UK: ABA Antitrust Year-in-Review 2008

Last Updated: 15 April 2009
Article by Stephen Kon, Dr. Gordon Christian and Anna Rampling

A. Legislative and Administrative Developments

In July 2008, the U.K. Office of Fair Trading (the "OFT") published its response to the European Commission's White Paper on Damages actions for breach of the EC Antitrust Rules.1 The OFT welcomed the Commission's proposal to adopt final decisions by National Competition Authorities2 ("NCAs") or final judgments by review courts3 on Articles 81 and 82 of the EC Treaty as irrebuttable proof of infringement in subsequent civil antitrust damages cases relating to the same parties. The OFT considers that providing for such a binding effect is important for providing parties with increased certainty, reducing litigation costs and reducing burdens on the claimant.

The OFT also published for public consultation a draft version of its revised and expanded guidance on the OFT's merger control jurisdiction and procedure under the Enterprise Act 2002 (the "Enterprise Act").4 The consultation on the draft guidance was open until June 20, 2008. The OFT has now published a summary of the responses received, which in broad terms welcome the OFT's clarifications and suggestions.5

B. Mergers

In September 2008, the Competition Appeal Tribunal (the "CAT") published its judgment on the joint appeals by BSkyB and Virgin against the Competition Commission's report, and the subsequent final decision of the Secretary of State, on BSkyB's acquisition of a 17.9% shareholding in ITV plc.6 The CAT dismissed BSkyB's appeal, holding that the Competition Commission was entitled to conclude that: (i) the acquisition created a relevant merger situation; and (ii) this gave rise to a substantial lessening of competition. The CAT found that the Competition Commission was entitled to conclude that BSkyB had acquired a material influence over ITV's business and strategic policies despite only having a 17.9% shareholding. The CAT also upheld the Competition Commission's order that BSkyB partially divest its shareholding in ITV to a level below 7.5%.

In response to Virgin's appeal, the CAT did find that the Competition Commission had incorrectly interpreted the Enterprise Act in relation to the public interest consideration, namely the effect of the merger on media plurality. The CAT held that the Competition Commission was not entitled to take into account the extent of the influence acquired by BSkyB and the internal editorial independence of the parties post-merger in its assessment. The Competition Commission's conclusion that the merger would have no adverse effect on media plurality was therefore set aside and the issue has been sent back to the Competition Commission for reconsideration. The CAT's judgment does not indicate whether further divestiture will be necessary in light of the Competition Commission's reassessment.

In April 2008, the Competition Commission and the OFT announced that they intend to work together on reviewing their respective guidelines for the substantive assessment of mergers with a view to publishing a single set of guidelines.7 The joint review will cover the guidance contained in Merger references: Competition Commission Guidelines (April 2003) with the OFT's Mergers: substantive assessment guidance (first issued in May 2003 and revised in 2004 and 2007). It has been five years since the Enterprise Act brought a new merger control regime into force. Competition Commission Chairman Peter Freeman commented, upon launching the review, that five years' experience of working under the current regulations leaves the two organizations well placed to provide joint guidance.8 Mr. Freeman also asserted that "joint guidelines will provide clarity for merger parties and promote consistency of approach". The Competition Commission and the OFT plan to publish the draft of their joint substantive merger guidelines for public consultation in March 2009.

In October 2007, the Secretary of State gave regulatory clearance to the acquisition of HBOS plc by Lloyds TSB Group plc.9 A new category of "financial stability" was added to the Enterprise Act 2002 recently (in addition to existing public interest intervention provisions) and, on that basis, the merger was called in for review by the Secretary of State.10 The OFT considered that the proposed acquisition could potentially result in a substantial lessening of competition in relation to personal current accounts, banking services for small and medium sized enterprises (SMEs) and mortgages, thereby meriting an in-depth investigation by the Competition Commission.11 However, the Secretary of State was satisfied that, on balance, the public interest was best served by allowing the merger to proceed without such a reference. That said, the Secretary of State did request that the OFT should "continue to keep the relevant markets under review in order to protect the interests of UK consumers and the British economy".12 A legal challenge to this decision in the CAT was dealt with very expeditiously and dismissed.13

