In August last year, the UK Competition and Markets Authority (CMA) announced that it had imposed a fine of £1.45 million on Ping Europe Limited (Ping) for breaching the EU and UK competition rules. The CMA found that Ping had infringed the Chapter 1 prohibition of the Competition Act 1998 and Article 101 of the Treaty on the Functioning of the European Union (TFEU) by entering into agreements with two UK retailers which banned the sale of its golf clubs online. The CMA chose to apply Rule 10(2) of its procedural rules and addressed the decision only to Ping. A non-confidential version of the decision was published in December 2017, revealing the UK competition authority’s detailed reasoning for the first time.
Background. Ping is a manufacturer of golf clubs, golf accessories and clothing. It operates a selective distribution system in the UK, supplying only retailers which meet certain qualitative criteria. Ping considered that ‘dynamic face-to-face custom fitting’1 was the best way to enhance golf-club choice and quality for consumers, and that such custom fitting could not take place over the internet. As a result, Ping instigated an ‘internet policy’ which banned its authorised retailers from selling any of its golf clubs online.
The CMA’s competition assessment. Relying on the CJEU’s judgment in Pierre Fabre, the CMA held Ping’s online sales ban restricted competition ‘by object’. In the UK authority’s analysis, the ban reduced retailers’ ability to reach customers outside their local geographic areas and to win customers’ business by offering better prices online. The CMA also relied on Advocate General Wahl’s Opinion in Coty(the CMA’s decision pre-dated the CJEU’s Coty judgment, which we commented on here). AG Wahl had contrasted the contractual clause at issue in that case (which prevented authorised retailers from selling on third-party online platforms) with more serious restrictions, such as the outright internet sales ban that gave rise to the Pierre Fabre ruling.
Ping had argued that its online sales ban was objectively justified under the competition rules for three main reasons:
1. The aim of the ban was to promote face-to-face custom fitting, which fosters inter-brand competition by enhancing product quality and consumer choice,
2. The ban was necessary to protect Ping’s brand image. Selling non-custom-fitted clubs would result in an inferior product being placed in consumers’ hands, which would damage Ping’s reputation,
3. The ban enabled Ping to resolve a ‘free rider’ problem by ensuring that authorised retailers had appropriate incentives to invest in custom fitting. It would be commercially unsustainable for retailers to make investments in appropriate facilities if a potential customer could obtain a custom fitting in a bricks-and-mortar store and then buy the clubs online.
Noting that other high-end golf club manufacturers such as Callaway and Titleist did not restrict online sales of custom-fit clubs, the CMA dismissed Ping’s submissions on objective justification. Whilst the CMA accepted that the promotion of custom fitting was a “genuine commercial aim”, it thought Ping could have achieved this through alternative, less restrictive means. According to the CMA, the “main alternative” available to Ping was to permit authorised retailers to sell online if they could “demonstrate [their] ability to promote custom fitting in the online sales channel”.2
Ping’s appeal to the CAT. Ping has appealed against the CMA’s decision. In its press release responding to the decision, Ping stated: “Our Internet Policy is an important pro-competitive aspect of our long-standing commitment to custom fitting”. It also argues in its Grounds of Appeal that the CMA was wrong to find that the online sales ban was disproportionate: the CMA’s proposed alternative measures would, in Ping’s view, be impractical and less effective at maximising rates of custom fitting. The appeal is due to be heard by the UK Competition Appeal Tribunal (CAT) in May this year.
Comment. The Ping decision is the latest in a line of recent cases in which suppliers have sought to restrict retailers’ ability to sell products over the internet. As we noted here, the German Bundeskartellamt has taken a particularly dim view of online sales restrictions in a number of decisions concerning brand owners’ selective distribution systems. The publication of the Ping decision also comes hot on the heels of the CJEU’s preliminary ruling in the Coty case, in which it was held that manufacturers of luxury goods can, in principle, prevent their authorised retailers from selling via third-party online platforms such as Amazon and eBay, provided that certain conditions are fulfilled (see here).
Also of note was the CMA’s decision to set out in an ‘Alternatives Paper’ its provisional considerations of ‘realistic alternatives’ to achieve the legitimate aims identified by Ping. Whilst the CMA states that the evidential burden of establishing whether the online sales ban was justified was Ping’s and despite the CMA’s assertion that it was not required to do so, it is interesting that the CMA was willing to engage in its own alternatives assessment.
It remains to be seen what the CAT will make of Ping’s justifications for its online sales ban. In the meantime, however, the CMA’s decision again highlights the competition law risks of imposing an outright ban on internet sales. Like other national competition authorities, the CMA has frequently emphasised the importance of the online sales channel in intensifying intra-brand price competition. As Senior Director for Antitrust Enforcement Ann Pope put it in the CMA’s press release of August 2017: “The internet is an increasingly important distribution channel and retailers’ ability to sell online, and reach as wide a customer base as possible, should not be unduly restricted.”
Stephen Smith and Edwin Bond
1 Dynamic face-to-face custom fitting generally involves: an initial interview, a static fitting in which the golfer’s basic measurements are taken, the fitter identifying potential club shafts for the golfer, a dynamic fitting, including a swing-test assessment of how the golfer is hitting the ball, purchasing advice, and grip fitting.
2 In particular, Ping could (according to the CMA) require its retailers to display on their websites a prominent notice recommending that customers take advantage of custom fitting, and it could determine that only retailers with an appropriate website providing a range of Ping custom fit club options would satisfy its selective distribution requirements.