On 21 January 2020 the Court of Appeal confirmed that the online sales restriction imposed by golf manufacturer Ping on its approved retailers under its internet sales policy (ISP) was a restriction of competition ‘by object’, the most serious type of competition law infringement that does not require the competition authorities to carry out a detailed analysis of the effect of the restriction on competition.
This is the first UK court case to examine prohibitions on online sales under competition law, and the Court of Appeal’s ruling is based on the European Commission’s Guidance on vertical restraints and the European Court of Justice’s (CJEU) case law (Pierre Fabre and Coty). It concludes that there is now a body of case law and decisional practice that shows that, for the purposes of Article 101 TFEU, the imposition by a supplier of an absolute ban on internet sales by authorised dealers in a selective distribution network reveals a sufficient degree of harm to competition and is a restriction of competition by object.
In the context of online sales the CMA has also focused its enforcement practice on online resale price maintenance, with a number of fines imposed in a range of sectors (bathroom fittings, light fittings, catering equipment and musical instruments). Most recently, on the day after the Court of Appeal ruling in Ping, it imposed a fine of £4.5 million on Fender Musical instruments for engaging in online resale price maintenance of its guitars.
- The ruling confirms the strict approach under EU competition law to online sales restrictions imposed on resellers. The starting point under EU competition law, (which is set out in paragraph 52 of the Commission’s Guidance on vertical restraints), is that every distributor must be permitted to use the internet to sell the products supplied for distribution. This was confirmed by the CJEU in the Pierre Fabre case (where a requirement that cosmetic brands be sold only in a physical space, with a qualified pharmacist present to advise on the use of the products, was held to be an absolute ban on online sales and thereby a restriction by object).
- Suppliers will therefore need to be careful when they seek to restrict online sales by their distributors. Whereas it may be possible to impose quality standards on the design of a distributor’s internet site, or certain restrictions on the use of third party platforms to distribute the contract goods, an absolute ban on online sales is highly likely to amount to a serious restriction on competition and will be very difficult to justify.
- As a result of Brexit, once the transition period that is currently set to end on 31 December 2020 is completed, UK competition law may start diverging from EU competition law (the extent to which this is possible will depend on whether or not continuing alignment of competition rules is agreed as part of a future relationship). Countries where market integration is not a policy objective of competition law (as it is the in the EU common market) tend to take a more liberal approach to online sales restrictions. In the US for example, suppliers can justify online sales restrictions in order to avoid free-riding issues, to protect brand image or to otherwise improve intra-brand competition. Post-Brexit, the UK may be able to take a similar approach should the competition authorities and UK courts think this appropriate.
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