Ping Europe Ltd v Competition and Markets Authority

Hearing dates: 6 and 7 November 2019

Approved Judgment

The Appellant, Ping Europe Ltd (‘Ping’), makes and distributes top of the range golf clubs and other golfing equipment and clothing. Ping is the sole licensee of the Ping brand in the UK, Europe, the Middle East and South Africa. It had a turnover of £52.7 million in the financial year ended 31 December 2016. It operates a selective distribution network of 1,200 authorised dealers throughout the United Kingdom some with premises located on golf courses and some on the high street. Since the foundation of the Ping brand by the American engineer Karsten Solheim in 1959, Ping has pioneered the importance of what is called “custom fitting”. When customers are custom fitted for a golf club, they are carefully assessed so that the golf clubs they buy are of a specification suited to their particular measurements, golf swing and other attributes. Ping believes that the practice of steering potential customers firmly towards a custom fitting before they buy ensures that the customer acquires the most suitable club to enhance their game. The authorised dealers admitted to Ping's network, referred to in the proceedings as Account Holders, must meet certain qualitative criteria. These require them, amongst other things, to invest in the equipment and expertise needed to provide the custom fitting service to their customers.

In 2006 Ping considered how to respond to the growing popularity of sales of all kinds of consumer goods over the internet. Ping regarded online sales as anathema to its focus on custom fitting. It therefore introduced an internet sales policy (‘the ISP’) which prohibited its UK authorised dealers from offering Ping products for sale on the dealers' website. In 2012 this policy was modified to allow online sales of Ping products other than golf clubs but was maintained and strictly enforced for the sale of Ping golf clubs.

On 24 August 2017 the Respondent, the Competition and Markets Authority (‘the CMA’), adopted a decision called “Online Sales Ban in the Golf Equipment Sector” (‘the Decision’). The CMA found that Ping's ISP as incorporated into its contractual agreements with its authorised dealers amounted to a restriction of competition “by object” contrary to both Article 101 of the Treaty on the Functioning of the European Union (‘Article 101’) and the prohibition in section 2(1) Competition Act 1998. Having found that the ISP was an object restriction, the CMA did not consider the effects of the policy on the relevant market which it defined as the market for the sale of golf clubs in the United Kingdom. The CMA found further that the policy did not satisfy the criteria for exemption under Article 101(3). The CMA directed that Ping revise its policy to allow authorised dealers to sell Ping golf clubs on their websites. The CMA held further that Ping's infringement had been committed intentionally, or at least negligently, and imposed a fine on Ping of £1,450,000.

Ping appealed against the Decision to the Competition Appeal Tribunal (‘the CAT’). In a judgment dated 7 September 2018 [2018] CAT 13 (Andrew Lenon QC, Prof John Beath OBE and Eamonn Doran), the CAT upheld the finding that the ISP amounted to a restriction of competition by object. The CAT reduced the penalty imposed by £200,000.

Ping now appeals to this court against the CAT's judgment. The principal ground of appeal is that the CAT erred in finding that Ping's ISP was a restriction of competition by object. Its secondary ground of appeal is that if the infringement decision is upheld, the penalty imposed should be significantly reduced.

Background

(a) Golf, golf clubs and custom fitting

The CMA described golf as one of the most popular sports in the UK. It cited a 2015 survey which found that 3.3 million adults played on a full length golf course in 2015 including 1.5 million golfers who play at least 12 times a year. The total value of UK consumer expenditure on golf equipment and clothing was £340 million in 2014 and the value of retail sales of golf clubs alone in 2015 was between £150 – 160 million. Between 60 to 70 per cent of UK golfers had bought golf equipment in the previous 12 months. The average expenditure by UK golfers on clubs in 2015 was £203 on drivers, £153 on fairway woods, £439 on a set of irons, £126 on hybrids and £101 on wedges.

There are a number of competing golf club manufacturers, all of which provide a range of accessories and clothes as well as clubs. Market share data derived from different industry sources was set out in the Decision in tables at paras. 3.12 and 3.13, each table listing about 7 or 8 manufacturers including Ping. According to those data, in 2015 Ping was the leading manufacturer of some kinds of clubs and had a significant market presence in relation to other kinds. Ping was the market leader by revenue in that year.

Golf clubs must conform to the specifications set out by the Royal & Ancient which decides whether a design of club is contrary to the rules of the game. The leading manufacturers across all main categories of clubs supply custom fit clubs, allowing a golfer to specify variables including shaft type, shaft length, clubface lie angle, grip type and grip thickness based on the golfer's personal measurements and other requirements. According to Ping, those competitors introduced their own custom fitting service in response to Ping's success and to customer demand. The custom fitting of a customer in the retail premises takes about 30 – 90 minutes. The same service is carried out in the shop regardless of the brand being fitted; a consumer may try several brands of golf club to work out which one suits them best. The service generally involves the following steps:

i) there is an initial interview at which a fitter will discuss the golfer's current game – for example whether they tend to play on a links or parkland course, the equipment they need and what they want to achieve;

ii) basic measurements are taken including the golfer's wrist to floor measurement and height;

iii) based on that information, the fitter identifies potential shafts and specifications for the golfer;

iv) a swing test is carried out to assess how the golfer is hitting the ball. A launch monitor placed at floor level records and analyses the golfer's swing and displays data such as clubhead speed, the ball's launch angle, trajectory, speed and spin. This enables the fitter to fine tune the different variables that need to be taken into account such as the length, flex, torque and weight of the club.

v) the fitter then advises the golfer on the brand and specifications which would best suit their play. The fitter might also advise on which golf clubs the player should buy to make up a full set.

The CMA recorded Ping's evidence about the investment that its Account Holders make in the promotion of custom fitting: para. 3.71. This includes the allocation of space for a driving range with a substantial proportion of Account Holders having a dedicated fitting studio. The majority of Account Holders who responded to Ping's survey have invested in a launch monitor which costs between £5,000 for a basic model to £17,500 for a more sophisticated model. Ping also invests in this process by providing fitting clubs to Account Holders supplied solely for the purpose of the custom fitting process. Ping also organises a fitting education programme for the employees of Account Holders and fitting demonstration days at its own fitting centre at Gainsborough.

The CMA recorded at para. 3.30 that the number of golfers who have a custom fitting for clubs has been increasing over recent years, indicating, the CMA said, an increased understanding amongst consumers of the benefits of custom fitting. There are high levels of satisfaction recorded by those who have a custom fitting. About 30 to 40% of Ping's Account Holders provide the custom fitting service free of charge. Some of those who do charge a fee then deduct the fee from the cost of any purchase made. The fee is modest compared to the cost of the clubs.

Some Ping golf clubs are made on a made-to-order basis i.e the particular golfer's measurements taken during the dynamic custom fitting session are passed on to Ping and the golf club is then made bespoke for that customer. There are some clubs which are supplied to retailers in standard fits to ensure that the brand achieves appropriate visibility in the retail stores. Then the appropriate club will be supplied to the customer after the dynamic custom fitting has taken place, if it has the right measurements for that golfer. The price of the club for the customer is the same whether he buys one which the shop happens to have in stock or one that has been custom made. Each Ping club bears a serial number allowing Ping to replicate the club.

If a new golfer comes into the shop and resists all the retailer's efforts to persuade him of the merits of custom fitting then Ping accepts that it cannot insist that the retailer actually refuses to sell the customer a golf club. Ping does not monitor the rates of custom fitting of its Account Holders. However, it is a contractual requirement that everything...