Is It Illegal to Prohibit Online Selling?
The High Court has ruled on whether it is illegal for a business to restrict online selling of its products by its retailers under existing competition law.
Ping Europe Limited v Competition and Markets Authority
Ping is a well-known manufacturer of golf clubs and equipment. It has a selective distribution network of dealers with premises on the high street and at golf courses. It wants customers to benefit from attending in-person sales to purchase something that is best for them. It therefore wanted to protect its dealers. It runs a 'Dynamic Face-To-Face Custom Fitting' programme. Ping requires its dealers to invest in equipment and expertise to be able to provide the best help with custom fitting. It also bans online sales by dealers.
The Competition and Markets Authority decided in 2017 that this was a competition law breach and fined Ping £1.45m. The CMA had ruled that, although Ping had to allow its retailers to sell online, it could require them to meet certain conditions first. The conditions had to comply with competition law. Although Ping was trying to achieve a genuine commercial aim of promoting specialist in-store help, it could have pursued other measures rather than an outright online sales ban. The fine was lower than it might otherwise have been due to Ping's good motives.
The matter ultimately ended up at the Court of Appeal.
Does Banning Online Sales Breach Competition Law?
The Court of Appeal has now upheld the CMA ruling.
An online sales ban is a restriction contrary to Article 101 of the Treaty on the Functioning of the European Union if it cannot be objectively justified. The Court of Appeal had sympathy with Ping's position of wanting to protect its dealers who had to invest in selling the products. However, the Court also noted that if authorised dealers cannot sell online, then competition is reduced between the sellers. There is therefore a reduction in price competition and customers are unable to buy from the cheapest authorised dealer. Dealers would not have to be concerned about prices offered by other authorised dealers, because customers cannot readily buy from them.
Under the EU's Vertical Restraints Guidelines, a ban on internet sales amounts to a ban on passive sales to end users, which is a hard core restriction under competition law.
Something can be a competition restriction by object even if the business pursues other legitimate interests, as is the case here.
The Court of Appeal also believed that some of the legitimate authorised dealers objected to the ban, hence the business restriction having been reported to the CMA. Those dealers would have invested in their own equipment and training, and they were not worried about losing out through online sales after customers had entered their shop and then bought elsewhere online.
Restrictions on how goods were sold on the internet would have been acceptable, but not an outright ban. In this case, the policy went beyond what was necessary.
The Court of Appeal added that no retailer is obliged to sell online if it chooses not to; but the retailer's supplier should not have issued an outright ban.
What Can You Learn from This Case?
This case is a reminder of the dangers on restricting internet sales. Some level of restriction may be objectively justified depending on the particular situation. However, in other cases, it may not be. In any event, an outright ban would infringe competition law, as in this case, leading to fines, business disruption and bad PR for the business.