Keeping prices at heel – UK agencies fined for modelling one another’s fee structures and coordinating through their trade association
In a development which reminds businesses in all sectors of the risks of exchanging commercial information, particularly from participating in a trade association, on 16 December 2016 the UK Competition and Markets Authority (“CMA”) announced fines on five model agencies for having coordinated the prices they charge clothing, fashion and footwear labels for modelling services. This announcement follows an investigation formally carried out between 30 October 2015 and April 2016, culminating in the issue in May of Statements of Objections (effectively, formal ‘charge sheets’ setting out those infringements of competition law which the CMA suspects on its findings have been committed) (“SOs”).
The SOs issued by the CMA alleged that five modelling agencies had exchanged sensitive, confidential information, notably including details of future pricing intentions. Significantly, the SO was issued not only to FM Models, Models 1, Premier, Storm and Viva, but also to their trade association, the AMA. Its conclusion following a full investigation is that all of these parties have been colluding on the prices charged for providing modelling services, instead of competing honestly between one another, and did so from at least April 2013 to March 2015. The CMA’s finding is that these agencies, both between one another and also with and through the AMA, “regularly and systematically” shared information and discussed prices, and did so in the context of negotiations with particular customers.
The role of the trade association was found to be particularly prominent, with the AMA itself and the five agencies fined by the CMA found to have regularly circulated e-mails among other AMA members encouraging them to reject prices proposed by customers on the basis that these were too low. Interestingly, these practices, which even included in some cases the fixing of minimum prices or agreement on a common pricing strategy, were found to relate to modelling assignments of a wide range of types and values – from a few hundred pounds to over £10,000 – albeit they did not extend to the pricing of services by the so-called ‘top models’. This indicates the type of clandestine behaviour often entailed in findings of this nature. The fact that these practices have been unearthed by the CMA and brought to justice in such relatively short order offers a stern reminder to businesses as to the need to be compliance-sensitive and to avoid any inference that prices (and, indeed, other forms of commercially-sensitive data) are being discussed between competitors, especially on an up-to-date, disaggregated and forward-looking basis. There is also a reminder about the dangers of participation in trade associations, meetings of which can often descend from seemingly innocuous discussions into the exchange of sensitive information and, without due care and attention, into tacit or overt coordination over prices. Trade association participation can obviously derive various benefits in sharing expertise and tackling industry-wide issues, but their conduct needs to be carefully monitored and clear guidelines are needed with a view to ensuring nothing that is or could be perceived as anti-competitive takes place.
Indeed, on 19 December 2016, the CMA even announced that it had fined a party in attendance at a meeting in July 2012 alongside members of a cartel in the supply of galvanised steel water storage tanks. Despite not going on to have any involvement in the cartel itself, the fact that it was present at discussions concerning the fixing of prices and rigging of bids for tenders – and clearly did not do enough in the CMA’s eyes to distance itself from that information and ensure it would operate independently of it – resulted in it being landed with a £130,000 penalty. This finding makes the need for robust procedures and internal policies about trade association conduct and participation all the more acute.
Fines have been imposed on the five agencies and the AMA in the total sum of £1,533,500, with Models One and Store Model Management receiving penalties of just under £0.4m and half a million respectively. Businesses can be fined up to 10% of their global group turnover for infringing competition law, and coordination or data-sharing in relation to prices are among the most egregious breaches.
If you have any concerns in this area or wish to explore the benefits of our extensive expertise in advising on compliance (including bespoke competition law training and policies for your staff and management), including in a trade association-specific context, then please get in touch with the EU & Competition team.
News & Insights
Chares Russell Speechlys advises Turner Parkinson on its sale to Knights
Charles Russell Speechlys has advised independent business law firm Turner Parkinson LLP on its acquisition by Knights 1759.
Charles Russell Speechlys advises Kreos and SVB on £20m growth capital investment to Mereo BioPharma
We advised Kreos Capital and Silicon Valley Bank on the refinancing of £20 million growth capital investment to Mereo BioPharma Group
ECM and Brexit: business as usual?
We consider how ECM could be affected by the UK's impending departure from the EU
Clarification on Outsourcing Guidance for using Cloud in the Financial Services Sector – which rules apply?
Important announcements by the FCA and the EBA clarifying guidance on outsourcing to the cloud and third party IT Services.