New Authority: Court of Appeal Upholds Competition and Markets Authority Decision in Respect to Online Sales Restrictions

In 2017 the Competition & Markets Authority (“CMA”) found that Ping, a manufacturer of golf clubs, had infringed the prohibition in Chapter I of the Competition Act 1998 and Article 101 of the Treaty on the Functioning of the European Union. In that regard, Ping had entered into agreements with two UK based retailers containing clauses prohibiting those retailers from selling Ping golf clubs online.  Upon considering the same, the CMA found that Ping had been operating an online sales ban, which was not objectively justified. The CMA imposed a financial penalty of £1.45 million on Ping and directed that it brings the online sales ban to an end, and must not impose the same or equivalent terms on other retailers. Ping duly appealed to the Competition Appeal Tribunal (“CAT”). In a judgment dated 7 September 2018 ([2018] CAT 13) the CAT upheld the finding that the internet sale policy adopted by Ping amounted to a restriction of competition. The CAT however reduced the penalty imposed to £1.25 million. It should be noted that the CMA had accepted that Ping was pursuing a genuine commercial aim of promoting in-store custom fitting in respect to golf clubs, but found that it could have achieved this through less restrictive means.

On the 21st January 2020, the Court of Appeal handed down Judgement in an appeal from the CAT by Ping (available here: https://www.bailii.org/ew/cases/EWCA/Civ/2020/13.html). The Court rejected Ping’s appeal, and provided a helpful analysis of the European Jurisprudence in this area, assessing competing arguments as to the implications and interpretation of previous case law. The case is being described as a “landmark case” which sends an important signal that attempts by manufacturers to impose absolute bans on selling their products online are unlawful. The maintenance of a prestigious image may, in some situations, justify the restriction of competition arising from the use of a selective distribution system, in particular in relation to luxury goods. Accordingly,  companies may be able to prevent those goods from being sold online by distributors. However, crucially, one must examine the economic and legal context of the operation of any such intended  restriction, before deciding whether it is an object restriction or not and thus permitted. 

As the Chancellor of the High Court observed at para 131 of the Judgement “There are many ways in which Ping’s objective can be substantially fulfilled without imposing a blanket ban on internet sales”. Thus, it appears that the ultimate question a company must ask itself is: “is there another way, other than a prohibition clause, in which we can achieve our objective”. That question should be asked and answered as a matter of urgency, or any restrictive commercial practice, even if arguably well intended, could lead to significant fines and lengthy litigation.

Lewis Power QC & Colin Witcher: Business Crime and Regulatory Group, Church Court Chambers. 

(this case comment does not constitute legal advice).

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