The Compare The Market appeal: MFN clauses and competition law
Global | Video | October 2022 | 12:07
Video Details
| Mark Daniels | Hi Richard, great to see you again. Today we are talking about the UK Compare The Market case, the CMA's flagship infringement case regarding MFNs and competition law, but where the Competition Appeal Tribunal recently overturned the CMA's infringement decision. Before we get into the detail of the case, perhaps you could just remind our viewers what is an MFN and the different types of MFN? |
| Richard Whish KC | Well, my first reply to that would be to say that I don't like calling them MFNs. That refers to a most favoured nation clause, which is a term from international trade. Let's call these things parity clauses, and the idea of a parity clause is that I have a supplier and I say to that supplier, you're going to supply me with goods or services, do not supply those goods or services to other people on more favourable terms than you offer to me, so you demand parity. There's a distinction between a narrow parity clause and a wide parity clause. A narrow parity clause, suppose I am an online booking platform for hotels and a hotel group sells its rooms through me and I say to it, you must not offer those rooms on your own website at lower prices than through me. That's a narrow parity clause and generally speaking, generally speaking, those are allowed. You can have a wide parity clause where I say to the supplier, you must not offer more favourable terms to any other platform, or indeed to any other sales channel, than you offer to me, so that's a wide clause. Then there is a distinction between retail and wholesale clauses. In the wholesale case, I am simply saying, you can't supply to other channels who are going to supply other business users, so that's a wholesale clause. Retail, you can't sell to another sales channel that's going to sell directly to consumers, so those are retail parity clauses. And the area that we are going to discuss now is relating to the wide retail parity clauses. |
| Mark Daniels | Ok, great. So, turning to the Compare The Market case, the CMA investigated Compare The Market's parity clauses with home insurance providers, and I think it was in late 2020 decided that those infringed competition law and imposed a fine on Compare The Market of almost £18 million. So, what were the CMA’s key findings in their decision? |
| Richard Whish KC | It's a terribly interesting case and there is a little bit of pre‑history, of course, which is that the CMA itself had done a market study in relation to price comparison tools. It knows a lot about this area. It was a very good piece of work and we can all learn a lot from it. Having done the market study, it then proceeded to infringement proceedings in relation to Compare The Market. As you say, it's Compare The Market saying to the home insurers upstream from it, you mustn't offer home insurance products to other platforms on more favourable conditions than to us. CMA said that's not a restriction “by object”, but it could be a restriction “by effect”. On the facts of this case we think that there is an anti‑competitive effect, it leads to a reduction of competition between platforms and it can lead to higher prices ultimately for home insurance. This is a bad thing and so we impose a fine of £17.9 million, I think it was. |
| Mark Daniels | Ok, so that was the CMA’s case. Compare The Market didn't agree there was an infringement, they appealed to the Competition Appeal Tribunal, and they were right to do so because in August this year the CAT overturned the CMA’s infringement decision. So, what was the CAT's opinion on the CMA’s case and the clauses in question? |
| Richard Whish KC | Well, the CAT's opinion of the CMA case was that it wasn't very good! And, really highly critical, I would say. And it's a very interesting judgment because they're critical on the issue of market definition, and I'll come back to that, but then they're also critical on the substantive outcome. The CAT says, we don't think there is an effect or we can't see what the effect is. Market definition is terribly interesting in this case because it is a classic two‑sided market. We're very familiar with these nowadays. So, here's the platform, on one side of the platform it is offering a service to customers, it's enabling me to look around for insurance products, and on the other side of the market up here you've got the insurers who are looking to be introduced to would‑be customers, so these are the two sides of the platform. And the CMA had reached the conclusion that essentially the market was a market for price comparison websites and that in this market Compare The Market had something like 50 per cent of the market. They didn't say that was dominant, but they said it's a lot of market power and, of course, the more market power there is the easier it is to go on and find there to be anti‑competitive effects. The CAT says, sorry, we're not persuaded by this, CMA, because actually we think that you've read this wrong and on the customer side, on the consumer side, the consumer isn't only comparing prices, he or she is also, through the site, able to go onto the insurer