The Competition and Markets Authority (CMA), the principal UK competition regulator, maintains a register of competition law advisory and warning letters it sends to businesses it believes could be breaching competition law. On 12 February 2018, the CMA announced that it had updated its competition law advisory and warning letters register. The subject of these letters and the sectors upon which they focus provide an interesting insight into the type of practices and the industries the CMA has in its sights. Those companies receiving letters should take immediate action to ensure their practices comply with competition law. Failure to do so could result in substantial penalties in the event of a subsequent CMA investigation.
So why does the CMA use advisory and warning letters and if it is so concerned about these practices, why does it not commence proceedings against the companies involved?
The letters are a cost effective way to sound a warning shot to individual companies and companies in a particular sector of the economy where the CMA has information either from its own intelligence or from other sources that these businesses may be resorting to certain business practices which may restrict or distort competition. The CMA uses these letters to warn businesses that it is concerned that they might be breaking competition law and to encourage them to comply with competition law. However the CMA has limited resources and it has decided for the time being not to open proceedings in these cases on the grounds of priority.
If a company receives a warning or an advisory letter it does not mean that they have breached competition law. Warning and advisory letters both explain the CMA’s concerns about business practices and recommend that the business to whom they are addressed should carry out a self-assessment of their business practices to ensure compliance with competition law. A warning letter will request the business concerned to write to the CMA with details of what it has done or is planning to do to ensure compliance with competition law. An advisory letter on the other hand will simply request that the company let the CMA know that it has received the letter. Nevertheless although there are no immediate consequences, companies who have previously received one of these letters are likely to be dealt with more harshly if in the future they are discovered breaching competition law.
The latest revision discloses that in 2017, the CMA sent a total of only 19 warning letters. This was down considerably on the two previous years. In 2016 the CMA sent out 63 and the year before 85. The register reveals that in 2017 the CMA’s concerns related primarily to forms of resale price maintenance (RPM). Suppliers and manufacturers ensured retailers adhered to RPM through restricting discounts and/or threats or financial incentives to sell at a particular price. In other cases suppliers sought to ensure pricing levels were kept high by making retailers adhere to its minimum advertised price (MAP) online. This latter practice, whilst lawful in the US, is a serious infringement of competition law in the EU and has in the past and still does cause considerable confusion in the minds of US companies trading in Europe.
Also of note are a number of cases involving restrictions to selling products online which continue to be a problem despite featuring in the register from previous years. Market and customer allocation between distributors and an arrangement to raise prices for certain brands appeared as a particular issue in the industrial tools and services sector. The industry focus of the other warning letters are on the general retail and wholesale sector. This includes the sale of vaping products, garden furniture, recreational products, cosmetic products, bathroom fittings, vehicle maintenance and industrial products.
The latest update to the register discloses that in 2017, the CMA sent a total of 42 advisory letters. This was more than last year (31) and considerably more than the year before (13). Of the practices highlighted, resale price maintenance continued to be a firm favourite. However many of the suspected infringements related to price coordination due to sharing of current and future pricing information and other sensitive information between businesses. Attempts to restrict retailers’ freedom to price online, was also the subject of a number of letters. The market sectors identified include modelling and model agency services, cosmetic products and treatments, light fittings, munitions, healthcare services, agricultural machinery, the recreation and leisure sector, sports equipment, health products and treatments, personal care products, vehicle maintenance, hand tools and outdoor cooking equipment.
As mentioned above, although the CMA has decided at the present time not to advance proceedings against companies in the relevant sectors, the fact warning and advisory letters have been sent should alert companies to the potential unlawful nature of the practices identified. We recommend that these companies should urgently undertake compliance audits of their practices. If they wait until the CMA is knocking at the door, the ramifications for these companies (including substantial financial penalties) could be severe.