The Ping judgment – CAT confirms that internet sales ban is restrictive of competition ‘by object’

12.09.2018

In a judgment handed down on 7 September, the UK’s Competition Appeal Tribunal (CAT) upheld the CMA’s decision of August 20171 that golf equipment manufacturer Ping’s online sales ban was a restriction of competition ‘by object’ and did not qualify for any exemption. Although the CAT held that Ping’s aim2 in implementing the policy was a legitimate one, the ban was, by its very nature, liable to harm competition between Ping’s retailers. Whilst the CAT did find that the CMA had erred in law by seeking to carry out a proportionality analysis3 (which was not relevant to the question of whether the policy was caught by the prohibition in Article 101(1)), the CAT held that this had no impact on the overall conclusion. In a small victory for Ping, the CAT found some minor errors in the CMA’s calculation of the fine, resulting in a small reduction in the penalty.

The CAT’s response to Ping’s grounds of appeal

By object infringement

Ping’s submission was that the presence or absence of a “plausibly pro-competitive rationale” is the key to identifying an infringement by object. However the CAT stated that this submission did not reflect the law as set out in Cartes Bancaires. The CAT was “of the clear view” that regardless of Ping’s subjective aim in introducing the internet sales ban as a means of promoting custom fitting, the ban may be characterised as an object infringement if it reveals a sufficient degree of harm to competition.4 In the CAT’s analysis, the existence of a pro-competitive objective does not per se preclude a finding of infringement by object. This accords with the Court of Justice’s holding inPierre Fabre that, by excluding a method of distance selling, the internet ban was liable to restrict competition even if that was not its purpose.

In the current case the Tribunal found that “the potential impact of the ban on consumers and retailers [was] real and material”. In its view, the ban restricts intra-brand competition, prevents retailers from attracting consumers located outside their catchment areas by offering better prices/service, and removes the advantages of online sales (in particular, access from any location 24 hours a day) to the detriment of consumers. The CAT accepted Ping’s submission that objective justification and proportionality are not in themselves relevant to an assessment of whether an agreement is an infringement by object.

The human rights ground

According to Ping, its appeal concerned the freedom of a company to pursue a business which involves the sale of a product whose properties are fundamentally inconsistent with internet selling. Ping maintained that it built its brand image as a manufacturer which sells only customised clubs and submitted that the CMA’s decision contravened its human rights under Article 16 by requiring it to sell a product it did not sell and did not wish to sell (i.e. non-fitted clubs). The CAT dismissed this argument, finding that since Ping’s internet policy constitutes an object restriction under Article 101(1), any restriction on the exercise of its rights under Articles 16 and 17 as a result was “proportionate to the legitimate aim of avoiding the distortion of competition within the EU.” The CAT also accepted the CMA’s submission that the decision does not force Ping to sell a product that it does not already sell –Ping could maintain its policy of promoting custom fitting with or without the ban.

In relation to the alternative measures proposed by the CMA, Ping’s fundamental objection was that they were likely to lead to customers making uninformed decisions as to which clubs to buy, thereby harming their game and ultimately damaging Ping’s brand. The Tribunal said this was “not compelling”: there is technology that enables an accurate assessment of custom fitting online and other premium golf club brands sell their custom fit golf clubs online. This suggested that “guessing [custom fit measurements] amongst customers of those brands is not a significant problem”.

The penalty

The CAT considered that the £1.45 million fine imposed by the CMA was “slightly too high” and a further small reduction was therefore appropriate. It found that a fair and proportionate fine, taking into account that it was not an ‘aggravated’ infringement, should be £1.25 million.

The CAT concluded that the CMA erred in treating director involvement as an aggravating factor on the specific facts of the case. If the fact of director-level knowledge alone were treated as an aggravating factor then this infringement could never have been considered as anything other than aggravated. However, Ping restricted competition law through its negligence rather than with intention and so applying an uplift in this case would be “meaningless” and should be “reserved for more reprehensible behaviour”.

Comment

As we noted in our comment on the CMA’s decision (here), the infringement decision itself was not surprising – outright sales bans have long been considered problematic. The fact that the CAT has upheld the CMA’s decision is therefore, in itself, equally unsurprising. Of more interest was the CAT’s consideration of the CMA’s use of an ‘Alternatives Paper’ – this was part of the CMA’s by object case, showing that there were alternative, less restrictive means of satisfying Ping’s legitimate policy aim. Whilst finding that the CMA had erred in law in its approach, the CAT nevertheless concluded that this was not sufficient to overturn the CMA’s decision. Rather, the CAT sought to square a particularly tricky circle on the facts of this case – it had sympathy with both the ‘legitimate aim’ behind Ping’s policy and the CMA’s conclusion that an outright internet sales ban is a by object infringement that was “clearly … not objectively justified”. It seems that the fact that other brands made their custom-fit clubs available online and that Ping itself allowed sales over the internet in the US were decisive here.

Stephen Smith

Author