JD Sports and Footasylum have been fined almost £5m after breaching an official order against sharing commercially sensitive information without prior consent.
Multichannel sports fashion retailer JD Sports has been fined a total of £4.3m by the Competition and Markets Authority (CMA), while Footaslyum has been ordered to pay £380,000, for sharing commercially sensitive information – and for failing to have safeguards in place to prevent that happening.
The Competition and Markets Authority had issued an interim order that the two multichannel retailers should not share such information during the course of its investigation into whether a merger between the two would affect competition within the sports fashion market. It subsequently ruled, in November 2021, that JD Sports must sell Footasylum to keep the sports fashion market fair, both online and in-store. That sale is currently in the process of taking place.
The CMA case
The CMA says that two meetings took place, one in July 2021 and one in August 2021, in which Peter Cowgill, chief executive of JD Sports, and Barry Bown, chief executive of Footasylum, exchanged commercially sensitive information and then did not inform the CMA.
It says that the information exchanged included issues about Footasylum’s performance including financial information, stock allocations from key brands, the planned closure of six Footaslyum stores, including the location of two, and its contract negotiations with its transport and delivery provider and for the renewal of its head office lease.
And it also says that the information shared could have affected competition in the market, leading to anti-competitive behaviour.
Kip Meek, chair of the CMA inquiry group investigating the merger, said: “There is a black hole when it comes to the meetings held between Footasylum and JD Sports. Both CEOs cannot recall crucial details about these meetings. On top of this, neither CEO or JD Sports’ General Counsel can provide any documentation around the meetings – no notes, no agendas, no emails and poor phone records, some of which were deleted before they could be given to the CMA.
“Had there been proper safeguards in place, we would have been alerted to these breaches in good time and would have had the necessary information to tackle them head on. It jeopardised our ability to maintain the benefits of a competitive market for shoppers and ensure there is a level playing field for other businesses. This fine should act as a warning – if you break the rules there will be serious consequences.
“Once the CMA was made aware of the meetings, it used its information gathering powers to try and develop a clearer picture of what had taken place. It requested details from both companies on the number of meetings that had occurred between the companies since July 2020; the topics discussed; any documents involved; and any steps that had been taken to prevent commercially sensitive information being exchanged.
“Despite the firms being legally required to respond to these requests, both failed to provide the CMA with all the information it asked for by saying that, at one meeting in December 2020, no documents were exchanged, when this was in fact not true. This impacted the CMA’s ability to conduct its investigation, for which each company have been fined £20,000.”
The maximum penalty that the CMA can impose on a company for not complying with its information notices – which in this case required the two companies to set out the details of all meetings they had with each other from July 2020 and provide the documents discussed or exchanged at the meetings is £30,000.
How JD Sports responds
Responding to the fine, JD Sports says it never intended to breach the rules although it inadvertently came into possession of limited commercially sensitive information that was not reported to the CMA immediately.
But it says it does not believe the CMA’s description of the event – and the penalty levied – is a fair reflection of its efforts to ensure compliance with the order. JD Group says: “JD believes that a number of the further conclusions which the CMA have drawn are either incorrect or have been presented in a misleading manner through the use of inflammatory language. In particular, JD notes that the CMA are suggesting, for the first time, that phone records have been deleted and, whilst JD accepts that some phone records were not available, it absolutely refutes any allegation that this was due to records being deliberately deleted. In this regard, JD can also confirm that it voluntarily submitted all of its relevant devices to a third party for expert forensic analysis.”
JD Sports says that it has always acted in good faith, that it had guidance in place that was continually reviewed and updated, and that there was no prohibition on the chief executives meeting and no legal requirement in the CMA’s interim order either to tell the CMA of such a meeting or to take notes at the meetings. It will now review the detail of the CMA division and says it has already put the relevant measures in place that now go well beyond what is legally required by the CMA.