UK: UK Competition Appeal Tribunal Finds That Ping's Online Sales Ban Was An Unjustified Restriction

On 7 September 2018, the Competition Appeal Tribunal ("CAT") rejected the appeal brought by the golf club manufacturer Ping against the decision of the Competition and Markets Authority ("CMA") of 24 August 2017 imposing a fine of £1.45 million on Ping for infringing both Chapter I of the Competition Act 1998 and Article 101 TFEU by banning online sales of its customised golf clubs (see VBB on Competition Law, Volume 2017, No. 8, available at www.vbb.com). 

Ping has a long-standing policy of face-to-face custom fitting for its golf clubs, which it has sought to promote by consistently preventing the retailers in its selective distribution system from selling its golf clubs online. In defence of this policy, Ping raised several grounds of appeal in challenging the CMA's 2017 decision, all of which were rejected by the CAT.

In essence, the CAT agreed with the CMA that the consumer benefits resulting from Ping's legitimate policy of promoting custom fitting (i.e., receiving a better quality product) could be achieved by less restrictive alternative means than a general online sales ban, in particular, by specific online interactive features. The CAT further rejected Ping's arguments that its brand image could be harmed without the ban because of the risk that consumers would buy the wrong golf clubs. The case illustrates that it will be exceptionally difficult, if not impossible, to justify a general online sales ban as necessary to protect a brand and provide specific consumer benefits.

The individual pleas raised in the appeal are considered in more detail below.

Dismissal of Ping's arguments that the CMA's decision infringed its human rights

First, Ping argued that the CMA's decision contravened its rights under Article 16 of the EU Charter on Fundamental Rights (the "EU Charter"), which concerns the freedom to conduct business, by requiring it to sell non-fitted clubs which are products that it does not wish to sell. It further argued that the decision contravened its right under Article 17 of the EU Charter (concerning the right to property) because forcing Ping to give up its unique position of selling only customised clubs would undermine the goodwill of its business. The CAT rejected this ground of appeal noting that, where a restriction is found to be a restriction by object that does not meet the conditions for exemption under Article 101(3) TFEU (see further below), the limitation of rights under Articles 16 and 17 of the EU Charter is a proportionate means to avoid the distortion of competition in the EU. It also found that: (i) Ping was not forced to sell products it did not wish to sell, since it already sold a number of golf clubs without prior custom fitting; and (ii) Ping had failed to establish that prohibiting the internet sales ban would deprive its business of goodwill.

Upholding of CMA's finding that the internet sales ban constitutes a restriction of competition "by object"

The CAT agreed with the CMA's finding that the objective of the internet ban was to prohibit online sales of Ping's golf clubs, and the fact that the restriction also had the legitimate aim of promoting custom fitting did not preclude a finding that the agreement had an anti-competitive object. The CAT then considered whether the ban revealed in itself a sufficient degree of harm to competition to be considered a restriction by object. The CAT answered this in the affirmative, pointing out that the impact on consumers and retailers was real and material since: (i) it significantly restricted consumers from accessing retailers outside their local area and from comparing prices (for example, since prices were not widely available on online price comparison tools); and (ii) it significantly reduced the ability of, and incentives for, retailers to compete for business using the internet.

Upholding of the CMA's finding that the internet sales ban was not objectively justified

The CAT noted that, in order for an internet sales ban to be objectively justified and to fall outside the scope of Article 101(1) TFEU, it must satisfy the Metro criteria, in particular, it must be necessary for non-price competition to exist. In this respect, it was clear that the policy was not objectively justified, since Ping could still compete with other manufacturers on non-price parameters (e.g., quality and innovation) without the internet sales ban. This was made clearer by the fact that other golf club manufacturers did not prohibit online sales but nevertheless competed vigorously with Ping on non-price parameters. The CAT further pointed out that the distinct question of whether the ban enabled Ping to compete more vigorously on non-price parameters was to be assessed separately under Article 101(3) TFEU.

