Court of Appeal backs HOKA's restrictions on online sales

An area that often overlaps with IP law is competition law. That overlap comes from the monopoly rights that are granted by IP rights, from a copyright owner’s exclusive rights to carry out the restricted acts under s.16 of the Copyright, Designs and Patents Act 1988, to a patentee’s exclusive rights to deal with or use an invention under s.60 of the Patents Act 1977.

Those exclusive rights give market power to the rightsholder, and can have a deleterious effect on competition. On the other hand, the rationale for granting those rights is that IP protection incentivises innovation and investment, a fact that competition law recognises. One area where that tension is most keenly felt is where brands agree with buyers restrictions that control the buyer’s onward dealing with branded products, i.e. where trade mark and other rights have been exhausted, but contractual restrictions continue.

While not specifically about IP rights, the Court of Appeal’s recent decision in Deckers UK Ltd v Up & Running (UK) Ltd (Rev1) [2026] EWCA Civ 553 considers again this tension, and sided with the owner of the brand in controlling the onward sale of its products.

The Competition Appeal Tribunal (CAT) decision

Up & Running (UK) Ltd (“U&R”) was supplied by Deckers, which owns the HOKA running shoes brand, from 2016 until late 2021. It has bricks and mortar stores, as well as an online store operating from upandrunning.co.uk, which had been approved by Deckers.

Given the difficulties with operating its physical stores during the COVID19 pandemic, it found itself with surplus stock, which it wanted to sell at a discount. U&R recognised that heavy discounting on its online store could undermine the sales of full-price products, and sought permission from Deckers to set up a new website for selling discounted products, which was to be at a generic domain – runningshoes.co.uk. This request was rejected by Deckers, but U&R went ahead anyway, and Deckers subsequently terminated its supply agreement, on the basis that it had violated the obligation to sell only via an approved website.

U&R brought standalone proceedings for damages under the UK’s Competition Act 1998 (“CA98”) before the Competition Appeals Tribunal (the “CAT” - not Kat, of course), which mirrors articles 101 and 102 of the Treaty on the Functioning of the European Union. U&R claimed that the termination was unlawful in that it had the object of restricting competition by restricting U&R’s ability to make effective use of the internet (the alleged “online sales restriction”) and/or represented disguised resale price maintenance (alleged “RPM”). Both of those restrictions would, if true, constitute ‘by object’ restrictions of competition, meaning that U&R did not need to prove as a fact that the restrictions did actually have any appreciable effect on competition.

The CAT found for U&R, determining that the restriction on selling only via approved websites was an attempt to preserve a ‘Clearance Channel’ and maintain additional control over retailers, and a disguised form of RPM. Its focus was on the intention of Deckers, namely to reserve the “Clearance Channel” to itself and reduce discounting. Having determined that the online sales and RPM restrictions were in fact bans on passive sales and RPM, it held that the Vertical Agreements Block Exemption (VABER, which applied at the relevant time) did not apply, meaning that the safe harbour was not available.  

The Court of Appeal - Object or effect?

Under s.2 CA98, an agreement between undertakings is contrary to competition law if, inter alia, it has “as [its] object or effect the prevention, restriction or distortion of competition within the United Kingdom” (emphasis added). These are alternative conditions, with the key distinguishing feature being that the competition authority or claimant does not need to show actual, appreciable effects on competition if the restriction is found to be a ‘by object’ one.

The UK’s competition authority, the Competition & Markets Authority (“CMA”) intervened in support of Deckers. It submitted that the CAT’s decision was wrong in that it concluded that failing to show a legitimate objective was sufficient in itself to prove that the agreement had an anticompetitive object. The CMA submitted, as did Deckers, that the objective, legitimate or otherwise, is part of the matrix, but not a determinative one. The test, as set out in Cartes Bancaires (Case C-67/13P) is whether the provision in question:

Reveal[s] a sufficient degree of harm to competition that it may be found that there is no need to examine their effects, otherwise the Commission would be exempted from the obligation to prove the actual effects on the market of agreements which are in no way established to be, by their very nature, harmful to the proper functioning of normal competition. (emphasis added)

The Court of Appeal, with Green LJ giving the lead judgment, agreed with Deckers and the CMA that the CAT had referenced the correct test but not applied it. The Court endorsed restrictive approach to finding ‘by object’ restrictions in the CJEU’s decision in Cartes Bancaires, indicating continuing close alignment between UK and EU competition law. While the ‘by object’ bucket is not limited to activities such as price-fixing cartels, that is a good example of something where proving the effects should be unnecessary.

The tribunal (the CAT in this case) needed to be satisfied that the alleged online sales and RPM restrictions were “in fact” to be classified as ‘by object’ restrictions, revealing “a sufficient degree of harm” to competition ([105]). The judge held “Competition law should not interfere unless there is a need to interfere” ([115]) and that, as infringement of competition law is “quasi-criminal”, “[a] finding of breach should not be arrived at lightly without a proper evidential base” ([116]).

The Court therefore found that U&R had not established, taking into account the content of the restriction, Decker’s purpose, and the legal and economic contexts, that the alleged online sales and RPM restrictions were by object infringements of competition law, and that in any event, the VABER applied and exempted the restrictions from challenge.

Conclusion

There have been a series of decisions over the last few years addressing restrictions in the vertical distribution context, many of which have gone against the brands seeking to control the distribution. For example, various restrictions applied by Guess were found to be restrictive by object, as were total online sales bans in Pierre Fabre and Ping. However, this case shows that the legal test remains such that brands do have significant flexibility provided they do not cross the line into a hardcore restriction and their market share does not exceed 30%.

The facts that Deckers permitted discounting on U&R’s approved website, and did not ban online sales more generally, meant that those restrictions it did apply (i.e. only approved websites), did not render it anticompetitive ‘by object’. This is despite the CAT’s finding that the objective or purpose of the termination of U&R was to prevent undue discounting via a separate website. There remains something of a question around the Court’s consideration of Deckers’ market share, and the consideration of the economic context, which could suggest that the CMA and claimants may need to stray into an economic effects-style analysis even in object cases.

Brands will be reassured by this decision, which restates the more permissive approach from Cartes Bancaires. However, they will still need to be careful not to cross into the clearly restricted territory of RPM and online sales bans, which have been repeatedly held to be ‘by object’ infringements.