C. Cartels

In June 2008, custodial sentences were imposed on three UK businessmen found guilty of cartel conduct under the Enterprise Act affecting the global marine hose market.14 These are the first prosecutions that have been brought in the UK under the criminal "cartel offence" provisions of the Enterprise Act since the legislation came into force on June 20, 2003. The Court imposed sentences of between two-and-a-half and three years on each businessman. In addition, all three individuals were disqualified from serving as company directors for between five and seven years under the Company Directors Disqualification Act 1986, and are subject to confiscation orders under the Proceeds of Crime Act 2002.

In line with the OFT's stated intention to bring criminal prosecutions against individuals for cartel activity where appropriate, it announced in August 2008 that four past and present British Airways executives have been charged with cartel offences under the Enterprise Act.15 The four executives have been charged with dishonestly agreeing with others "to make or implement arrangements which directly or indirectly fix the price for the supply in the United Kingdom of passenger air transport services by British Airways and Virgin Atlantic Airways". If found guilty, the executives could face a term of imprisonment of up to five years and/or an unlimited fine. They may also be subject to company director disqualification orders under the Company Directors Disqualification Act 1986 and confiscation orders under the Proceeds of Crime Act 2002.

The OFT also concluded early resolution agreements with six companies under investigation for unlawful practices in relation to fixing the retail prices of tobacco products in the UK, leading to total fines of £132.3 million (approximately US$192 million).16 The use of this early resolution procedure is still a relatively novel one for the OFT, having been applied in only three OFT investigations to date, but it is likely to become more commonplace in the future.

The first ever representative action brought on behalf of consumers was settled in January 2008, entitling purchasers of the uniforms during the relevant period to a sum of between £5 and £20 (equivalent to between US$7 and US$29). The action was for damages suffered as the result of an agreement to fix the price of certain replica football uniforms during the period 2000 to 2001.17 Despite the claim being settled in the early stages of proceedings, it nevertheless represented an important step in the recognition of the potential for the development of collective actions.

In April 2008, purchasers of electrical and mechanical carbon and graphite products were refused permission to bring a follow-on action for damages in the CAT against the members of the cartel relating to carbon and graphite products.18 Under section 47A of the Competition Act 1998, a person who has suffered loss or damage by virtue of an infringement of EC or UK competition law has the right to bring a follow-on damages action in the CAT.19 However, CAT rules require its permission in cases where the decision upon which the claimant seeks to rely is still subject to appeal. In this instance, the appeals brought by certain members of the carbon and graphite product cartel against the European Commission's decision are still ongoing.20 Whilst each case is assessed on an individual basis, in this instance the CAT decided that it would not grant permission for an action to commence until the proceedings before the European courts had concluded.

Grampian Food Group and others (the "Purchasers") sought the CAT's permission in 2008 to bring an action for damages against the members of the Vitamins cartel.21 In 2001, the European Commission found that F. Hoffman-La-Roche AG, Sanofi-Aventis SA, BASF SE and others had illegally participated in a cartel involving pricefixing and sales quotas relating to vitamin products in breach of Article 81 of the EC Treaty.22 The Purchasers contend that they paid higher prices than they otherwise would have done for the duration of the cartel and suffered economic loss and damage as a result.

In April 2008, the OFT sent a Statement of Objections to 112 construction companies regarding their alleged involvement in bid rigging arrangements which are deemed to have led to higher prices for construction services across large parts of England.23 In the same month, the UK energy regulator, OFGEM, launched an investigation into two of the UK's biggest energy companies concerning alleged abuses of their dominant market position in Scotland.24

Finally, in August 2008, the Competition Commission published its provisional findings in the BAA airports market investigation, in which it provisionally concluded that BAA's common ownership of seven UK airports created a restriction on competition, with adverse consequences for both passengers and airlines.25 The Competition Commission then consulted with BAA on remedies, which included a proposal to require BAA to divest two of its three London airports and also either Edinburgh or Glasgow airport. In September 2008, BAA announced its decision to sell Gatwick airport.26 In response, the Competition Commission stated that it would take into account any action by BAA which may impact on the competition problems that the Competition Commission has identified.27 The Competition Commission published its provisional decision on remedies in December 2008, confirming that, subject to final consultation, it will require BAA to sell both Gatwick and Stansted airports, as well as Edinburgh airport.28 If implemented, this will be the first time that a market investigation reference has led to a structural rather than a behavioral remedy. The Competition Commission is expected to publish its final report by March 2009.

