To minimize antitrust risk, dual distribution requires caution in coordination between a supplier and retailers.
The UK's Competition and Markets Authority ("CMA") will fine Leicester City Football Club ("LCFC") up to £880k after it admitted to an anticompetitive arrangement with sports clothing retailer JD Sports, which reported the arrangement under the CMA's leniency policy.
Both LCFC and JD Sports supplied LCFC-branded clothing through online channels, and JD Sports also through retail outlets. But then the parties agreed that JD Sports would not sell LCFC-branded clothing online for the 2018-2019 season and later would add delivery charges for online orders. While the purpose presumably was to protect LCFC's own online sales, the CMA considered the arrangement to be unlawful market allocation and price fixing, resulting in consumers paying more.
The case highlights the competition law risks for businesses operating "dual distribution" models, selling both directly to customers (such as through their own websites) and through downstream retailers. This makes the business both supplier and competitor to these downstream intermediaries, such that agreements or understandings on how they compete, and even sharing information on their commercial strategies, present antitrust risk.
Dual-distributing businesses should be mindful of antitrust considerations when dealing with intermediaries in the UK and EU (where similar rules apply):
- Coordination should be limited to the commercial terms on which the business supplies products to a retailer, not their separate strategies to win end customers;
- Internal protections should ensure that information received from retailers about their own selling strategies is not used to influence the business's own direct-to-customer channel; and
- Discussions regarding promotional support or marketing investment provided to intermediaries should be managed carefully to avoid the risk of coordination between the business' own direct-to-customer strategy and the intermediaries' end customer strategy.
The CMA has increased its investigations in larger markets, but businesses in less significant sectors continue to face antitrust scrutiny, particularly in consumer-facing markets.
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