Spotlight on vertical restrictions?

United Kingdom

Summary

The CMA recently updated its register of warning and advisory letters, which are sent to businesses where the CMA suspects that practices may be breaching competition law but a full formal investigation is not justified under its prioritisation principles.  These letters show a heavy focus on resale price maintenance, in particular restrictions on online sales.

2016 also saw the CMA conclude formal investigations against such practices, notably in the commercial catering and bathroom fittings sectors, and the CMA has started 2017 in the same vein with a Statement of Objections issued to a supplier of light fittings: it cannot therefore be assumed that the CMA will send out letters rather than pursue enforcement action.

The CMA is not alone: this is a consistent story in a number of jurisdictions in Europe and beyond, which are increasingly turning their attention to anti-competitive vertical restrictions.  It serves as a useful reminder for businesses to ensure they have adequate compliance programmes and training in place to prevent and detect any potential vertical (as well as horizontal) competition issues.

CMA warning and advisory letters in 2016: focus on resale price maintenance

On 15 February 2017, the UK Competition and Markets Authority (CMA) updated its register of competition law advisory and warning letters.  These are letters addressed to businesses where the CMA is concerned that practices may be breaching competition law but where a full formal investigation is not justified under its prioritisation principles.  Under both warning and advisory letters, the CMA invites the recipient to carry out a self-assessment of its business practices to ensure compliance with competition law.  In the case of a warning letter, the recipient will be required to report back to the CMA on what steps have been taken or are planned to ensure prompt compliance with competition law, whereas advisory letters only require an acknowledgement of receipt.  The register of letters sent in 2016 shows a heavy focus on resale price maintenance (restricting a reseller’s ability to determine the price at which it sells products or services), in particular restrictions on online sales.

The CMA issued a total of 63 warning letters in 2016, which covered 19 matters overall – the CMA may send a number of similar letters to different businesses operating in the same sector or about the same issue or matter, which it clearly did in 2016.

Interestingly, 16 raised resale price maintenance concerns, all of which were in the retail sector.  Consistent with the CMA’s stated strategy of tackling online markets, at least 7 of these matters relate to online sales (possibly more assuming restrictions on minimum advertised pricing relate to online sales, which is likely).  The register of advisory letters tells a similar story: half the warning letters issued in 2016 concerned resale price maintenance.

Some of these letters relate to cases which the CMA pursued:  most notably, 2016 saw the CMA fine companies for resale price maintenance in relating to commercial catering equipment and bathroom fittings.  Following these cases the CMA sought to promote compliance with, and raise awareness of, competition law by sending warning and advisory letters to other businesses in the sector suspected of engaging in similar practices.

It cannot therefore be assumed that the CMA has chosen to send out letters instead of pursuing enforcement action and the CMA has recently shown that it is inclined to continue with enforcement against such practices: on 9 February 2017 it issued a Statement of Objections to a supplier of light fittings suspected of enforcing resale price maintenance. 

International interest in vertical restraints

The CMA is not alone in this regard: there has recently been an increased focus on vertical restrictions in a number of jurisdictions.  For example:

  • In February 2017 the European Commission opened three separate investigations into suspected anti-competitive practices (in particular resale price maintenance, discrimination based on location and geo-blocking) in the consumer electronics, video games and hotel accommodation sectors, which came to light in the context of its ongoing e-commerce sector inquiry;
  • The German Federal Cartel Office has long focused on vertical restrictions, but most recently it concluded an extensive investigation into vertical price fixing in the food sector in December 2016 by fining 27 companies a total of €260m, and in January 2017 fined furniture manufacturers for enforcing resale price maintenance; and
  • The Danish, Chinese and Croatian authorities fined companies for anti-competitive vertical restraints in November 2016, December 2016 and February 2017 respectively.

Compliance tips

It is therefore important for businesses, wherever they are operating, to ensure they have adequate compliance programmes in place and have trained their staff to spot vertical (as well as horizontal) issues, especially those with responsibility for relations with resellers.  Businesses should remember that EU or UK competition law does not only prohibit setting a minimum or fixed resale price: measures which have the effect of incentivising resellers to price above (or at) a certain level, for instance through discounts or bonuses, may also fall foul of competition provisions.  The European Commission’s e-commerce inquiry and investigations is also a useful reminder that businesses should not discriminate between distribution channels (online/offline), or customers based on geographic location.