Competition authorities are prosecuting more cartels than ever before. Participation in cartels risks exposure to serious sanctions - in particular:
- For companies, significant fines by competition authorities, damage to reputation (and share price), and potential damages actions by victims.
- For individuals in the UK , the threat of imprisonment or unlimited fines and/or disqualification for company directors.
For those in the construction industry the fact that competition authorities are serious about cracking down on cartels should come as no surprise. The OFT ’s recent imposition of fines totalling £129.5 million on 103 construction companies in relation to alleged bid-rigging (notably through cover pricing)1 drew front page headlines as one of the largest investigations ever conducted in the UK. The OFT has previously conducted numerous investigations into the roofing sector2, while at EU level, the European Commission has recently launched investigations into cement and related products.3
Most businesses tend to be familiar with the notion that a cartel involves competitors getting together to agree to fix prices or limit their rivalry in some other substantial way - stereotypically in a smoke-filled boardroom, at a non-descript airport hotel or on the golf course. However, businesses may not appreciate that more subtle forms of interaction between competitors, such as the exchange of sensitive commercial information - even if the exchange is limited or indirect - can be equally serious and are leading to significant investigations and penalties for those involved.
The key points for businesses to be aware of are:
- The competition rules can catch conduct which influences competitive behaviour - even if it falls short of an agreement to restrict competition. Any mutual understanding in which independent competitive behaviour is tempered by a degree of cooperation in practice could be illegal.
- The authorities frequently do not need to show any effect from behaviour for an infringement to arise. Where sensitive commercial information is disclosed to a competitor, that practice may be treated as an infringement of the competition rules by its nature - without any need for evidence demonstrating that it actually had an anti-competitive effect or that the recipient took account of the information in deciding how it would act on the market.
- A single meeting can be sufficient for an unlawful anti-competitive practice to be established. A pattern of behaviour over time is not required.
- Simply being given information (or being present when it is discussed) can be enough for an infringement to arise. The one-way provision of information (mere receipt, without any reciprocal exchange) has been found to be sufficient to infringe the competition rules in relation to both parties concerned.
- Discussions with suppliers or customers can be as risky as those with competitors. Indirect exchange of information between competitors - such as via a supplier - can amount to an infringement by all businesses involved in the exchange (i.e. the intermediary included).
Businesses must have a comprehensive and effective competition law compliance policy that keeps all staff well informed as to their responsibilities and liabilities. Failure to train staff on such risks can lead to less obvious forms of unlawful contact with competitors going undetected - and therefore exposing the company and its management to serious penalties.
The key cases explained below provide a more detailed insight into how the competition authorities, both in the UK and in Europe, are approaching these issues in practice.
- See http://www.oft.gov.uk/news/press/2009/114-09
- See http://www.oft.gov.uk/advice_and_resources/resource_base/ca98/decisions/wm-roofing, http://www.oft.gov.uk/advice_and_resources/resource_base/ca98/decisions/ne-roofing and http://www.oft.gov.uk/news/press/2006/34-06
- See http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/09/409&format=HTML&aged=0&language=EN&guiLanguage=en
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The Dutch mobile operator case4
In this case the European Court of Justice (ECJ) confirmed that even a limited exchange of information between competitors, concerning matters other than prices to customers and in the context of a single meeting, can infringe the competition rules. The case involved a reference from the Dutch courts to the ECJ in a matter concerning alleged anti-competitive information exchange between the five Dutch mobile telecoms network operators. This information exchange was alleged to be caught by the competition rules on the basis that, if not an agreement, it was at least a concerted practice.5 The ECJ considered two main issues:
Issue 1: What criteria must be applied when assessing whether a concerted practice has an anti-competitive object?
The ECJ confirmed that, as with an agreement, a concerted practice has an anti-competitive object where, according to its content and objectives and having regard to its legal and economic context, it has the potential to result in the prevention, restriction or distortion of competition within the common market. In this context, there is no need to assess the subjective intention of the parties or the actual effect on competition. Evidence of actual anti-competitive effects serve only to increase severity, determine applicable fines, and assist third party claims for damages.
Issue 2: Is there always a presumption of a causal connection between concerted practice and market conduct even if the concerted practice is an isolated event?
The ECJ confirmed there must be a causal connection between the concerted practice and subsequent conduct on the market by the participants to establish an infringement. However, there is a rebuttable presumption that businesses take account of information received from their competitors in subsequently operating on the market. This means it will usually be difficult for a participant to prove that the information it received had no effect on its subsequent conduct - even if the exchange had no discernible effect on the market.
