Neutral Citation Number
Judgment of the Tribunal on the application of JD Sports Fashion plc (“JD Sports”) for review under s.120 of the Enterprise Act 2002 of the decision of the Competition and Markets Authority (“the CMA”) in its Final Report (“FR”) dated 6 May 2020.
In the FR, the CMA found that JD Sports’ acquisition of Footasylum plc (“Footasylum”) (“the Merger”) would result in a substantial lessening of competition (“SLC”) in sports-inspired casual footwear and apparel products sold both in stores and online. As a result, shoppers would be worse off. The CMA concluded that the aggregate constraint provided by other retailers and suppliers (such as Nike and adidas) would not be sufficient to prevent the SLC. The CMA therefore required JD Sports to divest Footasylum in full to a suitable purchaser.
In its application JD Sports challenged, by way of judicial review, the decision in the FR on three grounds:
- the CMA erred in law and/or acted irrationally in: (i) applying its Merger Assessment Guidelines in determining whether any lessening of competition caused by the Merger was “substantial”and; (ii) assessing the aggregate constraints on the merged entity posed by suppliers and retail rivals, currently and in the future;
- the CMA erred in law and/or acted irrationally in: (i) excluding from the counterfactual the effect of COVID-19 on Footasylum; and (ii) its assessment of the effect of COVID-19 on Footasylum; and
- the CMA erred in law and/or acted irrationally and/or failed to provide adequate reasons regarding: (i) Frasers Group Plc’s elevation strategy; (ii) the constraint posed by suppliers on the merged entity; and (iii) the constraint on the merged entity posed by Nike’s and adidas’ own direct to consumer (“DTC”) retail offer.
For the reasons given in the judgment, the Tribunal unanimously dismissed JD Sports’ Application under Ground 1 and under Grounds 3(1) and (2) but upheld the applications under Ground 2 and under Ground 3(3) to the extent that the latter concerned the likely effects of COVID-19.
In relation to Ground 2 the Tribunal concluded that, both in relation to the failure to follow up inquiries with suppliers and the failure to make direct inquiries of Footasylum’s primary lender, the CMA acted irrationally in that it came to conclusions as to the likely effects of the COVID-19 pandemic, that were of material importance to its overall decision, without having the necessary evidence from which it could properly draw those conclusions.
In relation to Ground 3(3) and the CMA’s conclusion as to the possible effects of the COVID-19 pandemic on the ability and incentives of Nike and adidas to increase their DTC operations to the disadvantage of the merged entity, the Tribunal found that, as with its findings on Ground 2, the CMA acted irrationally in that it did not have the necessary evidence from which it could properly draw such conclusions.
The Tribunal quashed the FR in so far as its conclusions were based on the CMA’s assessment of the likely effects of the COVID-19 pandemic (i) on the relevant markets, (ii) on the merging parties and/or the merged entity, and (iii) on the competitive constraints likely to apply to the merging parties and/or the merged entity.
This is an unofficial summary prepared by the Registry of the Competition Appeal Tribunal.