EU/UK Competition Law Newsletter - October 2012

October 1, 2012

Potential Increase to Fines in the UK But Support For Compliance Programmes

On 10 September 2012, the UK Office of Fair Trading (OFT) published new guidance on how it will set fines for breaches of competition law. The new guidance sets the starting point for a fine at a figure which can be up to 30 per cent of the company’s relevant annual turnover. This increase to the starting point brings the OFT into line with the approach of the European Commission (EC) and many other European national competition authorities. The more serious and widespread the infringement, the higher the starting point is likely to be. Price-fixing or market-sharing agreements and other cartel activities are among the most serious infringements. Where abuse of dominance is investigated, conduct which by virtue of the company's market position and the nature of the conduct has, or is likely to have, a particularly serious effect on competition, such as predatory pricing, will be considered one of the most serious infringements.

Unlike the EC, the OFT’s guidance provides active support to compliance programmes. The OFT may award a discount to a company which takes appropriate steps to comply with competition law. For example, the guidance now notes that evidence of appropriate compliance activities both before and after an infringement could in principle warrant a modest reduction in penalty, depending on the facts of the case. Every company active in the UK should have a suitable competition compliance programme in place.

E-books; A Warning About Competitor Coordination Over Contract Conditions And MFC Provisions

On 19 September 2012, the EC invited comments on proposals put forward by four international publishers and Apple to settle an investigation by the EC concerning the sale of e-books in the EU. The case provides a reminder that companies must set their terms and conditions of trade independently and about the risks of most favoured nation clauses (in this case a most favoured customer (MFC) clause), particularly where the practice is industry-wide or the company imposing the requirement has a strong market position.

The EC is concerned that the companies may have breached EU competition law by colluding to switch the sale of e-books by the publishers from a wholesale model using distributors to agency contracts containing the same key terms. The agency model allows more control by publishers over resale prices, since under EU competition law where an agent is a “true agent”, then the principal can set its agent’s resale price (and other terms and conditions of trade). The EC considers that this switch may have been aimed at raising the retail price of e-books in the EU or at least at preventing lower prices.

In addition to this alleged collusion, the EC has particular concerns about one aspect of the publishers’ new agency agreements with Apple. This is an MFC clause regarding the sale of e-books in the EU by Apple. The EC’s view is that the inclusion of this clause meant that, to avoid lower revenues and margins for their e-books on the iBookstore, the publishers had to pressure other major e-book retailers offering e-books to consumers in the EU also to adopt the agency model.

Additional EU/UK competition law news coverage can be found in our client resources section.

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