D. Anticompetitive Practices

The Competition Commission published its final report on the supply of groceries in the UK on April 30, 2008.29 Whilst the OFT acknowledged that "in many important respects, competition in the UK groceries industry is effective and delivers good outcomes for consumers", it also identified several problems related to the strong market positions held by large grocery retailers: (i) the use of restrictive covenants and/or exclusivity arrangements to prevent entry by competitors; and (ii) the ability to transfer excessive risk and unexpected costs to their suppliers. The supermarkets concerned are now in lengthy consultation with the Competition Commission over the remedies that it has proposed to address these issues.

Footnotes

1 Office of Fair Trading, Response to the European Commission's White Paper, Damages actions for breach of the EC antitrust rules (July 2008), available at http://ec.europa.eu/comm/competition/antitrust/actionsda mages/white_paper_comments/oft_en.pdf.

2 A decision which has been accepted by the addressees (by virtue of their having refrained from appealing the decision) or which has been upheld upon appeal. See id.

3 A judgment by a court competent to review the decisions of an EU National Competition Authority under the laws of that authority's Member State. See id.

4 See Press Release, Office of Fair Trading, OFT consults on revised guidance on merger jurisdiction and procedure (March 28, 2008), available at http://www.oft.gov.uk/news/press/2008/42-08.

5 Office of Fair Trading, Mergers - jurisdictional and procedural guidance: Summary of responses to draft guidance consultation document and emerging thinking (September 2008), available at http://www.oft.gov.uk/shared_oft/business_leaflets/enter prise_act/oft1021.pdf.

6 British Sky Broadcasting Group plc and Virgin Media, Inc. v. (1) The Competition Commission and (2) The Secretary of State for Business, Enterprise and Regulatory Reform [2008] CAT 25 1095/4/8/08 and 1096/4/8/08 (U.K.), available at http://www.catribunal.org.uk/documents/Judg_BSkyB_1 095_Virgin_Inc_1096_290908.pdf.

7 See Press Release, Office of Fair Trading, OFT and Competition Commission launch review to issue joint merger guidelines (April 22, 2008), available at http://www.oft.gov.uk/news/press/2008/53-08 .

8 See id.

9 See Press Release, Department for Business, Enterprise and Regulatory Reform (National), Peter Mandelson gives regulatory clearance to Lloyds TSB merger with HBOS (October 31, 2008), available at http://nds.coi.gov.uk/environment/fullDetail.asp?Release ID=382908&NewsAreaID=2&NavigatedFromDepartme nt=True.

10 See Statutory Instruments 2008 No. 2645, Competition, The Enterprise Act 2002 (Specification of Additional

11 See Press Release, Office of Fair Trading, OFT report to the Secretary of State on Lloyds/HBOS merger (October 31, 2008), available at http://www.oft.gov.uk/advice_and_resources/resource_b ase/Mergers_home/LloydsTSB.

12 See Press Release, Department for Business, Enterprise and Regulatory Reform (National), Peter Mandelson gives regulatory clearance to Lloyds TSB merger with HBOS (October 31, 2008), available at http://nds.coi.gov.uk/environment/fullDetail.asp?Release ID=382908&NewsAreaID=2&NavigatedFromDepartme nt=True.

13 Merger Action Group (1) v. Secretary of State for Business, Enterprise and Regulatory Reform (2) supported by HBOS plc and Lloyds TSB Group plc (as Interveners) [2008] CAT 36, Case No. 1107/4/10/08 available at http://www.catribunal.org.uk/files/Judg_1107_MAG_10 1208.pdf.

