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Pink Mercs, Penalties and Scandal - What does Racing Point's plight teach us about dealing with sports' governing bodies and regulatory changes?

18 August 2020

As the dust settled on Sunday's Spanish Grand-Prix you could be forgiven for thinking Racing Point F1 had a lot to feel good about. The team had their best points of the campaign with drivers finishing 4th and 5th - only behind the two Mercedes and Red Bull's Max Verstappen. However, as can often be the case in sport, in play success has been marred by regulatory trouble.

That trouble culminated on 7 August with the FIA’s (Fédération Internationale de l'Automobile) decision that Racing Point had illegally copied the car design of last year’s championship-winning Mercedes. The Silverstone based outfit were issued with a €400,000 fine and a 15 penalty point deduction.

F1's 2020 constructor scandal has been a strange tale that can seem simple on the surface. But look under the bonnet of the FIA's decision and you'll find there's far more at play. The issues raised have outraged competitors and forced the FIA to grapple with technical and philosophical questions on the spirit of competition and the sport’s future - which is partly why we aren't at the end of the story quite yet, with appeals lodged by Racing Point, Ferrari and Renault. Nonetheless, it’s worth taking a step back at this juncture to see what lessons can be learnt on how to deal with sports’ governing bodies and regulatory changes.

1. Background to the decision

If you’re familiar with the events that led to the FIA’s decision then skip ahead to section 2. Otherwise, read on…

Starting positions

Before digging into the detail its worth having a quick recap of events so far.

Racing Point is a British motor racing team and constructor that competes in Formula 1. During the 2020 F1 Pre-Season Testing in Barcelona, Racing Point revealed their new car for the coming season – RP20. The car was met with raised eyebrows as a shiver a Deja vu swept through rival paddocks. That shiver became a rumble as other teams noticed RP20 drew a striking resemblance to Mercedes’ 2019 Championship winning model. Such were the similarities that RP20 was disparagingly dubbed “the Pink Mercedes”, a nod to Racing Point’s livery of the same colour.

Why would a copy car provoke such reactions? Well F1 is made up of 10 different constructors, each with 2 drivers that race under their name. Whilst all teams build their own cars, not all have the capacity to design and manufacture the components for an entire car. Furthermore, the time and expense of developing competitive cars each season is significant.

Because of their limitations and to keep costs down teams often look to share information on car parts and purchase them from each other. The extent to which they can do that is managed by FIA regulators who keep a list of parts that teams must design themselves or outsource to restricted third parties in order to be labelled constructors - as opposed to competitors - and earn the right to compete in the constructor’s championship.

So whilst teams can manage costs by exchanging information on non-listed parts, they cannot do so for listed parts. That has led to teams attempting to reverse engineer listed components of successful competitors by extensively photographing and examining rival cars. In an unusual quirk, reverse engineering has never actually been banned by the FIA because they acknowledge that a team cannot replicate the other team’s parts exactly through this method. The understanding is that even if you reverse engineer a listed part you are still designing the part yourself because you never had access to the underlying technical design.

Nonetheless, extensively copying a rival’s car through these methods sits uneasily with many in the sport who protest that it goes against the spirit of competition. The controversy of the Pink Mercedes has *Spoiler Alert * forced the FIA to review its position and announce plans to crack down on reverse engineering by modifying regulations to “expressly prevent” the copying of rival cars.

Inspiration or assimilation

To make RP20 Racing Point bought the engine and various car parts from Mercedes, in line with FIA regulations on non-listed parts. But questions remained over the staggering similarity to last year’s Mercedes and the legality of the Racing Point’s design process. Racing Point admitted the 2019 Mercedes was RP20’s inspiration but insisted that whilst they had extensively photographed the Mercedes in an attempt to reverse engineer the restricted components, RP20 was “absolutely” designed by themselves – which, whilst controversial, did not amount to a breach of the current regulations.

Other constructors remained suspicious, particularly Renault whose reconnaissance led them to the resolution that RP20’s front and rear break ducts did in fact breach regulations as they were based on and/or nearly identical to the 2019 Mercedes. A challenge was lodged.

The FIA conducted a full investigation and upheld Renault’s protest, ruling that RP20’s rear brake ducts were a Mercedes design. Racing Point’s use of them was therefore a breach of FIA regulations. Strangely the front brake ducts escaped punishment – more of that below.

