Agreements and Competition Law: Court of Appeal Injects Welcome Consideration of Context and Impact to Assessing “By Object” Infringements

On 8 May 2026, the Court of Appeal handed down an important judgement relating to how businesses are permitted lawfully to control the distribution of their products, within the confines of competition law in the UK.

The case was about whether a refusal by Deckers to supply HOKA running shoes to a retail partner (Up & Running) that had set up a discount-only website to sell out-of-season stock at reduced prices was a restriction of competition ‘by object’. The Competition Appeal Tribunal (CAT) had ruled that it was, because it amounted to unlawful indirect resale price maintenance and a restriction on its effective use of the internet. In Deckers UK Limited v Up and Running (UK) Limited [2026] EWCA Civ 553, the Court of Appeal disagreed.

Practical Tips for Businesses

• Greater flexibility for businesses operating selective distribution systems. The Court of Appeal’s judgement is positive for businesses that operate selective distribution systems. The Court of Appeal emphasised the high bar and analytical rigour required to identify a ‘by object’ infringement, particularly in relation to vertical agreements. A context-focused, flexible approach that assesses the “real life ability to harm competition in the relevant product market” is required.
• Object doesn’t (just) mean objective. The judgement clarifies that the need for a restrictive objective or intent is only one component of a wider, four-part test for determining whether a restriction is anticompetitive ‘by object’. The content, objectives, legal context and economic context of a measure all need to be assessed in the round. The key finding made by the Court of Appeal was that the CAT had placed too much weight on Deckers’ objectives, overlooking the other components of the test.
• Establishing and documenting selective distribution systems. Together with the CAT judgement, the Court of Appeal decision underlines the importance of carefully documenting the terms of a selective distribution system and ensuring de facto operation is consistent with the terms explained to distributors. Weaknesses in design, transparency or record‑keeping, or situations where actual operation is at odds with the formal terms, may expose distribution arrangements to challenge, even where the substantive competition law analysis ultimately favours the supplier.
• The role of competition law in distribution agreements. The Court of Appeal expressed concern about the risk of competition law being used to undermine distribution arrangements and other contractual agreements. The CMA intervened in the appeal to advocate a similar position. This concern was reflected in the restrictive approach taken by the Court of Appeal to determining when a restriction will be anticompetitive ‘by object’, as well as its statements that “[c]ompetition law should not interfere unless there is a need to interfere”, “if applied ill-advisedly [competition law] 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”, and “[i]t is not the function of competition law to save parties from bad bargains, or deals they come to regret”. This commentary forms part of wider recent judicial scrutiny of the proper boundaries of competition law intervention and calls into question some previous (controversial) decisions in this area including Ping[1] where the CAT held (and the Court of Appeal upheld) that a manufacturer's requirement that custom fitted golf clubs were not sold on the internet constituted a “by object” restriction of competition law.

Background

Deckers operates a selective distribution system for its HOKA-branded running shoes whereby it selects who it will appoint to distribute its shoes. Up & Running was one of Deckers’ chosen distributors.

Under the terms of Deckers’ selective distribution system, distributors had to obtain Deckers’ approval to supply HOKA products, whether in physical stores or online. Up & Running was already approved to sell HOKA shoes. It wanted to start a new, clearance / discount website (in addition to its main website) to sell excess stock that it had accumulated during the COVID-19 pandemic. Deckers refused to approve this clearance website, and Up & Running subsequently challenged Deckers’ refusal.

Before the CAT, Up & Running argued successfully that Deckers’ refusal to approve the clearance website was a ‘by object’ infringement of competition law (meaning that it did not need to show that there was any actual impact in the market of its inability to set up a discount site). The CAT found in this regard that:

