The CMA’s investigation into Emma Sleep (Emma) has been running since 2022. In the latest twist, the High Court has rejected the CMA’s application for an enforcement order requiring the online mattress company to observe a 1:2 fixed volume requirement (FVR) in relation to reference pricing.
This blow to the CMA follows a part-settlement of the dispute in May, in which Emma admitted to breaching consumer law through misleading high demand claims, headline discount claims and countdown timers (see our earlier update).
What is the dispute about?
Reference pricing is a practice that, per the High Court, “involves suggesting to customers or potential customers that a product is being offered at a price which is lower than some other price”, e.g. “Was £1,000, now £500” or the use of a struck-through figure like “£1,000 £500”).
The CMA wanted Emma to observe a 1:2 FVR meaning that Emma would have to sell one product at the higher reference price for every two products sold at the discounted price. Despite having settled the rest of the case and agreeing sweeping changes to its practices, Emma refused to implement this requirement. Emma argued that it would be bad for consumers, as with fewer promotions available, Emma would have to raise average retail prices.
The CMA nevertheless sought an order from the High Court that would oblige Emma to observe the 1:2 FVR. This standard has been previously endorsed by the CMA in its 2024 online mattress sales guidance, and featured in a settlement the CMA secured with Simba (another online mattress company).
The High Court’s findings – not a dream scenario for the CMA
In a significant setback for the CMA, the High Court has rejected the regulator’s request. Richards J found that:
Only Emma’s admitted reference pricing infringements have been established.
During the proceedings, Emma admitted that certain aspects of its use of reference pricing breached the Unfair Trading Regulations 2008:
Offering a new product for sale with a struck-through reference price, without ever actually offering the product for sale at that reference price.
Offering a product for sale using a struck-through reference price different from the price charged just before the start of the promotion.
Using a reference price where the product had been offered for sale at that price, but was also available more cheaply in a parallel discount.
Emma also admitted that certain sales figures did not substantiate the claim that Emma’s customers were willing to buy mattresses at undiscounted reference prices in sufficient quantities.
The CMA’s argument that Emma had committed further infringements was “based on insufficiently secure foundations”.
The CMA had failed to consider Emma’s subjective intention. The average consumer would consider it relevant whether Emma has a genuine belief that the reference price it sets is reasonable. Even if Emma’s sales fail to meet the 1:2 FVR, the average consumer may still conclude that the reference price is genuine or realistic if Emma has a real belief that it could sell a significant number of mattresses at that price.
The CMA’s focus on Emma’s low levels of sales at reference prices did not take account of other considerations, such as market-specific factors. Richards J found e.g. that a mattress is a reasonably high cost, infrequent and generally non-urgent purchase, and the average consumer of Emma’s products will be able to defer buying one.
Richards J rejected the CMA’s characterisation of Emma’s internally documented ‘high price/high discount’ strategy as deceiving customers into believing they were getting a good price. Instead, the Court accepted Emma’s explanation in witness evidence that its strategy was to set undiscounted prices at the higher end of its target price range and then offer high discounts during sales periods.
The data did not demonstrate that Emma’s use of reference pricing is generally misleading. The court found that there are “real-world scenarios” with a low percentage of reference price sales (or even none at all) where the average consumer still would not feel misled. Say that Emma offered a mattress at £1,000 for several months but sold no units because (unbeknownst to Emma), a competitor was offering a similar mattress for £800. If Emma then discounts its product to £750, consumers buying Emma’s mattress on the first day of the discount would still feel they have obtained a good deal (i.e. their decision not to buy at £1,000 had been vindicated).
The CMA’s preferred 1:2 FVR metric is disproportionate.
Imposing a 1:2 FVR would create “a very real risk that the line is being drawn in the wrong place”. Richards J noted that Emma’s admitted breaches involve starkly different metrics. For example the admitted breach in respect of the Emma Premium mattresses involved an FVR of 1:50,000 (i.e. one product sold at the reference price for every fifty thousand products sold at a discount). Richards J also considered it possible that a commercial downturn suffered by Emma had been caused by the company initially observing the 1:2 FVR following the CMA’s intervention.
The Judge also noted that there are real world scenarios where countervailing factors (e.g. Emma’s subjective intention) mean that even a low FVR will not necessarily result in an infringement. Therefore, imposing a 1:2 FVR by enforcement order would risk Emma breaching the order even where no consumer law infringement has occurred. This would be disproportionate, particularly since post-DMCCA, being in breach of an enforcement order could result in significant fines or even criminal penalties.
Sleepless nights ahead for the CMA
The CMA will now have to rethink its approach to reference pricing, and consider the key implications of the judgment:
Abandonment of the 1:2 FVR. The CMA has already temporarily withdrawn its online mattress sales guidance, which favoured a 1:2 FVR. The CMA may not also be able to rely on such clear-cut metrics in future reference pricing cases, given the Court’s emphasis on subjective intention and market-specific factors that must be taken into account when considering what conduct the average consumer would find misleading.
Part 8 CPR. The CMA’s choice to bring this claim under the more streamlined Part 8 of the CPR backfired. In the absence of expert evidence or cross-examination of factual witnesses, the Court accepted a number of propositions from Emma’s witness evidence unhelpful to the CMA’s case.
Open questions about the role of subjective belief. The Court considered Emma’s subjective belief relevant, but did not assess ‘bright line’ questions such as whether the use of a reference price is necessarily not misleading if a business genuinely believes it could sell significant numbers of a product at that price, or whether that belief has to be objectively reasonable.
Next steps for Emma and the CMA. The Court elected not to make an alternative order, giving the parties an opportunity to agree alternative terms. Emma has previously suggested a 1:19 FVR or that Emma refrain from using a strike-through reference price at which the company has “no reasonable expectation of achieving significant sales”, significantly different prospects to the 1:2 FVR sought by the CMA. If the parties cannot reach agreement, the Court will hear submissions on alternative terms of an enforcement order later in 2026.
DMCCA. These proceedings were issued in October 2024 under the ‘old law’ before the implementation of the Digital Markets, Competition and Consumers Act 2024, which launched a new consumer protection regime. This may limit the impact of this judgment on any future investigations made under the new regime.
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