Consequently, Racing Point were liable for a breach of the Sporting Regulations, though not the Technical Regulations. The difference? F1’s Sporting Regulations are the rules behind the racing and deal with all manner of competitive management and misbehaviours including listed parts. The Technical Regulations govern the design of the cars, dealing with the dimensions of parts, safety structures and even the amount of fuel allowed onboard. Technical Regulations are largely black and white and if you get them wrong then the car itself, or the part concerned, is illegal - which is why breaches can result in disqualification.

RP20 is completely legal under the Technical Regulations because the brake ducts themselves are a permitted design, they aren’t too long too light etc.. So, fortunately for Racing Point, even though the investigation concerned a car component the regulations breached were Sporting. That meant sporting sanctions would follow as opposed to disqualification. 

A moving of the goalposts?

The subject of Renault's complaint led to the unusual circumstances surrounding the appeal. In 2019 brake ducts were classified as non-listed parts, meaning competitors could agree to transfer the component designs between themselves. For the 2020 season brake ducts classification changed to a listed part, meaning teams had to design them themselves. 

Why did the classification cause such a fuss here? Because in 2019 Racing Point purchased the brake duct designs from Mercedes. They used that design for the front brake ducts in their 2019 car, but not the rear brake ducts. The FIA discovered that RP20 incorporated the 2019 design in both the front and the rear brake ducts. So, Racing Point legally acquired the brake duct’s intellectual property and designs in 2019, legally incorporated it into the front of the car in 2019 but now appeared to have broken the new regulations by using it again at the rear of the car.

Unfortunately, the Sporting Regulations did not expressly address what happens if a component legally acquired from another team then becomes prohibited – a situation that the FIA acknowledged was “unique”. Despite its uniqueness the resulting decision warrants analysis as it is possible to distil general principles of good practice when dealing with changes to regulations.

2. FIA's decision - What can we learn?

Changes to sporting regulations between seasons is of course, part and parcel of all sports. But what the FIA decision reveals is why it’s so important to closely evaluate changes so as to understand their impact on your plans. Failure to do so can result in sanctions, as it did for Racing Point. So, what are the key points to be learnt from the FIA's decision?

A. Keep an open dialogue, seeking clarity when necessary – Whilst not ideal, it is inevitable that rule changes can bring ambiguity over their application. A simple way around that is to maintain an open conversation with governing bodies, conferring with them to ensure that you’re understanding is correct. In its decision the FIA accepted that the change had led to a grey area. However, they proceeded to establish what their responses would have been had Racing Point spoken to them about that grey area at the time of the change.

For the front brakes - used in the 2019 car - the FIA said they would have confirmed they did not breach regulations because the acquiring of the design had been legitimate when it occurred meaning it could be "grandfathered in" to the 2020 car out of fairness given the unique circumstances of the reclassification. For the rear bakes - installed for the first time in 2020 - the FIA said they would have confirmed that Racing Point could not use the designs acquired in 2019 because that would be introducing a new component that Racing Point knew was listed.

Racing Point’s failure to obtain clarity also brought criticism from the FIA, who noted the team had ample opportunity during FIA factory visits to explicitly clarify ambiguities. Racing Point referred to discussions with FIA personnel, but the FIA found that whilst those discussion took place they were general, and it was not reasonable to take a passing exchange as any sort of settled or considered position from the FIA.

The FIA’s exercise in hindsight demonstrates the benefits of discussing changes with governing bodies. It shows that had Racing Point approached the FIA at the time then they could have clarified the position and altered their approach to ensure compliance. The importance of clarification is only amplified by the FIA’s criticism of Racing Point’s assumption that FIA personnel had authorised the brake ducts. It’s important to remember that individuals make mistakes and that exemptions may require further ratification. Although it may seem heavy handed its best to follow up and get approvals confirmed centrally and in writing.

B. Consider how regulations will be interpreted – By the FIA's own admission the Sporting Regulations were not black and white. In fact, the FIA recognised they were open to interpretation because the drafters had not envisaged the circumstances before them. Unfortunately regulations cannot accommodate for every scenario, particularly when changes on and off the track are so rapid.

