To coincide with London Fashion Week, which drew to a close on Tuesday, the Competition & Markets Authority (“CMA”) issued an open letter to the UK creative industry. The letter drew attention to the CMA’s fining of a number of modelling agencies case, as previously reported on this blog, and warns of the consequences of breaching competition law.
The CMA has also sent individual warning letters to a number of fashion businesses further to that case, but the open letter is a shot across the bows of the entire creative industry, and indicates that the CMA will be paying close attention to the sector from now on.
CMA Warning Letters
Where the CMA suspects that businesses are breaching competition law or are engaging in anti-competitive behaviour, but either does not have sufficient evidence to take action or does not consider it a priority to do so, it will often issue warning letters as a preliminary step.
Such letters are often issued because the investigation of one case has indicated that a particular practice is widespread within the relevant industry, or at least within individual businesses that were not themselves the target of the investigation. The intention is that writing to the other businesses to ensure they are aware of the issue, and of the action taken against their competitors, will encourage them to consider their own conduct and ensure they comply with the law.
While the point of a warning letter is to allow the CMA to draw a line under one investigation and turn its enforcement efforts to other sectors, the letter will make clear that the CMA will take very seriously any future infringement of competition law by the recipient. Warning letters are also a sign that, although further enforcement action in the sector is not an immediate priority, the industry will remain on the CMA’s radar for the foreseeable future. This makes detection and investigation of a breach more likely.
Consequences of failing to comply
The consequences of breaching competition law can be severe, and include:
- Significant and long-lasting reputational damage, both for the business and for the individuals involved.
- Fines of up to 10% of a business’s worldwide group turnover.
- Company directors can be disqualified for up to 15 years.
- Individuals may be prosecuted and sentenced to up to five years in prison.
- Anyone who has suffered loss as a result of a breach can seek damages from the business.
Lessons for the creative sector
Businesses in the creative sector, including but not limited to those who have received warning letters, should carefully consider how best to comply with competition law in future, including by putting in place effective compliance policies and training. Such steps may be particularly important in this sector given that CMA research suggests that over 50% of creative businesses do not know competition law well, if at all, and that only a small proportion had had any senior-level discussions or training on competition law. The risks of an unintentional breach of competition law are therefore high.
The message to the creative sector from the model agencies case, the warning letters and the open letter is clear: the CMA will target anti-competitive behaviour, including price fixing and the sharing of sensitive information, even in ‘non-traditional’ sectors.
Regardless of industry or sector, it is always a good idea for your business to make sure you’re not only well acquainted with competition law, but also confident that your business practices are compliant.