On 19 November 2020, the UK Competition and Markets Authority (CMA) imposed a fine of GBP17.9 million on a price comparison website operator for imposing most favoured nation clauses (MFNs) in contracts with home insurers selling through the well-known website, comparethemarket.com. The MFNs covered a two-year period from 1 December 2015 to 1 December 2017 and prevented the home insurers from offering better prices elsewhere.
In the internet era, price comparison websites are a handy tool to enable consumers compare prices across a range of suppliers in sectors like insurance, air travel, accommodation and many others. Yet, operators of price comparison websites have legitimate concerns that sellers do not free-ride or undercut their website by enabling consumers to access the end-service through another channel. Contractually, this is achieved by the inclusion of MFN clauses of which there are broadly two types: narrow and wide. A narrow MFN specifies that a supplier sets a price on the comparison website which is no higher than the price offered through its own website, but does not stipulate conditions for sales via other channels. A wide MFN specifies that a supplier must set a price on the website which is no higher than the price offered through its own website or through any other sales channel. Effectively, these measures prevent undercutting elsewhere. While competition authorities appear to recognise that narrow MFNs create efficiencies and may be justifiable, regulators continue to challenge the use of wide MFNs.
The concept of ‘MFN’ clauses is neither new or limited to internet commerce. Varieties of such clauses feature in many longer term commercial contracts, including outsourcing arrangements. The objective of the customer who seeks such assurance, is to ensure that it is best placed to achieve a market leading value (price) and/or service quality proposition from its supplier and that the contract is structured so as to be protected from shifts in the market, particularly as a result of technology change. Suppliers will often cite multiple challenges with such clauses including the difficulty with comparing ‘like with like’ when it comes to giving effect to and adhering to the clause and the commercial sensitivity issues that would arise if such clauses were ever to be enforced, namely disclosure of confidential and market sensitive information to establish where one customer sits when compared against others.
The CMA held that a network of wide MFNs meant that comparethemarket.com was contractually protected from being undercut by prices offered by home insurers on rival comparison websites. This reduced other website’s incentive to compete on commissions, to innovate and to enter the market. For instance, the CMA found that the home insurers covered by the wide MFNs accounted for 40% of sales of home insurance made through price comparison websites and comparethemarket.com had over 50% of the market share, well above rivals such as MoneySupermarket, Confused and GoCompare. As such, the CMA held that comparethemarket.com exercised market power in this segment.
While the CMA’s non-confidential Decision is not yet available, certain aspects are worth noting:
- This is the first time a significant competition fine has been imposed for a wide MFN in Europe. However, the CMA is not alone in challenging such terms. A cohort of national competition authorities within the European Competition Network (ECN) investigated and obtained commitments to remove similar wide MFNs in the hotel sector. Indeed, there appears to be a growing consensus that narrow MFNs are permissible - see DLA Piper Enforcement Guide to Vertical Agreements here.
- Whether a wide MFN is a hardcore restriction is not settled conclusively and depends on the context. In this case, the CMA found that the MFNs had the ‘appreciable effect’ of restricting competition in the UK home insurance market. According to the CMA’s theory of harm, wide MFNs soften competition (i) between price comparison websites, and (ii) between price comparison websites and competing channels. In particular, the CMA found no evidence of credible efficiency justifications for wide MFNs.
- Despite comparethemarket.com’s alleged market power which might suggest an abuse of dominance under Article 102 TFEU, the CMA characterised the conduct as an unlawful agreement between undertakings under Article 101 TFEU - yet used its discretion to avoid fining the home insurers. The dividing line as to treating MFNs under 101 TFEU or 102 TFEU is not clear cut and is influenced by the case at hand. At EU-level, the Commission previously assessed MFNs and similar practices in e-Books (Amazon) in 2017 under Article 102 TFEU, while it relied on Article 101 TFEU in its settlement commitment in e-Books (Apple) in 2012.
- The CMA previously signalled that wide MFNs raise serious concerns. In March 2015, it completed a market investigation into private motor insurance which identified that wide MFNs were causing competitive harm - and published an order to prohibit their use in the market for private motor insurance. Later, in September 2017, the CMA completed a broader review of online price comparison tools (and, indeed, identified the presence of the MFN in this case and duly opened its investigation).
- The CMA placed emphasis on the fact that comparethemarket.com ‘monitored and enforced’ the wide MFNs. Even though it is generally permissible for firms to enforce lawful contractual rights, a competition infringement may be exacerbated where a firm strictly enforces an anticompetitive policy, particularly where a firms holds market power.
- The Commission’s 2017 e-Commerce Sector Inquiry suggested that MFNs were covered by the Vertical Block Exemption Regulation (VBER) where they did not include a hardcore restriction of competition (para. 621). Above the 30% market share threshold in the VBER, an individual assessment is required. More recently in 2020, the Commission’s detailed support study to evaluate the VBER devotes extensive discussion to the treatment of MFNs, and a staff working document indicates that guidance may be expected in future.
- While this decision is quite specific to a particular market and contract type, the CMA observations and concerns are likely to have application more broadly and as a reference point which may both inform and make more challenging, negotiation of such clauses in other commercial arrangements.