Guitars and golf clubs: How to infringe competition law and collect a large fine
25 / 02 / 2020
What do guitars and golf clubs have in common? They share the same initial; they are both used for play; and they were both the subject of landmark competition law rulings on online selling that were handed down in the same week in January. Combined, these rulings constitute one of the clearest warnings yet given in this country about the dangers of trying to restrict online sales.
The musical instrument industry doesn’t sound as if it would be a hotbed of competition law infringement. Yet it is less than twelve months since Casio Electronics Co Limited was fined £3.7m by the Competition and Markets Authority, the UK’s competition law regulator (“the CMA”), for having implemented a policy designed to restrict retailers from discounting the price of Casio digital keyboards. Now another record (excuse the pun) has been broken, for in January 2020 the CMA imposed an even larger fine on Fender Musical Instruments Limited for having tried to maintain the resale price of its guitars. After suffering a dawn raid by the authorities (never a pleasant experience), Fender confessed to having pursued a policy intended to restrict its UK retailers from discounting their online prices, yet still received an eye-watering penalty of £4.5m.
By and large, ‘vertical restraints’ (i.e. anti-competitive restrictions applied at different levels of the supply chain, like between supplier and retailer) are regarded by competition jurisprudence as less serious than ‘horizontal’ ones (i.e. anti-competitive restrictions applied at the same level, between actual or potential competitors). But resale price maintenance (“RPM”) is a major exception to this general rule. Competition law casebooks contain pages of examples of RPM being punished ferociously, and in recent years penalties have fallen especially heavily on those guilty of RPM online.
…and golf clubs
While the guitarists were rocking and reeling from their £££multi-million fine, the golfers were digesting a 132-paragraph Court of Appeal judgment with which they had been clubbed on the previous day. From a practitioner’s standpoint a decision on competition law by such a senior UK court is very rare, for appeals in this sector of the law are usually disposed of by a more junior organ, namely the Competition Appeals Tribunal. So how was it that things had got so far (or so high)?
The unfortunate recipient of the judgment, Ping Europe Limited, sold its golf clubs via a large selective distribution network that included over a thousand authorised dealers. Although selective distribution networks look prima facie rather anti-competitive, they are tolerated and indeed accepted by competition jurisprudence provided that they abide by the various do’s and don’t’s that have been laid down over the years by judicial and other authorities. One of the biggest ‘don’ts’ is that one must not prevent ‘passive sales’, which the relevant legislation classes as a ‘hardcore restriction’. And that was the trap into which Ping fell. Its Internet Sales Policy banned the dealers in its network from selling its golf clubs on their websites – and that ban prompted the CMA to fine it for having thereby contravened (amongst other things) Chapter I of the Competition Act 1998, which outlaws anti-competitive agreements. Ping argued strenuously that its ban was justified by the need to promote the ‘custom-fitting’ of its clubs, involving steps (like taking the golfer’s wrist-to-floor measurement) that simply couldn’t be done online; and it relied on that argument to appeal against the fine all the way up to the Court of Appeal. But it was swimming against the tide: the court was adamant that an outright ban of this kind was an infringement ‘by object’, which in practice makes it unnecessary to analyse the actual effect on competition. So, even though Ping’s infringement was held to have been merely negligent, not deliberate, it still suffered a 3-0 defeat, a heavy fine, and (one assumes) a rather hefty legal bill.
The lesson could hardly be clearer. Whether it’s RPM (as in Fender) or sales bans (as in Ping), the drumbeat message from these and other cases is – interfere with online shopping at your peril. Fair trade… or dawn raid!