Another warning of the risks of banning online sales

The risks involved in stopping resellers from selling products online increased again this week, with Ping being fined for preventing UK retailers from selling its golf clubs online.

This case serves as a further example that restricting resellers from selling over the internet is a severe infringement of EU competition law and exposes companies to the risk of enforcement action and financial penalties.

What happened?

Since November 2015, the Competition and Markets Authority had been investigating Ping Europe, a leading manufacturer of golf equipment, for infringing competition law.

On 24 August 2017, the CMA announced that it had imposed a fine of £1.45 million on Ping for operating an online sales ban, preventing its resellers from selling Ping golf clubs over the internet.

The CMA’s infringement decision also requires that Ping must end the online sales ban and not impose the same or equivalent terms on other retailers.

Why is this important?

The CMA’s decision clearly illustrates its position that prohibitions on online sales are unlawful and contrary to EU and UK competition law.  The CMA’s press release confirms that it considers the internet to be an important channel for resellers to reach customers and that this should not be restricted.

Of particular interest is that the CMA has stated that “the level of the fine imposed on Ping reflects that the CMA found the breach of competition law occurred in the context of a genuine commercial aim of promoting in-store custom fitting.”  This suggests that the CMA has taken into account a purported justification by Ping of promoting custom fitting of its products to the customers in-store.  The CMA appears to have accepted this to some degree and reduced the level of fine accordingly.

This case follows similar investigations by other competition regulators and the European Commission, including the ongoing CJEU case of Coty v Parfumerie Akzente.  In Coty, while outlawing outright bans on online sales, the Advocate General recently distinguished prohibitions on resellers using online third party platforms, stating that a prohibition on third party platforms in the context of a selective distribution network may be legitimate and does not preclude online sales since it only removes one of a number of ways of reaching customers via the internet.

In light of the CMA’s decision, suppliers and resellers should ensure that their commercial agreements do not contain any prohibitions on online sales.  Outright bans on online sales are a high risk area.  Similarly, given the ongoing scrutiny throughout the EU, legal advice should be taken before any attempts to curb online sales are incorporated into contracts, including attempts to prevent the use of online platforms and marketplaces.

If you would like to discuss your distribution challenges and how you can lawfully address them, please contact one of our experts listed below or your usual Osborne Clarke contact.