UK: CAT Partially Allows Tesco Appeal Against OFT Decision On Dairy Retail Prices

On 20 December 2012, the UK Competition Appeal Tribunal ("CAT") handed down its judgment on Tesco's appeal against an earlier Office of Fair Trading ("OFT") decision concerning dairy products retail pricing in the UK.

In August 2011, the OFT had fined four supermarket chains – including Tesco – and five dairy processors £ 49.51 million (approximately € 56.64 million) for illegally coordinating increases in dairy prices (see previous issue of Competition Newsletter). According to the OFT, the infringements consisted of two single overall concerted practices in 2002 and 2003, involving an indirect exchange of retail pricing intentions between the supermarket chains via dairy processors, i.e., a so-called "A-B-C information exchange" (also called "hub & spoke" cartel). A-B-C information exchanges arise, for instance, where retailer A passes information to supplier B, in order for supplier B to subsequently pass this information on to retailer C. Tesco was the only company to appeal against the OFT's decision.

In its judgment, the CAT reviewed the law on concerted practices and indirect exchanges of future pricing intentions. It recalled that, under well-established EU case law, it was an infringement for undertakings to cooperate with competitors, in any way whatsoever, in order to eliminate uncertainty as to each other's conduct. While EU case law has not yet dealt with the specific issue of A-B-C information exchanges, the CAT noted that, in the UK, the leading authority on this issue is the Court of Appeal's ("CA") judgment in the Toys and Replica Kits cases. In those cases, the CA held that a retailer, supplier and another retailer could engage in a concerted practice where:

  • Retailer A disclosed to supplier B its future pricing intentions;
  • A intended that B would make use of that information to influence market conditions by passing that information to other retailers (e.g., C);
  • B did, in fact, pass that information to C;
  • C knew the circumstances in which that information was disclosed by A to B; and
  • C did, in fact, use the information in determining its own future pricing intentions.

Thus, the CAT observed that each of the "A to B" and "B to C" communications comprised a conduct element and a mental element. Two conduct elements are necessary to establish an infringement: first the transmission by one retailer of its future pricing intentions to a common supplier, and secondly, the onward transmission by that supplier to, and receipt by, the competing retailer. Moreover, each conduct element must be accompanied by the requisite state of mind on the part of the relevant retailer. The fulfilment of this test is a question of fact and the burden of proof lies with the OFT to establish an infringement, including for each of the analytical steps which are pre-requisites to a finding of an A-B-C transmission of information, amounting to a concerted practice. The CAT recalled that the standard of proof is the civil standard of balance of probabilities and any doubt in the CAT's mind must operate to the advantage of the suspected infringer, i.e., Tesco.

The CAT then examined the background behind the 2002 concerted practice and the evidence relied on by the OFT to demonstrate Tesco's awareness of a plan to coordinate retail price increases. According to the CAT, the OFT's evidence was sufficient to establish a concerted practice through A-B-C information exchanges on three occasions. However, the CAT also considered that there was insufficient evidence to support the OFT's findings in respect of five other information exchanges covering the 2002 period. In addition, the CAT held that there was insufficient evidence to support the OFT's conclusions in relation to Tesco's participation in a concerted practice in 2003. Therefore, these aspects of the OFT's decision were set aside.

For these reasons, the CAT decided to allow in part Tesco's appeal against the OFT's finding of infringement in relation to the suspected 2002 and 2003 concerted practices. The CAT will now receive submissions as to whether Tesco's infringing conduct in 2002 was sufficient to constitute participation in the single overall concerted practice identified by the OFT in its decision, or whether they should be seen as single, isolated infringement. Arguments on the level of the financial penalty imposed on Tesco will also be heard.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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