CMA warning and advisory letters: What do you need to know?
Global | Video | October 2022 | 07:45
Video Details
| Shaha El-Sheemy | Hello Richard, good to see you again. I wanted to cover today some interesting developments that we are seeing from the UK's Competition and Markets Authority, in particular an interesting tweet that happened back in August this year where the CMA announced that it had actually sent around 200 advisory letters and warning letters. So, before we talk about the context of all of that, it might just be helpful to take a step back and explain what those are exactly. |
| Richard Whish KC | Well, yes, it is a very interesting thing because, there you are, you're the competition authority in the UK. There may be hundreds, thousands of infringements out there, but you have got very limited resources. All authorities are resource constrained, and, of course, at the moment especially, the CMA has cases going on against Google, Apple, Facebook and so on. So, which cases does it do, and if it's putting a lot of resource into that sort of issue there may be infringements or there may be a suspicion of infringements, especially on the part of SMEs. Quite frankly, it probably isn't able to open cases against all of them. But what it can do, if it has a suspicion of a particular practice in an industry is to write to people in that industry or to some that it particularly is suspicious of, and either send to them a warning letter saying, we've come across this practice, maybe you need to give it some thought and maybe you should get in touch with us and tell us what you're going to do about it. So, that’s a warning letter. And sometimes they send an advisory letter that just says, we've come across such‑and‑such a practice and we thought we would draw it to your attention. So those are advisory and warning letters. |
| Shaha El-Sheemy | So, they don't always have to send them. What scenarios would you say are the most appropriate? How often would they be sending those out? |
| Richard Whish KC |
Well, one very useful way of finding out about that is to go to the CMA's website and there is a public register of warning and advisory letters. And it goes through year-by-year how many have been sent. In 2021, I think they sent 28 warning letters and 38 advisory letters, and in the register it tells you the kind of practice that they were worried about, they tell you the industry that they were looking at. You often find that it's some form of resale price maintenance or recommended retail price. But not exclusively so, so sometimes you'll see that they… there was one in 2021 where a supplier in the catering industry apparently was telling its distributors that they couldn't sell on the internet. An interesting case in the IT sector where they said that somebody, a digital company, was charging excessive prices for access to data. So, there's a whole variety of sectors and practices. And you can find it, as I say, on the CMA website. |
| Shaha El-Sheemy | So, it's quite a useful tool for the CMA to use these kinds of letters. What would you say they seek to achieve? |
| Richard Whish KC |
Well, I made the point earlier that they can't open investigations in every case and they're certainly not going to have lots of cases against SMEs in circumstances where they are pursuing other, bigger fry, so to speak. But, if you send these letters to a number of people in a particular sector, to my mind it's inconceivable that those people within that sector aren't going to take notice, they're going to talk to one another, what's all this all about, have they got a point, are there issues that we should be addressing? I'm sure that, properly positioned, these things can have an important effect. |
| Shaha El-Sheemy | Going back to the 200 letters mentioned at the start, that's clearly quite a huge number. How common is it for that scale to come from the CMA? |
| Richard Whish KC |
Well, the sort of thing that can happen is that it might be that within a particular sector there might be a particular practice that perhaps is endemic. And so we've seen this over the years, for example, in relation to musical instruments, where the CMA discovered that suppliers of digital guitars and drum kits and various other instruments were imposing RPM, resale price maintenance, on their distributors. There are various forms of RPM, but let's call it RPM. And it adopted a number of decisions imposing fines, but then it sent these letters to lots of other people in the industry, so therefore one would imagine that anyone in that sector would be on notice that there is an issue here and it needs to be addressed. The one you're talking about is in relation to lighting fittings where the CMA did impose fines in March, I think, this year saying that there was RPM. And then it tells us, I think it was in August that it sent these letters, some warning, some advisory, to something like 200 players in that sector, so they can't say they haven't been warned. |
| Shaha El-Sheemy | And, I suppose the letters, there is an intended, desired effect that one would hope would come out of those letters as the result of having received one, there would be some curtailment of that behaviour? |
| Richard Whish KC |
Well, that's an interesting point because there was a case, I think it was in 2020, against Yamaha that produces digital pianos and it apparently was imposing RPM on its distributors. And then Yamaha blew the whistle, basically accusing its own distributors of being in an illegal agreement with it, so Yamaha in that case did not get fined but one of the distributors, GAK, got fined because it takes two to agree to RPM. And, in its decision, the CMA said, we sent an advisory letter to GAK and they appeared to take no notice of it, so as an aggravating factor in assessing their fine we impose an uplift of 15 per cent on the fine that we would otherwise have imposed. That to me was a very interesting development because it shows that there are real live repercussions from not taking one of these letters seriously. |
| Shaha El-Sheemy | Well, exactly because I guess as a corollary to that, what advice would you give to businesses that have received a letter? You get one of these letters, I think ultimately you'd be, as you say, on notice. |
| Richard Whish KC |
Well, the obvious advice is take it seriously. I think I'm right in saying that when you get the letter there is a link within the letter to the CMA’s own guidance on all of this, including guidance on what is the Competition Act, etc. And if you're at all uncertain, the advice is obvious, you've got to go to get some external legal advice. |
| Shaha El-Sheemy | That's very interesting, thank you very much. |
