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Out-Law News | 11 Aug 2022 | 3:55 pm | 3 min. read
A recent UK ruling does not mean that clauses in contracts that place restrictions on the price suppliers can offer products or services on other sales channels beyond their own are acceptable under competition law, an expert has said.
Angelique Bret, a competition law specialist at Pinsent Masons, was commenting after the Competition Appeal Tribunal (CAT) overturned (200-page / 1.44MB PDF) a decision by the Competition and Markets Authority (CMA) that concerned the use of so-called ‘wide’ ‘most favoured nation’ (MFN) clauses by price comparison website Compare The Market.
MFN clauses, also known as ‘parity’ clauses or obligations, are restrictions that require one party to an agreement to offer the other party goods or services on terms that are no worse than those offered to its own customers or to third parties. MFNs can be categorised as either ‘wide’ or ‘narrow’ in scope.
Under a wide MFN suppliers agree not to charge a lower price on their website or any other sales channel, which guarantees the beneficiary of the MFN that they will get the best price. Under a narrow MFN suppliers agree not to set lower prices through their own websites compared to the prices they are offering the beneficiary of the MFN. Generally, narrow MFNs have been found to be permissible but wide MFNs have been considered to have the potential to restrict competition, depending on the circumstances.
Compare The Market was fined £17.9 million by the CMA in November 2020 after the regulator determined that the platform had used wide MFN clauses in its contracts with home insurers that breached competition law. This was the first time the CMA had issued a decision punishing the use of MFN clauses and imposing a fine.
At the time, the CMA said this was because they “prohibited the home insurers from offering lower prices on other comparison websites and protected Compare the Market from being undercut elsewhere”. It added that the clauses “also made it harder for Compare the Market’s rivals to expand and challenge the company’s already strong market position as other price comparison websites were restricted from beating it on price”.
However, Compare The Market raised an appeal against the CMA’s decision before the CAT. The tribunal has now determined the appeal in Compare The Market’s favour. It ruled, among other things, that the CMA had failed to provide sufficient evidence to support its findings that Compare The Market’s use of the clauses had the appreciable effect of preventing, restricting or distorting competition between price comparison websites.
The CAT confirmed that “the mere fact that these clauses were effective – in the sense that they were complied with – is not sufficient to demonstrate an anti-competitive effect”. It said the CMA had failed to satisfy the burden on it to show “that there was such an effect”.
Both UK and EU competition law prohibit agreements, arrangements and concerted business practices which appreciably prevent, restrict or distort competition, or where this is the intended result, and which affect or may affect trade within the UK or the EU respectively. Whether an arrangement is anti-competitive is assessed on the basis of its object, or its effect, on competition, rather than its wording or form.
Bret said: “A ‘by effect’ competition case – where a harmful effect on competition resulting from the agreement or conduct in question must be demonstrated on the basis of credible evidence – can be challenging to establish.”
“This differs from a ‘by object’ infringement – where the agreement or activity in question is considered inherently anti-competitive and amounts to a per se breach of competition law, without the need to adduce evidence demonstrating actual anti-competitive effect on the market,” she said.
Bret said that the use of wide MFN clauses in retail vertical agreements, such as those between a business and its suppliers, are categorised as “hardcore” restrictions under the UK’s new Vertical Agreements Block Exemption Order (VABEO). The VABEO applies an automatic exemption to restrictions of competition in vertical agreements so long as certain conditions are met. One condition is that the agreements do not contain hardcore restrictions, which are deemed highly likely to be anti-competitive.
“The CMA’s case against Compare The Market predates the VABEO, which came into force only on 1 June 2022,” said Bret.
“The blacklisting of wide retail MFNs in the UK increases compliance risk for businesses, and notably diverges from the EU Vertical Agreements Block Exemption Regulation where wide MFNs are excluded from the block exemption but are not expressed as a hardcore restriction,” she said.
It remains to be seen whether the CMA will appeal the CAT ruling to the Court of Appeal in London.
A CMA spokesperson said: “The CMA is disappointed with the judgment and is currently considering its contents as well as any next steps.”
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19 May 2022
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