This is the second in a series of articles on competition law developments in England and Wales. In this report, we focus on large fines imposed by the UK Office of Fair Trading (OFT) for information exchange and retail pricing infringements, an unusual approval of a joint purchasing arrangement, and the dramatic collapse of the OFT’s first full criminal competition law trial. We also have available a report prepared by a group of our London lawyers covering the principal England and Wales tax developments since April 2009 across a range of areas, which we hope is of interest.
Large Fine for Unilateral Information Provision
Following what appears to have been an “early resolution” (or agreed settlement) of the case, the OFT announced on March 30, 2010, that The Royal Bank of Scotland (RBS), which is majority owned by the UK state following its 2008 bail out, has agreed to pay a fine of GBP28.59 million after admitting breaches of competition law during 2007 and 2008. The fine was reduced from GBP33.6 million to reflect the RBS admission and agreement to cooperate.
The case is yet another reminder of the ease with which provision of commercially sensitive material to a competitor can give rise to serious competition law breaches in the UK (under the Treaty on the Functioning of the European Union and/or UK Competition Act 1998), as elsewhere.
Individuals in the RBS Professional Practices Coverage Team had unilaterally disclosed generic and specific confidential future pricing information to their counterparts at Barclays Bank, and this information was taken into account by Barclays in determining its own pricing. The disclosures by RBS took place in the course of contacts on the fringes of social, client or industry events or through phone conversations. The information concerned the pricing of loan products to large professional services firms.
Barclays reported the infringements voluntarily before an investigation had been launched, thus obtained full immunity from a fine under the OFT’s leniency policy.
There are a number of previous early resolution cases in the UK. The reduction in the present case, at 15% of what would otherwise apparently have been imposed (GBP33.6 million), is at the lower end of what has previously been obtained in the UK, but higher than the reduction available under a similar procedure available at EU level (10%).
The OFT has indicated that a formal infringement decision will be published in due course. Third parties will be able to base damages actions on that decision.
Large Fine for Retail Pricing Practices
On April 16, 2010, the OFT announced total fines of GBP225 million on two tobacco manufacturers and 10 retailers for retail pricing practices concerning tobacco products in the UK – the largest total fine imposed by the OFT in a case under the UK Competition Act 1998. Apart from the sizes of the total and individual company fines, the case is interesting for several reasons:
- The OFT identified a type of “hub-and-spoke”/indirect horizontal infringement, explaining in its press release that each manufacturer had a series of individual arrangements with each retailer whereby the retail price of a tobacco brand was linked to that of a competing manufacturer’s brand. There is no finding of direct horizontal collusion between competitors, just this series of vertical “price-matching” arrangements (giving rise to a coordinated retail price level).
- Retailer Sainsbury’s alerted the OFT and gained complete immunity under the OFT’s leniency programme.
- Three other parties gained fine reductions under the leniency programme for cooperation during the investigation.
- Six parties (including three of those already benefiting from fine reductions under the leniency programme) gained reductions for admitting liability under the OFT’s early resolution (settlement) procedure.
- At the time of the Statement of Objections (April 2008), and also when the early resolution (settlement) of this case was announced (July 2008), the OFT had identified possible concerns in relation to other related hub-and-spoke arrangements. These were indirect exchanges of proposed future retail prices between competitors (which the OFT had described by way of specific named examples (“[retailer] to [retailer] via [supplier]” or “[supplier] to [supplier] via [retailer]”)). However, these allegations were not pursued due to lack of evidence.
- The OFT found that the agreements had an anti-competitive object, therefore it did not need to identify an effect on competition, this being assumed.
Two of the parties fined have indicated they will appeal to the Competition Appeal Tribunal.
OFT Approves Joint Purchasing Arrangement
On April 27, 2010, the OFT announced it had in effect approved a joint purchasing arrangement between two grocery wholesalers (Makro-Self Service and Palmer & Harvey). The OFT describes the arrangement as a “deal between the companies to secure better prices from common suppliers through a collective purchasing agreement.” The OFT has taken the view this would be unlikely to restrict competition and accordingly would fall outside Article 101 of the Treaty on the Functioning of the European Union and its UK equivalent contained in the UK Competition Act 1998.
The OFT has not provided a formal clearance as such (which it no longer does in response to a notification), but has provided “advice” as a trial of its “Short-form Opinion” process. This is designed to help competitors seek clarity on how the law applies to prospective collaboration agreements between them, where the proposal raises novel or unresolved competition issues. The new process is being trialled in response to “feedback” (pressure) from business that during a recession some potentially beneficial collaboration between companies has not been proceeding due to concerns about infringing competition law.
