On 30 September 2016, the Competition and Markets Authority (“CMA”) published its finding that two companies involved in the online retail of licensed sport and entertainment posters and frames had breached the Competition Act 1998 (“CA98”) by entering into agreements (or, at least, ‘concerted practices’) to artificially inflate the prices charged for certain products.  A formal charge was accepted by the main protagonist, Trod Limited (in administration) (“Trod”) and fines imposed, which became payable by Trod’s administrators as of 13 October 2016.

The case, and the CMA’s findings in it, provide a clear reminder to businesses throughout all sectors, although especially among online retailers, to refrain from any form of resale price maintenance (“RPM”) (whereby suppliers and onward sellers agree that prices for a relevant product or range shall be kept at or above a certain level), whether by way of explicit agreement or tacit understanding.  Anything but fair and honest competition, particularly in relation to the level of pricing on the market, is liable to attract regulatory scrutiny from the CMA, leading to fines and potentially even criminal prosecution, not to mention the possibility of ‘follow-on’ actions from purchasers of affected products.

The ‘RPM’ infringement and the role of leniency in uncovering it

The CMA’s finding has been that GBE and Trod had for a period of more than four years (running from – at the latest – 24 March 2011 to – at the earliest – 1 July 2015) infringed the prohibition contained in Chapter 1 of the CA98 by operating an arrangement whereby if no third party was selling any more cheaply via the Amazon UK online platform, the parties would not undercut one another’s prices for the sale of licensed sport and entertainment posters and frames.  This arrangement was offered to Trod by GBE as a gesture of goodwill towards Trod as a customer of GBE and implemented through automated re-pricing software used by the parties.  Indeed, whilst owing to administrative prioritisation the CMA focused its investigation and infringement findings on what it considered the ‘core’ issues surrounding posters and frames (including poster frames), its final decision does not exclude the possibility that these unlawful arrangements may also have extended to other licensed sport and entertainment merchandise sold by the two companies on Amazon UK, notably badges, novelty mugs, transfer tattoos and stickers.

Having come forward in 16 July 2015 to ‘blow the whistle’ and apply for protection against fines under the CMA’s leniency regime, one of the parties to the arrangement, GB Eye Limited (“GBE”) revealed the basis of the illicit arrangements to the CMA after signing a cooperation letter on 30 October 2015 and then entering into a formal immunity agreement on 22 July 2016.  Pursuant to this agreement, the CMA was provided by GBE with various materials pertaining to the details of the pricing arrangements with Trod, including an oral corporate statement and supporting documents issued on 30 September 2015.  There then followed CMA interviews with three individuals from GBE in September 2015 and a visit the following month by IT specialists from the CMA Digital Forensics and Intelligence Service to GBE’s premises, which garnered forensic imaging of potentially relevant material.

The level of cooperation in terms of providing evidence which GBE extended to the CMA serves as a further reminder as to the obligations entailed in successfully obtaining leniency or immunity from penalties for competition law infringements.  This said, by avoiding a penalty, the fruits of coming forward early to claim protection under the CMA’s leniency regime have also been emphasised by GBE’s experience.

‘Down-Trod’ (but not out?)

Trod, having had their premises searched under the CMA’s powers of investigation in December 2015, were then left exposed to the CMA’s findings in the matter.  Trod went into administration on 23 March 2016, with two administrators from KPMG then appointed.  They were then charged with handling document and information requests under section 26 CA98 in April and May 2016 (the CMA also sent a request to a third party in May 2016).

Altogether, the evidence available to the CMA supported a finding of Chapter I infringement in the form of RPM, and by June 2016 Trod had approached the CMA with a view to reaching a settlement.  Having received, and taken little issue with the contents of, a draft Statement of Objections (effectively a charge sheet, setting out the breaches which the CMA considers a party as having committed), on 14 July 2016 Trod admitted to an infringement and agreed to accept a financial penalty of the amount set out in the CMA’s draft penalty calculation.  The CMA announced on 27 July 2016 that a settlement with Trod had been formalised.

Trod agreed to pay a penalty of £163,371, whilst GBE received full immunity from any fines.  The payment of this penalty, due since 13 October 2016, was subject to Trod’s administration process under the Insolvency Act 1986.  It remains to be seen whether Trod recovers and emerges out of administration, although the possibility that, with its liability having been made public, it will be pursued by follow-on damages claimants arguably cast further doubt on any such prospects.

If you should have any queries regarding the issues raised in this article, please do not hesitate to contact our EU & Competition team.