The UK Enforcement Agencies

Under the current UK competition law regime, enforcement is entrusted primarily to two bodies: the Office of Fair Trading (OFT) and the Competition Commission (CC). The OFT currently enforces both competition law (specifically, the prohibition of anti-competitive agreements and abuse of dominance under the Competition Act 1998 (CA98) and articles 101 and 102 of the Treaty on the Functioning of the European Union) and consumer protection law. It also decides whether to refer mergers to the CC for a more in-depth investigation, and potentially prohibition, and whether to refer entire markets to the CC for detailed review (known as a market investigation reference) under the Enterprise Act 2002 (EA02). The EA02 also provides for a specific criminal offence for individuals who dishonestly enter into seriously anticompetitive agreements, which is enforced by the OFT and Serious Fraud Office. The OFT's general competition enforcement and market reference powers (but not its criminal cartel powers) can also be exercised, in their respective sectors, by the specialist sectoral regulators.

The CC undertakes in-depth investigations of mergers and markets referred to it by the OFT, as well as regulatory reference reviews of certain contested decisions by sectoral regulators, such as pricing determinations.

Certain decisions of the OFT, CC and sectoral regulators can be appealed to the Competition Appeal Tribunal (CAT), an independent, specialist judicial body. The CAT can conduct a full merits review of general competition law decisions, and may review merger control and market reference decisions on judicial review grounds. Decisions of the CAT are reviewable by the Court of Appeal or, for Scottish cases, the Court of Session.

Recent Developments

On the civil enforcement side, 2011 saw the conclusion of the OFT's long-running investigation into the retail pricing of dairy products, with the OFT deciding in August to impose fines totalling £49.51 million on four supermarkets and five dairy processors for agreeing to coordinate price increases for milk and cheese between 2002 and 2003. According to the OFT, rather than engaging in direct coordination, the supermarkets used the dairy processors as go-betweens to communicate their retail pricing intentions with each other indirectly, by means of a so-called 'hub and spoke' arrangement. One of the dairy processors, Arla, was granted 100% immunity from fines under the OFT's leniency programme. All other parties except supermarket group Tesco benefited from reductions in fines under the OFT's early resolution procedure, under which a party's fines are reduced in return for its agreement not to challenge the OFT's findings.

Tesco did not enter into such an agreement with the OFT and has appealed the infringement decision to the CAT. The OFT will clearly be hoping that Tesco is less successful in its appeal than the appellants in the Tobacco case, who succeeded in overturning the OFT's 2010 infringement decision in its entirety. In an embarrassing outcome for the OFT, the CAT concluded in a December 2011 judgment that the OFT's decision could no longer stand, on the basis that the detailed factual evidence heard over six weeks of witness cross-examination did not support the OFT's infringement case. This outcome has interesting implications for the parties that did not appeal the OFT's decision and therefore, in principle, remain liable to pay their fines. The OFT's defeat in Tobacco followed the CAT's judgments on a number of appeals against OFT infringement decisions concerning bid-rigging by a number of construction companies, which led to reductions in fines of up to 94% (one party's fine was reduced from £17.9m to £1.7m).

Aside from the dairy products case, the period since last year's edition has been marked more by OFT case closures than infringement decisions. In November 2011, the OFT published a 'no grounds for action' decision concluding its investigation into a complaint alleging IDEXX Laboratories Limited had abused a dominant position in the veterinary diagnostic testing sector. In addition, it closed investigations into suspected anti-competitive behaviour in the sports retail sector and into e-book agency agreements on administrative priority grounds. (In the latter case, this was justified on the grounds that the European Commission had opened a parallel investigation of the same issue.) The OFT also closed a case against six insurance companies and two IT software service providers concerning the exchange of pricing information through a data exchange tool, following the provision of binding commitments. According to the OFT website, civil investigations into suspected anticompetitive behaviour concerning, respectively, online hotel booking and air travel between the UK and Hong Kong remain ongoing at the time of writing.

Following the collapse of the OFT's criminal prosecution of four British Airways (BA) executives in 2010, publicly available information suggests that the OFT's criminal enforcement efforts have continued to decline in 2011. The second half of the year saw the OFT closing criminal cartel investigations into the agricultural, automotive and commercial vehicles sectors. As a result of these recent closures, the OFT website showed no active criminal cases at the time of writing (though it is possible that some cases at an early stage have not yet been made public).

The end of the BA criminal case did at least enable the OFT to proceed with issuing the long-awaited Statement of Objections in the parallel civil investigation under the CA98 into alleged collusion between of BA and Virgin Atlantic over the pricing of passenger fuel surcharges for long-haul passenger flights to and from the UK between 2004 and 2006. Interestingly, it appears that BA is seeking to use the collapse of the criminal prosecution as grounds to revisit its settlement of the OFT's civil case, under which it agreed to pay a fine of £121.5m fine five years ago.