Regulations may therefore be subject to interpretation to compensate for shortcomings, which is unpleasant insofar as it lacks clarity of outcome. That unpleasantness can be mitigated by assessing whether there is any guidance of how a sport’s laws will be interpreted. If decisions are public, this can be done by reviewing judgments to see if precedents have developed that are comparable to your circumstances. Alternatively, it may be that the regulations themselves confirm the approach. The principles of interpretation used by the FIA were those of French Law, which governs the FIA regulations. Once you have identified the principles of interpretation you can look to instruct local counsel to advise on the most likely outcomes.

It is also important not to make assumptions as to whether your standard practices will be in line with regulatory changes. You may have developed policies in accordance with your local jurisdiction, but your sport’s regulations could adopt the laws of another country. Or you might find that a governing body – particularly when dealing with a trans-national sport such as F1 – has developed their own approach to interpretation which draws on a variety of jurisdictional influences.

C. Check scope and effective dates – It may sound obvious, but when rules change its vital to confirm their new scope and the date their operation is effective from. Racing Point argued that the new rules weren't effective until the day before the first event – the start of the sporting calendar year. However, the FIA held that when the changes were introduced they were approved with an effective date of 1 January 2020 – the start of the regular calendar year. It is also important to consider the scope of new rules so as to assess whether plans that were legal at the point of inception may now breach regulations – as occurred here when designs validly acquired in 2019 could not be used in 2020.

D. Establish your sport’s good practice and follow it – As above, Racing Point were criticised for not seeking clarifications around the rule change’s grey areas. Fans of F1 may feel that’s a harsh line to take as occasionally grey areas can be exploited – as Mercedes had done with their Dual Action Steering System. However, Mercedes consulted with the FIA about their new system in the run up to testing. Racing Point didn't and the FIA reprimanded them for not doing so when the clarification process is "well known and routinely used by F1 competitors". It’s important therefore, to follow what your sport or governing body considers to be "good practice". That may ensure that rules aren't breached or at least give you good grounds for mitigation when it comes to sanctions.

E. Identify mitigating factors - If you can't successfully defend a challenge then be sure to gather a bank of mitigating factors to soften the blow. It may even be that the relevant regulations have specific mitigating circumstances, so check for these and demonstrate their existence where possible. Here the FIA acknowledged a number of mitigating circumstances including the change in classification, absence of specific guidance and that Racing Point still may have been able to reverse engineer the brake ducts - albeit with additional design resource.

More generally, there was an acknowledgment that Racing Point had been open and transparent throughout the process. That contributed to the finding that there was no deliberate intention to breach the regulations; a strong mitigating factor. So, whilst it can sometimes feel counter intuitive to co-operate with your investigator there can be considerable advantages to a transparent approach if you can afford it.

F. Plan ahead for appeals – Regardless of how confident you are going into a hearing you should always dedicate some time beforehand to consider your appeal options. Regulations may provide strict timetables or criteria when it comes to the appeal process, so on the day of a hearing it is vital you understand what your options are and how long you have to trigger an appeal following the handing down of a decision – it may even be on the day! You could also be required to pay an appeal fee and although this might be small, you will want to ensure that your challenge doesn’t fall at the first hurdle because your bank can’t guarantee same day cleared funds.

As above, Racing Point were quick to lodge an appeal but interestingly competitors Ferrari and Renault have lodged rival appeals in an attempt to challenge the perceived leniency of the penalty and to press the FIA on the practice of car copying in F1. So even if you aren’t the direct subject of a regulatory complaint, it may be an appeal process provides you with a mechanism for furthering your own agenda.

G. Be mindful of other potential issues/claims – This point is demonstrated to some extent by the comments of Racing Point’s rivals McLaren, who claimed that the FIA’s decision meant you had to question everything else around the car. The risk of investigations is that there will be some thread pulling, the results of which may end up in the public domain. That might lead to further investigations, but it could also be a red flag to competitors or commercial partners.

For example, suppose the FIA investigation revealed that rather than reverse engineering a car component Racing Point obtained designs without agreeing a transfer with Mercedes. Regardless of the regulatory consequences that could give Mercedes grounds to pursue a private action against Racing Point for misappropriating its intellectual property. Regulatory sanctions and legal proceedings are unlikely to sit well with commercial partners, so if you expect a decision will go against you invest some time upfront to manage the situation and make contingency plans for negative PR.

 

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