In January the Court of Appeal handed down its decision on Ping Europe Ltd's appeal against the Competition & Markets Authority ("CMA") and Competition Appeal Tribunal ("CAT")'s decisions that Ping's distribution agreements were anti-competitive "by object".
The Court of Appeal unanimously upheld the CMA and CAT's decisions, and in doing so: (i) gave useful guidance on the approach to be taken to determining whether selective distribution arrangements give rise to anti-competitive effects, and if so whether this is "by object" or "by effect" and (ii) applied and expanded upon the principles laid out in Court of Justice of the European Union ("CJEU") case law in relation to agreements which distinguish between online and in-person selling (and in particular the decisions in Fabre and Coty).
Most importantly, this decision sets out in stark terms that an outright ban on online sales will almost certainly amount to a restriction of competition "by object", and will therefore be unlawful under EU and English competition law, irrespective of any legitimate basis or pro-competitive effects in other areas that it might have. Ping has indicated that it intends to seek permission to appeal this decision to the Supreme Court. However, unless and until any such appeal succeeds, brands are well advised to assume that any blanket ban on online sales will be unlawful.
The Agreements in Question
The case relates to Ping's Internet Selling Policy (the "Policy"). First implemented informally in 2000, the Policy was incorporated into Ping's contractual arrangements with its approved retailers (referred to as 'Account Holders') in 2006. The Policy prohibited Ping's Account Holders from selling Ping products (initially all Ping products, but from 2012 only golf clubs) over the internet.
Ping claimed that these restrictions were necessary and justified because its golf clubs were intended to be fitted precisely to each purchaser. As a result, Ping considered that an in-person fitting process should be carried out wherever possible to ensure that the appropriate club(s) were identified for each purchaser. Ping's view was that allowing the sale of its clubs without going through this process wherever possible would risk undermining the quality and reputation of Ping and its products. Accordingly, Ping sought to prohibit any online sales (which by definition could not involve a fitting process).
In 2015 the CMA began an investigation into Ping's Policy following complaints from one of Ping's Account Holders, who was subject to (and had complied with) the Policy. In a decision issued in August 2017, the CMA concluded that the restrictions on online sales in the Policy were restrictions on competition "by object" because they prevented retailers from selling to purchasers outside of their geographical area, and effectively imposed a ban on passive sales (i.e. sales to customers who had not been actively marketed to). The CMA duly ordered Ping to change its Policy to permit online sales and fined Ping £1,450,000.
Ping appealed the decision to the CAT, which in September 2018 upheld the CMA's decision (albeit on a slightly different basis and with a reduction in the fine). Ping therefore appealed again to the Court of Appeal, challenging the CMA and CAT's finding that the Policy was a restriction on competition "by object", and also the basis and level of the fine.
Restriction "by object"
The crux of Ping's argument on appeal was that the CMA (and then the CAT) had not been correct to hold that the Policy imposed restrictions on competition "by object", as opposed to merely "by effect", and therefore it was not necessary to consider whether the Policy's terms had had any actual economic effect on the relevant market in order to find them to be unlawful under EU and UK competition law. Ping's position was that the CMA should have had to prove that the Policy gave rise to a restriction on competition "by effect", by reference to the impact of the restriction on competition in the relevant market. Had this been the case, Ping argued, it would have found that in reality the overall effect of the Policy was in fact pro-competitive.
The Court of Appeal roundly dismissed Ping's arguments in this regard. Referring to CJEU case law, and in particular Fabre and Coty, Lady Justice Rose (giving the leading judgment) held that there was clear authority that restrictions on online sales generally should be regarded as restrictions on competition "by object". Furthermore, the authorities demonstrated that such restrictions definitively would be restrictions "by object" where the restrictions imposed on online resellers were more stringent than those imposed on bricks and mortar retailers. It was on this basis that the CJEU had held, in Fabre, that a requirement that pharmacists be present when selling products (thus rendering online sales impossible) created a restriction of competition "by object", whereas restrictions as to which platforms certain goods (such as luxury goods, as in the Coty case) could be sold on were not "by object" restrictions, since they were no more stringent than the requirements imposed on physical retailers.
In this case, the Court of Appeal held that Ping's outright ban on online sales was comparable with the facts in Fabre, and had therefore to be considered a restriction on competition "by object". The Court of Appeal also emphasised that an agreement's terms may amount to a restriction of competition "by object" even where they were imposed for legitimate reasons. Nor did it prevent them from being a restriction "by object" if they had some pro-competitive effects (for example, in this case Ping argued that they encouraged inter-brand competition on quality).
The CMA held that when Ping implemented the Policy it had done so intentionally and knowing that it contained restrictions on competition.
On appeal the CAT held that Ping had not intentionally imposed terms that were a restriction on competition. However, it did find that Ping had negligently done so, on the basis that it should have known that the terms of the Policy amounted to such restrictions. As a result it had reduced the fine to reflect this.
The Court of Appeal upheld the CAT's findings in the regard, holding that Ping should have been aware that the Policy imposed such restrictions following the Fabre decision and the publication of the EU's Vertical Agreement Guidelines (both of which pre-dated the period 2012 to 2017 to which the fine related).
The Court of Appeal's judgment makes clear that an outright ban on online sales will almost certainly amount to an unlawful restriction of competition "by object", regardless of any legitimate basis or pro-competitive effects in other areas that it might have. It also emphasises that any party imposing such terms will be likely to be fined should they be subject to an investigation by the CMA. This was emphasised by Sir Geoffrey Vos in his judgment in which (agreeing with Lady Justice Rose) he commented that:
"the speed of the internet is increasing and we are living in an age of technological innovation. It would, I think, be inappropriate in this context for us to accept that the [Policy] did not reveal a sufficient degree of harm to competition to be considered a restriction of competition by object within the meaning of Article 101(1)."
Brands should therefore avoid imposing such blanket prohibitions on their distributors and resellers. Where it is necessary to impose some restrictions on resale, they should be careful to ensure that those restrictions are comparable (and equivalent) to those imposed upon bricks and mortar retailers.
This decision also, however, demonstrates the complexity of the issues to be considered in such cases. The Coty decision (which we discuss in more detail here) in particular has led to a divergence in approaches across the EU, as different Member States' courts have taken different views on what constitutes "luxury" goods, and therefore can be subject to selective distribution regimes in relation to the types of platforms on which they can be sold. This remains a live topic of debate, with CJEU Judge Nils Wahl commenting in a recent speech that it was difficult to see why such restrictions should only be acceptable in relation to "luxury" goods, as opposed, for example, to "high quality" goods.
It remains to be seen how this will play out. As set out in our recent article, it is hoped that there will be greater clarity under EU law when the EU's review of the Vertical Block Exemption Regulations is completed. However, following the UK's departure from the EU, it is unclear if and to what extent any such clarifications will be incorporated in to English law.