Businesses may question: can I prevent my reseller from selling my goods online? It is easy to see why an online monopoly might appeal to suppliers wanting to better control supply and demand or funnel online sales through their own sales platform. Although the commercial temptation may be there, the legal reality is that a prohibition on online sales is typically ill advised and almost always a high risk proposition.
In August of this year the Competition and Markets Authority (CMA) fined golf equipment manufacturer Ping Europe Limited an eye watering £1.45million after investigating the business over the course of almost two years. The CMA found that Ping had breached both UK and EU competition law by banning its resellers from selling Ping goods online. The decision was widely published in the legal and traditional press.
In its defence, Ping stated that it had a genuine commercial justification for wanting to prevent its resellers from selling Ping’s goods online. Ping submitted that the ban was justified in order to promote its in-store custom fitting service. By operating exclusive control over online sales, the business could cross-sell its related products and services. The CMA seemed to accept Ping’s reasoning and reduced its original fine down to the published £1.45million. The CMA’s decision also demanded Ping end its online sales ban and not impose the same or equivalent terms on other resellers in the future.
Businesses which breach competition law can expect to face enforcement action and financial penalties. Indirectly, businesses which are investigated by the CMA can expect to expend considerable resources making submissions, cooperating with investigators and on legal costs. A public decision by the CMA which draws attention to bad market practices and anti-consumer behaviour also carries with it reputational damage. Depending on its drafting, the underlying sales/distribution agreement could be rendered unenforceable because of the offending term’s inclusion.
Ping’s actions were found to be contrary to Article 101 of the Treaty on the Functioning of the European Union as well as the Competition Act 1998. As the Competition Act is domestic law, the risks faced by businesses wanting to ban online sales can be expected to continue post Brexit.
There may still be limited circumstances when an online ban can be legal, for example where the ban is for certain online platforms (e.g. retailer websites) only. It might be commercially justifiable to impose a partial ban because only one (or a few) means of reaching customers via the internet has been restricted.
Attorney General Wahl expressed support for this view in his recent opinion on the case Coty v Parfumerie Akzente which is ongoing at time of writing. In the Coty case, the supplier sought to ban its reseller from selling Coty’s goods through amazon.de (the German version of Amazon) because doing so detracted from the luxury image of its products. The Court of Justice of the European Union’s decision on Coty is expected to follow later this year.
Sales bans remain a high risk area of commercial and competition law and can cost offending businesses millions in penalties and costs. Professional advice should be sought before seeking to include any sales bans in supply or distribution agreements. Suppliers should check their agreements to ensure they do not contain unlawful terms and resellers and distributors should check the agreements with their suppliers if they feel that their ability to sell online may have been unlawfully curtailed.