By Matthew Perlman

Law360 (November 16, 2020, 7:23 PM EST ) The U.K.'s Competition and Markets Authority will have to review its decision to unravel JD Sports' completed £90 million ($112 million) merger with a rival athletic fashion retailer after a tribunal found enforcers didn't fully consider the COVID-19 pandemic's impact on the industry.

The Competition Appeal Tribunal issued a judgment on Friday partially upholding JD Sports' appeal of a May decision from the CMA that found its recent purchase of Footasylum has hurt competition and should be unwound. The tribunal pointed to the agency's assessment of the pandemic's impact on Footasylum and suppliers including Nike and Adidas and said enforcers had not gone far enough.

"We consider that the assessment of these effects is sufficiently material to the CMA's overall conclusions as to require further examination of the [final report] as a whole and we therefore remit the case to the CMA for reconsideration in the light of this judgment," the tribunal said.

JD Sports acknowledged the ruling in a statement Friday, with the company's executive chairman Peter Cowgill saying they have always maintained that the deal will benefit "customers, colleagues and brand partners."

"The entire case will now go back to the CMA for reconsideration and we look forward to presenting further evidence which demonstrates the true extent to which the competitive landscape has evolved, in particular as a result of the unprecedented challenges caused by the COVID-19 pandemic," Cowgill said.

The appeal had also taken aim at the CMA's broader assessment of the market and its findings about the basic competitive landscape but the tribunal rejected contentions that the CMA's conclusions were off base. The CMA responded with a statement Friday saying the agency welcomes the tribunal's "endorsement of the CMA's analytical framework."

CMA Chief Executive Andrea Coscelli said the decision reinforces the way the agency generally gathers and assesses evidence in merger cases but that the outcome is disappointing nonetheless.

"We are disappointed that the tribunal disagreed with the CMA's approach to information gathering about the specific impact of coronavirus on the sector given the circumstances at that time," Coscelli said in the agency's statement. "We will now take stock of today's judgment and carefully consider our next steps, including whether to appeal."

The CMA found in May that unwinding the merger between JD Sports and Footasylum was the only way to preserve competition in the U.K.'s growing sports fashion sector, despite contentions from the companies that they were not exactly rivals before the merger.

The agency argued that the companies share a fan base of "younger, trend-conscious consumers," and said a study revealed that more than two-thirds of Footasylum customers who shop in-store would switch to JD Sports if the smaller chain evaporated.

On appeal, JD Sports argued that the CMA was wrong to find the deal has substantially lessened competition and said enforcers failed to grasp the influence of other retailers and suppliers on the market. The tribunal said in Friday's judgment that it found "no basis for concluding that the CMA was in error in the manner in which it conducted its assessment."

The tribunal upheld the appeal, however, based on arguments that the CMA should have followed-up its inquiries with suppliers and Footasylum's primary lender about the impact of the pandemic, including on Nike's and Adidas' direct-to-consumer retail businesses.

The judgment said the "CMA acted irrationally" by concluding the crisis would not have a substantial effect without having the necessary evidence.

"The CMA's decision to seek no further information prevented it from putting itself in a position properly to answer the statutory question, and prevented the CMA from having a sufficient basis for making the assessments and reaching the decisions it did," the judgment said.

In Friday's statement, the CMA said the coronavirus hit the U.K. heavily during the final weeks of its investigation and that its assessment of the pandemic's impact was "undertaken in the context of great uncertainty about the longer term impact of the coronavirus on the retail sector."

The agency said it concluded in April that seeking further information from suppliers and Footasylum's lender would only yield "speculative and unreliable" evidence.

But the tribunal said Friday that in determining the information it had about the pandemic's impact was unreliable, the CMA "closed its mind to the possibility that robust information on possible impacts was available."

JD Sports is represented by Brian Kennelly QC of Blackstone Chambers and Alistair Lindsay of Monckton Chambers, instructed by Linklaters LLP and Freshfields Bruckhaus Deringer LLP.

The CMA is represented by Marie Demetriou QC of Brick Court Chambers and Ben Lask of Monckton Chambers.

The case is JD Sports Fashion plc v. Competition and Markets Authority, case number 1354/4/12/20, in the Competition Appeal Tribunal.

--Additional reporting by Nadia Dreid. Editing by Jay Jackson Jr.

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