An interview with Slaughter and Could discussing cartels in the UK
This article is an extract from GTDT Market Intelligence Cartels 2022. Click here for the full guide.
1 What kinds of infringement has the antitrust authority been focusing on recently? Have any industry sectors been under particular scrutiny?
The Competition and Markets Authority (CMA) (the UK’s primary competition authority) has continued to pursue its interests in the pharmaceutical sector and in the construction sector (where recent research shows that only 6 per cent of firms are familiar with competition law) over the past year. For example, the CMA recently fined four pharmaceutical companies and a private equity company for agreeing to restrict the supply of anti-nausea tablets. It also fined a group of construction companies for price-fixing and regularly exchanging competitively sensitive information in respect of precast drainage products. The CMA has also continued to develop its focus on the digital sector, for instance, it has recently announced a new market study into competition in the music streaming market. These interests have generally contributed to the CMA imposing higher fines than in 2020. For example, it imposed fines totalling £260 million on a number of pharmaceutical companies involved in anticompetitive agreements and abuses of dominance in the market for hydrocortisone tablets.
The CMA has also continued to investigate a wide variety of other industries over the past year, with ongoing investigations into a revenue sharing agreement in the aviation sector, the sharing of competitively sensitive information in the communications sector, and even the pricing of replica kit in the sportswear sector. The CMA is also newly investigating a capacity sharing agreement between ferry operators, and the supply of motorway electric vehicle charge points.
However, the CMA is not the UK’s only competition authority – sectoral regulators have concurrent enforcement powers – thereby increasing the UK’s capacity to enforce against anticompetitive conduct. In February 2019, the financial watchdog (the Financial Conduct Authority (FCA)) issued its first competition law decision, fining three asset management firms for breaching competition law after they were found to have exchanged sensitive information. Following suit, in January 2022, the UK’s new Payment Systems Regulator (PSR) made its first antitrust settlement, fining four prepaid card issuers more than £33 million after they admitted to colluding and allocating customers in the UK prepaid welfare card sector for six years.
The energy regulator (Ofgem) and communications regulator (Ofcom) have also investigated market sharing and information exchange cases in recent years, with Ofgem imposing total fines of £870,000 on suppliers of energy software and consultancy services in May 2019. In an ongoing case Ofcom provisionally found (in October 2020) that certain providers of electronic communications equipment and related services exchanged competitively sensitive information, including on future pricing. As the CMA’s workload increases, the rate at which sectoral regulators will investigate suspected infringements looks set to increase.
In its draft 2022–2023 Annual Plan, the CMA has pledged to focus on key themes. These include protecting consumers from unfair behaviour by businesses, strengthening the CMA’s position as a global competition authority, fostering competition to promote innovation and long-term growth, promoting effective competition in digital markets and supporting the transition to low carbon growth. The final version of the Annual Plan is expected by the end of March 2022.
2 What do recent investigations in your jurisdiction teach us?
Investigations by the CMA may be triggered by leniency applications, third-party complaints or through the CMA’s own market monitoring function. They may also arise out of merger reviews (as happened in the Laundry Services investigation, which resulted in the imposition of £1.71 million worth of fines at the end of 2017), out of market studies or as a result of information received during previous investigations (as happened in the Estate Agents investigation that opened in March 2018).
CMA investigations can also begin on the back of information received from individual whistle-blowers, and the CMA actively encourages business representatives who suspect that their business has been involved in cartel activity to blow the whistle on the cartel. In February 2020, the CMA launched a ‘Cheating or Competing’ campaign to promote awareness among businesses of illegal cartel behaviour, following on from a successful previous campaign, launched in October 2018, to encourage whistle-blowers to expose business cartels. The CMA also offers financial rewards of up to £100,000 (in exceptional circumstances) for information about cartel activity.
Whatever the trigger, the CMA can only open a formal investigation once it has reasonable grounds to suspect that an infringement has actually taken place. After opening a formal investigation, the CMA can use its statutory powers to require businesses under investigation or third parties (such as customers, suppliers and competitors) to answer information requests and can impose penalties for failure to comply with such requests. It can also conduct dawn raids to seize information, although the procedure for, and scope of, dawn raids will depend on whether they are conducted with or without a court warrant. The CMA is expecting to resume dawn raids over the coming year as the UK continues to emerge from most covid-19 restrictions, which generally saw dawn raids put on hold.
