Given the internet's ever increasing importance as a sales channel, the
online sector has been under close review by competition authorities for some
time. The CMA's view is that online markets help consumers identify and
compare competitive offers – they improve consumer choice. Ensuring that these
online markets work well for consumers, appears set to remain a priority for UK
(and EU) competition authorities.
The CMA investigations into online retailing
UK and EU competition law (Chapter I of the Competition Act 1998 and Article
101(1) TFEU, respectively) prohibit agreements and concerted practices that
prevent, restrict or distort competition. The most well-known form of prohibited
agreement is the ‘classic’ price-fixing arrangement between competitors.
However, it is also prohibited for companies in a vertical relationship (such as
between a manufacturer and a retailer) to enter into price-fixing arrangements
(known as ‘resale price maintenance’ (RPM)), or impose other unjustified
restrictions of competition between retailers. Although selective distribution systems may contain some restrictions, they do not get round all the problems
Where a supplier restricts the ability of a retailer to set the prices at
which it will resell the supplier's products, for example by requiring the
retailer to sell at a specified price, prohibiting discounts or fixing the
maximum level of discount, then this will generally infringe competition law.
Similarly, other restrictions of competition that go beyond the minimum
necessary to achieve positive efficiencies, in particular restrictions on
passive sales (including over the internet) may raise competition law risks. The authorities in Germany and France have also taken action against similar restrictions involving adidas and Asics, and the European Commission is in the middle of a two year review of ecommerce, with conclusions expected mid 2017.
The CMA has recently undertaken a number of investigations into suspected RPM
involving online retailers, and following on from those investigations has
issued an open letter with specific guidance to suppliers and retailers on this
subject.
Bathroom fittings
The CMA found that Ultra Finishing Limited ("Ultra") had engaged in RPM in
respect of the internet sales of its Hudson Reed and Ultra branded products.
In response to complaints from resellers and in an attempt to manage price
discounting online, Ultra introduced trading guidelines for its resellers. Those
trading guidelines included a 'recommendation' that the online price for certain
branded products should be no lower than 25% off the RRPs for in-store sales.
The 'recommendation' was stated not to be legally binding. However, the CMA
concluded that as Ultra monitored resellers' websites to ensure they were not
selling or advertising below the 'recommended' price and also threatened and/or
took action when it identified resellers who were not complying with the
'recommendation' that it was in fact more than a 'recommendation' and actually
prevented resellers from setting online prices below a specified level. The CMA
found that this amounted to RPM.
Ultra co-operated with the CMA, admitting liability and offering to settle
the case. They were fined £786,668. The CMA elected not to fine the retailers
who had followed Ultra's 'recommendations'.
Commercial catering
The CMA has also fined fridge supplier ITW Limited £2.3 million after it
admitted that it engaged in RPM in relation to online sale of its Foster
commercial fridges.
Again, in an attempt to prevent online discounting of its products and to
protect the margins of its resellers, Foster issued a 'discounting policy' to
its resellers. This policy prohibited resellers from advertising any Foster
products below a minimum advertised price (MAP).
Fosters monitored the websites of resellers for examples of pricing below the
MAP, and also encouraged resellers to report cases of Foster products being sold
below the MAP. The CMA found that the 'discounting policy' restricted the
ability of resellers to set their own online sales prices and therefore amounted
to RPM. Again, the CMA did not fine the resellers and discounted ITW's fine due
to co-operation with the CMA under a settlement agreement.
Sports equipment
Although the CMA has not reached a conclusion in this case, it has announced
that it has sent a provisional infringement decision (Statement of Objections)
to Ping in relation to a ban it imposed on retailers selling golf clubs online.
Although few details are available at this stage, it seems that the CMA is
concerned that restrictions of online sales could be undue restriction of
competition between retailers. We might expect a decision in this case towards
the end of the year given that the CMA seems to be pushing hard at the moment to
complete cases as quickly as possible. This appears similar to the adidas restrictions that were investigated in Germany and France and which adidas has now withdrawn.
Conclusion
It is not just the retail sector that this applies to. For example, estate agents have come under scrutiny as regards restrictions on the numbers of websites they can advertise properties on and this is currently before the Competition Appeal Tribunal for consideration.
Given the consequences of competition law infringements (including fines of
up to 10% of turnover, director disqualification, actions for damages and
general reputational harm - not to mention to the management time and adviser
costs to business of being investigated), it is important that companies
(whether manufacturer, wholesaler, or retailer) ensure that their distribution
arrangements are compatible with competition law and allow retailers to set
their own prices both online and off-line. Where there is any doubt, specialist
competition law advice should be taken.