Innocuous stuff you might think but the Competition and Markets Authority (the CMA), the UK’s competition authority, has spent considerable time and resources investigating and following through on the commitments offered by the Guild to bring its Rules into line with UK competition law. The Guild has only just published its amended Rules – some 2 and a half years after the CMA opened its investigation in December 2015.
The investigation was understandably followed in the travelling fair trade press. There was even a brief mention in the FT when the CMA opined in August 2017 that the Guild had broken competition law by limiting competition between fairs run by the Guild and rival fairs and criticising its rules of membership which contained restrictions on competing in the industry. But there was little other coverage, despite the fact that the CMA’s recent activities point towards membership bodies being the target of a number of investigations.
An earlier letter to The Guardian (from the Fairground Association of Great Britain) lamented the CMA’s interest in an organisation established to regulate the travelling fair industry, asserting that the Guild had, historically, a ‘strong ethical basis’. Without wishing to refute that argument, this can be a usual refrain from representative organisations – whether a membership body, a self-regulating body or a trade association. Roughly put: we didn’t mean to do anything unlawful – our role is to promote and protect the interests of our members – in fact, we don’t know why we would be caught by competition law at all – we don’t sell anything ourselves.
The Guild (and others like it) may not be perceived as a commercial organisation but you can start to see the point when you learn that, according to the CMA, its members represent 90% of the travelling fair sector in the UK, worth some £100 million annually. Its Rules restricted members from competing with one another in organising, attending and establishing new fairs. Further, the Guild’s entrenched position as chief organiser of established fairs up and down the country (and operated by Guild members) also meant that non-members could not access fairs run by the Guild.
The Guild’s Rules were designed in decades past to improve quality and safety in the industry and to protect the reputation of travelling fair operators. The CMA was concerned that the Rules had become anachronistic and potentially stifled competition, impacting on fairgoers as well as the operators themselves. The CMA is of course ultimately a consumer protection body with a variety of competition and consumer law tools at its disposal.
At this point, those of you who either run (or are members of) a membership body or trade association might like a refresher on the legal framework. (It’s also the part of the article which covers fines.) A membership or professional body (such as a guild) is an “association of undertakings” under UK competition law. An “undertaking” has a special economic meaning here – it is an entity active on a market supplying goods and/or services regardless of corporate structure. Such associations are caught by the prohibition on anti-competitive agreements, decisions and concerted practices. The Guild’s Rules constituted such a ‘decision by an association of undertakings’.
Where an association of undertakings intentionally or negligently infringes competition law, financial penalties can be imposed on the association itself, its members or both. The worst case scenario is a penalty of 10% of the sum of the worldwide turnover of each member active on the market affected by the infringement.
Penalties are only imposed where there is an appreciable effect on competition in the UK. The bigger the association, the greater the risk that any anti-competitive behaviour carried on by the association and/or its members (as directed by the association) will have an appreciable effect on competition. In 2016, the CMA imposed fines of £1.5 million on 5 fashion model agencies and their trade association for colluding on the prices charged for modelling jobs. The agencies had discussed the prices amongst themselves and the trade association helped them share this by sending out email alerts, sometimes actively encouraging members to reject the prices fashion magazines were offering, to force a higher price.
The appreciability test does not however mean that smaller sectors or regional bodies are immune to CMA interest. In 2015, a membership organisation of private ophthalmic surgeons was fined £382,500 for sharing commercially sensitive information amongst consultants and recommending what prices they should charge to insurers.
The Showmen’s Guild itself was not fined – probably because there is no notion that it was engaging in any form of price-fixing, the most serious competition law breach, and it is clear that the Guild cooperated fully with the CMA once the issues were understood. It wanted to ensure that the Rules were compliant and proposed changes to them to address the CMA’s concerns. These included that the conditions of membership needed to be transparent (published online) and “expressly based on objective criteria”. Nevertheless the length of the investigation and the general impact on the Guild’s activities cannot have been welcome.
With an increased focus on enforcement, and perhaps a notion that membership bodies are ‘low hanging fruit’, it would seem prudent to carry out a review of your rules of association. Remember that any restrictions should pursue a clear and legitimate interest. The last words should go to the CMA:
“Trade associations offer many benefits for the businesses they bring together and represent, but they are also at risk of acting anti-competitively if they try to shield their members from the natural pressures of competition.”
This information is necessarily of a general nature and doesn’t constitute legal advice. This is not a substitute for formal legal advice, given in the context of full information under an engagement with Bates Wells.
All content on this page is correct as of October 8, 2018.