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Why price fixing and information sharing matter
What do you know about competition law? It is a reasonable question given:
- a recent survey by the Competition and Markets Authority which found that 50% of fashion companies which took part in the survey stated that their knowledge of competition law was somewhere between not good and non-existent; and
- a recent judgment by the Competition Appeal Tribunal which upheld a fine for information sharing imposed by the CMA.
It is also a reasonable question given that two months have passed since the CMA sent an open letter to fashion businesses which warned that price fixing and sharing information are illegal. However, recent discussions with our clients have highlighted that price fixing in particular is increasing.
It may be that the pressures on retail are resulting in an increase in price fixing. Alternatively, it may be regarded by brands as a way of responding to the issues raised by the growth of the online channel.
But such factors cannot excuse illegal conduct.
How does the CMA become aware of infringements? This can arise in a number of ways. Sometimes it is through market intelligence sources. In other situations past cases or complaints by third parties can highlight issues that require investigation by the CMA. Arguably, for those engaged in price fixing in the fashion industry, the most worrying source for a business is where a whistleblower (sometimes a disgruntled employee) has decided to avail itself of the leniency programme which exists in competition law by blowing the whistle on others engaged in illegal activity.
Price fixing is one thing. Information sharing is another. The CMA is concerned about businesses sharing information insofar as information sharing often leads to reducing if not eliminating price differentials and, as a result, competition. This was highlighted in the recent judgment of the Competition Appeal Tribunal where the party fined had shared its views on future prices as well as current prices at which it was selling certain products. In seeking to overturn the fine which the CMA had imposed, it argued:
- that the information which it had shared was too broad to result in prices generally being adjusted in order to reduce competition.
- exchanging information about prices was neither here nor there insofar as customers would often disclose prices to their suppliers in the hope of obtaining a better commercial agreement.
These arguments did not find favour with the Competition Appeal Tribunal. In particular, the fact that customers provided the same information was irrelevant. Information sharing by suppliers has the negative result of allowing business understandings as to pricing to be confirmed.
Given that it was not so long ago that five fashion model agencies as well as their trade association were fined in excess of £1.5 million for colluding about prices charged for modelling services, the second question is whether lessons have been learned?
Take home points
- The UK has one of the most draconian competition laws of any country in the world.
- A fashion business which infringes competition law can face:
- a fine of up to 10% of annual turnover.
- unenforceability of infringing agreements.
- claims for damages by injured third parties.
- fines and imprisonment of up to five years for directors and senior managers engaged in infringing activity.
- disqualification of company directors for up to fifteen years.
We are hosting our annual fashion law seminar on Thursday 23 November. If you would like to register your interest, please email email@example.com.