The CMA generally provides case updates to businesses under investigation either by telephone or in writing. The CMA also offers opportunities to interact with the case team at ‘state of play’ meetings, during which the businesses under investigation are informed about the next stages of the investigation. If the CMA reaches a provisional view that the conduct under investigation amounts to an infringement of competition law, it will issue a statement of objections. At this time, the CMA will also give the businesses under investigation the opportunity to inspect its file using data rooms and confidentiality rings where appropriate.
Businesses under investigation are then given the opportunity to respond to the statement of objections orally and in writing. The CMA will then issue its decision. Businesses under investigation may be able to cut this process short by offering commitments in relation to their future conduct that address the CMA’s concerns or by entering into a settlement agreement.
Nonetheless, the CMA’s recent investigatory practice shows that it is prepared to balance its competition enforcement objectives with other public policy considerations (including its response to the covid-19 pandemic (see question 10)). For example, in September 2021 following a surge in fuel prices, the CMA temporarily exempted fuel suppliers from certain competition rules, allowing them to share information in order to ensure effective supply to petrol stations with the least fuel. A month later, the CMA took similar measures to help combat a shortage in the supply of carbon dioxide, allowing suppliers to work together to ensure supply to key sectors.
3 How is the leniency system developing, and which factors should clients consider before applying for leniency?
There have, for a while now, been rumours (not limited to the UK) of leniency applications being on the decline, with the CMA commenting in 2015 that it wanted to reduce its reliance on the leniency policy as a method of cartel detection, including through the recruitment of additional staff and investment in intelligence.
However, the statistics show a less clear picture, and the leniency policy clearly still plays a vital role in the detection of cartels. By way of example, in December 2020, the CMA found that three suppliers of groundworks products to the construction industry had infringed competition law by sharing confidential information on future pricing and commercial strategy, and coordinating their commercial activities. Two of the suppliers were fined over £15 million, but the third supplier was not fined as it brought the cartel to the CMA’s attention and cooperated with the investigation. This looks set to continue in 2022, following the CMA’s recent decision to fine four pharmaceutical companies and a private equity company for agreeing to restrict the supply of anti-nausea tablets. In that case, one of the companies received a 40 per cent discount to its fine (paying £4.6 million) as a result of being granted leniency for admitting its involvement and for cooperating with the CMA’s investigation.
To the extent any such decline in leniency applications does exist, it is generally thought to be, to a large degree, attributable to the introduction of the EU Damages Directive (implemented in the UK by Schedule 8A of the Competition Act 1998 and largely retained following Brexit) and the resulting increased exposure – including for leniency applicants – to private damages claims.
For instance, members of the Roll-on, Roll-off Shipping cartel are facing a possible class-action enforcement case in the Competition Appeal Tribunal (CAT) (the UK’s specialist competition tribunal) stemming from their participation in a six-year price-fixing cartel. In addition, two members of a Smart Card Chip cartel were, until January 2022, facing a private follow-on damages claim in relation to their participation in the cartel from 2003 to 2005. While, in the latter case, the follow-on claim was ultimately dismissed as time-barred by the High Court of England and Wales, such cases should nonetheless serve as a reminder to organisations of the long term dangers of participating in cartels (even where they subsequently apply for leniency), beyond any fine imposed for anticompetitive behaviour.
Where the CMA does receive leniency applications, whether it ultimately pursues the case will depend on various considerations including its own prioritisation principles. The CMA will consider the impact of the behaviour concerned, its significance to the CMA’s strategy and the likelihood of success, and will generally think twice before committing resources to a new project when it already has worthy cases on its books. This is likely to continue, given its increased workload following the UK’s departure from the European Union.
It is also worth noting that, where appropriate, the CMA may send warning letters or advisory letters, instead of opening investigations.
4 What means exist in your jurisdiction to speed up or streamline the authority’s decision-making, and what are your experiences in this regard?
Settlement discussions can be initiated either before or after the issue of the statement of objections. Parties must be prepared to admit liability and accept the CMA’s adoption of a streamlined administrative procedure for the remainder of the investigation to benefit from a reduced penalty. The CMA retains discretion in determining which cases it wishes to settle.
However, the CMA’s recent practice suggests that it is more than open to settling cases where appropriate. For example, in July 2020 the CMA imposed a £278,945 fine on two retailers of musical instruments that had engaged in resale price maintenance. The fine included a 20 per cent reduction to reflect savings made by the CMA as a result of the companies settling the case. Sectoral regulators are also willing to settle cases where appropriate. For example, in January 2022 the members of the Prepaid Cards cartel (see question 1) settled with the PSR, who applied discounts of 10 to 20 per cent depending on when the settlement was reached.
