This is the first in an occasional series of
newsletters from McGuireWoods LLP reporting on
competition law developments in England & Wales. In this
newsletter we report on recent appeals to regulatory
decisions, two abuse of dominance cases and three recent
publications by the Office of Fair Trading (OFT).
Another Successful Appeal against a Regulator's
On 11 February 2010, the UK Competition Appeal
Tribunal (CAT), by agreement with the UK Competition
Commission (CC) and third-party appellant CTS Eventim,
quashed the CC's report into the Ticketmaster/Live
Nation merger. This followed an appeal lodged by CTS
Eventim on grounds of procedural fairness.
The CC cleared the merger in its report, but CTS
Eventim, which had, prior to the merger announcement,
reached an agreement with Live Nation to provide
ticketing services for the latter's live music events
and venues in the UK, brought an appeal to the CAT on
various grounds. One of the grounds was that it had been
denied a fair hearing. The CC, having considered the
grounds, took the view that the challenge based on lack
of a fair hearing was arguable in the circumstances of
the case, and that it would not be efficient to argue
this issue before the CAT. It therefore asked the CAT to
quash the report, so that the CC would immediately be
able to reconsider the case and report again.
This CAT proceeding is just one of a number of recent
appeals to the CAT against decisions of UK regulators in
relation to mergers and market investigations. Another
high-profile example concerned the CC's report on the
British Airports Authority (BAA) airports market
investigation. The CAT upheld an appeal by the BAA that
the investigation was tainted by apparent bias on the
part of one of the members of the investigating team,
and partially quashed the report. The CC is seeking to
appeal to the UK Court of Appeal.
In addition to victories in the CTS Eventim and BAA
cases, third parties have had recent successes in
several other cases on appeal. It is therefore clear
that the authorities in the UK can successfully be
challenged in relation to merger and market
investigation (as well as general competition law)
decisions, and that possible grounds of appeal are wide.
There is no doubt this will only encourage others to try
Alleged Abuse of Dominance by Reckitt Benckiser
On 23 February 2010, the OFT announced it had issued
a statement of objections (SO) concerning an alleged
abuse of a dominant position by Reckitt Benckiser (RB)
in the market for the UK National Health Service (NHS)
supply of alginate and antacid heartburn medicines. An
SO sets out the OFT's case under the UK Competition Act
1998, and gives the alleged infringer an opportunity to
respond. It is not published, but any third party which
might be able materially to assist the OFT may request a
The alleged abuse relates to RB's "Gaviscon" brand of
heartburn and indigestion products. The OFT alleges that
RB sought to restrict competition to its Gaviscon brand
by withdrawing and de-listing its NHS packs of Gaviscon
Original Liquid from the NHS prescription channel before
the publication of the generic name for the product.
This meant that when a doctor searched using
prescribing software for "Gaviscon" prescription packs,
the software only identified "Gaviscon Advance Liquid,"
which is patent protected until 2016 and not subject to
generic competition, and not "Gaviscon Original Liquid,"
for which an open prescription (listing the generic name
and allowing the pharmacy to dispense the branded or
generic equivalent) could otherwise be provided.
An OFT official commented that "This case raises
significant and complex competition issues relating to
the supply of prescription drugs to the NHS."
The case follows various investigations at EU level
into alleged activities by pharmaceutical companies that
the European Commission considers may hinder the entry
of generic versions of pharmaceutical products in the
EU. It is also interesting because the OFT rarely
proceeds in abuse of dominance cases. The last OFT
decision finding an abuse of dominance was reached in
November 2008, and concerned predatory pricing by a
local bus service provider in one city in the UK (the
Cardiff Bus case).
National Grid Abuse & GBP15 Million Fine
Also on 23 February 2010, there was a rare example of
the English Court of Appeal (CA) giving full
consideration to a competition law case. This was an
appeal by National Grid plc (NG) against a judgment of
the CAT that had upheld a ruling by the UK Gas and
Electricity Markets Authority (GEMA) that NG had abused
its dominant position by entering into long-term
contracts for the provision of domestic gas meters.
The CA upheld the CAT's judgment concerning abuse of
dominance, but reduced the fine on NG from GBP30 million
to GBP15 million – it already having been reduced by the
CAT from the original GBP41.6 million. The reduction to
GBP15 million was principally to reflect the fact that
"the [CAT] placed insufficient weight on [GEMA]’s
involvement in the history [of the matter]."
NG formerly had a monopoly of the supply of gas
meters and ancillary services, and worked closely with
GEMA and its customers and other gas suppliers in
attempting to devise a lawful scheme to meet a new
situation in which competing meter operators had entered
the industry. This provided "mitigation of considerable
weight." The novelty of the situation was also relevant.
