Online sales ban is by-object restriction, CAT holds

Janith Aranze

07 September 2018

Online sales ban is by-object restriction, CAT holds

istock/RichVintage

A UK specialist tribunal has ruled that Ping’s ban on selling its golf clubs online is a by-object restriction on competition – but cut the fine on the golf club maker by £200,000. 

In a provisional judgment handed down at the UK’s Competition Appeal Tribunal today, Andrew Lenon QC said the tribunal is of the clear view that the UK’s Competition and Markets Authority was correct to find that the ban “reveals in itself a sufficient degree of harm to competition to constitute an object restriction, notwithstanding Ping’s legitimate aim”.

Lenon gave the leading judgment, in which he said deciding whether the internet sales ban was an object restriction was not entirely straightforward.

In August 2017, the UK enforcer hit Ping with a £1.45 million (€1.57 million) fine for stopping two online retailers from selling its golf clubs online. The manufacturer argued that it intended the ban on online sales to promote its custom-fit service, but the CMA said manufacturer’s aims of maximising custom-fit golf club sales could be achieved through “less restrictive” means.

During the trial before the tribunal in May, Ping argued the CMA “bullied” the company and accused the agency of pursuing a trophy internet case. It said its custom-fit service is a bespoke service that relies on individuals “presenting themselves in the shop” and having a discussion.

However, the CMA countered that the immediate goal of the policy was to prohibit any sales on the internet of Ping golf clubs by its authorised retailers in the UK, and that a restriction on online sales, by its very nature, is likely to have an adverse effect on competition.

The tribunal today held that regardless of Ping’s supposed aim of introducing the sales ban as a means of promoting or maximising custom fittings, the ban can still be characterised as a by-object infringement if it inherently would harm competition to a sufficient degree.

Lenon said the internet is an increasingly important sales channel for sales of golf clubs. The evidence from the CMA’s witnesses and evidence in its original decision establishes there is significant demand for online sales of custom-fit golf clubs, he said.

Ping’s argument that the removal of the internet ban would lead to consumers receiving wrongly fitted clubs or give rise to a free rider problem – in which one retailer can take advantage of another’s investments – is misplaced, Lenon said.

The tribunal distinguished Ping’s internet policy from the clause at issue in Coty, under which the cosmetics company restricted the sale of its products on third-party online platforms such as Amazon. Last year, the European Commission held that selective distribution systems that aim to preserve a product’s luxury image do not violate EU competition law.

The UK tribunal said Coty’s clause did not place any “significant limitation on retailers’ ability to sell to consumers over the internet”, and therefore did not cause sufficient harm to competition to be a by-object infringement. 

Proportionality question 

The tribunal found that Ping’s internet sales ban was disproportionate to its goals, and said the CMA’s alternative measures would not have “unacceptably compromised Ping’s objective of promoting custom fitting”.

The CMA in its infringement decision suggested other ways Ping could have achieved its objectives without an online sales ban. These included allowing authorised retailers to sell through the internet if they could demonstrate an ability to promote custom-fitting online, or a contractual requirement that retailers must promote custom-fitting services online, by displaying a clear notice recommending consumers take advantage of the service.

Ping argued that these proposals would open the door to consumers making an uninformed decision to purchase non-fitted clubs rather than having a face-to-face consultation. The manufacturer also described the CMA’s other suggestions as “impractical and unworkable”. 

The tribunal rejected Ping’s arguments in relation to proportionality. It said customers are unlikely to risk getting wrong the specifications for an expensive purchase such as golf clubs by refusing a custom face-to-face fitting. Once those specifications are obtained, at least some retailers could operate websites “on which all of Ping’s custom fit variables, or such range as Ping considered it appropriate to require, were available by drop down boxes”, Lenon wrote. 

CMA errors

The tribunal held that the CMA erred in law by carrying out a more detailed proportionality analysis then was required, but found the enforcer’s findings of the facts were correct.

However, with regard to the fine, the tribunal held that the CMA wrongly treated Ping managing director John Clark’s involvement in the conduct as an aggravating factor. The authority said Clark was involved in the creation and enforcement of the internet policy, but the tribunal disagreed and reduced the fine from £1.45 million to £1.25 million. 

Ping’s case is different from that of a “secret cartel”, the tribunal said, as Ping thought its policy was legal; the company’s infringement of competition law was negligent rather than intentional. The director-level staff were negligent, but the involvement should not be treated as an aggravating factor, the court said.

CMA senior director for antitrust enforcement Ann Pope said today’s judgment sends a clear message to companies that try to stop customers shopping online for their products: “they could be breaking the law.”

“This matters because it removes a barrier to customers shopping around for more affordable goods,” she said.

In a statement, Ping said it is very disappointed that, despite finding that the CMA erred in law, the court nonetheless decided to uphold the enforcer’s earlier determination. 

“While we are very pleased that the CAT shares our view that custom fitting is a significant benefit to the consumer, today’s decision threatens that approach as we firmly believe an in-person, dynamic custom fitting is the best way for golfers to acquire Ping golf clubs,” Clark said.

The manufacturer said it is evaluating the tribunal’s judgment and did not rule out the possibility of appealing against the ruling. 

Counsel to the Competition and Markets Authority

Brick Court Chambers

Marie Demetriou QC in London

Monckton Chambers

Ben Lask

Counsel to Ping

K&L Gates

Partner Jennifer Marsh in London assisted by Gabriela da Costa, Michal Kocon and  Oliver Bates

Brick Court Chambers

Robert O’Donoghue QC, David Scannell, and Tim Johnston in London

Economics

Alix Partners

Directors Derek Holt and Rameet Sangha

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