The ECJ stated that the presumption of a causal connection applies even where the concerted action is the result of a meeting held on a single occasion. In doing so, the ECJ:
- Rejected the mobile operators’ argument that evidence of regular meetings and information exchange were required to establish a presumption they acted in concert on the market.
- Emphasised that what matters is not so much the number of meetings or instances of information exchange between competitors but whether the information exchanged influenced, or was capable of influencing, their conduct on the market.
Although the ECJ did not consider the issue in its judgment, the Advocate General’s opinion to the Court in this case also provided a reminder that the mere receipt of information can infringe the competition rules - it may be irrelevant whether only one participating business unilaterally informs its competitors of its intended market behaviour or whether all participants exchange such information. The important question is whether such action reduces uncertainty between the participating businesses as to future conduct on the market.
Comment: implications of the ECJ’s judgment
The case is of particular interest for two reasons:
- First, the anti-competitive practice involved information exchange at a single meeting - with no evidence of an ongoing system of information exchange; and
- Second, although the information concerned was confidential (details of the mobile operators’ arrangements and future intentions as to commission payments to dealers for the sale of mobile phone contracts to consumers), it did not concern the prices dealers would charge consumers or subscription tariffs - indeed, arguably there was no direct link to prices paid by consumers.
The ECJ’s findings represent a significant development as competition law enforcement has previously tended to focus on unlawful information exchange in the context of ongoing arrangements - evidenced by multiple and regular meetings. Going forward, competition authorities could characterise a single meeting between competitors, and the exchange of future intentions on simply a single aspect of costs, as a sufficient basis for concluding that the participants have coordinated their competitive behaviour. This would mean - for instance - that a single meeting between construction firms at which there is a discussion about future intentions as to the price or supplier cost of any aspect of their services or bidding intentions for contracts etc., would amount to an infringement.
It is therefore important to ensure that any meetings with competitors have a legitimate, competition law-compliant purpose - and are tightly controlled so that commercially sensitive information is not inadvertently exchanged. Should a meeting stray into illegitimate discussions there is a high standard for avoiding liability: anything short of an individual immediately stating that the information should not be shared, leaving the meeting, and ensuring that the reason for his or her departure is recorded in the minutes of the meeting, is likely to be insufficient.
The replica football kit and toys and games cases - trilateral infringements
Trilateral infringements of the competition rules - that is, the indirect exchange of information between competitors via a complicit non-competitor, such as a mutual supplier or customer - appear to be an increasing area of focus for the competition authorities, in particular for the OFT in the UK . For instance, the OFT’s press releases regarding its ongoing dairy and tobacco investigations make clear that both cases involve alleged trilateral infringements.6 In the UK, the key principles regarding these types of infringements were confirmed by the Court of Appeal in October 2006. The appeal arose from two initial cases Replica football kit 7 and Toys and games. 8
Although the replica football kit and toys and games cases were factually distinct, the respective appeals by JJB, Argos and Littlewoods to the Court of Appeal were joined together as they raised similar points of law - i.e. the extent to which information being passed indirectly between competitors via a supplier was sufficient for an infringement to arise. On 19 October 2006, the Court of Appeal gave judgment on both appeals.9
The Court of Appeal judgment
The Court of Appeal confirmed that retailers A and C and supplier B are all to be regarded as parties to a concerted practice having as its object the restriction or distortion of competition where:
- Retailer A discloses to supplier B its future pricing intentions in circumstances where A may be taken to intend that B will make use of that information to influence market conditions by passing that information to other retailers (of whom C is or may be one); and
- B does in fact pass that information to C in circumstances where C may be taken to know the circumstances in which the information was disclosed by A to B and C does in fact use the information in determining its own future pricing intentions.
The Court of Appeal confirmed that the case is all the stronger where there is reciprocity, although this is not necessary for there to be a finding of infringement. Moreover, even if there were two separate bilateral agreements or concerted practices (as opposed to a trilateral infringement), the fact of each party’s knowledge of the other agreement/concerted practice and their interdependent relationship would be as serious a breach as if there had been a trilateral infringement.
Comment: trilateral infringements
This was a key ruling which allows a competition authority to find an infringement where, for example, there is evidence of a supplier talking to a customer about the selling prices of another customer without having to show any effect on competition. It is interesting to note that at an earlier stage in the case, the Competition Appeal Tribunal (CAT - the initial appeal body) had suggested the rules go further such that retailers A and C and supplier B would all be party to a prohibited concerted practice if A disclosed to B its future pricing intentions in circumstances where it was “reasonably foreseeable” that B might make use of that information to influence market conditions and B then passed that information to retailer C.