14 See Press Release, Office of Fair Trading, Three imprisoned in first OFT criminal prosecution for bid rigging (June 11, 2008), available at http://www.oft.gov.uk/news/press/2008/72-08 .

15 See Press Release, Office of Fair Trading, OFT announces criminal charges in airline fuel surcharges cartel case (August 7, 2008), available at http://www.oft.gov.uk/news/press/2008/93-08.

16 See Press Release, Office of Fair Trading, OFT reaches early resolution agreements in tobacco case (July 11, 2008), available at http://www.oft.gov.uk/news/press/2008/82-08 .

17 See Press Release, JJB to make payments to consumers for replica football shirts (January 9, 2008), available at http://www.which.co.uk/news/2008/01/jjb-to-pay-fansover- football-shirt-rip-off-128985.jsp.

18 Emerson Electric v. Morgan Crucible, [2008] CAT 8 1077/5/7/07 (U.K.), available at http://www.catribunal.org.uk/documents/Jdg1077Emerso n280408.pdf. In December 2003, the European Commission found six members of a carbon and graphite products cartel in breach of Article 81 of the EC Treaty for price-fixing and market sharing, and imposed total fines of EUR 101.44 million (approximately US$147 million) on five of the cartel members. 2004/420 EC: Commission Decision of December 3, 2003 (Case No C.38.359 - Electrical and mechanical carbon and graphite products), Official Journal L 125, 28/04/2004 P. 0045 - 0049.

19 See the Competition Act 1998, s. 47A 'Montetary claims before Tribunal'.

20 Cases T-68/04 (SGL Carbon v. Commission), T-69/04 (Schunk and Schunk Kohlenstoff-Technik v. Commission) and T-73/04 (Carbone Lorraine v. Commission), Official Journal C 106, 30/04/2004 P. 0071-0072.

21 Notice of a Claim for Damages under section 47A of the Competition Act 1998 Grampian Country Food Group Limited and others v. Sanofi-Aventis SA and others, (2008) 1101/5/7/08 (U.K.), available at http://www.catribunal.org.uk/documents/Sum_1101_Gra mpian_02.07.08.pdf.

22 2003/2/EC: Commission Decision of 21 November 2001 (Case COMP/E-1/37.512 - Vitamins), Official Journal L 006, 10/01/2003 P. 0001 - 0089.

23 See Press Release, Office of Fair Trading, OFT issues statement of objections against 112 construction companies (April 17, 2008), available at http://www.oft.gov.uk/news/press/2008/52-08.

24 See Information Note, OFGEM, OFGEM launches Competition Act investigation into Scottish Power Limited and Scottish and Southern Energy plc (April 8, 2008), available at http://www.ofgem.gov.uk/Media/PressRel/Documents1/ Ofgem%2012.pdf.

25 COMPETITION COMMISSION, BAA AIRPORTS MARKET INVESTIGATION: PROVISIONAL FINDINGS REPORT (August 20, 2008), available at http://www.competitioncommission. org.uk/inquiries/ref2007/airports/provisional _findings.htm.

26 See Press Release, BAA, BAA to sell Gatwick Airport (September 17, 2008), available at http://www.baa.com/portal/page/Corporate%5EAll+Pres s+Releases/cd315e60c2b6c110VgnVCM10000036821c0 a____/a22889d8759a0010VgnVCM200000357e120a___ _/.

27 Competition Commission, Statement from Competition Commission on BAA plans to sell Gatwick Airport (September 17, 2008), available at http://www.competitioncommission. org.uk/inquiries/ref2007/airports/pdf/statem ent_17_sept.pdf.

28 Competition Commission, News Release, BAA MARKET INVESTIGATION, Provisional decisions on sale of three airports and other remedies to competition problems (December 17, 2008), available at http://www.competitioncommission. org.uk/press_rel/2008/dec/pdf/40-08.pdf.

29 COMPETITION COMMISSION, MARKET INVESTIGATION INTO THE SUPPLY OF GROCERIES IN THE UK (April 30, 2008), available at http://www.competition-commission.org.uk/ rep_pub/reports/2008/538grocery.htm.

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