Introduction

The Competition Appeal Tribunal (“CAT”) handed down its judgment on 7 September 2018 in relation to an appeal by Ping Europe Limited (“Ping”) challenging the decision of the UK Competition and Markets Authority (“CMA”) to fine it £1.45 million for breach of the Chapter I prohibition of the Competition Act 1998 and Article 101 of the Treaty on the Functioning of the European Union (TFEU) for a blanket ban on internet sales. The CAT dismissed Ping’s appeal on liability but permitted a small reduction in relation to the fine imposed.

This is the first time the UK Courts have considered in depth the merits of an absolute internet sales ban and its analysis under UK and EU competition law.  The European Court of Justice has previously considered such bans in its case of Pierre Fabre in the context of cosmetic products.

According to the CMA, which sees this as landmark case, this judgment sends an important signal that attempts by manufacturers to impose absolute bans on selling their products online are not permitted by competition law. The judgment is really not a surprise but what is more interesting is to see is the way the Court has analysed the restriction in question and how that same analysis could be used to assess whether more limited bans on internet selling activity imposed by manufacturers upon distributors could be permissible.

 Facts

Ping, a US manufacturer of golf clubs and golfing accessories, operated a selective distribution network in the UK. It prevented two of its UK retailers from selling Ping golf clubs on their websites. Ping alleged that this policy was motivated by protecting its brand and promoting in-store customer fitting. Ping already had a reputation for achieving a high level of custom fitting in its dealer network and it claimed this was an essential part of its business model. Without this ban on internet selling it claimed customers could buy ill-fitting golf clubs and its brand would fall into disrepute.  The CMA found that Ping had been operating an online sales ban, which was not objectively justified. Ping could have employed less restrictive measures to meet its objectives. The CMA therefore fined Ping £1.45 million for breach of Chapter I of the Competition Act 1998 and Article 101(1) TFEU. Ping appealed to the CAT.

The Judgment

(i) By Object Restriction

 In approaching the case the CAT stated that the first consideration was to assess whether the ban fell outside Article 101(1) TFEU according the criteria set down in the Metro case. Under this case conditions imposed as part of a selective distribution system must be qualitative in nature, be applied uniformly and in a non-discriminatory way, and not go beyond what is necessary. If these rules were satisfied the ban would fall outside Article 101(1) altogether.

However if the ban did not satisfy those rules it would fall within the scope of Article 101(1). It was then necessary to assess whether the clause caused such a sufficient degree of harm to competition it could be considered a restriction of competition by object within Article 101(1) . This meant that if the very nature of the internet policy was to restrict competition a regulator was justified in presuming that it constituted an appreciable restriction of competition without needing to prove it on its facts.

The CMA  concluded that the ban was a restriction by object unless it was objectively justified. Having reviewed the evidence the CAT agreed that in this case the absolute ban on internet sales was a restriction by object. However it disagreed with the CMA on the relevance of the aims and justifications of the parties as part of that analysis. The CAT said this was irrelevant to the consideration as to whether this was a by object restriction.

(ii) Individual Exemption

The next step in the CAT’s analysis having concluded that a restriction by object was present was to see whether it could nevertheless be redeemed under Article 101(3) TFEU as meriting an individual exemption. This required the CAT to balance the likely pro and anti-competitive effects of the restriction. Therefore in this case could the restriction on price competition be counterbalanced by its promotion of non-price competition. In other words could the ban on internet selling be justified on the basis that it promoted customer benefit through custom fitting. It was accepted by all parties that Ping bore the burden of proving that the ban merited an individual exemption under Article 101(3).

To merit an exemption the agreement /restriction:-

(1) should contribute to improving the production or distribution of goods or contribute to or promote technical or economic progress;

(2)  consumers must receive a fair share of the resulting benefit;

(3) the restriction must be indispensable to the attainment of these objectives. In other words be no broader than necessary to achieve the parties’ aims and;

(4) the agreement must not afford the parties the possibility of eliminating competition in respect of a substantial part of the prdiucts in question

In relation to Conditions 1 &3 the CAT concluded that consumers benefit from customer fitting because they receive a better product . This constituted an efficiency under Condition 1 although the scale of the benefit was limited. However they found that the CMA had shown that there were less restrictive and equally viable means of achieving the required benefits than a blanket ban on internet sales. The Court did not consider that the policy generated significant benefits as it motivated relatively few consumers to get a custom fitting. On the other hand there were disbenefits as consumers suffered an inconvenience of not being able to buy online . However there again relatively few customers purchased custom fit clubs on line. However in the final analysis the Court did not consider that the benefits of policy outweighed the disbenefits. Accordingly Condition 2 was not fulfilled.

There was really no evidence to show the policy risked elimination of competition : inter brand and intra brand competition would still continue to exist  . Therefore Condition 4 was fulfilled.

However as a number of conditions under Article 101(3) were not fulfilled the Court ruled that that the policy does not benefit from an individual exemption under Article 101(3) . Accordingly the CMA’s decision that the policy breached UK and EU competition law was upheld.

(iii) Penalty

As regards the penalty, the CAT concluded that the CMA erred on the facts of this case in treating director involvement as an aggravating factor. It reduced the penalty by £200,000 to £1.25 million

Reference

Ping Europe Limited v Competition and Markets Authority, [2018] CAT 13, judgment of 7 September 2018.