Online Christmas shopping unwrapped: competition and consumer law scrutiny

This article highlights three recent developments relevant to online sales and distribution from a competition and consumer law perspective in the UK and EU.

Key takeaways

• Branded suppliers must ensure that their distribution systems are carefully designed and implemented in compliance with competition law, and that any vertical restraints imposed on resellers are linked to a discernible business strategy pursuing a legitimate aim.
• Online retailers must generally be free to: (i) set their own sales prices; (ii) make effective use of the internet for sales and marketing; and (iii) in exclusive distribution systems, accept online orders (passive sales) from outside of their allocated territories or customer groups.
• Online retailers must also ensure they do not make misleading claims about the duration, availability or level of discounts.

CAT finds vertical price fixing and online sales restrictions on running shoes

In October 2024, a retailer of specialist running shoes, Up & Running (U&R), won a UK Competition Appeal Tribunal (CAT) judgment against Deckers, a wholesaler of HOKA brand trainers, finding an infringement of the prohibition against anticompetitive agreements in Chapter I of the Competition Act 1998. 

Deckers supplied U&R with HOKA products at the wholesale level as part of a selective distribution system in the UK. U&R sold that stock through bricks and mortar stores, as well as online through its eponymous website. U&R sought to set up a new website (runningshoes.co.uk) to sell excess stock including HOKA products at a discount. In response, Deckers ceased to supply U&R on the grounds that this second website was not operated under the U&R name, and concerns about credit and logistics.

When properly designed, selective distribution systems can justify imposing qualitative criteria on retailers to ensure quality standards are maintained. However, Deckers' operation of a selective distribution system did not justify its conduct in this case, because the criteria of that system were not clear, transparent, or objective, included some quantitative requirements (limiting the number of online retailers operating in a separate clearance sales channel) and applied in a discriminatory manner. 

The CAT held that Deckers committed two separate infringements of the Chapter I prohibition by object: 

• first, Deckers restricted U&R's ability to make effective use of the internet as a sales channel by seeking to prevent U&R from making sales to consumers through its new clearance website, in order to protect from intra-brand competition the separate clearance sales channel controlled by Deckers; and
• second, by preventing U&R selling HOKA products at a discount on the clearance website, thereby maintaining higher prices for consumers. The CAT considered this was resale price maintenance.

As the infringements were hardcore restrictions by object, the UK and EU vertical block exemptions could not apply.

Deckers was found liable to U&R, with the quantum of any damages to be established in a separate trial.

European Commission fines fashion brand Pierre Cardin for sales restrictions

In November 2024, the European Commission fined fashion brand Pierre Cardin and one of its licensed distributors Ahlers EUR 5.7 million for restricting cross-border sales.

The European Commission found that Pierre Cardin and Ahlers agreed to restrict the ability of other Pierre Cardin licensees and their customers to sell Pierre Cardin-branded clothing, both offline and online, (i) into Ahlers' licensed territories in the EEA, and/or (ii) to discount retailers in those territories, in breach of Article 101 of the Treaty on the Functioning of the European Union.

The aim of the agreement was to ensure Ahlers' absolute territorial protection in its licensed territories, thereby protecting it from cross-border and lower priced competition, to the detriment of consumers.

The European Commission considers restrictions on cross-border trade within the EU to be serious infringements. This decision follows similar findings against Guess in 2018 for restricting retailers from online advertising and cross-border sales, which resulted in a EUR 40 million fine.

CMA action against Emma Sleep in relation to urgency claims

The UK Competition and Markets Authority (CMA) has raised concerns that Emma's website uses the following sales tactics in breach of UK consumer protection regulations:

• "discount" offers, comparing an original, higher price of a product and its ‘now’ cheaper price. The CMA found evidence that the 'discount' was not a genuine saving as only a small fraction of products were actually sold at the original price.
• countdown timers on these discounts, which were often quickly replaced with another discount. The CMA considers these countdowns risk giving a misleading impression and put pressure on consumers to make a purchase for fear of missing out on the discount.

The CMA first wrote to Emma outlining its concerns in July 2023. In May 2024 the CMA issued a letter before claim notifying Emma that unless it committed to changing its online sales practices it would commence court action. No commitments having been offered, on 25 October 2024 the CMA issued proceedings under section 215 of the Enterprise Act 2002.

If the court finds that Emma's sales practices infringe the consumer protection regulations it can order Emma to cease the relevant conduct. Failure to comply with such an order can result in a fine or imprisonment.

Forthcoming changes

The new consumer protection provisions of the Digital Markets, Competition and Consumers Act 2024 (DMCC Act) are expected to come into force in April 2025 and will give the CMA direct powers to enforce consumer law. Once the DMCC Act is in force, the CMA will be able itself to impose fines of up to 10% of global turnover for breaches without first having to bring court proceedings. The CMA has published draft guidance on its approach to the new direct consumer enforcement regime (see our November 2024 update).

For further information, see Ashurst's DMCC Act 2024 resource hub.