For some time, there has been uncertainty as to how far a luxury brand can go to deter or even ban the online sale of its products.
The Court of Appeal decision in Ping Europe Ltd -v- The Competition and Markets Authority has now offered guidance in this area.
According to the Court of Appeal, Ping, the manufacturer of top of the range golf clubs and other golf equipment, “considered how to respond to the growing popularity of sales of all kinds of consumer goods over the internet. Ping regarded online sales as anathema to its focus on custom fitting.”
The Ping “custom fit” service involved golf clubs being matched to the physique and style of a particular golfer. This service could only be offered at a “bricks and mortar” outlet and might involve clubs being made specially.
Ping had a network of authorised dealers, who had to meet certain criteria in order to be able to sell Ping clubs. Dealers were expected to commit resources to the “custom fit” service, include shop space and equipment to assess golf swings, etc. One of these criteria was the acceptance of an internet sales policy (ISP), which in fact was the opposite, because it banned UK authorised dealers from offering Ping products for sale on the websites of authorised dealers (it was later amended so as to only apply to Ping golf clubs, but expanded to ban sales through third party websites, including internet auction sites).
Ping’s ISP came to the attention of the Competition and Markets Authority (CMA), which has responsibility for enforcing competition law in the UK. The CMA decided that Ping’s ISP amounted to an unlawful restriction of competition, both under EU and English law. It directed Ping to change its policy to allow its authorised dealers to sell Ping golf clubs on their websites and fined Ping £1,450,000 (on appeal this was reduced by £200,000).
Before the Court of Appeal, Ping sought to justify its online sales ban for its golf clubs by reference to its wish to increase custom fitting. The Court did not think that an aggressive ISP, which banned the online sale of Ping golf clubs was necessary to promote the aim of custom fitting.
It went on to say that other, less restrictive means could have been used. Authorised dealers could have been required to promote custom fitting on its online sales channel by displaying a clear notice saying that custom fitting would be preferable. Authorised dealers could also have been required to have drop-down boxes on their websites enabling the customer to choose from a range of relevant Ping custom fit options. Another suggestion was a requirement for authorised dealers to have a “live chat” facility on its website and to ask customers to tick a box to confirm that they understood the benefits of custom fitting. All of these could have been adopted as criteria before an authorised dealer was permitted to sell Ping golf clubs on its website.
The Court also addressed the issue of “free-riding”, where products are sold online by a seller who does not have a retail outlet and so can undercut the “bricks and mortar” outlet. It recognised that, for high-end golf clubs, such as those made by Ping, Ping was entitled to restrict admission to its dealer network to retailers who were prepared to make the investment in and commitment to custom fitting. Online sales of Ping golf clubs could be restricted to the transactional websites of authorised dealers (and so exclude third party websites and internet auction sites – the so called “free riders”).
The bottom line was that Ping’s authorised dealers must be permitted to sell Ping golf clubs on their websites, if they so wished, but they were not obliged to do so. The promotion of custom fitting was acceptable, provided it was not mandatory. As the Court said, if custom fitting remained an important sales channel for Ping, this would be “the result of the market determining by the operation of ordinary competitive forces that dealers and consumers have chosen this as the sales route. It will not be the result of a policy imposed by Ping.”
While this case offers useful guidance on the extent to which controls can be placed on internet sales for luxury goods, it does raise further questions. For example, when does a product cease to be “luxury” or “high end” and so should be open to wider competition from online sales? Will authorised dealers who are permitted to sell on-line enter genuine price competition with other authorised dealers and, if they do, how will the manufacturer react? Further case law will be needed to answer these questions.