The streamlined administrative procedure usually involves scaled-back access to file arrangements with no written representations on the statement of objections other than in relation to factual inaccuracies, no oral hearings, no separate draft penalty statement after settlement has been reached and no appointment of a case decision group. Where a settling party has made representations on the statement of objections before settling, the CMA also requires the party to formally withdraw those representations (other than in relation to factual inaccuracies) in its settlement confirmation letter.
In deciding whether to enter into a settlement agreement, businesses must weigh the benefits of early resolution against factors such as the admission of liability and the implications for appeal, including that they might not benefit from a successful appeal against the CMA’s decision by the other businesses being investigated (this issue was considered in the Gallaher/Somerfield tobacco litigation).
In December 2021, prompted by musical equipment maker Roland’s unsuccessful appeal to the CAT after Roland agreed a settlement with the CMA, the CMA updated its settlement guidance. Settling businesses must now accept that the CMA’s decision will remain final (even if challenged by another addressee) and that they will not challenge or appeal the decision to the CAT. The change reflects the CMA’s intention that settlements should be final, where previously settling parties could appeal the CMA’s decision subject to the revocation of the settlement discount if they lost the appeal (as was the case in Roland).
5 Tell us about the authority’s most important decisions over the year. What made them so significant?
As noted in question 1, in the past year the CMA has continued to pursue its interests in the pharmaceutical and construction sectors. Among other things, it has concluded an investigation into anticompetitive agreements between pharmaceutical companies to delay entry into the market for supply of hydrocortisone tablets.
The CMA has also exercised its director disqualification powers in these sectors, following its updated guidance on director disqualifications in 2019. In particular, the CMA secured undertakings from three directors (for three, four and six and a half years) for their involvement in a cartel in the supply of roofing materials, and from two directors (for 11 and 12 years) for their involvement in a price-fixing cartel in the supply of precast concrete drainage products. In January 2022, the CMA secured a legally binding director disqualification from a director for four years for his involvement in a pharmaceutical cartel. The terms of a director disqualification undertaking require that the relevant director will not be a director of a company, or an insolvency practitioner, for the duration of the undertaking.
In July 2021, the CMA also opened an investigation into the long-term exclusive contracts between an electric car charge point operator and the operators of motorway service stations at which they are placed. This is demonstrative of the CMA’s commitment to support the transition to low carbon growth, as set out in its draft 2022–2023 Annual Plan.
Furthermore, the digital sector continues to be an area of focus. In November 2020, the CMA fined a price comparison website operator for using most favoured nation clauses to prohibit certain insurers from offering lower prices on rival websites. Given a Digital Markets Unit (DMU) was established within the CMA in 2021, and consultation is ongoing for the legislation of the new digital regulatory regime, cases dealing with anticompetitive behaviour in the digital market are likely to continue to be a key focus going forward.
6 What is the level of judicial review in your jurisdiction? Were there any notable challenges to the authority’s decisions in the courts over the past year?
The CMA makes decisions at first instance by itself, but those decisions may be appealed to the CAT (unless a party has settled with the CMA, in which case the right of appeal is forfeited (see question 4)). The CMA’s antitrust infringement decisions are subject to appeal on the full merits of the case (in contrast to its merger control and market investigation decisions, which can only be appealed on the (narrower) grounds available for judicial review). Following a decision by the CAT, any party to the appeal or a third party with sufficient interest (and permission from the CAT) may bring an appeal to the Court of Appeal on a question of law (but not the merits of the case), or the amount of a penalty.
A recent noteworthy challenge was that lodged by Lexon, the largest independent wholesaler to independent pharmacies in the UK, against a fine imposed on it by the CMA. The case began in March 2020 when the CMA issued an infringement decision, finding that Lexon had illegally shared competitively sensitive information with other suppliers about an antidepressant drug. The suppliers had exchanged information about prices, the volumes of the drug being shipped and one of the supplier’s plans to enter the market, with the aim of keeping the price of the drug high. The CMA fined Lexon, who did not admit to breaking the law (unlike the other suppliers who received lesser fines), £1.22 million. In February 2021, the CAT upheld the CMA’s decision, finding that the sharing of competitively sensitive information amounted to an illegal object restriction, and that the level of the fine was not harsh and inappropriate as Lexon had argued.