The CA's judgment is also significant for its
consideration of two particular arguments raised in
relation to the infringement, and that apply generally
in abuse cases:
- Abuse and "normal competition." The CAT was entitled
not to isolate and consider as a preliminary
determinative issue the fact that a particular form of
contract features in the market under conditions of
normal competition, but could look at matters in the
round in deciding whether the conduct was abusive. In
other words, even if a particular contract is in
principle consistent with normal competition, it does
not automatically follow that its use is not abusive.
- Was there an anti-competitive foreclosure effect? In analysing this issue, there is no rule requiring the use
of a benchmark in every case, "let alone a benchmark
that will tell one precisely where the line between
lawful and unlawful conduct is to be drawn." However,
the use of counterfactuals as a tool of appraisal is
plainly permissible and of potential value. What is
appropriate by way of counterfactual is a matter of
judgment for the decision maker.
GEMA issued a press release in which it welcomed the
judgment, and pointed out that the effect of the CA’s
ruling is that suppliers will be free to renegotiate the
terms of contracts with NG and also that it opens the
door to claims for damages against NG by competing meter
operators, as the competition law regime allows.
Framework for Applying Choice & Competition to
On 19 March 2010, the OFT published a guide for
policy makers considering using choice and competition
in the delivery of public services. The intent is to
provide a framework for assessing where and how the use
of choice and competition can be most effective. The
guide argues that in order for choice and competition to
work effectively, policy makers need to be particularly
aware of three key lessons:
- Consumer behaviour needs to be understood.
Many public services have only recently been opened
up to choice, and some users are not aware that
choice exists. Many public services are complex, and
users do not necessarily use or know how to
interpret publicly available information. This can
make the role of intermediaries in advising
individuals very important.
- Implementing good exit mechanisms is vital.
It can be very difficult, practically and
politically, to close down public services such as
individual schools and hospitals, even if they’re
performing badly. If competition is to work well,
policy makers should seek ways to allow new
entrants, or existing market participants with a
strong track record, to take over managing these
- User choice and competition between providers
need to function effectively in order to secure
overall benefits for users. Enabling choice on
its own is not enough, while potential competition
between providers will not be effective unless users
can effectively exercise that choice.
Links Between Competitors including Minority
Interests & Contracts for Differences
On 22 March 2010, the OFT published a report on the
potential implications to competition from minority
share ownerships (MSOs) in competitors, interlocking
directorships between competitors, loans to competitors
and contracts for differences (CfDs) relating to a
competitor. According to the OFT, contracts for
differences (or derivative contracts in general) have
not previously come up for debate in competition policy
Unsurprisingly, the overall conclusion of the report
is that each of the issues investigated can give rise to
competition concerns, but this depends on the
circumstances. CfDs were found to give rise to similar
unilateral concerns, as do MSOs in cases in which the
purchaser of the CfD uses it to "go long" on the share
price of a competitor. Coordinated effects concerns can
arise where the purchaser of the CfD instead "goes
short." However, the conclusion is that, save in bidding
markets, the impact of CfDs on the ability of
competitors to sustain collusion is not clear. A short
position can also be used to reduce the cost of
exclusionary behaviour (e.g. predation), because gains
are made when a competitor's share price reduces.
Market Studies & Report on 2003 Pharmacy Market Study
The OFT has carried out a large number of market
studies in recent years, and several are currently under
way. These are carried out under the OFT’s general
information gathering powers under the UK Enterprise Act
2002, and are used to analyse a particular market with
the aim of identifying and addressing any market
These studies can lead to significant consequences
for businesses, therefore need to be taken seriously.
The potential outcomes of a market study include: (1)
enforcement under the competition rules (UK Competition
Act 1998); (2) a reference to the CC for a detailed
market investigation; (3) recommendations for changes to
the law; (4) consumer education campaigns; and (5) a
clean bill of health for the market in question.
The OFT has committed to publish an independent
evaluation of at least one market study per year. On 22
March 2010, it published a report on the outcome of the
OFT's 2003 market study into the pharmacies sector. The
2003 study recommended that control of entry regulations
for community pharmacies should be removed completely.
In response, the government resolved to ”move cautiously
in the direction recommended by the OFT,” with partial
liberalisation in one part of the UK (England).
The report found that liberalisation has shortened
travel times and waiting times, and has improved access
to lower priced over-the-counter medicines. Additional
administrative and business costs exist, but overall
quantified net benefits are estimated at GBP12-20m a
year. The report also highlights a number of
non-quantified benefits including extended opening hours
and greater choice for consumers, with the number of
pharmacies operating in England rising by nearly 9%
(many had feared that enabling easier entry would lead
to large numbers of pharmacies closing).