London Fashion Week 2017: CMA warns businesses in the creative industries about breaking competition law
In the run up to September’s London Fashion Week 2017, the Competition and Markets Authority (“CMA”) issued an open letter to businesses in the creative industries, warning them about breaking competition law.
The letter highlights a recent case where five modelling agencies and their trade association were fined over £1.5 million for allegedly colluding (rather than competing) on the prices they charged for modelling services. Over a two year period, the model agencies (FM Models, Models 1, Premier, Storm and Viva) are said to have discussed prices for modelling services in the context of negotiations with particular customers. In some cases, they apparently agreed to fix minimum prices or to adopt a common approach to pricing. The trade association (the Association of Model Agents or AMA) is alleged to have regularly and systematically exchanged confidential and commercially sensitive information between AMA members through email circulars (known as ‘AMA Alerts’) which urged members to resist the prices offered by customers as they were too low.
However, the CMA’s open letter is addressed much more widely than just the modelling sector. The target audience is in fact any business or individual who works in the creative industries, which covers businesses engaging in any of the following activities:
- Advertising and marketing
- Design: product design, graphic design and fashion design
- Film, TV, video, radio and photography
- IT, software and computer services
- Museums, galleries and libraries
- Music, performing arts and visual arts
In fact, the CMA’s research finds that businesses in the creative sector have a particularly low understanding of competition law, which puts them at risk of failing to recognise if they, or others, are breaking the law.
What does this mean for creative and other businesses and their staff?
The CMA’s key message is that illegal price co-ordination and information sharing between competitors is taken extremely seriously and the CMA will investigate businesses in all industries – including, but by no means limited to, those that operate in the creative sectors – if there are reasonable grounds to suspect the law is being broken.
There are serious consequences for businesses that break UK/EU competition law, including:
- Fines of up to 10% of worldwide group turnover;
- Anyone who has suffered loss as a result of a company breaking competition law can claim damages against that company;
- Trade associations can face penalties too;
- The CMA can also hold a business liable just for being a member of a trade association that broke competition law; and
- Reputational damage can be significant and long lasting.
Moreover, the individuals involved may face:
- Director disqualification for up to 15 years; and
- Criminal prosecution, potentially leading to imprisonment for up to five years and/or unlimited personal fines.
By way of recent example, a former company director was sentenced last week to two years’ imprisonment (suspended for two years), subjected to a night-time curfew order (from 6pm to 6am daily for 6 months) and disqualified from acting as a director for 7 years. This individual, who had worked for a company supplying pre-cast concrete drainage products to the construction industry, pleaded guilty to the UK criminal ‘cartel offence’, which can be infringed, for example, where competing businesses agree to fix prices.
How to ensure creative and other businesses stay on the right side of the law
In an attempt to reduce the risk of breaching UK/EU competition law, the CMA recommends all businesses take the following steps:
- Ensure all staff members know what they can and can’t do, including the sorts of things which they should not discuss with competitors. This can take the form of introducing a competition compliance policy and training staff regularly on it.
- The CMA has a range of simple guides to help businesses understand more about competition law, including a 60-second guide on dos and don’ts for trade associations.
- There are also a range of case studies that show how other businesses have been investigated for breaking the law.
- Report companies in your industry that you suspect are breaking competition law, using the CMA’s cartels hotline. Legal advice should first be taken.
- Notify the CMA as soon as possible if you think you or your business may have been involved in an illegal cartel as there may be beneficial treatment under the CMA’s ‘leniency’ policy. Legal advice should first be taken.
For more information on competition compliance in the creative and other sectors, please contact Andrew Maxwell at Freeths LLP.
The content of this page is a summary of the law in force at the present time and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
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