This article was first published in Leading Internet Case Law on 24 October 2017. The final paragraph has been amended to take into account Ping’s subsequent appeal.
The UK Competition and Markets Authority (CMA) announced on 24 August 2017 that it had fined Ping Europe Limited (‘Ping’) £1.45 million for “banning UK retailers from selling its golf clubs online.” At the time of writing we are still waiting for the full non-confidential version of the decision to be published, however, the essential specifics of the infringement are that Ping prevented two UK retailers from selling its golf clubs on their websites. Ping’s intention behind the restriction appears to have been the “genuine commercial aim” of promoting in-store custom fitting of clubs (as opposed to their just being sold online). However, the CMA found that this aim could have been achieved through less restrictive means and so found that the restriction was anti-competitive.
It seems that the CMA’s view was that Ping’s restrictions on trading on the internet overstepped the mark in terms of what is permitted in pursuing genuine commercial aims, albeit, based on the fact that the fine imposed is relatively small, this might be interpreted as the CMA considering Ping’s indiscretion to be at the less harmful end of the spectrum.
This case is the latest in a line of recent competition law cases related to restrictions imposed by manufacturers and brand owners on retailers’ internet trading both in this country and across Europe. The overall message coming from those cases is that restrictions on internet trading are generally viewed unfavourably by competition authorities, as the internet is seen as such an important competitive sales channel.
Background
Broadly speaking, agreements that prevent, restrict or distort competition are prohibited under the ‘Chapter I Prohibition’ (s.2 of the Competition Act 1998) where there is an effect on trade in the UK and Article 101 of the Treaty on the Functioning of the European Union where there is an effect on trade between EU Member States. However, agreements that prevent, restrict or distort competition may be exempted from the relevant prohibition(s) (Chapter I and/or Article 101) where they meet certain criteria which demonstrate that they are likely to be economically beneficial. These criteria are that the agreement in question:
- contributes to
- improving production or distribution, or
- promoting technical or economic progress,
- while allowing consumers a fair share of the resulting benefit; and
- does not
- impose on the undertakings concerned restrictions which are not indispensable to the attainment of those objectives; or
- afford the undertakings concerned the possibility of eliminating competition in respect of a substantial part of the products in question.
In part because these criteria are not always straightforward to apply in practice, there are also ‘block exemptions’ which apply to certain categories of agreement which are more specific in their terms.
The key block exemption for considering restrictions in distribution agreements is the European Commission’s Vertical Agreements Block Exemption (the ‘VABE’). This applies both in relation to the Article 101 prohibition at EU level and the Chapter I prohibition (due to s.10 of the Competition Act 1998 which provides that exemptions at EU level are effective within the UK - so called ‘parallel exemptions’). Where agreements fall outside a ‘block exemption’ they must be analysed individually. The VABE provides that where the market shares of both the supplier of goods and the buyer (often the retailer in these circumstances) are below 30% agreements may benefit from the VABE provided that they do not contain certain types of restrictions (or ‘blacklisted’ clauses). The blacklisted restrictions in relation to online sales by retailers include:
- restrictions on the retailer’s ability to set its own retail prices (albeit that it is OK for suppliers to set maximum retail prices and to communicate recommended retail prices provided these are not binding) (Article 4(a));
- restrictions on the territory into which, or the customers to whom, a buyer may sell, except the restriction of active sales into the exclusive territory or to an exclusive customer group reserved to the supplier or allocated by the supplier to another buyer (Article 4(b)(i)); and
- in the context of selective distribution systems, any restriction on active or passive sales to end users (although a restriction on operation out of an unauthorised place of establishment is permitted) (Article 4(c)).
Companies found to have infringed competition law may be fined up to 10% of total group annual turnover. In addition, anti-competitive restrictions are automatically void and unenforceable, directors involved in competition law infringements (or who should have prevented them) may be disqualified and anyone who has suffered loss as a result of an infringement may bring an action for damages.
Other recent online restrictions cases
The Ping case follows on from a number of other recent online restrictions cases across Europe, including:
- the European Court of Justice, in Pierre Fabre (Case C-439/09), held that restrictions on the sale of cosmetics and personal care products online were anti-competitive, as the products were not medicines and there was no need for them to be sold face to face;
- the German Bundeskartellamt’s investigations into restrictions imposed by Adidas and ASICS in relation to online sales, in both cases relating to sales through online marketplaces, resulting in both companies withdrawing the relevant restrictions;
- the UK investigations into attempts by a commercial fridge supplier (ITW Limited) and a bathroom fittings supplier (Ultra Finishing Limited) to engage in resale price maintenance (‘RPM’) in relation to sales of their products online. In both cases, the CMA fined the companies for implementing policies that tracked retailers’ online sales prices and threatened or punished retailers for selling below specified price levels; and
- in France, there is an ongoing court case between the retailer Concurrence and Samsung concerning an agreement which attempted to restrict Concurrence from retailing high-end Samsung products online.
Another relevant ongoing case in this area involves a reference to the ECJ in relation to a dispute between Coty (a leading supplier of luxury cosmetics in Germany) and Parfumerie Akzente (an authorised distributor of those products) (Case C-230/16). The dispute relates to restrictions in the agreement between the parties preventing Parfumerie Akzente from making sales on the internet through third party platforms (e.g. Amazon, eBay, etc). The difference between this case and the Adidas and ASICS cases is that Coty’s defence seems to be that the restrictions are permissible because such sales may negatively impact the ‘luxury image’ of the products in question.
The Advocate General’s view in the Coty case is broadly that restrictions on sales through third party platforms may be justified if the nature of the product in question requires it. Moreover, in contrast to the Pierre Fabre case mentioned above, the Advocate General did not regard such restrictions on third party online sales as falling outside either of Article 4(b)(i) or Article 4(c) of the VABE. However, we await the final decision of the ECJ on this.
Conclusions
Further details are clearly to emerge about the restrictions found to be anti- competitive by the CMA in the Ping case. The arguments about whether or not the restrictions were justified may relate to whether or not Ping operated a selective distribution system in the UK and whether or not the restrictions on selling online were justified from the perspective of maintaining the image of the golf clubs concerned.
Since this article was first published Ping has appealed to the Competition Appeal Tribunal. Ping’s appeal centres on the point that the effect of the CMA’s decision is that it forces Ping to sell a product that it does not want to sell (i.e. non-fitted golf clubs rather than fitted golf clubs). The appeal is in its early stages and the hearing is due to start on 10 May 2018. It remains to be seen what the CAT will make of the argument that Ping should be entitled to limit its products to being sold face to face and to sacrifice volumes that would be sold online to other competitors.