2 Travel Obtains Damages Before a UK Court
On 5 July 2012, in an extremely unusual case, a UK court awarded damages for a competition law infringement. Despite the low value of the award, the judgment demonstrates that private litigants can succeed before UK courts and the award of exemplary damages in the case may encourage others to try their hand.
The case followed a 2008 UK Office of Fair Trading (OFT) decision which found that bus operator Cardiff Bus had abused a dominant position by engaging in predatory pricing. 2 Travel, a former competitor which had gone into liquidation, brought a private damages action against Cardiff Bus based on the decision. The court awarded compensatory damages for loss of profits (of around GBP34,000 plus interest) but rejected claims for damages in relation to a number of other categories of compensatory loss. In addition, and very significantly, the court awarded exemplary (punitive) damages (of GBP60,000) since it considered that the basic compensatory damages award was insufficient alone to punish the defendant.
The judgment was handed down during the period of a consultation by the UK Government on methods to promote private sector challenges to anti-competitive practices in the UK. The consultation period closed on 24 July 2012 and the results are awaited.
Continued Focus on Financial Services, Including the “Quite Shocking” LIBOR Case
The EC is actively investigating the financial services sector under EU competition law, and it is likely that more cases will be started. On 12 July 2012, it published for comment amended proposals from Thomson Reuters concerning Reuters Instrument Codes (RICs). The proposals are designed to allay EC concerns that Thomson Reuters may be abusing its dominant position in the market for consolidated real-time datafeeds by prohibiting customers from using RICs for retrieving data from alternative providers and cross-referencing them to alternative codes by other suppliers (so-called “mapping”).
The EC also continues to investigate the behaviour of a number of leading investment banks in the credit default swaps market. However, its top priority case in the sector, and one that it describes as “quite shocking” and “a major competition concern”, relates to LIBOR, EURIBOR and TIBOR rates. The EC is focusing its investigation on suspected cartel arrangements involving financial derivatives related to these rates, including possible collusion over the setting of the rates. Apart from a possible EC fine, the parties involved will be aware that third-party damages claims before national courts in the EU will inevitably follow any EU decision finding an infringement of EU competition law.
The financial crisis has forced a regulatory focus on financial services in the EU, and it is clear that competition law enforcement will continue to be a part of this over the next few years. Companies active in this sector would be well advised to audit their EU activities so as to pre-empt any concerns.
The Risks of a Minority Stake
On 15 June 2012, the OFT sent the completed acquisition by budget airline Ryanair of a 29.8% stake in competitor Aer Lingus to the UK Competition Commission for a detailed second-stage merger investigation. The OFT published the full details of its decision recently, explaining its reasoning. The analysis is a good reminder that a minority stake in a competitor can give rise to competition law concerns.
The OFT is concerned that Ryanair’s shareholding places it in a position to influence the commercial policy and strategy of Aer Lingus in a number of ways that could dampen competition to the disadvantage of UK passengers. It identified the following specific issues: Ryanair’s ability to weaken Aer Lingus as a competitor through use of its voting power at Aer Lingus shareholder meetings, for example through influencing how it uses key assets such as airport slots at London Heathrow airport; the fact that Ryanair’s shareholding may fetter Aer Lingus’ options to benefit from investment by other airlines which may, in turn, weaken the competitive position of Aer Lingus over time; and the fact that, as a result of its shareholding, Ryanair’s own incentives to compete against Aer Lingus may be dampened since it would be able to raise prices in the knowledge that a proportion of the profits of any lost passengers that switch to Aer Lingus would be recouped through its shareholding in Aer Lingus.
Although each such situation must be considered on its facts, it is clear that similar concerns could arise in other situations in which a company takes a minority stake in a competitor. These issues should be analysed at the outset.
Additional EU/UK competition law news coverage can be found in our news section.