Following an investigation launched in in 2017, the UK Competition and Markets Authority (CMA) has concluded that ComparetheMarket, one of the largest price comparison websites in the UK, infringed competition law by imposing wide 'most favoured nation' (MFN) clauses in its agreements with a number of home insurance providers.
Michael Grenfell, executive director for enforcement at the CMA, said: “Price comparison websites are excellent for consumers. They promote competition between providers, offer choice for customers, and make it easier for consumers to find the best bargains.”
“It is therefore unacceptable that ComparetheMarket… used clauses in its contracts that restricted home insurers from offering bigger discounts on competing websites - so limiting the bargains potentially available to consumers.”
The CMA has investigated a network of MFN clauses used by ComparetheMarket in its contracts, which prevented home insurance providers from quoting cheaper prices on their own website and on any rival comparison websites.
In its recent decision, the CMA found that the comparison website had breached section 2(1) of the Competition Act 1998 (the Chapter I prohibition) and Article 101 of the Treaty on the Functioning of the European Union (TFEU) by reducing price competition between price comparison websites and between home insurance providers competing on such sites.
The infringement occurred from 1 December 2015 to 1 December 2017 and is said to have likely resulted in higher insurance premiums being paid by consumers.
ComparetheMarket's MFN clauses were found to have had the following anti-competitive effects:
- Without any flexibility to offer lower prices to similar websites, home insurers using price comparison platforms had less ability and incentive to compete on price, which had the effect of limiting competitive pressures between them.
- Competing comparison websites were prevented from achieving competitive price advantages over ComparetheMarket, restricting their ability to expand and reducing their incentive to lower commission fees or to induce home insurers to offer them lower prices.
- ComparetheMarket experienced a strengthened market position as a result of the reduced competitive pressure in the market. Without the contractual obligations in place, it would have had to compete more heavily against its rivals to obtain competitive prices from the insurers, such as by lowering the commission fees it charged.
The CMA imposed a fine of £17.91m to reflect the seriousness of the infringements and to send out a loud signal of deterrence to others.
CMA focus on MFN clauses
The MFN clauses used by ComparetheMarket were identified by the CMA during a market study into digital comparison tools (DCTs), which was concluded in September 2017. DCTs, such as price comparison websites, are used by consumers to compare and switch between products and services from a range of different businesses.
As part of the market study, the CMA considered the use of both 'wide' and 'narrow' MFN clauses by DCTs:
- A wide MFN agreement between a DCT and a supplier, such as those used by ComparetheMarket, stipulates that a product or service may not be sold for a lower price on a supplier’s own website or on any other DCT.
- A narrow MFN agreement obliges a supplier to set a price on a DCT which is no higher than the price quoted on its own website, but does not specify conditions for sales elsewhere.
Although the CMA found that narrow MFN clauses in the particular areas it examined did not restrict competition, the regulator warned that they still remained of interest and could still have that impact in certain circumstances. Wide MFN clauses, however, were been highlighted as a concern, because such clauses have been seen to soften competition between DCTs and lead to higher prices for consumers. The CMA has taken measures against such clauses in a number of sectors, including private motor insurance, hotel booking and online auctions, in addition to home insurance.
Beyond the UK
MFN clauses have been a hot topic across Europe in recent years. The European Commission most recently cracked down on Amazon in 2017 for its use of MFN clauses in the e-book market. As a result, Amazon made a legally binding commitment to remove MFN clauses from all of its e-book contracts.
The Commission has also acknowledged in its staff working document that guidance within the Vertical Block Exemption Regulation and its accompanying Guidelines is not sufficient in respect of the legal qualification and assessment of MFNs. The Commission is expected to put in place revised rules to address areas such as these, where there is a lack of clarity or gaps exist in the current rules, ahead of the expiration of the Vertical Block Exemption Regulation on 31 May 2022.
Some European countries, including France, Austria, Italy and Belgium, have brought in legislation completely prohibiting MFN clauses in contracts between accommodation providers and online hotel booking agencies. Interestingly, this legislation includes a prohibition on the inclusion of narrow MFN clauses as well as wide MFNs.
Osborne Clarke comment
The ComparetheMarket decision highlights the importance of checking the scope of an MFN clause or agreement. If it is wide in definition, then it is likely to be found to infringe competition law. Care must also be taken when using narrow MFN clauses, which should not go beyond what is strictly necessary to achieve related efficiencies. The CMA considers that this area of law is now sufficiently well-developed, such that it will no longer give the benefit of the doubt, especially where wide MFNS are concerned.
The CMA's ruling is particularly relevant to price comparison websites and the suppliers who use such platforms (although the home insurer providers were not fined for their involvement in the case). It forms part of a larger piece of the CMA's work within this sector and sets a precedent for tackling what seems to be a common industry practice.
The regulator has given a clear warning that it intends to keep MFN agreements under review and it appears likely that it will seek to scrutinise the use of such clauses in the future in conjunction with other regulators in the UK such as the FCA and Ofcom where sector-specific concerns are identified, and with international competition agencies whenever restrictions have a cross-border impact.