Fair competition is the lifeblood of any economy and judges are alert to prevent the smothering of business rivalries and to safeguard healthy markets. A case on point concerned a company which adopted restrictive membership rules in its attempt to break into the online estate agency market.
The company’s ambition was to catch up with, and eventually surpass, the two major players in the market. It restricted its membership to office-based estate and letting agents, as opposed to those operating solely online (the bricks and mortar rule). Members were also required to promote themselves only on the company’s portal (the exclusive promotion rule) and were restricted to marketing properties on no more than one other portal (the one other portal rule).
The company launched proceedings against one of its estate agency members after the member began marketing properties on the two established portals in alleged breach of the one other portal rule. The member defended the claim on the basis that the three rules prevented, restricted or distorted fair competition and were thus void by operation of the Competition Act 1998.
Those arguments, however, failed to convince the Competition Appeal Tribunal (CAT) following a preliminary hearing. It found that the rules were actively pro-competitive and that the one other portal rule, in particular, was objectively necessary to enable the company’s attempt to enter the market.
The member’s challenge to that ruling focused on the one other portal and bricks and mortar rules. In dismissing the appeal, the Court of Appeal found that the one other portal rule did not have the objective of being anti-competitive. The creation of the new portal fostered competition in the market and the company’s members had freely signed up to the rule.
The company’s lack of market power as a new entrant meant that the rule did not harm competition, and it was no more restrictive than was necessary to enable the company to realise its aspirations. Although the bricks and mortar rule had the potential to threaten competition, that was not the case at the relevant time due to the company’s weak market position. The Court noted that the company’s membership rules had recently been substantially changed.
