AS COMPETITION AUTHORITIES ARE INCREASINGLY being required to justify their existence by reference to the concrete benefits that they deliver for consumers, consumer goods markets have become an obvious target for enforcement activity. In parallel, investigations in this area are leading to increased scrutiny of the potential for (typically benign) ‘vertical’ supply agreements between manufacturers and retailers to lead to or support (generally prohibited) ‘horizontal’ price-fixing. These developments are demonstrated by a number of ongoing cases across the EU.
In the UK, the Office of Fair Trading (OFT) announced on 11 July 2008 that it had reached an ‘early resolution’ settlement with six companies under investigation for rigging the retail price of tobacco products. The settlement arises from a five-year investigation by the OFT, which was apparently triggered by a leniency application by Sainsbury’s and culminated in April with a statement of objections asserting that two tobacco manufacturers (Imperial Tobacco and Gallaher) and eleven retailers had worked together to fix the prices of cigarettes and rolling tobacco. Specifically, the OFT asserted that each of the cigarette manufacturers concerned had agreed with retailers to link the retail price of its own brands to the retail price of a competing brand of the other manufacturer, and that information on proposed future retail prices had been exchanged between the tobacco companies via retailers. Both practices apparently led to prices of competing brands being kept at a comparable level across the retailers concerned.
The OFT’s settlement is with Asda, First Quench, Gallaher, One Stop Stores, Somerfield and TM Retail. These companies have admitted to infringing competition law and agreed to pay a total of £132.2m in fines (reduced from £173.3m, taking co-operation and leniency requests into account). Interestingly, The Co-operative Group, Imperial Tobacco, Morrisons, Safeway, Shell and Tesco have not reached settlements and therefore continue to contest the OFT’s case. The incomplete nature of this settlement mirrors the earlier settlement in the OFT’s milk investigation, with Tesco and Morrisons continuing to fight its allegations in that case.
It will be interesting to see how the OFT’s approach to settlements fares before the Competition Appeal Tribunal (CAT), should it ultimately issue infringement decisions against the non-settling parties in these cases. A full review by the CAT would also test the legal analysis adopted by the OFT. The tobacco case appears to rely on a finding of indirect price-fixing, in circumstances where retail prices are not actually set by the manufacturer and there is apparently no direct agreement on retail price between the competing manufacturers. As such, the OFT appears to be treating ‘hub and spoke’ information exchanges as unlawful concerted practices equivalent to horizontal price-fixing, an approach that it previously adopted in the 2003 Hasbro/Argos/Littlewoods and Price-fixing of football replica kit infringement decisions (the so-called ‘Toys and Games’ and ‘Football Shirts’ cases), which was subsequently upheld by the CAT and Court of Appeal in Argos Ltd & anor v Office of Fair Trading [2006]. The fact that a number of companies have admitted to infringements does not necessarily mean that any appeal would fail, as the decision to settle could say more about the pressure on companies to seek leniency and/or agree to infringements to avoid lengthy investigations, rather than the strength of the OFT’s legal case. Recent news that the OFT has opened a wide-ranging investigation into the pricing of a number of consumer products by supermarkets suggests that it has no intention of abandoning such a fruitful area, however.
GERMAN INVESTIGATIONS
Elsewhere in Europe, the German Federal Cartel Office announced in July that it had fined the German subsidiaries of several leading cosmetics manufacturers, including Chanel, Clarins and L’Oreal, a total of €10m for systematically sharing sensitive market data, including turnover figures, marketing costs and planned price increases, since at least 1995. This decision followed one in February to fine various beauty product manufacturers, including Henkel, Sara Lee and Unilever, a total of €37m for price-fixing and sharing sensitive information relating to sales of soap, shower gel and toothpaste. The Federal Cartel Office has also recently raided several coffee roasters on suspicion of anti-competitive practices. These inspections follow other investigations this year relating to chocolate, flour and detergents.
EUROPEAN COMMISSION ACTIVITY
While the German competition authority has been particularly active, the European Commission has also targeted consumer goods companies in recent months, launching raids on firms including Henkel, Proctor & Gamble and Reckitt-Benckiser under suspicion of anti-competitive practices in the markets for detergents and personal care items. National authorities in Germany, Austria, Spain, Italy and the Czech Republic assisted with the raids, as well as (in Italy and Spain) launching their own investigations. While these investigations appear to be at an early stage, the recent flurry of raids in this sector suggests that a rich seam of anti-competitive practices has been uncovered in a previously neglected area.
Bearing these investigations in mind, it is timely that the Commission has included some general guidance on the application of Article 81 of the EC Treaty to information exchanges in its new guidelines on maritime transport services (Guidelines on the application of Article 81 of the EC Treaty to Maritime Transport Services, 1 July 2008), which are equally applicable to other sectors.
Key points include:
- The guidelines make a distinction between the (prohibited) exchange of commercially sensitive and individualised market data and the (permitted) sharing of aggregate statistics and general market information.
- The age of the data and the period to which it relates are also important, since the exchange of historical data is generally not regarded as falling within Article 81.
- The more frequently data is exchanged, the more likely it is to reduce competitive action on the market.
- The way in which data is released may also have an impact. The more the information is shared with customers, the less likely it is to be problematic. If transparency is improved for suppliers only, it may deprive customers of any benefits.
BY BECKET McGRATH, partner, Berwin LeightonPaisner LLP
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