As a business owner, the law may seem an unnecessary burden, creating reporting and compliance obligations that get in the way of good business. You might be tempted to think that as long as your terms and conditions are in hand, the law won’t come crashing down on you if you bend the rules a bit.
Don’t be fooled; no company is too small to be worth the attention of the authorities – especially where price fixing is concerned.
In the first case of its kind, the Competition and Markets Authority (CMA) has secured the prosecution of a company for price fixing on the sale of posters with one of its leading competitors. Trod Limited had agreed with another Amazon seller, GB Eye, that they would not undercut one another’s prices for posters and frames on the e-marketplace. Under competition law, companies are prohibited from fixing prices of goods with competitors, as this disadvantages consumers by pushing prices up.
Having blown the whistle on the price fixing, GB Eye and its directors were let off the hook by the CMA, but this was not the case for Trod Limited. Under the Company Directors Disqualification Act 1986, the CMA has the power to disqualify a director for up to 15 years. Anybody slapped with the penalty is then barred from acting as a director or receiver of a company and cannot even be involved with a company’s management without the permission of the court.
For Trod Limited’s director, what started out as a way of maintaining his company’s turnover ended with a 5-year disqualification from company management and the end of his role with Trod (at the time of publishing, searches suggest the company is in administration).
Lessons to be learned
Competition law is something that smaller businesses don’t usually worry about too much. But the fiasco surrounding Trod Limited is a timely reminder that the law applies to all of us. Even with an annual turnover of around £15million, Trod Limited was simply an online poster seller operating from home. He and his competitor had used automatic repricing software to ensure neither undercut the other on Amazon, so the mechanics of the price fixing were all managed digitally. There were no smoky boardroom deals between billionaires, but the end effect was considered by the CMA in the same way as any blue-chip market stitch-up would have been.
For this case to be the first disqualification of a director for a breach of competition law indicates that the CMA wanted to set an example. Despite both Trod Limited and GB Eye being relatively small regional sellers, the investigation into them was well coordinated and turned up results which warn any company (big or small) that price fixing is not an acceptable practice.
Issuing a statement following the directors’ disqualification, the CMA noted that “the business community should be clear that the CMA will continue to look at the conduct of directors of companies that have broken competition law” and that they were “absolutely prepared to use this power again.”
It seems that no matter how small your business, the CMA will not turn a blind-eye to price fixing even if your market share is minimal.
Our three tips for any business selling goods or services in light of this CMA crackdown:
- Don’t be tempted to fix prices with a competitor, even if it boosts business for both parties and seems innocuous. Chances are you will be caught out!
- Don’t feel that price fixing with resellers of your products will be OK. Even though allowing them to undercut you doesn’t seem like good business, the law is clear that you cannot prevent them from selling at a lower price than you do.
- If you are involved with price fixing, approach the CMA yourself. The directors of GB Eye went unpunished for their part in the Trod case, simply because they blew the whistle. The authorities are willing to cooperate re: disqualifications provided that you are willing to reveal any wrongdoing.
And finally, of course, involve one of our experienced commercial consultants in any business agreements to make sure you don’t break the rules! Then you can sleep safely at night, knowing the CMA won’t come knocking at your door in 2017. Contact us for a free initial call.