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Ping case confirms outright online sales bans are unlawful

Out-Law News | 28 Jan 2020 | 12:38 pm | 3 min. read

Agreements that prevent retailers selling manufacturers' goods online in all circumstances are in breach of competition law, the Court of Appeal in London has said.

The court confirmed the position in a recent judgment in which it upheld earlier decisions from the UK's Competition and Markets Authority (CMA) and Competition Appeal Tribunal (CAT).

In its ruling, the Court of Appeal said that an internet sales policy adopted by golf club manufacturer Ping breached competition laws as it represented "a restriction of competition by object" and that the restriction was not "objectively justified".

The policy prohibited Ping's authorised dealers from selling its golf clubs online. UK and EU competition laws place a general prohibition on agreements between businesses that have as their object or effect the prevention, restriction or distortion of competition. 

Davis Alan July_2019

Alan Davis

Partner, Head of Competition, EU & Trade

Active antitrust enforcement in the UK and Europe involving online sales restrictions – such as the present case – highlights the need for companies traditionally reliant on face-to-face customer interaction and ‘bricks and mortar’ sales channels to adapt their business models in an increasingly digitised economy

Ping was previously fined £1.45 million by the CMA in August 2017 in relation to its policy, but the company raised an appeal against that decision before the CAT.

Ping had argued that it was justified in preventing retailers from selling online because its products are designed to be custom fit to customers in-store. While the CMA agreed that this was a "genuine commercial aim", it determined that the company could have achieved this through less restrictive means.

In considering the appeal, the CAT confirmed that Ping is permitted to place certain conditions on the sale of its clubs over the internet, but that it cannot ban online sales outright. That view has now been reiterated by the Court of Appeal.

"The CAT was right to conclude that there was nothing in the economic or legal context in which the [internet sales policy] operated that negated the conclusion that the [internet sales policy] revealed a sufficient degree of harm to justify being regarded as an object restriction," Lady Justice Rose said.

In reaching its conclusions, the court reflected on EU case law. The Court of Justice of the EU (CJEU) ruled in 2017 that EU competition law does not stop luxury goods manufacturers from banning retailers that are part of their selective distribution network from using third-party online marketplaces to sell their goods to the public where that ban is aimed at preserving the brand's luxury image. That underlying dispute in that case was over US beauty products manufacturer Coty's attempts to prevent a toiletries business from selling its goods via the Amazon marketplace.

While CJEU case law "has always acknowledged the advantages of selective distribution networks for luxury or highly technical goods", Lady Justice Rose explained that Ping's internet sales policy was outside the scope of what was legitimate under the competition regime.

"The argument underlying Ping's case – that it should be allowed to decide for itself how best dealers should market its goods in competition with other manufacturers – is not an argument that has found favour in EU competition cases and it cannot succeed here," the judge said.

"There is nothing in the [CMA] decision or in the judgments of the CAT or of this court which prevents Ping from continuing to insist that its account holders invest in custom fitting apparatus and do their best to persuade golf club consumers of the benefits of dynamic custom fitting. As the CMA made clear in its decision, this policy can be reflected in requirements that Ping is entitled to impose on its account holders as regards their website design. No doubt Ping's authorised retailers are highly skilled at closing the transaction with a customer who has a dynamic custom fitting. No individual dealer is obliged to offer Ping clubs for sale on its website if it does not want to, once it is made clear to him that he is free to do so. The possibility of such an outcome does not, in my view, prevent the [internet sales policy] being a restriction by object," she said.

"If, after the [internet sales policy] is adapted to comply with the CAT's judgment and this court's judgment, dynamic custom fitting in the future remains an important channel through which Ping clubs are sold, that will be the result of the market determining by the operation of ordinary competitive forces that dealers and consumers have chosen that sales route. It will not be the result of a policy imposed by Ping," the judge said.

Competition law expert Alan Davis of Pinsent Masons, the law firm behind Out-Law, said: "The CMA’s dual victory before the CAT and now the Court of Appeal confirms that absolute online sale bans are outright unlawful, in line with established case law. In the Coty case, the CJEU ruled that online sales restrictions were permitted only in limited circumstances and a complete prohibition would violate competition law."

"Active antitrust enforcement in the UK and Europe involving online sales restrictions – such as the present case – highlights the need for companies traditionally reliant on face-to-face customer interaction and ‘bricks and mortar’ sales channels to adapt their business models in an increasingly digitised economy," he said.