This is the eighth in a series of newsletters on competition law developments
in England & Wales. In this edition, we report on guidance on retail sector
mergers, proposed reforms to the UK competition regime, guidance on competition
law compliance and a fine for a "hub-and-spoke” cartel.
Guidance on Retail Sector Mergers
On March 17, 2011, the UK Office of Fair Trading (OFT) and Competition
Commission (CC) published a joint commentary on retail mergers. This will be of
interest to anybody who deals with a merger in this area, in whatever
jurisdiction this takes place.
The commentary considers the issues raised in the various retail cases
examined by the two authorities over the last seven years. It covers a broad
range of cases, including mergers of: mobile phone outlets, bookshops, DIY
stores, opticians and specialist food shops. It shows how the authorities have
developed their approaches and techniques. Often these mergers have involved
analysis across a large number of local outlets, some owned by large national
chains, some by smaller independent companies, as well as companies supplying
over the Internet. The commentary focuses on three of the questions that have
most often arisen in past cases, concerning:
- Local catchment area for retail outlets.
- Extent to which competition takes place at the local and national
- Techniques used to assess how mergers might affect retail prices.
Reform of the UK Competition Regime
On March 16, 2011, the UK Department for Business, Innovation and Skills
published its long-awaited consultation paper on options for reforming the UK
competition regime. The most high profile aspects of this are:
- A proposal to merge the competition functions of the OFT and the CC to
create a single Competition and Markets Authority (CMA).
- Considering ways to improve the current voluntary merger notification
scheme, including the alternative of the mandatory pre-notification of
mergers (with one option being the use of very low thresholds: target
turnover in the UK exceeding GBP5 million; and the worldwide turnover of the
acquirer exceeding GBP10 million).
- Since there have been only two "cartel offence" (individual criminal)
cases prosecuted in the UK since 2003, altering the current requirement that
the individual's action was "dishonest", with the preferred option being
removing the "dishonesty" element from the offence and defining the offence
so that it does not include agreements made "openly". This latter seems to
mean, in the proposal, a rather bizarre situation in which the offence will
not be committed where customers are told about the cartel potentially
giving rise to the offence (i.e., an arrangement to fix prices, limit
production or supply or share markets or customers) at or before the time of
purchase of the relevant product or service.
Guidance on Competition Law Compliance
Following a consultation carried out in 2010 by the OFT on competition law
compliance guidance for companies and directors, the OFT published on June 27,
2011, the final versions of its guidance material. The principal documents
- How Your Business Can Achieve Compliance is aimed at businesses
and their advisors, and sets out the OFT's recommended risk-based, four-step
approach to creating a culture of competition law compliance.
- Company Directors and Competition Law explains the level of
competition law understanding expected from directors. It outlines steps
they should take to prevent, detect and stop infringements of competition
So far as concerns a director's detection and prevention duties, a particular
point of interest in the second document is the comment that a director with
overall responsibility for a business area (but not immediate management
responsibility over individuals responsible for an infringement) should make
"reasonable enquiries" so as to seek to identify competition law breaches
(presumably on a fairly regular basis). Non-executive directors similarly should
make "reasonable enquiries" of the executive directors so as to satisfy
themselves that the executive directors have, amongst other things, "taken
appropriate steps to identify and assess the company's exposure to competition
Although these materials relate specifically to the UK, they represent best
practice in the EU in the area of competition law compliance.
This guidance follows the publication in 2010 of the OFT's revised guidance
on Director Disqualification Orders in competition law cases, which sets out how
it intends to use the sanction to deter anti-competitive activity. At the time,
the OFT undertook to provide company directors with practical guidance on their
duties under competition law.
Fine for "Hub-and-Spoke" Cartel
On August 10, 2011, the UK Office of Fair Trading (OFT) fined four UK
supermarkets and five UK dairy processors a total of GBP49.51 million for a
"hub-and-spoke"/A-B-C cartel infringement. The OFT found that the companies
infringed the UK Competition Act 1998 (the UK equivalent of Article 101 of the
Treaty on the Functioning of the European Union) by co-ordinating increases in
the prices consumers paid for certain dairy products in 2002 and/or 2003. This
co-ordination was achieved by supermarkets indirectly exchanging retail pricing
intentions with each other via the dairy processors.
The case is interesting for several reasons:
- It is yet another example of enforcement action in the UK against an
A-B-C cartel (following cases including Tobacco and Replica Kit).
Once again, the case involved retail markets, the key risk area for this
type of activity.
- Dairy processor, Arla, alerted the OFT and gained complete immunity from
fines under the OFT's leniency programme. The fining decision therefore
followed whistleblowing, which is usually the case in the UK.
- Seven other parties received reductions in their fines in return for an
admission of liability. This allowed for a streamlined investigation
procedure. However, embarrassingly for the OFT, it had to announce during
2010 that it had dropped some of its charges and therefore reduced fines
agreed by some of these parties back in 2007/2008.
The OFT has indicated that the text of the decision should be available later
this year. It will be interesting to read the full reasoning of the OFT.
However, the case is yet another warning of the susceptibility of retailers and
their suppliers to A-B-C infringements, given in particular that the retailers
often share a limited group of suppliers and have a large number of (often very
target-driven) buyers. These companies need to be very careful in particular
about information flow and use of language in communications.