The ever-increasing dominance of the internet as a sales medium was the focus of a landmark Court of Appeal case in which bespoke golf club manufacturer Ping who had banned its authorised dealers from selling its products online was fined over £1 million for unlawfully restricting market competition.
Ping had pioneered the importance of golf clubs being custom-fitted to their users and viewed non-bespoke internet sales of its products as anathema. It therefore introduced an internet sales policy which prohibited its authorised UK dealers from offering its products for sale on websites.
After the matter was investigated by the Competition and Markets Authority (CMA), a £1.45 million fine was imposed on the manufacturer on the basis that the policy amounted to a harmful restriction on competition, contrary to Article 101 of the Treaty on the Functioning of the European Union and the Competition Act 1998. That conclusion was subsequently confirmed by the Competition Appeal Tribunal, although the financial penalty was reduced to £1.25 million.
In challenging that outcome, Ping pointed out that there was nothing covert about the policy. It submitted that custom fitting ensures that golfers get the most suitable club to optimise their game and that the policy actively promoted competition between club manufacturers based on quality.
In dismissing the appeal, the Court observed that the policy restricted authorised dealers from selling the manufacturer's clubs beyond the geographic locale of their premises. In the absence of internet sales, they did not have to worry about lower prices being charged by other authorised dealers elsewhere in the UK, or anywhere in the European Union, because the customer could not readily buy clubs from those dealers.
Ping with its marketing model is one of the few instances of a business which can plausibly claim to operate a selective distribution network, The Court noted that the law recognises the advantages of selective distribution networks for luxury or highly technical goods, but even here, the combination of such a network with an embargo on internet sales had resulted in a diminution of price competition which was sufficiently harmful to be unlawful. The desirable objective of custom-building clubs to golfers' particular specifications did not objectively justify a complete ban on internet sales. The manufacturer's challenge to the amount of the fine was also rejected.
The case demonstrates the importance of very carefully considering the drafting of restrictions in distribution agreements. If your business is looking perhaps to take advantage of new markets and reseller opportunities, be sure to take advice from our commercial team on your distribution and agency agreements.
Call the team on 0808 166 8827 today.
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