On 7 September 2018, the UK Competition Appeal Tribunal (CAT) upheld the UK Competition and Market Authority's (CMA) decision fining Ping Europe Limited, a manufacturer of golf clubs, for violating EU and UK competition law by prohibiting two UK retailers from selling Ping golf clubs online. While the CAT reduced the fine from £1.45 million to £1.25 million, it confirmed that outright online sales bans in the context of selective distribution agreements are restrictive of competition by object.
Ping is the latest in a series of decisions seeking to define the scope of appropriate restrictions in the context of online sales. The general principle was established by the European Court of Justice in Pierre Fabre that a ban on sales via distributors' websites is restrictive of competition by object unless it is objectively justified. Subsequently, national authorities in Germany [see our February 2016 Newsletter] and the Netherlands [see our October 2017 Newsletter] reached divergent decisions concerning the legality of sales bans on online platforms such as Amazon and eBay. In Coty, the Court of Justice clarified that online platform bans can be appropriate in the context of a selective distribution system provided such bans do not go beyond what is necessary to preserve the luxury image of products [see our January 2018 Newsletter].
The CAT found that Ping's internet policy failed to satisfy the criteria established in case law for valid selective distribution networks (i.e. resellers must be chosen on the basis of objective and qualitative criteria, the characteristics of the product in question must require such a network in order to preserve quality and proper use and the criteria laid down must not go beyond what is necessary).
Although the CAT accepted that the aim of Ping's internet policy was to promote in-person custom club fittings, it concluded that the online sales ban went further than was necessary because Ping (i) allowed account holders to sell off-the-shelf clubs in stores and by telephone without a prior custom fitting, (ii) did not impose a similar online sales ban in the United States and (iii) failed to take account of the fact that some customers do not require a custom fitting (e.g. those who already know their specifications). The CAT also noted that Ping's custom fitting process did not appear to be materially different from that of other manufacturers who all permitted online sales.
While online sales bans on distributors' websites remain a high risk area, the CMA's submissions in Ping shed light on terms that may be imposed on distributors in the context of online sales without running afoul of competition rules. Rather than a sales ban, Ping could have imposed contractual requirements on distributors to promote custom fitting services online by (i) displaying a prominent advisory notice strongly recommending that consumers take advantage of the custom fitting service, (ii) providing drop-down boxes with a range of relevant Ping custom fit options, (iii) having online interactive features which facilitate the provision of individual advice (e.g. through ‘live-chat’ technology) or (iv) having a mandatory tick-box for consumers to confirm that they understand the importance of custom fitting.
Ping offers an important reminder that safeguarding competition online will remain an important enforcement priority for competition authorities and exceptions will continue to be construed narrowly by courts.
This article was published in the Competition Law Newsletter of October 2018. Other articles in this newsletter:
1. Court of Justice refers case against Infineon in relation to smart card chips cartel back to the General Court
2. EFTA Court offers guidance for assessing national limitation periods for follow-on damages claims
3. Dutch Trade and Industry Appeals Tribunal annuls mail market analysis decision