However, the Court of Appeal thought that the CAT “may have gone too far” if it intended to extend the rule to cases in which A did not, in fact, foresee what was reasonably foreseeable or in which C did not, in fact, appreciate the basis on which A had provided the information. There remains an element of doubt as to whether there would be an infringement in such circumstances though: the Court of Appeal did not need to reach a decision on this point as, on the facts, there was sufficient evidence that the various parties had the requisite intention or knowledge. Whatever the case, on that specific question, the key point is that the threshold is very low.
The message for businesses therefore is that they must not disclose to others information about their future prices (even to their suppliers) unless this is for a legitimate purpose not related to competition. Legitimate purposes are likely to be rare in practice - and arguably even more so with regard to receiving information about a competitors’ future prices.
- Case C-8/08: T-Mobile Netherlands BV and Others v Dutch Administrative Court.
- This has been defined as being a situation where - in the absence of a full agreement - companies knowingly substitute practical cooperation for the risks of competition. See ICI v Commission  ECR 619, para. 64.
- See http://www.oft.gov.uk/news/press/2007/170-07 and http://www.oft.gov.uk/news/press/2008/82-08
- See http://www.oft.gov.uk/shared_oft/ca98_public_register/decisions/replicakits.pdf. Here the OFT held that several sportswear retailers, the sportswear manufacturer Umbro, Manchester United and the English Football Association had colluded regarding the sale of Manchester United and/or England replica football kit. The OFT found evidence of direct discussions between certain of the retailers regarding their future prices, although much of the infringement related to the indirect exchange - via Umbro - of the retailers’ future pricing intentions. The conduct included certain retailers’ complaints about being undercut by their rivals and the use of pressure and reassurances by Umbro to prevent this. Several parties appealed to the Competition Appeal Tribunal (CAT) regarding the level of fines imposed on them by the OFT and two retailers - JJB and Allsports - also appealed as to their liability, with JJB subsequently further appealing to the Court of Appeal
- See http://www.oft.gov.uk/shared_oft/ca98_public_register/decisions/hasbro3.pdf Here the OFT found that the retailers Argos and Littlewoods and the manufacturer Hasbro had entered into unlawful price-fixing agreements or concerted practices regarding the sale of Hasbro toys and games. The CAT when assessing the OFT’s decision found that Hasbro had entered into separate bilateral agreements or concerted practices with each of Argos and Littlewoods whereby each retailer had agreed to sell certain of Hasbro’s toys and games at Hasbro’s recommended retail prices (RRPs). Furthermore, as Hasbro had disclosed Argos’ pricing intentions to Littlewoods, there was a trilateral agreement or concerted practice between Hasbro, Argos and Littlewoods. Argos and Littlewoods subsequently appealed the CAT’s decision to the Court of Appeal.
- See http://www.oft.gov.uk/news/press/2006/149-06 and http://www.catribunal.org.uk/files/Jdg_CoA_1014Argos_Little_JJB191006.pdf
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These EU and UK cases - and the application of these principles by competition authorities in an increasing number of cases - are having the effect of broadening the scope of the law. In combination with the increasingly effective “whistle-blowing” (leniency and immunity) policies used by competition authorities to start investigations, the need for an awareness of competition risk for companies is higher than ever. Above all, these developments demonstrate the importance of having in place a comprehensive and effective competition law compliance policy - pursuant to which individuals receive regular training and are fully aware of the need to:
- unequivocally reject any confidential information about a competitor’s practices (especially regarding a competitor’s future pricing intentions) - even if the attempt to provide that information is made by a third party;
- Only attend meetings with competitors if there is a competition law compliant purpose and measures in place to prevent the inadvertent exchange of commercially sensitive information;
- Be aware that if discussions do stray into illegitimate territory, only immediately stating that the information should not be shared, leaving the room and ensuring that meeting minutes record the reason for his or her departure is likely to be enough to avoid potential liability; and
- Understand the importance of quick reporting to legal advisers any inappropriate exchanges of commercially sensitive information with customers, suppliers or competitors - even if only attempted exchanges. This is not least because, in pursuit of immunity from, or reductions of, fines under the competition authorities’ leniency programmes, there are substantial advantages in being the first to come forward.
Mark Jones and Ian Giles
Mark Jones is a Partner and Ian Giles a Senior associate in the Antitrust, Competition and regulatory group at Norton Rose LLP .
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