On the merger control front, the number of mergers decisions made by the OFT during 2011 was notably up from 2010 (94, as opposed to 69 in 2010), and referrals to the CC for in-depth investigations were also significantly up, with eleven in 2011, compared with just three in 2010. It is notable that one of these referrals, of a travel agency joint venture between Thomas Cook and Midland Co-Op, was the first time the OFT has used its new 'fast track' reference procedure, under which parties can dispense with a detailed review by the OFT if it is clear that a CC reference is likely.

Of the eleven mergers the OFT referred to the CC in 2011, two were subsequently abandoned by the parties and seven have been cleared unconditionally. Of the remaining two transactions, one completed merger (of medical waste treatment companies) is to be unwound and the other (involving two large aggregates companies) is heading towards divestment remedies at the time of writing, following adverse findings by the CC. A further merger, the planned acquisition by News Corp of full control over satellite broadcaster BSkyB deal was referred to the CC by the Secretary of State for Culture, Media and Sport, instead of by the OFT. As noted in the 2010 addition of the Handbook, this case saw the government using its public interest powers to intervene in a media merger for only the second time ever. Although News Corp negotiated undertakings to divest BSkyB's Sky News business to address concerns over the impact of the deal on media plurality, public and political controversy over phone hacking by journalists at News Corp's News of the World newspaper ultimately culminated in News Corp abandoning the transaction.

There have been only two new market investigation references to the CC since the last review, concerning the markets for the provision of statutory audit services to large companies and for aggregates, cement and ready-mix concrete, respectively. It is likely that these will be joined soon by the private healthcare market, following confirmation by the OFT in December 2011 that it has provisionally decided to make a reference of that market to the CC. The CC published its final report on buses in December and its provisional finding on 'movies on pay-TV' in August. The long-running inquiry into BAA's ownership of British airports appears to be approaching its conclusion, following a CAT judgment upholding the CC's decision to order BAA to sell Stansted airport.

While a number of private follow-on damages actions continue before both the CAT and High Court, it remains the case that none has resulted in a damages award. Notwithstanding this, recent news of the settlement of claims by a number of poultry producers against chemicals company Degussa indicates that, at least for some claimants, the regime is providing effective redress.

Proposed Reforms

The government's proposed reforms to the UK competition law regime were finally announced in March 2012, after a number of delays. As anticipated by last year's Handbook, the government will proceed with merging the CC with the competition enforcement and market investigation functions of the OFT, to create a new Competition and Markets Authority (CMA) by April 2014. Although this move will require a number of changes to primary legislation and procedures, the reforms will be less radical than they could have been, based on the government's earlier consultation document. In particular, there will be no move to compulsory notification of mergers, nor a switch from an administrative to prosecutorial model in antitrust enforcement. It is also intended that the new CMA will preserve the best aspects of the current dual-agency system and the CC's decision making process. Sectoral regulators will continue to have the power to apply general competition law, albeit with greater central direction from the CMA.

The most significant legal change is likely to be the government's decision to remove the dishonesty requirement from the cartel offence. While this will make it easier for the new CMA to bring criminal cartel prosecutions, it is also likely to make it harder to differentiate behaviour for which a criminal sanction is appropriate from less harmful forms of commercial conduct. The suggestion by government that this can be achieved by assessing whether the conduct in question took place openly, for example by publishing details in the London Gazette, is unlikely to be helpful in practice, given the understandable desire for parties to keep their commercial agreements confidential.

The document setting out the government's proposals concerning changes to the public competition law enforcement regime also included an announcement that it intends to consult separately on a number of reforms affecting 'private enforcement' during 2012, which will be designed to make it easier for consumers and small businesses to bring competition law claims before the courts. At the time of writing, it is unclear whether this will lead to substantial changes, such as permitting opt-out collective actions, or involve more incremental changes to the current regime.

Although the government's announcement resolves some uncertainty as to the future shape of the UK competition regime, continued disruption to enforcement seems likely, as the new structure takes shape. While final proposals regarding the OFT's consumer protection powers remain unconfirmed at the time of writing, it seems likely that these will as planned be devolved to local bodies, leaving a potential enforcement vacuum at the national level. The fallout from these changes is already being felt, with the OFT's Chief Executive John Fingleton announcing in February 2012 that he would be leaving the OFT later in the year, well before the expiry of his current term.

Edwards Wildman Palmer UK LLP