European Competition Law Newsletter – January 2017

January 3, 2017

Table of Contents

  • First UK Director Disqualification for Competition Law Breach
  • EU Court Confirms Wide Scope of Information Exchange Cartels
  • UK Fines Model Agencies and Trade Association for Information Exchange
  • Unusual Predatory Pricing Cases in the UK

First UK Director Disqualification for Competition Law Breach

The UK Competition and Markets Authority (CMA) recently secured the first disqualification of a director of a company found to have infringed competition law. Daniel Aston, managing director of the online poster supplier Trod Ltd, has given a disqualification undertaking not to act as a director of any UK company for five years.

The CMA may, under the UK Company Directors Disqualification Act, seek the disqualification of an individual from holding company directorships or performing certain roles in relation to a company for up to 15 years, where that individual has been director of a company which has breached competition law.

The disqualification follows the CMA’s decision of 12 August 2016 that Trod breached competition law by agreeing with one of its competing online sellers that they would not undercut each other’s prices for posters and frames sold on Amazon’s UK website.

As Aston was the managing director of Trod at the relevant time, and because he personally contributed to the breach of competition law, the CMA considered that his conduct makes him unfit to be a company director for a specified period.

Under the disqualification undertaking, Aston undertakes that for a period of five years, he will not “without the leave of the court be a director of a company or act as a receiver of a company’s property; or in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company; or act as an insolvency practitioner.”

This is a major step for the CMA and a very useful compliance message. It shows the CMA continuing its push to punish individuals — not just the companies that employ them — for engaging in anti-competitive behaviour. The CMA commented that “we are absolutely prepared to use this power again.”

EU Court Confirms Wide Scope of Information Exchange Cartels

On 15 December 2016, the EU’s second-highest court (the General Court, or GC) handed down its judgment in appeals relating to a cartel in smart card chips. The four members of the cartel had been fined a total of around EUR138 million in 2014 by the European Commission (EC).

The cartel functioned through a network of bilateral contacts and exchanges of commercially sensitive information relating in particular to prices. Two of the parties appealed the EC’s decision, arguing that these activities did not amount to a cartel.

In an important judgment confirming the very wide scope of EU competition law when it comes to exchange of confidential business information, the GC agreed with the EC and therefore rejected the appeals.

The GC confirmed past case law which has held that certain types of coordination between companies give rise to a presumption of an infringement of competition law. This was the case in the smart card chips cartel. The information exchange on prices was aimed, in essence, at slowing down the price decreases on the smart card chip market. This gave rise to a cartel and there was no need for the EC to analyse the effects (if any) of the practices in question on the market.

EU competition law compliance programmes need to take into account the rules on illegal information exchange under EU law. An infringement can give rise to very significant fines and private claims for damages.

UK Fines Model Agencies and Trade Association for Information Exchange

On 16 December 2016, the UK CMA provided yet another example of the dangers of information exchange when it imposed fines in the model agencies sector. The case also shows that small companies are not immune from competition law enforcement and that the activities of trade associations must be monitored with care.

The CMA found that five agencies — FM Models, Models 1, Premier, Storm and Viva — and their trade association, the Association of Model Agents (AMA), colluded instead of competing on prices for modelling services. Total fines of GBP1.5 million were imposed (the relatively low level reflecting the small size of the companies involved).

The parties regularly and systematically exchanged information and discussed prices in the context of negotiations with particular customers. In some cases (but not all), the agencies agreed to fix minimum prices or agreed on a common approach to pricing.

In addition, the AMA and the agencies sought to influence other AMA members by regularly issuing email circulars, known as “AMA Alerts,” urging AMA members to resist the prices offered by customers on the grounds they were too low. The conduct occurred in the context of negotiations with a range of customers, including well-known high-street chains, online fashion retailers and consumer goods brands.

It’s not clear what prompted the CMA to start this investigation. There was no whistleblower, so it seems likely that there was a complaint or the CMA decided to investigate of its own accord based, for example, on market monitoring.

Unusual Predatory Pricing Cases in the UK

Under EU and UK competition law, dominant companies have a special responsibility not to engage in certain types of behaviour (the “abuse” of a dominant position). Companies which are or may be dominant in the EU or which trade with such companies should be aware of the scope of these rules.

The categories are not closed and there are a wide range of potential abuses. In addition to facing enforcement action from regulators, companies which infringe the law can be the target of private damages claims from affected third parties.

One of the types of abuse of a dominant position is excessive pricing. Although there are relatively few examples of this being investigated, recent months have seen two cases in the UK.

On 7 December 2016, the CMA imposed a record GBP84.2 million fine on the pharmaceutical manufacturer Pfizer, and a GBP5.2 million fine on the distributor Flynn Pharma, after finding that both broke competition law by charging excessive and unfair prices in the UK for phenytoin sodium capsules, an anti-epilepsy drug. The CMA also ordered the companies to reduce their prices. Both companies will continue to be able to charge prices which are profitable, but their prices must not be “excessive and unfair.”

The fines follow prices increasing by up to 2,600 percent overnight after the drug was deliberately de-branded in September 2012. The prices of the drug in the UK have also been many times higher than Pfizer’s prices for the same drug in any other European country. De-branded (genericised) drugs are not subject to price regulation in the UK, which was the reason for the de-branding.

In the second case, the CMA announced on 16 December 2016 that it has provisionally found that Actavis UK has broken competition law by allegedly charging excessive prices for hydrocortisone tablets. Following de-branding (or genericising), the company allegedly increased the price of 10 mg hydrocortisone tablets by over 12,000 percent in 2016 compared to the branded version of the drug which was sold by a different company prior to April 2008.

These cases show not only the continuing focus of the CMA on healthcare markets, but also that even relatively unusual types of abuse of a dominant position are at risk of enforcement. In addition, in this case, the purchaser (the UK National Health Service) is likely to bring private damages claims against the companies in order to recover its overpayments.

Additional European competition law news coverage can be found in our news section.

U.S. Antitrust

We publish a newsletter and bulletins on U.S. antitrust developments, as well as regular publications on numerous other topics.