‘Be ye never so high, the law is above you.” Although stated in a High Court ruling 45 years ago, this statement could also be made today about the King of Trainers, JD Sports.
Earlier this month, JD Sports confessed to “cartel activity” after it had been found to fix the prices of Glasgow Rangers FC’s replica football kit that lasted between September 2018 and July 2019.
Price fixing is condemned under both UK and EU competition laws. The underlying reason is that where price fixing occurs, consumers lose out.
Price fixing itself comes in two varieties. Firstly, in what are called vertical agreements where a brand agrees with a stockist that, for example, there will be no discounting from recommended retail prices. However, resale price maintenance can occur at any stage of the supply chain. A prime example is at the retail level where, for example, a retailer agrees – or is persuaded – not to discount from a brand’s RRP.
Secondly, in horizontal agreements. This occurs when two parties at the same level in the supply chain agree to sell at a particular price. In this way, neither is undermining the other’s turnover by engaging in a price war.
This is what happened in the case of JD Sports. The only difference being that as an agreement between JD Sports and Elite Sports (which operated the Gers Online website), it also involved Glasgow Rangers. The three parties allegedly agreed that JD Sports would raise its price from £55 to £60, to align with the prices being charged by Elite Sports on the Glasgow Rangers’ website. However, as the Competition and Markets Authority has only published its provisional findings, it remains uncertain whether the CMA will decide that Glasgow Rangers has infringed competition law and will fine the football club.
JD Sports has announced that it expects a £2 million fine. A significant sum of money, although less so far as JD Sports is concerned given its turnover and profitability. Compare that, for example, with Dar Lighting which was fined £1.5 million by the CMA earlier this year for breaking competition law by restricting the level of discounts retailers could offer online. This amount was almost twice Dar Lighting’s net profit in the last financial year, which should act as a warning of the financial impact these kinds of fines can have.
The findings come after the CMA fined JD Sports £4.3 million for breaching an order which prohibited JD Sports and Footasylum (after their merger was blocked) from exchanging commercially sensitive information without prior consent, and forced them to alert the CMA if any information had been shared. In addition, the result of the CMA’s investigation of JD Sports involving alleged price fixing concerning the replica soccer strip of Leicester City Football Club is still to come.
The decisions of competition law regulators across Europe demonstrate that price fixing occurs in a swathe of industries. But possibly because of the role fashion plays in society, the industry accounts for more than its fair share of price fixing occurrences.
22 years ago, JD Sports was engaged in the price fixing of Man United replica kit. In contrast, last month the European Commission undertook a number of unannounced dawn raids of some fashion companies amid concerns that they were engaged in anti-competitive activities.
This followed on from its announcement earlier this year that it was investigating Pierre Cardin for alleged restriction of cross-border and online sales of Pierre Cardin-licensed products, as well as sales of such products to specific customer groups.
Meanwhile, back in the UK, Belle Lingerie has commenced an action in the Competition Appeal Tribunal against Wacoal for various anticompetitive and discriminatory measures.
Belle Lingerie (“Belle”) sells products on Ebay and Amazon as well as via its own website. Wacoal is a leading global manufacturer and wholesale supplier of luxury branded lingerie and swimwear.
Belle has claimed that an assortment of discriminatory measures were imposed on it selectively. These included:
The online platform ban required Belle to align its advertised and retail prices with Wacoal’s recommended retail prices on all eBay sites around the world.
If that was not the case, Wacoal wanted Belle to de-list Wacoal’s products from eBay sites so that they were not visible in consumer searches in third countries. Belle claimed that there was a common aim of maintaining or stabilising retail prices for the Wacoal products, which would certainly have an effect on competition in the UK.
Currently the case is currently headed for trial in mid-September.
The beginning of June saw the introduction of changes in both UK and EU competition laws. Whilst these changes have implications, particularly for the selective distribution business model, there is no change in the law so far as price fixing is concerned. An agreement by two parties at different levels of the supply chain to fix prices will result in an infringement of competition law.
Nor is there any change in the consequences. The inclusion in an agreement of an unlawful price fixing provision will render the agreement void and third parties will be able to claim damages.
What will be interesting to see is whether given JD Sports’ share price performance, any group ligation is brought either by shareholders.
For many businesses, fixing prices can appear attractive. It can provide comfort that your competitors will not be engaged in a price war (having price fixed) or that brand positioning will not be undermined.
Sometimes price fixing can occur without management being aware (for example, where an area manager decides that price fixing equals increased sales equals improved annual bonus).
But the risk of being found out exists.
Sometimes outing will occur as a result of whistleblowing after a distributorship agreement is ended or a supplier decides no longer to supply a particular stockist.
Being alert to price fixing – which can come in a variety of forms including agreements as to when a brand is to go on sale – is important.
We regularly advise companies on competition law issues and how to comply.
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