The Competition and Markets Authority (CMA) has recently announced its enforcement trends in competition law with the publication of a summary detailing the warning letters sent to businesses in 2023. The CMA has issued letters to 23 businesses this year, following 47 letters sent in 2022. This development provides significant insight into the sectors under scrutiny and the types of anti-competitive behaviours being monitored by regulators.
An analysis of the sectors targeted by the CMA reveals that the retail and wholesale market was the most prominently featured, accounting for 17% of the warning letters. The technology products and heating equipment sectors followed closely, each receiving 11% of the correspondence. Additionally, sectors such as household goods, recruitment services, agriculture, environment, recreation, healthcare, clothing, and advertising have all been identified as areas of active monitoring by the CMA, illustrating the comprehensive nature of its oversight efforts.
The letters issued in 2023 primarily pertained to behaviours that potentially infringe upon the Chapter I prohibition, which prohibits anti-competitive agreements. The CMA identified a noteworthy trend regarding resale price maintenance (RPM), citing that a substantial 40% of the letters were associated with this practice. RPM occurs when suppliers attempt to control the prices at which their products are sold throughout the supply chain. The CMA has indicated that while RPM can be permissible under specific circumstances, its usage is fraught with risk, serving as a caution to all businesses, particularly those involved with franchises. Businesses are advised to remain vigilant against agreements that restrict discounting, impose pricing in any manner, or establish long-term exclusivity arrangements.
In relation to the Chapter II prohibition, which addresses the abuse of a dominant market position, the CMA's letters noted that such behaviours are often intertwined with potential Chapter I infringements. Two letters were linked to market foreclosure in related sectors, specifically addressing restrictions on online advertising platforms and exclusivity arrangements. The CMA has emphasised that while anti-competitive agreements might pose the greatest risk for franchise operations, it is imperative for businesses to consider the risks associated with collective dominance when collaborating with other franchisees, particularly in instances of refusing supplies or purchases from certain entities.
Recent cases of CMA enforcement related to RPM highlight the agency's commitment to addressing price fixing, a behaviour generating numerous complaints. For example, DAR lighting recently faced a fine of £1.5 million for restricting retailers' discounting capabilities online. Similarly, previous actions taken against several organisations in the music sector for similar infringements reflect the rigorous enforcement environment surrounding competition law. The CMA has made it clear that consequences for engagement in anti-competitive behaviour can include fines of up to 10% of a group's worldwide turnover, personal fines, and director disqualification.
The CMA's actions have significant implications for businesses that receive warning letters concerning potential breaches of competition or consumer law. It is crucial for organisations to act promptly and seek legal advice to mitigate risk. Historically, inaction in response to such letters has led to escalated fines, and in some instances, daily penalties for failure to comply.
Though the majority of businesses may not have received warning letters, the CMA's expansive powers, which include the capability for dawn raids, suggest a heightened level of scrutiny. The impending Digital Markets, Competition and Consumers Act is set to strengthen these powers, anticipated to take effect in January 2025. Business leaders are urged to establish comprehensive competition compliance policies and provide robust training for employees, equipping them to navigate potential dawn raids and ensure adherence to competition laws.
Franchise models pose unique challenges within the competition law framework, often operating in ambiguous territories. The CMA has indicated a renewed focus on how franchise agreements can be structured within the enforcement of competition law, highlighting their development of more concrete guidance relating to franchising. Notably, the CMA is now likely to apply its standards for selective or exclusive supplying to franchise agreements, providing franchisors with clarity on permissible clauses while granting them increased control over brand presentation through the concept of brand aura.
Each of these developments underscores the evolving landscape of competition law in the UK and emphasizes the necessity for businesses, especially franchises, to stay informed and compliant in an increasingly rigorous regulatory environment.
Source: Noah Wire Services