Case law: Supplier who restricted prices chargeable by online retailers must pay significant fine for breach of competition law
Suppliers and their retail customers should ensure they are aware of, and take steps to ensure compliance with, competition law if their acts or practices (such as restricting online sale prices of their products) might restrict or distort competition, a recent case makes clear.
This update was published in Legal Alert - July 2016
Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.
A supplier manufactured and sold bathroom fittings which were sold both online and offline by retailer customers. The supplier introduced online trading guidelines following complaints from offline retailers about their growing online sales.
There was a 'recommendation' in the guidelines that online prices for two lines of products should not drop lower than 25 per cent below the recommended prices for those lines when sold by an offline retailer. The guidelines specifically said that recommendations were not legally binding.
The Competition and Markets Authority found that the main objective of the guidelines was to put a ceiling on the amount of discount online retailers could offer, and this was a breach of competition law. They found that there was a degree of coercion by the supplier to force retailers to accept the guidelines: its copyright licensing procedures required retailers to comply with the guidelines before using the supplier's imagery (which, of course, they needed to do to sell the supplier's products effectively).
The supplier monitored retailers' pricing, recorded those in breach of the pricing 'recommendation' and took action against them in several cases. This included threatening to charge them higher prices, and stop them using its imagery, and to stop supplying them.
The CMA therefore found that the 'recommendation' was not a recommendation at all but set a minimum price that online retailers could charge - in breach of competition law.
It also found that internal communications showed the supplier's management were aware they may have been breaching competition law.
The supplier argued that the guidelines and licensing procedures were to protect its brand as some online retailers had provided poor service; and others had tried to pass off other goods as being the supplier's goods - exposing the supplier to the risk of counterfeiting charges.
However, the CMA ruled that while these may have been genuine reasons for the guidelines and procedures, they were 'at most, subsidiary to the objective of protecting resellers' margins by reducing price competition from resellers making sales online' and were not a legitimate justification for restricting competition in any event.
The supplier admitted the breach, agreed the fine and agreed to provide tailored training for all employees and introduce a procedure for identifying and dealing with potential competition law risks. It agreed to review its activities every year and submit an annual report to the CMA for the next three years.
These measures reduced its fine by 25 per cent, to £786,668.
The CMA indicated it could also have fined the retailers in this case for taking part in 'resale price maintenance', which is also a breach of competition law. However, it chose not to.
- Suppliers and their retail customers should ensure they are aware of, and take steps to ensure compliance with, competition law where any proposed act or practice might conceivably restrict or distort competition, or risk significant fines
Case ref: CMA Case CE/9857-14
Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.
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