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 levels.
- 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 published were:
- 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 law.
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 law risks”.
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.