It’s a fix: the dangers of online sales restrictions!

The shift towards internet shopping has generally been welcomed by consumers: it provides increased choice, convenience and the ability to compare prices. Many suppliers, however, are concerned that the substantial discounts offered by online sellers will result in a race to the bottom.

Suppliers may, quite understandably, wish to control the prices at which their goods are resold, for example by imposing:

• (1) a complete prohibition on online selling;
• (2) a prohibition on displaying prices online; or
• (3) minimum resale prices.

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The Competition and Markets Authority (CMA) has made it clear in a series of recent case studies and other publications that attempts to control resale prices in this way are quite likely to amount to price fixing, which is unlawful under domestic and EU competition law. You will see from the case summaries below that the fines imposed by the CMA can be substantial. Add the management time and legal fees spent dealing with intrusive investigations (which may include dawn raids) not to mention the reputational risk and it will be obvious that the consequences of getting it wrong are severe.

Recent cases:

• Online supply of golf clubs

In August 2017 Ping Europe Limited (Ping) was fined £1.45 million by the CMA for preventing two retailers from selling its golf clubs over the internet.

The CMA required Ping to bring the online sales ban to an end and not to impose the same or equivalent terms on other resellers. Ping may require online sellers to meet certain conditions, provided they are compatible with competition law.

The CMA did acknowledge that Ping had been pursuing a genuine commercial aim of promoting in-store custom fitting but took the view that this could have been achieved through less restrictive means.

• Domestic light fittings

In June 2017 a supplier of domestic light fittings was fined £2.7 million by the CMA. The supplier set a maximum level of discount which its resellers were allowed to offer off the recommended resale price. It was an unwritten condition of the internet licence agreement which resellers were required to sign that failure to comply with the pricing policy would result in the removal of image rights. The supplier also threatened to put resellers’ accounts on stop if they failed to increase prices within 24 hours of a request to do so.

In this case, it was notable that although the supplier had taken care to avoid communicating the policy to its resellers in writing, the CMA reviewed internal correspondence and recordings of telephone conversations in detail.

• Commercial catering equipment and bathroom fittings

In May 2016, following an investigation, the CMA fined a commercial refrigeration equipment supplier £2.3 million and a bathroom fittings supplier £786,668 for engaging in resale price maintenance.

The refrigeration supplier imposed a minimum advertised price and threatened to charge higher cost prices or cease supplying goods altogether to resellers who sold below this price.

The bathroom fittings supplier issued online trading guidelines to its resellers, which referred to a “recommended” online price. Resellers who sold below that price were threatened with higher cost prices, withholding of supply and withdrawal of image rights. The effect of those threats was that the “recommended” price was in reality a minimum price.

Lessons learned

The CMA has helpfully extracted a number of key principles from the above cases.

• Suppliers should not attempt to interfere with a reseller’s ability to set its own prices for the supplier’s goods, regardless of whether those goods are sold online or through other channels.
• The CMA is actively monitoring retail price maintenance in the online space and is prepared to take enforcement action against infringers.
• Resale price maintenance policies cannot be disguised by not committing them to writing or by hiding them within an apparently legitimate document such as an image licence.
• CMA warning letters must be taken seriously: failure to respond appropriately may result in an uplift in any fine.
• The consequences of breaching competition law can be very serious and include a fine of up to 10% of worldwide group turnover.

Further reading

Guidance, warning letters and case studies can be found on the CMA website at https://www.gov.uk/government/collections/resale-price-maintenance-information-for-businesses

How can we help?

We advise our clients on the types of conduct likely to be caught by the competition regime. Where clients have a significant share of a particular market, we help them identify competition concerns at an early stage, and to find pragmatic solutions. We can also provide training and workshops on the fundamental principles of competition law.

For more information regarding the above article, competition law, e-commerce or terms of sale advice, contact Associate Catherine O’Riordan on 01295 204150 or email co’riordan@se-solicitors.co.uk.

*Disclaimer: While everything has been done to ensure the accuracy of the contents of this article, it is a general guide only. It is not comprehensive and does not constitute legal advice. Specific legal advice should be sought in relation to the particular facts of a given situation.