and actually contract with that insurer. In other words, it’s rather more complicated on this side than mere price comparison would suggest. So, the CAT says, we just think your market definition is wrong, it's not fit for purpose. But then, very interestingly, they say we disagree with you, but that's not the end of the matter, we're not going to annul your decision simply because we disagree on market definition, market definition is just a means to an end. What really matters, and this is obviously correct, what really matters is, is there a restriction of competition? And there the CAT says, we need to look at some evidence. Was this leading to higher premiums or whatever it might be? And then the CAT, frankly it’s critical of almost everything that the CMA says. That may be an exaggeration, but it's very critical and says, a lot of what you say, CMA, is based on theory, but it's just theory. Sometimes there's bald assertion, they say. And what they say is, we can't really see what evidence you collected and what use you made of that evidence. So, irrespective of what the right or the wrong market definition might be, you just simply have failed to convince us that there is any anti‑competitive effect here. So, of course, the decision is annulled. |
| Mark Daniels | I think another interesting aspect of the case as well, of course, is we now have the new Vertical Agreements Block Exemption Order, the VABEO, under which wide retail MFNs or parity clauses are treated as a hard core restriction of competition, i.e. a serious restriction, and agreements containing such clauses therefore fall outside the benefit of the Block Exemption. But then in the CAT's judgment you have the CAT talking about how they didn't necessarily consider that wide MFNs are effective except in the most egregious of cases. They didn't really consider the theoretical argument against these types of MFNs to be particularly strong in the markets under consideration. Clearly, there's an inconsistency there between the VABEO and the CAT’s judgment. What do you think about that? |
| Richard Whish KC | Well, it is a very strange position that we've ended up in here. I mean, forget Compare The Market, Brexit took place, a lot of people I think assumed that UK law might become, what shall I say, more permissive, less intrusive than EU law as a result of Brexit. And yet here we have the example of the Block Exemption Order in this country and the Block Exemption in the EU. In the EU, parity clauses, retail parity clauses are not hard core, they are subject to effects analysis, they are excluded agreements or excluded terms. And yet the UK Block Exemption actually says that these are hard core restrictions and the CMA has said that they are probably object restrictions. And yet in its own decision it said it wasn't object but did find an effect, and then the CAT says there's no effect. So, we really do end up in a rather bizarre state of affairs where there's clearly an asymmetry between the CAT, I would say, and the VABEO and between the VABEO and the VBER, so it's a strange situation. |
| Mark Daniels | And I think the CMA had until mid‑September to appeal, and it seems they haven't done so. Do you think that's a bit surprising and perhaps a missed opportunity to try and clear up some of that confusion there? |
| Richard Whish KC | Well, I assume that they're not appealing because there's nothing on the CAT website. Maybe something is still going to happen, I don't know, but it would appear that they're not appealing. I know nothing about that. I'm not sure it's helpful to speculate, quite frankly. But I do think this all needs to be revisited. I wonder whether BEIS might be persuaded to have another look at it. I suppose it's fair to say, of course, that what we're saying at the moment is that these parity clauses are hard core, so that the agreement in question is not block exempted. That, of course, is not the end of the matter. That simply says they're not block exempted, but that does not mean they're unlawful. It means that they require individual analysis to determine whether they're unlawful and I suppose one would have to say, post the CAT judgment, that if the only hard core clause is retail parity obligations, then we can see that it is not easy to establish that they are anti‑competitive. |
| Mark Daniels | Perhaps just one final point. Can you see the CAT's judgment having broader implications for the CMA’s casework? |
| Richard Whish KC | Well, look if I was at the CMA and assuming there's no appeal, I think sometimes with these kind of cases you, sort of, take it on the chin and learn from it. If you are, sort of, asking might the CMA refrain from doing effects cases in the future and rely purely on object cases, well I hope they wouldn't draw that conclusion. I think that any authority ideally should have a balanced portfolio of work and they should have some object cases, they should have some effect cases, they should have some abuse cases. I think you need to keep all the cylinders firing, quite frankly. But we will see. |
| Mark Daniels | Thank you, Richard. Very interesting. |
| Richard Whish KC | Pleasure. |
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