On 12th September 2017 the UK Competition Authority, the Competition and Markets Authority ("CMA") sent an open letter to businesses in the creative industries sector warning them about price fixing and information sharing emphasising that this type of illegal behaviour will not be tolerated.
The CMA's experience derived from a recent cartel case and research into the creative sector. This showed that while the creative sector is an important and rapidly growing part of the UK economy estimated to be worth some £84.1 billion, many businesses in that sector have a particularly low understanding of competition law. Over 50% of creative firms surveyed by the CMA stated that they didn't know competition law well, if at all. This puts them at risk of not recognising if they or third parties with whom they have dealings with are breaking the law.
The CMA has developed a practice of sending warning and advisory letters to businesses when it is concerned that their business practices could be harming competition in their market sector and to encourage them to comply with the law.
The regulator usually becomes aware of offending business practices through market intelligence sources or through past cases in a particular industry or complaints by third parties or application for leniency by others engaged in cartel type behaviour. The CMA hopes that by sending out these letters recipients will be spurred into carrying out a self-assessment of their business practices to ensure they are in compliance with their legal duties.
As companies will know, the consequences of infringing competition law can be serious and far-reaching:
- businesses can be fined up to 10% of their annual turnover
- company directors can be disqualified from managing a company for up to 15 years
- people involved in cartels can face up to 5 years in prison
The CMA has decided that now is an appropriate time to issue these letters in advance of London Fashion Week.
The text of the letter highlights a recent case where five model agencies and their trade association were fined over £1.5 million for colluding with each other about the levels of prices they charged for modelling services rather than actively competing. The CMA found that the model agencies regularly and systematically exchanged confidential and commercially sensitive information and discussed prices in the context of negotiations with particular customers. In some cases, they agreed to fix minimum prices or agreed a common approach to pricing.
In the letter the CMA expressly refers to an email that was uncovered during the case. The email to a prospective member describes how the trade association could be used as "a good source for sharing information between members; problem clients, usage of models' images on social media etc..." In reality the purpose of the trade association was to share confidential and commercially sensitive information to get members to agree minimum prices and to resist prices offered by customers which they regarded as too low.
Competition Compliance Should be a Priority
The CMA is particularly concerned about the low level of competition law awareness in the creative sector and it hopes its warning letter will be taken seriously by the industry to address its competition concerns.
In announcing the publication of the CMA’s warning letter, Stephen Blake, Senior Director, Cartels and Criminal Group at the CMA stated:
"The creative industries are incredibly important to the UK economy. We have some of the best creative talent in the world, and we recognise the valuable contribution these individuals make. Because of this, it's also vital that businesses in the creative sector know that certain behaviour is illegal under UK competition law. The consequences can be serious. As we approach London Fashion Week when the spotlight is on the fashion industry, we are publishing an open letter urging businesses to be clear on the boundaries of the law. We know the majority want to do the right thing and there are some clear steps they can take to help ensure they do so."
In light of this development it is important that all companies in the creative sector take notice of the CMA's warning and ensure they have an adequate competition law compliance programme and training in place. One consequence of the CMA’s warning letters is that if a company does not take action as a result of the CMA's warning and they are later found out to have infringed competition law they are likely to be treated more harshly.