UK competition watchdog continues to target online sales restrictions

Written on 13 Jun 2016

The UK is seeing a significant increase in competition enforcement activity, particularly where the conduct concerned affects online selling. Continuing this trend, the Competition & Markets Authority (“CMA”) has recently imposed fines on manufacturers and suppliers for restricting their resellers’ ability to offer discounts online.

RRP must mean recommended

On 10 May 2016, Ultra Finishing Ltd – a supplier of bathroom fittings through a number of brands in the UK – was fined £786,668. The CMA decided that Ultra had engaged in illegal resale price maintenance (“RPM”) in respect of internet sales made by its distributors and retailers. Ultra issued to retailers so-called “recommended” retail prices (“RRPs”) for online sales.

Where RRPs are genuine (i.e. retailers are not obliged directly or indirectly to follow them), they are usually lawful. However, in this case, despite being described as “recommendations”, in fact Ultra threatened retailers with penalties for not pricing at or above the “recommended” price, including charging them higher cost prices for products, withdrawing their right to use Ultra’s images online, or ceasing supply altogether. In practice, therefore, this limited the retailers’ ability to offer discounts to potential buyers online and was found to be anti-competitive.

Minimum advertised pricing is prohibited

Similarly, on 10 June 2016, ITW Limited – a manufacturer and supplier of commercial refrigeration products in the UK – was fined £2.2 million. ITW had issued a “discounting policy” to its entire network of resellers. The policy prohibited resellers from advertising ITW’s products below a minimum advertised price both online and offline. ITW regularly monitored resellers’ websites to check compliance with the policy and encouraged resellers to report instances of non-compliance by other members of the network.

As a follow-up to both of these infringement decisions, the CMA has sent several warning letters to other businesses in these sectors to make clear that anti-competitive behaviour of these kinds will not be tolerated and may ultimately lead to further fines being imposed. These warning letters are increasingly used to send a signal to industries that the CMA perceives as being prone to anti-competitive conduct.

Resellers must be free to sell online

In a connected development, on 9 June 2016, the CMA also launched formal proceedings against golf and sporting equipment supplier Ping. The CMA alleges that Ping has operated an outright ban on online sales. Commenting on the investigation, CMA Senior Director Ann Pope stated that: “The internet is an increasingly important distribution channel and retailers’ ability to supply via this channel should not be unduly restricted … Bans on internet trading can be a problem if they seek to prevent retailers reaching a significant proportion of customers.”

European context

This renewed focus by the CMA on online sales restrictions affecting markets in the UK is broadly consistent with the European Commission’s ongoing Digital Single Market strategy, which we have covered in detail in previous newsletters. In particular, by concentrating its limited resources on investigating barriers to online sales, the CMA is emphasising the importance of removing obstacles to online purchases for both UK businesses and, more importantly, UK consumers.