After a long enquiry, the Office of Fair Trading (OFT) announced last week that it is not going to refer the distribution of newspapers and magazines to the Competition Commission, write lawyers Stephen Hornsby and Michael Evens from Davenport Lyons.
The OFT identified five courses of conduct on the part of publishers and wholesalers that could restrict competition and particularly focussed on absolute territorial protection (ATP). ATP arises where publishers allocate exclusive sales territories to wholesalers who are immune from competition by other wholesalers from outside the territory.
The OFT gave a non-binding opinion that this practice was justified in the case of newspapers because they contain material that is time sensitive. However, this is not generally the case for magazines – though there are obvious exceptions.
The OFT believes that a reference is not necessary to the Competition Commission because it believes (or hopes) that self-assessment by the parties to magazine distribution agreements will bring their agreements into line with this opinion.
There are problems with the OFT’s approach.
On the substance first, as the OFT themselves suggest, it is not really possible to generalise about magazines with a view to assessing whether ATP is efficient because of the time sensitive nature of the publication. Much depends on the individual title; classified magazines like Loot and Exchange and Mart are much more like newspapers than Country Life so there are real difficulties at the margins.
Are distributors to be required (on pain of reference to the Competition Commission or expensive litigation) to have different agreements for each title (assuming that they can properly categorise them)? If they are, then the customer is going to have to pay more.
This leads to the second problem, which is that publishers and wholesalers have got to make their own assessment. The OFT’s opinion will effectively bind itself but it does not bind the courts. This has an upside – perhaps – in that English courts who tend not to like to interfere with contracts might give short(ish) shrift to challenges. But this is far from guaranteed.
How much more attractive the old system of notification and application for exemption now looks; unfortunately it can’t be changed. So magazine publishers now find themselves between the devil and a very deep blue sea, with no land in sight.