England & Wales Competition Law News

October 25, 2010

This is the fifth in a series of articles on competition law developments in England and Wales. In this edition, we report on further Office of Fair Trading (OFT) guidance on compliance; a rare example of an abuse of dominance finding; the likely merger of the OFT and Competition Commission (CC); and a court judgment finding that the CC’s decision in its investigation of airport operator BAA was not biased.

OFT Draft Guidance on Competition Compliance

On 19 October 2010, the OFT published two draft guides concerning competition compliance:

  • “How Your Business Can Achieve Compliance” sets out the OFT’s recommended risk-based, four-step process for creating a culture of compliance within a business. It has been developed as part of the OFT’s Drivers of Compliance and Non-Compliance with Competition Law research (published May 2010). The guidance sets out in more detail the practical compliance measures that businesses might be able to take.

Particular points of interest in this guidance are its references to fines. It indicates that “where the OFT considers that adequate steps have been taken [with a view to ensuring compliance with competition law, it] will consider reducing” any fine that it intends to impose for a competition law breach. The European Commission, for example, is still unwilling to take compliance programmes into account in setting its fines. Further, the OFT adds that “subject to some exceptions” it will not “ordinarily regard the existence of a competition law compliance programme as a factor to warrant an increase in the amount of the fine to be imposed for a competition law infringement.”

  • “Company Directors and Competition Law” is intended to explain the level of understanding of competition law that company directors are expected to have, as well as steps they should take to detect and prevent breaches of the law.

This draft guidance follows the recent publication of the OFT’s revised guidance on Director Disqualification Orders in competition law cases, which sets out how it intends to use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 anticompetitive activity. At the time, the OFT undertook to provide company directors with practical guidance on their duties under competition law. This “practical guidance” is (in its current form) not particularly business person-friendly.

However, so far as concerns a director’s detection and prevention duties, a particular point of interest 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 ensure that a proper compliance programme is in place.

Although these draft guides relate specifically to the UK, they represent best practices in the area of competition law compliance.

Reckitt Benckiser Fined for Abuse of Dominance

On 15 October 2010, the OFT announced that Reckitt Benckiser (RB) had agreed to pay GBP10.2 million as a fine for abuse of dominance under EU and UK competition law. The fine was reduced from GBP12 million to reflect RB’s admission and decision to cooperate as part of an “early resolution” agreement with the OFT.

The behaviour concerned a product called Gaviscon Original Liquid. Where a branded medicine’s patent has expired and a “generic name” has been assigned to it, UK general practicioners can use their prescribing software to search for the brand and then provide patients with an “open” prescription that lists its generic name. Pharmacies that receive these prescriptions can choose whether to dispense the relevant brand or equivalent but cheaper generic medicines. This choice provides for strong price competition between pharmaceutical suppliers, and can result in considerable savings to the UK National Health Service (NHS).

The OFT’s allegation was that RB withdrew NHS packs of Gaviscon Original Liquid from the NHS prescription channel after the product’s patent had expired but before the publication of the generic name for it, so that more prescriptions would be issued for its alternative product, Gaviscon Advance Liquid. Pharmacies that receive prescriptions for Gaviscon Advance Liquid must dispense it, as it is patent protected and there are no generic equivalent medicines.

The case is interesting for several reasons:

  • It follows various investigations at the EU level into alleged activities by pharmaceutical companies which the European Commission considers may hinder the entry of generic versions of pharmaceutical products in the EU.
  • The OFT rarely proceeds in abuse of dominance cases. Before this case, 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 OFT used its “early resolution”/settlement procedure in an abuse case. Under this procedure, companies may admit an infringement in return for a reduced penalty. The OFT has recently published draft guidance on its investigation procedures, which includes the first written description of the early resolution procedure as it operates in the UK (the European Commission has a published notice dealing with its version of the procedure, but that only applies to cartels). Previous cases settled under the early resolution procedure (in various guises) have been information exchange and collusion-type cases in various sectors.

Merger of OFT and CC Likely

On 14 October 2010, the UK government announced its proposed “quango reforms.” These are changes to various public bodies which are designed to help reduce government spending. As part of this, the government will consult at the beginning of 2011 on merging the OFT’s competition law functions with the CC, and removing the consumer law functions of the OFT. This would create a single competition regulator in the UK (in line with the situation at EU level and in most other EU countries). While there will be a consultation, it seems very likely that this change will go through, and many companies and advisers will welcome this as a sensible streamlining of the system in the UK.

CC’s BAA Decision Not Biased

On 13 October 2010, the UK Court of Appeal decided that the CC’s 2009 decision following a “market investigation” to require BAA Ltd to divest on competition grounds two of its London airports (Gatwick and Stansted) and either Glasgow airport or Edinburgh airport, was not tainted by apparent bias. A lower court had found this bias due to certain other activities of one of the members of the investigating team. The case turns purely on its facts, but is a reminder of the very wide range of arguments available to challenge OFT/CC decisions in the UK.