7 How is private cartel enforcement developing in your jurisdiction?
The UK is widely regarded (with some competition from Germany and the Netherlands) as the jurisdiction of choice for private cartel enforcement in Europe. One particularly attractive feature for claimants is the UK’s system of disclosure. It is routine for defendants to be required to hand over all documents relevant to the case (whether helpful or unhelpful to them). Although disclosure in competition cases has become part of national law in all EU member states (as a result of the EU Damages Directive), the procedures surrounding it remain underdeveloped in all but a few of those jurisdictions. The UK, therefore, seems likely to remain a leading forum for these cases.
The UK has also seen a rise in competition class actions since the Supreme Court affirmed a significantly lower threshold for bringing such claims in the Merricks case in April 2019. In Merricks, the Court of Appeal overturned a decision by the CAT that prohibited the bringing of a collective action by Merricks against Mastercard, following a European Commission decision in 2007 that its interchange fees had been set illegally high. Overturning the CAT’s finding that it would be difficult to allocate the loss to each customer affected, the Court of Appeal held – and the Supreme Court largely upheld – that the CAT should have asked itself whether a claim is suitable to be brought in collective proceedings rather than individual proceedings and suitable for an award of aggregate rather than individual damages. The Supreme Court also emphasised that the courts should not deprive claimants of a trial merely because of challenges relating to the quantification of harm.
In 2021, proposed class actions were filed against companies in a variety of sectors on competition grounds including, in respect of cartel activity, members of a roll-on, roll-off shipping cartel. Private claims also continue to be commenced against the various truck manufacturers who participated in a long-standing price-fixing cartel.
The legislation implementing the EU Damages Directive in the UK came into force in March 2017 (and remains in force after Brexit). This legislation makes it easier to bring a claim by introducing a rebuttable presumption that cartels cause harm. The legislation, however, restricts claimants’ access to materials that may be helpful for their case, such as leniency statements (which are not disclosable), settlement submissions (which are disclosable only if withdrawn) and information or material on a competition authority’s file (which is disclosable only if the court or tribunal making the disclosure order is satisfied that no one else is reasonably able to provide the documents or information).
8 What developments do you see in antitrust compliance?
There continues to be an ever-increasing focus on the digital market, where the emergence of tech giants and new technologies have presented regulators with fresh challenges. From the threat of online selling platforms to the brand image of luxury goods to the use of sophisticated pricing algorithms, as the way we do business changes, so do the perceived threats to competition. In the face of this changing landscape, following a detailed market study, the CMA established the DMU in April 2021 on a temporary and non-statutory basis to prepare for the new statutory regime for digital platforms. In particular, it is envisaged that the DMU will designate large digital platforms with ‘strategic market status’ (SMS), enforce a code of conduct to govern the behaviour of SMS platforms and have powers enabling it to make a number of competitive interventions, including breaking up platforms.
Accordingly, the CMA is focusing on promoting effective competition in digital markets as a key aim for 2022–2023, stating in its draft Annual Plan that it is taking a leading role in tackling the challenges presented by ‘Big Tech’. The CMA notes that it will continue to progress its ongoing investigations in the digital markets, and will also be launching a new market study into the music streaming market in 2022. In particular, the CMA proposes to continue its focus on consumer enforcement in digital markets, building on its work in areas such as fake reviews, social media endorsements, online gambling and secondary ticket platforms. The CMA is also proposing to continue using its existing tools (such as market investigations) to tackle digital markets, and to work with other regulators such as the FCA, the Information Commissioner’s Office and Ofcom to provide greater clarity for businesses and people on digital regulation.
Another key aim set out in the CMA’s draft 2022–2023 Annual Plan is to support the transition to low carbon growth, including through the development of healthy competitive markets in sustainable products and services. This includes ensuring that businesses engaged in sustainability initiatives understand their competition compliance obligations, for which the CMA has published an information sheet that (among other things) offers information to businesses on how to avoid serious restrictions of competition and anticompetitive behaviour stemming from sustainability agreements. As exemplified by the investigation into electric car charge point operators (referred to in question 5), the CMA is also continuing to prioritise cases where practices could impede the transition to a low carbon economy.
9 What changes do you anticipate to cartel enforcement policy or antitrust rules in the coming year? What effect will this have on clients?
