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Landmark CMA Decision on Wide MFN Clauses sees £18 million fine on Price Comparison Website, ComparetheMarket

19th November 2020

Introduction

In a landmark decision dated 19th November 2020 the UK’s principal competition regulator, the Competition & Markets Authority, fined price comparison website, ComparetheMarket (“CTM”) £17.9 million for breaching Chapter 1 of Competition Act 1998 and Article 101(1) TFEU for entering into a network of wide most favoured nation clauses (“MFN”) sometimes known as price parity clauses with a some of the largest home insurers serving the UK market collectively having a market share of around 40%.

These clauses stopped insurers from advertising their policies more cheaply on other price comparison websites thereby preventing those rival sites from expanding. This had the effect of restricting competition between price comparison websites, and between home insurers selling through these platforms. The CMA found that this was likely to have resulted in higher insurance premiums paid by consumers.

Background

The CMA undertook an investigation into CTM’s use of most favoured nation clauses following a number of complaints. The CMA concluded that between December 2015 and December 2017, the price comparison website, CTM, breached competition law by imposing wide MFN clauses on providers of home insurance selling through its platform.

These clauses prohibited providers of home insurance, including underwriters, brokers and retail partners from offering lower prices on other comparison websites and protected CTM from being undercut elsewhere. They also made it harder for CTM’s rivals to expand and challenge the company’s already strong market position (50%) as other price comparison websites were restricted from beating it on price.

The effect of these clauses was as follows:

  • Insurers were prohibited from offering cheaper deals on other price comparison websites.
  • They limited competitive pressures on all home insurers competing on price comparison websites.
  • Rival comparison sites were restricted in gaining a price advantage over CTM, for example, by lowering their commission fees to encourage those insurers to quote lower prices on their platforms.
  • The competitive pressures CTM itself was subject to were weakened.

Commenting on the publication of their decision the CMA clearly signalled their determination to police digital markets to protect consumer choice. They stated:

“Digital markets can yield great benefits for competition, and therefore for consumers. We are determined to secure those benefits, and to ensure that competition is not illegitimately restricted. Today’s action should come as a warning – when we find evidence that the law has been broken, we will not hesitate to step in and protect consumers.”

Conclusion

This decision is likely to be seen as an important case on the application of competition law to MFNs. There have been several cases at both a UK and EU level involving MFN clauses in the past, but these have mostly, if not exclusively, been settled by use of commitments. The parties involved agreed with regulators to remove wide MFN clauses from their agreements and not to enforce them.

What is unusual about the present case is that CTM appeared to offer a similar remedy which did not result in a termination of the case. On 30 November 2017, two months after the launch of the CMA’s investigation, CTM contacted insurers to inform them that it would no longer be enforcing the ‘wide most favoured nation’ clauses in their contracts.

Yet despite this action by CTM the CMA elected to proceed with this case to a legally binding decision. It is likely that the CMA wanted such a decision as a deterrent to others to avoid using such clauses. There were also some aggravating factors which may have been present. In the CMA’s summary of their decision the CMA commented that CTM had routinely monitored and enforced these clauses and refused in the past to release insurers from their provisions despite repeated requests.

Future Action

In light of this decision companies should seek immediate legal advice about the use of MFN clauses in their contracts. Not all MFN clauses are contrary to competition law and the legality of them will be largely dependent their scope (wide or narrow) and upon the market share enjoyed by the parties in their relevant markets. In this case it was an important factor in assessing the effect on competition that CTM was the largest price comparison website on the market having around a 50% market share which entered into contracts with insurers representing over 40% of the UK home insurance market.