Dismissal of Ping's arguments that the CMA erred in finding that the ban on internet sales was disproportionate

Ping argued that the CMA was wrong, in its analysis under Article 101(1) TFEU, to find Ping's internet policy to be disproportionate, particularly since the alternative measures proposed by the CMA would be impractical and less effective than the ban. While the CAT considered that, in this case, the extensive assessment of proportionality carried out by the CMA should have been part of its assessment under Article 101(3) TFEU, rather than under Article 101(1) TFEU, the CAT nevertheless agreed with the CMA that the internet sales ban was disproportionate.

Ping challenged the CMA's findings that: (i) the ban was not necessary since there were alternative and less restrictive measures to meet the legitimate aim; and that (ii) the restrictive nature of the ban was disproportionate to the promotion of custom fitting. With respect to the necessity of the ban, the CAT considered that the notion of necessity requires an assessment of whether a less intrusive measure could have been used without unacceptably compromising the promotion of custom fitting. Three key issues had to be resolved in order to conduct this assessment: (i) whether Ping's legitimate aim should be characterised as "promoting" or as - which would favour Ping's case - "maximising" custom fitting (the CAT found the former); (ii) whether the internet ban was effective (the CAT found that it was not); and (iii) whether there were realistic and less restrictive alternatives to the ban.

With regard to this third issue, Ping's fundamental objection to alternative measures, such as the online interactive features which the CMA had considered could be used by Ping, was that they would lead to customers making uninformed decisions by guessing their custom-fit measurements. This would, in Ping's view, ultimately harm its brand, as well as cause free-riding among retailers. (These interactive features included live chat windows, advisory notices strongly recommending custom fitting, drop-down boxes with a range of relevant Ping custom-fit options, and mandatory tick boxes for customers to accept the risks of purchasing without custom fitting.)

The CAT, however, dismissed these objections pointing out the following:

  • the price of clubs, the number of customisable options and the fact that customers keep clubs for a number of years all suggested that customers would be inherently unlikely to buy clubs without a prior custom fitting;
  • the Court of Justice of the European Union has already endorsed the use of online interactive features as providing adequate protection against the risk of customers purchasing incorrect products in the case of contact lenses and non-prescription medications; and
  • custom fitted clubs of other brands are available online.

For these reasons, the CAT found that the alternative measures proposed by the CMA would not lead to customers guessing their specifications and buying the wrong clubs, and would not damage Ping's brand. In this respect, the CAT also pointed out that Ping already allowed sales of its clubs without a custom fitting (e.g., via telephone). It also found no evidence that the alternative measures would reduce incentives to invest in custom fitting, triggering a free-rider concern, instead emphasising the incentives to invest that are created by the very high conversion rate of custom fittings into sales.

The CAT, therefore, found that the ban was not necessary to achieve its legitimate aim and was therefore disproportionate.

Dismissal of Ping's arguments that the internet sales ban constituted an ancillary restraint

The CAT noted that, in order for a restriction to fall outside Article 101(1) TFEU as an ancillary restraint, it must be objectively necessary to the implementation of a main operation which has a neutral or positive effect on competition which would otherwise be impossible. In this respect, the CAT pointed out that since (as described above) the ban was not necessary for the promotion of custom fitting, it could similarly not be impossible to promote custom fitting without it. The ban was therefore not an ancillary restraint.

Dismissal of Ping's arguments that the ban was exempted under Article 101(3) TFEU

Ping contended that the ban should be exempted under Article 101(3) TFEU, since it produced real benefits for consumers which could not be achieved in a different way. In deciding that the four cumulative conditions of Article 101(3) TFEU were not all met, the CAT emphasised that the ban was not a particularly effective means of increasing custom-fitting rates and was not indispensable as it had been established that alternative means existed which would be effective. In addition, consumers would not obtain a fair share of the benefits, taking into account that: (i) the benefits that would accrue were very limited and would do little to counteract free-riding; and (ii) these benefits would not outweigh the disadvantages to consumers in terms of increased inconvenience and reduced choice of retailers.

Reduction of the fine since the CMA erred in treating director involvement as an aggravating factor

The CAT finally reduced the fine from £1.45 million to £1.25 million, based on the ground that the CMA erred in treating director involvement as an aggravating factor in this specific case, since the directors sought to pursue a legitimate aim with the internet policy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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