The Competition and Markets Authority (CMA) took the unusual step earlier this week of issuing an open letter warning suppliers and retailers not to allow their online sales activities to infringe the prohibition on so-called resale price maintenance (RPM). The move is the latest in a series of developments across Europe signalling a greater focus on online trade and an increased willingness amongst competition authorities to take enforcement action.
On 21 June 2016, the CMA published on its website a set of materials aimed at raising awareness of RPM, particularly in the online environment, and warning of the serious financial and reputational consequences of engaging in such infringements of competition law. In addition to the open letter, the materials also comprise a short video and a one-page '60 second guide' explaining RPM and emphasising the importance of compliance.
Amongst its reasons for publishing these materials, the CMA referred to the surprising findings of its recent research into levels of awareness about RPM in the business community, which are a stark indication of the serious competition law risks that many firms appear to be running unintentionally. Around a third of the businesses surveyed believed, wrongly, that it is legal to set the price at which another business (e.g. a distributor or retailer) sells your product, and a further 35% of businesses were uncertain as to the legality of such practices. Less than a third of businesses appeared to be aware that RPM is a serious infringement of competition law.
The risks of engaging in RPM may be higher in the UK because it is possible for one of the parties involved to blow the whistle to the CMA in return for immunity from fines, which could increase the risk of detection. By contrast, certain other competition authorities, including the European Commission, exclude RPM practices from the scope of their whistle-blowing (leniency) regimes. Recent reforms in the UK have introduced a class actions regime for competition cases, which will also increase the potential exposure for businesses that allow their online sales arrangements to infringe competition law. Earlier this week a UK court published details of the first such class action, brought by the National Pensioners Convention against a mobility scooter manufacturer that was found by the OFT (the predecessor to the CMA) to have infringed competition law by prohibiting certain retailers from advertising below-RRP prices online.
The CMA's recent enforcement activities have focused on a range of competition infringements affecting online markets. In April 2016, the CMA imposed a fine of £1,032,502 (reduced to £786,668 in recognition of the supplier's willingness to settle and to implement a compliance programme) on a bathroom fittings supplier for threatening to punish retailers with a range of penalties, including charging higher prices or ceasing supply, if those retailers set resale prices above the supplier's ‘recommended’ price, which amounts to infringing RPM. In May 2016, the CMA imposed a fine of £2,873,526 (reduced to £2,298,820 by a settlement discount) on a fridge supplier for operating a ‘minimum advertised price’ policy, effectively preventing dealers from advertising online below that minimum price (even though the dealers were not prevented from actually selling at a lower price) . Earlier this month the CMA sent a Statement of Objections to US golfing equipment manufacturer Ping, alleging an infringement of competition law in the form of a ban on online sales by retailers.
The trend of competition enforcement activity in online markets extends beyond the UK. Over the past year alone, various manufacturers have faced fines for imposing RPM on online retailers by a number of national competition authorities, including electronic device manufacturers HP and Samsung in Austria, watch manufacturer Swatch in Poland, and three mattress manufacturers, Recticel, Metzeler Schaum and Tempur, in Germany.
The German authorities have also been particularly active in recent years in investigating manufacturers' selective distribution arrangements in the online sphere, although without always applying a consistent approach. Sportswear manufacturers ASICS and Adidas and headsets and headphones manufacturer Sennheiser have all been prohibited by the German Federal Cartel Office from restricting the ability of members of their respective selective distribution networks to sell on marketplaces such as Amazon Marketplace. But a German court reached a seemingly contradictory decision in ruling that a restriction on selling via Amazon Marketplace imposed by backpack manufacturer, Deuter, was legal. The same court has recently asked the EU Court of Justice to rule on whether a similar ban on online sales via third party websites imposed by the perfume manufacturer, Coty, is compliant with EU competition law. It is hoped that the EU Court's decision will provide some much-needed clarity on these types of restrictions.
Furthermore, the European Commission's sector-inquiry into e-commerce, which was launched in May 2015, is progressing. In order to address concerns relating to geo-blocking practices highlighted in the issues paper published in March 2016, particularly in relation to online sales of consumer goods, the Commission published a draft Regulation in May 2016 that will prohibit a range of unilateral geo-blocking practices. A Preliminary Report, setting out a detailed analysis of the Commission's findings so far, is expected to be published this summer. Further enforcement action by the Commission, focusing on competition infringements affecting online markets, seems likely to follow.