A new season for replica football kit cases
Over two decades since a raft of replica sports kit cases,[1] the issue of replica football kit is back in the competition law consciousness. Despite changes in market practices, clearly issues persist, likely because of the massive increase in the commercialisation of football and the significant revenue generated by sports merchandise each season. Two recent developments highlight the continued interplay between sports merchandising and competition law.
CMA investigation into JD Sports and Leicester City FC
The Competition and Markets Authority (“CMA”) recently found that Leicester City Football Club (“LCFC”) and JD Sports had entered into arrangements with each other with the object to limit the scope of competition between them for the retail sales of LCFC replica kit and other LCFC-branded clothing. This was a settlement decision following admissions by LCFC and JD Sports that they had breached competition law.
Specifically, the CMA found the following anti-competitive arrangements:
- For the 2018/19 football season, that JD Sports would immediately stop making online sales of LCFC-branded clothing leaving LCFC as the only online retailer of the new 2018/19 clothing for the first part of the season and as the principal retailer for the remainder of the season.
- For the 2019/20 football season, that JD Sports would resume selling online but would not undercut the prices of LCFC in respect of online sales. This was achieved through JD Sports applying a delivery charge for all online orders of LCFC-branded clothing and removing, for baskets containing LCFC-branded clothing only, a company-wide promotion of free online delivery for all orders over £70. The effect of this was to remove the price differential between JD Sports and LCFC as LCFC did not offer free delivery.
- For the 2020/21 football season, to continue the same arrangements as for the 2019/20 season, which continued until at least January 2021 when JD Sports took steps to terminate the arrangements.
The CMA considered that these arrangements led to a common understanding between JD Sports and LCFC, wherein JD Sports would terminate online sales and then resume them under the above conditions, or alternatively that their agreements gave rise to a concerted practice involving coordination between the two companies, who should have been competing with each other on price, in the form of an exchange of competitively sensitive pricing information and JD Sports’ future intentions in relation to selling online and/or applying delivery charges. Those agreements and/or concerted practices between competitors had the object of sharing markets (by coordinating the use of particular sales channels), and fixing prices (by agreeing that JD Sports would apply delivery charges).
LCFC, and its Thai-owned parent companies, King Power and V&A Holding, were fined £880,000 collectively. JD Sports escaped paying a fine as it benefited from the leniency regime, being the one to blow the whistle to the CMA in the first place.
Sports Direct's Application for a Mandatory Injunction Denied by Court of Appeal in Sports Direct and Newcastle United FC Case
Earlier this year, Sports Direct applied to the Competition Appeal Tribunal (“Tribunal”) for a mandatory injunction against Newcastle United Football Club (“NUFC”) requiring NUFC to continue to supply Sports Direct with its replica football kit for retail sale in shops and online. Sports Direct noted in its claim form that it had been supplied with, and had sold NUFC’s replica kit without interruption, at least since NUFC joined the Premier League in its second season. With effect from the next football season, however, Sports Direct understood that NUFC had:
- Terminated its agreement with its current manufacturer, Castore (who supplied Sports Direct), and had licensed Adidas as its exclusive manufacturer along with granting Adidas certain distribution retail rights.
- Reserved wholesale distribution, or the right to direct wholesale distribution, in the UK exclusively to itself.
- Appointed JD Sports the rights to sell NUFC replica kit online exclusively in the UK.
Sports Direct alleged that where a dominant undertaking (in the present case NUFC) has historically supplied a non-substitutable product (here, replica kits) in a certain way (i.e. to Castore and, through Castore, to others further down the chain including to Sports Direct) then it is an abuse of a dominant position under the UK Competition Act 1998 (“CA 1998”) Chapter II prohibition for NUFC to change the manner in which it supplies the market in the future if that change involves ceasing to supply a single, previously supplied, undertaking (such as Castore and/or Sports Direct). Further, Sports Direct alleged that NUFC had infringed the CA 1998 Chapter I prohibition by entering into arrangements with JD Sports that are exclusive and have the effect of foreclosing Sports Direct from the market for NUFC replica kit.
While those main allegations are yet to be proven at trial, the Tribunal ultimately refused to grant the injunction on the basis that, among other reasons, Sports Direct had failed to show that there was a serious issue to be tried under the American Cyanamid test. [2] In considering whether there was a serious issue to be tried, the Tribunal held that the court should consider only those facts which were uncontentious. On appeal, the Court of Appeal held that this approach was incorrect. In assessing an application for interim relief, the court is required to take the claimant’s pleaded and evidenced case at face value unless it is shown to be plainly false or fanciful. The Tribunal could not therefore disregard contested facts.
Applying the correct approach, the Court of Appeal held that the Tribunal would have formed the view, if Sports Direct were right that the matter was to be viewed as refusal to supply an existing customer, that it was at least arguable that Sports Direct could show that NUFC had breached competition law. Nevertheless, the Court of Appeal ultimately also refused the interim application, on the basis that the balance of convenience did not favour granting the injunction as the damage to NUFC would be far more fundamental if the injunction were wrongly granted, than the damage that would be done to Sports Direct if it misses one or two season’s supply.
Comment
In the Sports Direct v NUFC case, there was no real analysis by the Tribunal of the allegation that the new arrangements between NUFC and JD Sports are anti-competitive, focussing as they did only on the abuse of dominance by NUFC. It should be noted that JD Sports has now been added as a defendant to Sports Direct’s main action. As that case now moves swiftly to trial it will be interesting to see how this element of Sports Direct’s case is argued, given the CMA’s separate investigation into JD Sports in relation to LCFC replica kit.
Footnotes
[1] For example, 1019/1/1/03 Umbro Holdings Limited; 1020/1/1/03 Manchester United PLC; 1021/1/1/03 Allsports Limited; 1022/1/1/03 JJB Sports PLC v Office of Fair Trading.
[2] American Cyanamid Co v Ethicom Ltd [1975] AC 396.