22 August 2022
On 8 August 2022, the Competition Appeal Tribunal (CAT) handed down its judgement in the case of BGL (Holdings) Limited & Others v Competition and Markets Authority. The judgement provides important clarifications on market definition, in particular on two-sided markets, and on the analysis of anti-competitive effects in infringement proceedings by the Competition and Markets Authority (CMA).
The judgement deals with wide most favourite nation (wMFN) clauses which, in the context of price comparison websites (PCWs), prevent providers from offering lower prices on their own websites and on any other PCWs that they use. These clauses must be distinguished from narrow MFN clauses where the restrictions are only limited to the prices on the providers' own websites. Wide and narrow MFNs have been the subject of several investigations in the EU as well as the UK, particularly concerning hotel booking platforms such as Booking.com.
The case was brought to the CAT on appeal against a decision of the CMA issued in November 2020 and imposing a fine on Compare The Market, a PCW, for the use of wMFN clauses in its agreements with home insurance providers. The CMA found that the clauses had the effect of preventing, restricting or distorting competition in breach of Chapter I of the Competition Act 1998 and Article 101(1) of the Treaty on the Functioning of the European Union (TFEU). The CMA imposed a fine of £17.9 million on the company.
Compare The Market appealed to the CAT on six grounds, the most important of which related to the market definition and the alleged anticompetitive effect of the wMFN clauses. The CMA had defined the relevant market as the supply of PCW services for home insurance in the UK, a two-sided market that included the supply by PCWs of (i) customer introduction services to home insurance providers, and (ii) price comparison services to consumers. The CAT disagreed and identified two focal products supplied by the seller and acquired by the buyer as customer introduction services and home insurance intermediation services. On that basis, the CAT concluded that there are two separate markets for the supply of (i) customer intermediation services and (ii) home intermediation services.
The CAT considered Compare The Market's submission that some home insurance providers ignored or disregarded the wMFN clauses, and hence there could be no anti-competitive effects. The CAT concluded that it would not be appropriate to permit these contractual breaches to side-step a finding of a "by effect" infringement. So, although the CAT rejected Compare The Market's argument, it accepted that compliance with a wMFN clause was not enough to show the anticompetitive effect. The burden to show that there was such an effect is on the CMA. Having examined the evidence relied on by the CMA, the CAT established that there was no reliable evidence that wMFN clauses had any adverse effect on either premiums paid by consumers or commissions paid by insurance providers.
The CAT upheld the appeal and set aside the CMA's decision.
The CMA's decision against Compare The Market was taken before the entry into force of the UK Vertical Agreements Block Exemption Order (VABEO) on 1 June 2022. Before that date, the EU Vertical Agreements Block Exemption Regulation from 2010 (VABER 2010) was in force in the UK. The CMA, however, decided that the VABER 2010 did not apply to Compare The Market's agreements with the home insurance providers due to Compare The Market not being a 'buyer' within the meaning of Article 1(1)(h) VABER 2010 and Compare The Market's share of the market for the provision of PCW services for home insurance to home insurance providers exceeding 30%. The CMA therefore assessed the effects of the wMFN clauses under Section 9 CA 98 and Article 101(3) TFEU.
In the new VABEO, and the accompanying guidance, wMFN clauses are specifically covered and characterised as hardcore restrictions. Vertical agreements including such restrictions are automatically excluded as a whole from the safe harbour provided by the VABEO and their effects need to be assessed under Section 9 CA 1998.
Although the CAT's judgement can be appealed against to the Court of Appeal, it is likely to have a significant impact on the legal practice in the UK. This applies in particular to market definition in two-sided markets and the assessment of the effects of wMFN clauses and, indirectly, other clauses in vertical agreements.