• Competition law applied to the selective distribution system. It did not meet the criteria set out by the European Court of Justice in Metro v Commission (Case C-26/76), which enables certain selective distribution systems to fall outside the prohibition on anticompetitive agreements. In particular, criteria for admission were not properly recorded or kept in writing, and they included quantitative considerations and were applied inconsistently. Deckers did not appeal this finding.
• Deckers’ conduct breached competition law ‘by object’. This was because:
  • Deckers’ attempt to prevent sales via Up & Running’s clearance website was an attempt to prevent the discounting of HOKA shoes, amounting to resale price maintenance. The CAT found that the only plausible objective of Deckers’ refusal to authorise Up & Running’s clearance website was to prevent it from selling HOKA shoes at heavily-discounted prices. There was no other legitimate aim. The CAT concluded that this meant the conduct was a form of resale price maintenance which infringed competition law ‘by object’, without the need for any wider economic or contextual assessment.
  • Deckers unlawfully restricted Up & Running’s ability to market and sell HOKA shoes online. The CAT noted that Deckers sold discounted surplus stock through its own clearance website and supplied certain third-party clearance websites. This indicated that Deckers did not have genuine concerns that the presence of HOKA products on clearance websites would damage the HOKA brand.
  • The fact that the selective distribution system fell outside the Metro safe harbour and contained ‘hardcore’ restrictions under the Vertical Agreements Block Exemption (VBE) meant that it was very likely to amount to a ‘by object’ infringement.
• The selective distribution system was not exempted under the VBE, because the arrangements amounted to ‘hardcore’ restrictions. They prevented Up & Running from selling to end users and limited its ability to set retail prices.

The Court of Appeal judgement

The Court of Appeal overturned the CAT’s decision, upholding each of Deckers’ grounds of appeal. The Court of Appeal found that:

• The CAT applied the wrong test for determining whether a measure was a ‘by object’ restriction. A four-part test is needed to determine this point, whereas the CAT had only focused on one part of that test: the objective or purpose of the measure. The four-stage assessment involves consideration of the following aspects of a restriction:
  • Content: This involves an assessment of the actual scope of the restriction.
  • Objective / purpose: Assessed objectively, the purpose of the measure. Where there is evidence of subjective intent, then this can be taken into account, though the Court of Appeal emphasised that “[a] subjective anticompetitive intent or purpose does not make a restriction unlawful by object if, upon application of the broader test taking into account economic effect, it would not have a sufficient adverse impact upon competition”.
  • Legal context: This includes consideration of the existing case-law on the alleged type of the infringement, whether the agreement is horizontal (because vertical agreements generally present less risk to competition), and whether there are legal or regulatory barriers to entry.
  • Economic context: This includes the nature of the goods or services affected and the actual conditions of the functioning and structure of the market, which will include the nature and extent of inter-brand competition, the scope of the agreement and its “real life ability to harm competition in the relevant product market”.
• Rather than remit the issue for the CAT, the Court of Appeal applied the factual findings that the CAT had made to the four-stage test outlined above. On that basis, it found that there was no restriction ‘by object’. In particular:
  • The Court of Appeal was heavily influenced by the economic context of the restrictions, finding that preventing Up & Running’s sales through a second, clearance website was not capable of having sufficient impact on competition in the relevant product market to constitute a ‘by object’ infringement. There were a significant number of competing suppliers in the market, all with comparable market shares. Barriers to entry were limited. And crucially, the stock that was impacted was excess Covid stock sold by a modestly-sized distributor. The shoes impacted by the restriction therefore formed a very small part of the total product market, and the restriction would not therefore have a sufficient impact on competition.
  • It was not, in itself, relevant whether the selective distribution system fell outside the Metro safe harbour or contained ‘hardcore’ restrictions under the VBE. The ‘by object’ assessment needed to be applied independently.
• Even if the restriction on Up & Running operating a second, clearance website was anticompetitive ‘by object’, Deckers’ selective distribution system was exempted under the VBE. The arrangements did not amount to ‘hardcore’ restrictions, because the restriction imposed by Deckers was so limited that in a “real and practical…sense” distributors could set their own prices and customers could access the goods.

Implications

The Court of Appeal’s judgement provides important clarification regarding the approach to identifying ‘by object’ infringements and in particular, serves as a reminder for agencies and courts to put restrictions of competition into their proper economic context and consider the real-world impact they have on the market(s) in question. A number of questions remain following the judgement, including how the ‘by object’ analysis will be applied where wider challenges are made to the operation of a selective distribution system (as opposed to the narrow challenge made by Up & Running to the refusal to allow it to run a second website). In relation to business practices, the judgement provides a helpful reminder for businesses in terms of how to structure and manage their selective distribution systems.

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[1]  Ping Europe Limited v Competition and Markets Authority [2018] CAT 13. The judgment was upheld on appeal: [2020] EWCA Civ 13.