The Serious Fraud Office (SFO) has announced that it is bringing criminal proceedings against five companies and nine individuals following an in-depth investigation, reported to be one of the largest it has ever conducted, into the pharmaceutical sector.

In 2002, the SFO and the police conducted a series of investigations at both company and domestic premises associated with six pharmaceutical companies into suspected fraud on the National Health Service following a prompt from the Department of Health. Subsequently the SFO opened an investigation into price-fixing and market-sharing by these companies in the supply of generic drugs (including warfarin, a blood-thinner).

The SFO has now announced that it has commenced criminal proceedings alleging conspiracy to defraud in relation to the pricing and supply of these drugs between January 1996 and December 2000.

The Department of Health has brought parallel civil proceedings against the companies, claiming damages arising out of anti-competitive agreements between them in relation to the supply of certain generic drugs. Three of the companies facing criminal charges have reached settlements with the Department of Health in relation to these civil proceedings, making payments which reportedly totalled approximately £30 million.

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Since the Enterprise Act 2002 came into force on 20 June 2003, an individual who has been dishonestly involved in hard-core cartel behaviour can be subject to criminal sanctions.

The maximum punishment for the 'cartel offence' is 5 years' imprisonment and/or a fine. The allegations in the SFO's investigation relate to a period prior to the Enterprise Act 2002 and are based therefore on charges of criminal conspiracy to defraud. If similar activities to those alleged took place now, they could well be caught by the criminal cartel offence.

Businesses should be aware that not only are companies exposed to fines and damages claims for breaching EC or UK Competition Law, but that individuals are also at risk of committing the criminal cartel offence. They may also become subject to Director Disqualification Orders.

First Damages Claim for CAT Under Competition Act

The Competition Appeal Tribunal (CAT) has received its first ever third party claim for damages based on an infringement decision of the Office of Fair Trading (OFT).

Under the Competition Act 1998 (the Act), third parties can bring a claim before the CAT if they have suffered loss or damage and the OFT or the CAT has found that there has been an infringement of Chapters I or II of the Act (so called 'piggy-back' actions). A similar principle applies where the European Commission, the OFT or CAT has found a breach of Articles 81 or 82 of the EC Treaty.

In 2004, the CAT confirmed in part the OFT's finding that Genzyme, a global biotechnology company, had abused its dominant position under Chapter II by operating an abusive pricing policy that effectively foreclosed the market for the provision of certain home care services to companies other than Genzyme.

In April 2006, one of the companies affected by Genzyme's pricing policy, Healthcare at Home, lodged a claim in the CAT against Genzyme for damages, together with a declaration of entitlement to an account of profits in respect of losses it claims to have sustained because of Genzyme's abusive conduct. The claimant has also requested exemplary damages (i.e. damages to punish Genzyme, rather than simply to compensate the claimant) - if the CAT grants the request, this would be the first time an English court or tribunal has made such an award in a competition case.

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Whether this claim for damages will proceed to judgment is still an open question. Two previous damages claims brought before the CAT based on a European Commission infringement decision in the Vitamins Cartel were settled confidentially out of court. It is clear, however, that if as a result of this new claim the legal framework for seeking damages proves to be sufficiently robust, then it may trigger a flow of damages claims before the CAT and UK courts.

More generally, the desirability of encouraging third party private enforcement actions has recently been the subject of a Green Paper on Damages Actions issued by the European Commission. The Commission suggests that a competition law specific remedy of double damages awards might be necessary, both in order to incentivise claimants as well as to deter possible infringers. Consultation on the Green Paper has ended and the Commission is reviewing its next steps.

OFT Guidelines on involving third parties in Competition Act investigations

The OFT has published guidelines on a new formal policy for consulting third parties in Competition Act investigations. The guidelines set out the circumstances in which complainants and other third parties will be provided with a formal and structured opportunity to comment on the OFT's provisional findings in an investigation. The OFT expects the policy to contribute to robust decision-making by ensuring that third party views are taken into account before the investigation is concluded. The guidelines also contain guidance on how to complain to the OFT about anticompetitive behaviour, as well as setting out the type of information that should be included in a written complaint.

Commission publishes Provisional Findings in Home Credit Inquiry

In 2004 the OFT referred to the Competition Commission for investigation the supply of home-collected credit in the UK. The Commission has now published its provisional findings report as well as a notice of possible remedies. Home credit loans are mostly small value cash loans. The vast majority of home credit lending is carried out by agents who visit customers' homes to collect repayments on a weekly basis.

Following an inquiry of some 16 months, the Commission has provisionally found that customers value the Home Credit product but may be paying too high a price for it, due to a lack of competition in the sector. The Commission has proposed potential remedies to this lack of competition, which include an obligation on lenders to share data relating to creditworthiness of customers, the publication of prices and the possibility of imposing a price cap on the industry.

Affected lenders and other parties now have a chance to comment on the findings and proposed remedies. A final report from the Commission into home credit is expected to be published in late summer or autumn of this year.

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