CMA issues fine in bathroom fittings online resale pricing case

On 10 May 2016, Ultra Finishing Limited (“Ultra”), a supplier of bathroom fittings, was fined £786,668 by the Competition and Markets Authority (“CMA”) for enforcing a minimum resale price on online retailers. The CMA’s infringement decision is the conclusion of a 21-month investigation and an agreement with Ultra to settle the inquiry in April 2016.

Background

Ultra supplies bathroom fittings to both online and offline resellers. The online sales channel has become increasingly important, with the UK now having the highest rate of online sales in Europe for bathroom fittings.

As a result of this, Ultra’s bricks-and-mortar customers complained about the intense price competition they faced which led Ultra to introduce new Online Trading Guidelines (the “Guidelines”) in 2012. These Guidelines contained a ‘recommendation’, stated to be non-legally binding, that online prices should not be any lower than 25% below the in-store recommended retail prices for two of its lines of products (Hudson Reed and Ultra).

Breach of competition law

The CMA concluded that the evidence it gathered demonstrates that the key objective of the Guidelines was to impose a maximum level of discount for online sales, despite being branded as a ‘recommendation’. Internal communications further demonstrated that Ultra’s management was aware of the risk of breaching competition law.

In addition to the Guidelines, Ultra introduced a new copyright licensing procedure whereby it would license the right to use Ultra’s imagery to resellers. However, resellers were induced into agreeing to the Guidelines in return for the licence, thereby providing Ultra with the means to enforce its pricing policy. Internal communications similarly showed that the primary purpose of the licensing process was to implement minimum pricing; it was meant as a vehicle to induce retailers to confirm their support for the Guidelines, and was also intended as an enforcement tool. The CMA also found evidence that Ultra monitored resellers for any breach of its pricing policy, including maintaining various spreadsheets and other documents listing resellers that had not applied the ‘recommended’ pricing.

The CMA found that Ultra threatened retailers on several occasions, and took actual enforcement actions in a few instances. Where resellers had not complied, Ultra pressurised them to sell at or above the ‘recommended’ price by threatening to (i) charge them higher prices for its products, (ii) prevent them from using Ultra’s images online (by terminating the copyright licence), or (iii) cease supplying products to them altogether.

The CMA concluded that, in light of Ultra’s rationale for the introduction of the Guidelines and the licensing arrangements and of Ultra’s active monitoring and enforcement, the ‘recommended’ pricing was not a simple recommendation but in fact fixed a minimum resale price which is strictly prohibited by competition law rules.

Protecting the brand

In the course of the proceedings, Ultra argued that the rationale for introducing the Guidelines and the copyright licence was to protect its brand. In particular, Ultra pointed to the fact that some online retailers had provided poor service to their customers, that other resellers had attempted to pass-off products as Ultra’s products, and that the company was facing the risk of counterfeiting, all of which could be mitigated by the introduction of the Guidelines and the licence.

However, while the CMA accepted that these may have been genuine concerns for the business, it noted that “these objectives were, at most, subsidiary to the objective of protecting resellers’ margins by reducing price competition from resellers making sales online”.

In any event, the CMA affirmed that “in particular, maintaining a prestigious image is not a legitimate aim for restricting competition”, applying long-standing European case-law.

Settlement

Ultra admitted to the anti-competitive practice in April 2016 in exchange for a settlement of the case. As part of this settlement, Ultra agreed to roll out tailored compliance training for all employees, and has put in place a detailed procedure to identify, assess and mitigate competition law risks. In addition, Ultra will review its compliance programme on an annual basis and submit a report to the CMA each year for the next three years.

In recognition for this commitment, the CMA applied a 5% discount to Ultra’s fine, in addition to the 20% discount for settling the case, bringing the total fine down to £786,668.

The CMA issued warning letters to several other suppliers of bathroom fittings for engaging in similar practices, leaving open the possibility of the CMA initiating further enforcement proceedings in the future.

Comment

This decision serves as an important reminder that any attempt to restrict competition between online retailers will be regarded as a serious breach of competition rules. The CMA is intent on providing more guidance to businesses – it has produced a written note and a short video on RPM in a bid to help firms self-assess, and is working with industry organisations to put this latest case into the spotlight and promote best practice in vertical arrangements.

This decision is also confirmation that, in line with established European case-law, brand protection may not serve as a justification for an agreement or a concerted practice that has the effect of restricting or distorting competition on the market.

While the CMA did not fine the retailers involved on this occasion, it noted in its press release that such fines cannot be excluded as retailers who engage in RPM in coordination with a supplier may also be held accountable under competition rules. The CMA also invited businesses that suspect that they may have engaged in RPM to report this to the CMA, and noted that they may avoid or reduce a fine by applying for leniency.