[co-author: Nicola Conway]
On the 25th May 2016, the UK’s Competition and Markets Authority (“CMA”) issued a statement of objections to five of Britain’s most prestigious modelling agencies alleging an infringement of Chapter I of the Competition Act 1998 and/or Article 101 of the Treaty on the Functioning of the European Union (“TFEU”).
The CMA’s investigation, which was launched back in March 2014, has revealed that the five prominent agencies may have exchanged sensitive and confidential competitive information and colluded to fix prices between April 2013 and March 2015. Specifically, concerns have been raised that the agencies agreed on a common approach to setting their fees in an effort to reduce customers’ abilities to play agencies off one another. Such a strategy benefits models (whose wages increase) and their agencies (which are generally entitled to a percentage of models’ earnings) – but it unavoidably dampens competition.
The Senior Director of the CMA’s Cartels and Criminal Group, Mr. Stephen Blake, has stated that “the allegations concern prices charged to a range of customers, including high street chains, online fashion retailers and consumer goods brands. The CMA alleges that these five model agencies sought to achieve higher prices in negotiations with their customers by colluding instead of competing.”
This is the first competition enforcement case taken forward by the CMA in the creative industries, and as such it represents a test case in many ways in that it involves a creative industry. In contrast, the CMA is well-versed in imposing fines for cartel activity in relation to commodities – take, for example, canned mushrooms, alternators and starters, and optical disc drives.
The peculiarity of the case raises an interesting predicament. The punishment of price coordination in these circumstances would benefit retailers and consumers alike since inflated fees charged by the agencies to retailers, which are inescapably borne by customers as the costs trickle down the retail chain to consumer level, would be reduced. However, increased price competition in this sector of the economy would disadvantage working models whose wages (and potentially working conditions) would be subject to more aggressive negotiation, and inevitably lowered.
No conclusion of illegal conduct has been reached at this stage; the CMA must first consider the responses from the recipients of its statement of objections before it reaches any decision. In the event that the alleged market manipulation is proven, the agencies may find themselves exposed to significant fines of up to 10% of their worldwide revenue, whilst directors may face disqualification from UK company directorship for 15 years and even, in extreme cases, imprisonment for up to 5 years.
The CMA’s decision is highly anticipated.
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