Hoping to avoid being overwhelmed with requests, the OFT has indicated that the opinions will only be available for a limited number of cases per year, and that it will choose them by applying its usual prioritisation principles. It is unclear how the proposal in this case satisfies the “novel/unresolved” requirement, given for example existing EU guidance on the issue. However, presumably the sector in question (grocery) was relevant, as this is a regular focus and concern of the competition regulators in the UK.
According to the OFT, the proposal is considered unlikely to reduce competition as the firms would not have the power to raise price/reduce output in the sale or delivery of products downward in the supply chain to the food, service, catering and hospitality industry, or food or grocery retailers. In addition, the proposal (involving cheaper prices from a supplier) may allow the companies to increase competition on price, creating the benefit of lower prices for suppliers and consumers.
During its analysis, the OFT did identify a concern that certain exchanges of information between the firms could potentially lead to a reduction in competition. However, following OFT advice, the parties agreed to ensure that the data they supply to each other is general and aggregated, preventing either company from extrapolating specific or sensitive information.
The OFT’s first, and to date only other, opinion under the Competition Act 1998 procedures was issued in 2008. This was a “formal” opinion, albeit provided under the same general opinions process as Short-form Opinions, and related to the permissibility of agreements between national newspaper or consumer magazine publishers on one hand, and wholesalers on the other.
OFT Defeated in First Full UK Criminal Competition Law Trial; Potential Implications for Leniency Applicant
On May 10, 2010, the first full UK criminal competition law trial under the UK Enterprise Act 2002 cartel offence collapsed. The OFT, as prosecutor, had failed to disclose evidence to the defense, therefore the judge ordered the jury to acquit the four individual defendants, all current or former British Airways (BA) executives. The failure of this case is a serious blow to the OFT and may have implications for the leniency applicant, which had a duty to provide the material in question to the OFT.
Since the defendants had pleaded not guilty, the case would have required a UK jury for the first time to decide on the applicability of the cartel offence, and in particular its requirement of “dishonesty” on the part of the individuals charged. In 2008, three UK executives were sentenced under the UK cartel offence to between two and a half and three years of imprisonment for their involvement in a global cartel relating to marine hoses. Those were the first convictions under the UK cartel offence, but the individuals had pleaded guilty.
The present case started Aug. 7, 2008, when the OFT announced that the four individuals had been charged with the cartel offence in connection with its investigation into price fixing of fuel surcharges for long haul passenger flights between BA and Virgin Atlantic. This followed an investigation launched in 2006 on the back of a leniency application from Virgin Atlantic. In August 2007, the OFT imposed a GBP121.5 million fine on BA under the UK Competition Act 1998 in relation to the same price-fixing activities.
If the four individuals had been found guilty of the cartel offence, they faced up to five years in prison and/or an unlimited fine, in addition to the prospect of a director disqualification order. As part of the OFT’s leniency programme, Virgin Atlantic had been given full immunity from Competition Act fines. In addition, its employees qualified for immunity from criminal prosecution.
The evidence the OFT failed to disclose was, according to an OFT statement of May 10, 2010, “a substantial volume of electronic material” which, extraordinarily, it had only “discovered last week.” The OFT further stated that “given that the trial had already begun and the volume of material involved, . . . to continue with the trial in light of this unforeseen development would be potentially unfair to the defendants.”
The failure of this case is a serious blow to the OFT. It has placed great importance on the deterrent effect of the cartel offence, which came into effect nearly seven years ago, but under which it has to date only achieved the marine hoses convictions (following, as noted, guilty pleas). Further, the OFT chose this prosecution carefully so as to be able to bring a strong case under the cartel offence before a jury, yet failed even to complete the trial due to a procedural issue.
The discovery of the new material may also affect Virgin Atlantic itself. The OFT indicated in its statement that it “will . . . be reviewing the role played by Virgin Atlantic and its advisers in light of the airline’s obligations to provide the OFT with continuous and complete cooperation. This may have potential consequences for Virgin’s immunity from penalties.”
However, in the OFT’s view, this development in the criminal case will have no implications for its civil case (the decision to fine BA), as that related to the conduct of the companies rather than the alleged dishonesty of individuals. Whether that is the case remains to be seen. On April 30, 2010, the OFT was forced to admit in another case that despite an early resolution (settlement) reached in 2007 under which certain companies had agreed to pay fines, it had concluded that in relation to part of the alleged infringements, it no longer had sufficient evidence to support infringement findings. This case was its dairy investigation, under which it had originally been alleged that certain UK supermarkets and dairy processors had fixed the retail prices of milk, butter and cheese in 2002 and 2003.