David Flint looks at a case illustrating the fine line between necessary and unnecessary restrictions in the competition rules.
The Competition and Markets Authority (CMA) have issued a fine of £1.45 million to PING Europe Limited for breaching competition rules. The fine issued concerned agreements entered into with two UK retailers that prohibited online sales of PING golf clubs. The CMA, and the European Commission, have both made clear in recent months that they are taking an interest in how online sales are managed. This fine serves as a reminder to organisations that restrictions of this kind are a breach of competition law and could expose an organisation to a fine of up to 10% of global annual turnover.
PING Europe Limited entered into agreements with two UK retailers to sell PING golf products to customers. These agreements included a restriction which prohibited the sale of the PING products on the retailers’ online stores. PING contended that the restriction was imposed on the retailers to encourage in-store custom golf club fittings.
The CMA took into account PING’s commercial consideration in attempting to encourage customers to visit stores and be custom fitted for golf clubs, but disagreed that PING’s restrictions, imposed on the two UK retailers, were “necessary” to reach such a commercial goal.
The CMA only chose to fine PING in this instance, and not the two UK retailers with whom PING entered into these arrangements.
PING has breached the Chapter 1 prohibition contained in the Competition Act 1998 which covers anti-competitive agreements, concerted practices and decisions which have as their object or effect the prevention, restriction or distortion of competition within the UK or a part of it and which may affect trade within the UK or a part of it.
The CMA recognised the genuine commercial aim PING were trying to reach through the agreements, however, thought that the aim could have been reached through less restrictive means (we will need to wait on the CMA decision being released before we know what these are!)
The CMA made clear that a complete ban on online sales would breach competition law unless there were sufficient justification for this.
The CMA is yet to publish its decision in relation to this fine issued to PING – perhaps this will provide additional insight into how such a ban could have been justified and whether there are circumstances in which such a ban would be compliant with competition law.
Until then, organisations should be mindful of this decision and remember that an outright ban on online sales is likely to breach competition law…and lead to a very large fine (as PING have found out!).
- David Flint is senior partner at MacRoberts