In July 2021, the government announced its proposals for the wide-ranging reform of competition policy in the UK. In addition to its proposals on digital markets (see question 8) and consumer law, the reforms would introduce a tougher enforcement and investigatory regime. The new regime would, among other things, broaden the reach of the UK regime to capture anticompetitive agreements that have substantial effects within the UK; increase the incentives for whistle-blowing by providing immunity from follow-on damages; allow the CMA to impose tougher penalties on non-cooperative undertakings; and arm the CMA with stronger tools for more effective collaboration with international regulators.
The new proposals aim to bring the CMA’s powers in line with its global equivalents following the UK’s exit from the European Union, and the CMA is already scaling up its portfolio of major investigations over which the European Commission previously had exclusive jurisdiction as it seeks to position itself as a global competition authority. It intends, for example, to increase fining levels in cases involving large multinationals operating in the UK, and accordingly updated its penalty calculation guidance in December 2021 to (among other things) allow the CMA to take into account turnover outside the UK when calculating fines. Businesses now risk undergoing parallel investigations in the UK and the EU, resulting in an increased regulatory burden for businesses and a risk of inconsistent outcomes. Similarly, leniency applicants will need to consider lodging applications with both the UK and EU authorities.
As noted in question 1, in its draft 2022–2023 Annual Plan, the CMA has pledged to focus its activities on certain key themes. In particular, the CMA intends to focus on protecting consumers from unfair behaviour by businesses, strengthening the CMA’s position as a global competition authority, fostering competition to promote innovation and long-term growth, promoting effective competition in digital markets and supporting the transition to low carbon growth.
As noted in question 5, the CMA is continuing to deploy its formerly neglected director disqualification powers, having updated its guidance on these disqualification powers in February 2019 and secured some noteworthy disqualifications in 2021. It is also likely that class action enforcements will continue to increase in frequency following the Supreme Court’s ruling in Merricks (see question 7).
10 How has the covid-19 pandemic affected cartel enforcement in your jurisdiction?
In response to the covid-19 pandemic, the government has used its legislative powers to temporarily relax elements of competition law in certain sectors. In particular, the government has powers to relax rules for certain agreements that might normally be considered anticompetitive. Measures to permit cooperation in the management of supply chains (such as provisions for data sharing) have now been revoked in respect of dairy produce, Solent maritime crossings and health services for patients. However, certain measures allowing supermarkets to share data with each other on stock levels, cooperate to keep shops open or share distribution depots and delivery vans remain in force.
In March 2020, at the outset of the pandemic in the UK, the CMA issued guidance stating that it would focus on whether coordination could cause harm to consumers or to the wider economy. Where the coordination is necessary, for example to make sure that essential supplies find their way to consumers or that key workers can travel safely to their place of work, it would be highly unlikely that this coordination would cause harm to consumers. This applies even if the coordination would lead to a reduction in the range of products available to consumers, as long as that reduction is necessary to avoid supply shortages of the relevant products in the first place.
In its draft 2022–2023 Annual Plan, the CMA lists protecting consumers from unfair behaviour by businesses, during and beyond the covid-19 pandemic, as a key theme. In this respect, the CMA is likely to continue to monitor anticompetitive and unfair trading practices by businesses closely in relation to covid-19. In 2021, for instance, it secured commitments of over £200 million from holiday firms to refund consumers for package holidays that were cancelled due to the restrictions imposed as a result of the covid-19 pandemic. The CMA has also written to over 100 package travel firms reminding them of their obligations under consumer law.
As the UK continues to relax most covid-19 restrictions, the CMA also expects to restart activities such as inspections and site visits. This includes dawn raids, which had generally been suspended while covid-19 restrictions were in place and many businesses moved to working from home.
The Inside Track
What was the most interesting case you worked on recently?
I recently worked on a case involving some pre tty novel conduct for which the legal assessment was not clear. Bringing the case to a successful conclusion required a fresh look at traditional concepts and some innovative thinking to apply them to the facts.
If you could change one thing about the area of cartel enforcement in your jurisdiction, what would it be?
Cartel and antitrust enforcement in the UK is based on robust legislation and clear guidelines. Transparency and due process have also improved in the past few years. The CMA attempts to avoid imposing unnecessary burdens on (third) parties in its use of investigative tools (eg, by using draft information requests). However, the authority’s requests for information are still relatively burdensome, and so there is still room for improvement in this area.