Fashion Law - FAQs - What should I do if one of my agents takes on a competing brand?

Commerce

What should I do if one of my agents takes on a competing brand?
It is extremely common in the fashion industry for an agent to carry a number of collections for different brand owners. It is also a commonly held view that this does not cause a problem.

This is not the case. A principal has a right to prevent an agent from acting for competing principals. This is because an agent has a legal obligation to his principal not to put himself in a position in which his personal interests or those of another principal may come into conflict with his principal's interests without his principal's fully informed consent. An agent owes these duties to his principal irrespective of whether there is a written or oral agency agreement. In addition, these duties are entirely separate from any non-compete restrictions on the agent in a written agency agreement.

A conflict will clearly arise if an agent takes on a competing brand. An agent will often try to justify taking on another collection by arguing that there is no risk of a conflict of interest arising because the products do not compete, or even because the products complement each other. Yet whether or not a product competes with another product can be a difficult question to determine. It depends on how the market is defined. The more narrowly the relevant market is defined, the less likely it is that the products compete. Provided that prompt action is taken, a principal who has not consented to an agent acting for another principal is entitled to terminate the agency agreement immediately. As a result the agent will lose the right to compensation or indemnity payable under the Commercial Agents Regulations. Further, the principal may claim damages or even an account of profits from the agent, who will have no defence.

Am I entitled to refuse to supply a range to certain retailers if I have already agreed to supply it to a retailer located nearby?
The potential legal issues involved in refusing to supply one retailer on grounds that you are already supplying another retailer in the same area relate to competition law.

The refused retailer may seek to argue that you have made a market sharing agreement (which could be written or oral) with the accepted retailer insofar as you have agreed not to supply the products you supply to the accepted retailer to other retailers in the area. This type of agreement may be an anti-competitive agreement prohibited by Article 81 of the Treaty of Rome and the Chapter I prohibition in the Competition Act 1998. These laws prohibit anti-competitive agreements, being agreements between undertakings which prevent, restrict or distort competition in the United Kingdom (or the European Union) and which may affect trade within the United Kingdom (or the European Union).

Alternatively, the refused retailer may also argue that you are abusing your dominant position in the market by refusing to supply it for no justifiable reason. This may amount to anti-competitive behaviour prohibited by Article 82 of the Treaty of Rome and the Chapter II prohibition in the Competition Act 1998. These laws prohibit anti-competitive behaviour, being where an undertaking which is in a dominant position within a particular market abuses that dominant position.

I should add that, in order to breach Article 81 and the Chapter I prohibition, the agreement must have an appreciable effect on competition within the United Kingdom (or the European Union), or any part of it. An agreement may have an appreciable effect on competition if the parties to the agreement have a combined market share of over 25 per cent., although this is not a hard and fast rule. Clearly, your market share depends on what is the relevant market. The more narrowly the relevant market is defined, the higher the market share. Nor will it be in breach if the combined annual turnover of the parties to the agreement is less than GBP 20 million.

For the purposes of Article 82 and the Chapter 82 and the Chapter II prohibition, a party is not generally considered to be in a dominant position unless it has more than a 40 per cent. share of the relevant market. Further, to be in breach, your turnover alone would need to exceed GBP 50 million per annum.

Irrespective of these points, it may be that the refused retailer will raise the matter with the Office of Fair Trading (being the body which enforces the Competition Act 1998) and the Office of Fair Trading may decide to investigate the matter.