Who: The Competition and Markets Authority; Ultra Finishing Limited
When: 10 May 2016
Law stated as at: 9 June 2016
The Competition and Markets Authority (“CMA“) has issued a decision that bathroom fittings manufacturer Ultra Finishing Limited (“Ultra“) broke competition law by preventing retailers from discounting online prices.
Marketinglaw previously reported on the provisional statement of objections that was issued against Ultra in January 2016 – you can read that coverage here.
The CMA’s decision imposes a fine on Ultra of £786,668 and concludes a 21-month investigation, after Ultra agreed to settle the case in April 2016.
Resale price maintenance
Ultra was alleged to have engaged in resale price maintenance (“RPM“) between 2012 and 2014 by introducing a minimum advertised price for internet sales of their products by distributors.
RPM is a form of vertical price-fixing whereby a supplier restricts the ability of retailers to determine the prices at which they will resell the supplier’s products, for example by requiring the retailer to sell at a particular price, or not for less than a minimum price. RPM such as this is prohibited under UK and European competition law, because it effectively prevents retailers from setting their prices independently.
In this case, Ultra issued to retailers so-called ‘recommended’ retail prices for online sales. However, despite being described as recommendations (which are lawful), Ultra threatened retailers with penalties for any failure to price products at or above the ‘recommended’ price. These penalties included charging the non-conforming retailers higher prices for future products supplies, withdrawing their rights to use Ultra’s brand images online or, in some cases, ceasing supply altogether.
The CMA concluded that this constituted RPM in the sense that it limited the retailers’ ability to offer lower prices than the ‘recommended’ retail prices to potential customers.
In its initial response to the CMA’s statement of objections, Ultra argued that it had introduced the ‘recommended’ pricing guidelines in an attempt to protect its brand.
However, while the CMA accepted that this may have been a genuine concern for the business, it noted that this was “at most, subsidiary to the objective of protecting resellers’ margins by reducing price competition from resellers making sales online”.
In any event, the CMA applied long-standing principles of European case law in concluding that “maintaining a prestigious image is not a legitimate aim for restricting competition”.
In April 2016, Ultra admitted contraventions of competition law and agreed to settle the case and accept a fine. In recognition of the resource savings resulting from Ultra’s admission and cooperation, the CMA applied a 20% discount to the fine.
As part of the settlement, Ultra has agreed to initiate a programme to help ensure compliance with competition law within its business and among its staff. An external statement to that effect has been published on Ultra’s website.
The company will also roll out tailored compliance training for all employees, and will implement a detailed procedure to identify, assess and mitigate competition law risks. Ultra will review the compliance programme annually and submit a report on its compliance activities to the CMA each year for the next three years.
In line with CMA guidance, these steps entitle Ultra to a further 5% discount from the original fine, which would have been £1,032,502. The fine to be paid by Ultra now stands at £786,668 – which is still a very significant sum of money for any business.
Why this matters:
The CMA’s decision in this case serves as an important reminder that any attempt to restrict competition between online retailers will be regarded as a serious breach of competition laws. Amongst its other substantial enforcement powers, the CMA has the authority to impose fines of up to 10% of an undertaking’s worldwide turnover for the previous year.
Businesses of all sizes should be mindful of the financial implications of falling foul of the law; not to mention the reputational damage that can result from an adverse judgment by a regulator.
The CMA has gone to significant lengths to provide more guidance on this issue – it has published written guidance and released a short video on RPM in a bid to help organisations ‘self-assess’, and is working with industry bodies to publicise the Ultra case and promote best practices in vertical arrangements.
Although in this case the CMA imposed a fine on Ultra (the supplier) only, it noted in a press release that retailers can also be fined for entering into RPM agreements with suppliers. The publication also encouraged any businesses that suspect that they may have engaged in RPM to report this to the CMA, as it may be able to apply for leniency and receive a reduced fine (or avoid a fine altogether).
Finally, the decision in the Ultra case also confirms that brand protection cannot be used as justification for an agreement or a concerted practice that has the effect of restricting or distorting competition.