Court of Appeal upholds CMA’s online sales ban decision

30th January 2020

On 21 January 2020, the Court of Appeal (‘CoA’) upheld the Competition Appeal Tribunal (‘CAT’) judgment, finding that Ping Europe Ltd (‘Ping’) breached competition law by prohibiting its retailers from selling Ping golf clubs online. Ping was fined £1.25 million.

Background

CMA Infringement Decision

In November 2015, following a complaint by one of Ping’s retailers, the UK Competition and Markets Authority (‘CMA’) opened an investigation into Ping’s internet sales policy, which was incorporated into its contractual agreements with its authorised retailers. The policy prohibited the authorised retailers from offering Ping golf clubs for sale on their websites (‘Online Sales Ban’).

On 24 August 2017, the CMA issued an infringement decision to Ping (‘CMA Infringement Decision’). The CMA found that the Online Sales Ban was a restriction of competition by object, which was contrary to the Chapter 1 prohibition of the Competition Act 1998 and Article 101 of the Treaty on the Functioning of the European Union (‘TFEU’). Ping argued that the Online Sales Ban had a genuine commercial aim, which was to promote face-to-face individual custom fitting. Ping submitted that custom fitting increased club quality and consumer choices, in that consumers who have golf clubs tailored to their specifications will play better golf. As such, the Online Sales Ban fostered inter-brand competition by improving product quality and choices.

The CMA, however, considered that Ping could have achieved this commercial aim through less restrictive means including by permitting its retailers to sell Ping golf clubs online if they could demonstrate the ability to promote custom fitting online. For example, by ensuring that the retailer has a suitable website to supply consumers with Ping’s full range of custom fitting options available in relation to each type of Ping golf club.

The CMA found that the infringement was intentional, or at least negligent. It also considered the breach to be aggravated by the involvement of Ping’s managing director, who created and enforced the Online Sales Ban. As such, the CMA imposed a 10% uplift on the fine, amounting to a total penalty of £1.45 million on Ping. In addition, the CMA directed Ping to end the Online Sales Ban and prohibited the imposition of any equivalent terms on its retailers.

This judgment reinforces the importance of online sales in the UK economy.
 

CAT Ruling

Ping appealed against the CMA Infringement Decision to the CAT. On 7 September 2018, the CAT upheld the CMA Infringement Decision confirming that the Online Sales Ban was a restriction of competition by object  (‘CAT Ruling’). The CAT considered that the Online Sales Ban had a real and material impact on consumers and retailers, as it significantly restricted consumers’ access to Ping golf club from outside their local area, which in turn materially reduced the retailers’ ability and incentive to compete online.

The CAT, however, considered that the breach was only negligent (rather than intentional), and that the CMA erred in treating the involvement of Ping’s managing director to be an aggravating factor. Having considered the overall fairness and proportionality of the fine imposed on Ping for this infringement, the CAT reduced the penalty by £200,000 to £1.25 million.

CoA Ruling

Ping further appealed to the CoA against the CAT Ruling, on the grounds that (i) the CAT erred in finding the Online Sales Ban to be a restriction of competition by object, and (ii) the CAT failed to specifically reduce the fine to reflect the CMA’s error in finding that the breach was intentional and aggravated.

On 21 January 2020, the CoA upheld the CAT Ruling. The CoA held that:

  • there is a body of case law and decisional practice that shows that, for the purposes of Article 101 of TFEU, the imposition by a supplier of a prohibition on internet sales by authorised retailers in a selective distribution network reveals a sufficient degree of harm to competition and is a restriction by object;
  • the harm created by the Online Sales Ban was sufficient to justify the restriction being regarded as an object infringement; and
  • the CAT imposed an appropriately reduced level of fine, reflecting as a whole that the infringement was negligent rather than intentional, and that the managing director’s involvement did not aggregate the infringement.

 

Comment

As the CMA Infringement Decision was upheld by both the CAT and the CoA, this landmark case sends an important signal to manufacturers that any absolute online sales bans on their retailers are illegal.

The case is also in line with the CMA’s increasing emphasis on consumer protection, both online and in-store. The CMA considers the Internet to be an increasingly important sales channel and that it enables retailers to reach a wider customer base, which should not be unduly restricted by manufacturers.

Given that consumers and businesses are increasingly shifting their trading online, we expect to see the CMA's increasing enforcement action against market behaviour that potentially undermines consumer interests in both the online and in-store context. 

 For more information please contact Kate Newman or Annabel Borg.

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