The CAT’s decision serves as a warning that attempts to restrict the ability of resellers to sell online can expose companies to significant risk, even where the ban is in pursuit of a legitimate, and even potentially pro-competitive, commercial aim.
In August 2017, the CMA announced that it had imposed a fine of £1.45 million on Ping Europe, a leading manufacturer of golf equipment, for infringing competition law. Ping had prevented two UK retailers in its selective distribution network from selling its golf clubs on their websites. Ping argued that this policy was designed to promote in-store custom fitting, with the intention of protecting the brand by helping customers purchase the correct product for their needs. While the CMA accepted that the promotion of a custom fitting service was a legitimate commercial aim, it found there were less restrictive measures that Ping could have adopted to promote that aim.
Ping appealed the decision on several grounds, including that:
- the CMA’s decision would effectively force Ping to sell a product it did not wish to sell, that is, non-custom fitted golf clubs, and that this constituted a breach of Ping’s human rights;
- the CMA was wrong to find that Ping’s sales ban amounted to a restriction “by object”, as the policy pursued a legitimate objective which benefitted customers and which did not negatively affect competition; and
- the CMA was wrong to find that Ping’s policy was disproportionate, and that the alternative measures that the CMA argued that Ping could adopt were not practical.
On appeal, the CAT upheld the CMA’s decision and dismissed Ping’s appeal. It agreed with the CMA that Ping’s online sales ban restricted competition and that a blanket sales ban was not the only means by which Ping could have achieved its aims.
While the CAT found mistakes in the CMA’s analysis (not least, that the CMA should not have considered the question of objective justification in establishing whether there was a “by object” restriction), this did not affect the ultimate outcome of the case. The CAT did not agree with Ping on its main grounds of appeal, finding as follows:
- the effect of the decision was not to force Ping to sell a product it did not wish to; there was nothing to stop it pursuing its policy of promoting in-store fitting (it had the choice to refuse to supply retailers that did not support this policy, for instance);
- the CMA’s detailed assessment of proportionality in addressing objective justification was not necessary to establish a “by object” infringement under Article 101(1) and ought to be dealt with at later stage of the analysis. Nevertheless, the findings of fact were correct, as was the conclusion it reached – namely, that the online ban was not objectively justified; and
- Ping’s legitimate aim in implementing the ban did not prevented this from being a “by object” restriction; the existence of a pro-competitive effect did not, in and of itself, prevent such a finding. The ban would be a “by object” restriction if it reveals a sufficient degree of competition; in this case, the CMA was correct to conclude that the online sales ban had a “real and material” impact on consumers and retailers.
The CAT did, however, consider the level of the fine imposed on Ping by the CMA to be slightly too high, and reduced the fine to £1.25 million.
Why is this case important?
Whilst it is well established that online sales bans are generally incompatible with competition law, the CAT’s analysis of the approach taken by the CMA in assessing whether the ban was pursuing a legitimate objective, and was proportionate to that objective, is both insightful and important. In finding that the CMA had erred in its approach, the CAT is in effect decreasing the burden on the CMA in proving an infringement under Article 101(1).
What lessons can be learned from this case?
While an outright sales ban may seem like an easy solution to deal with the growing difficulties manufacturers are facing in protecting their brand online, the CAT’s decision to uphold the CMA’s fine ought to be seen as a clear message that the UK competition authority is taking a firm stance on this behaviour, even where it has sympathy with the commercial objective behind the ban.
In all but the most exceptional circumstances, online sales bans will not be permitted under UK competition law. As the important Coty judgement showed, however, certain restrictions may be permissible in order to protect brands – including restricting retailers within a selective distributing network from selling on internet marketplaces. What is clear is that, with anti-competitive behaviour in e-commerce firmly in the Commission’s spotlight and national competition authorities throughout Europe taking enforcement action, careful thought must be given to competition law when considering how best to protect brands online.