…but is willing to agree reduced penalties in return for co-operation and early resolution

On 7 December the OFT announced that it had reached an early resolution agreement with three of the five supermarkets, and three of the five dairy processors implicated in the dairy retail price initiatives. The OFT announcement follows the Statement of Objections issued on 20 September which set out the OFT’s provisional findings that certain large supermarkets and dairy processors had colluded to increase the retail price ofmilk, butter and cheese.

The OFT’s provisional finding against each of the supermarkets (Tesco, Sainsbury’s, Asda, Morrisons and Safeway) is that they indirectly disclosed or exchanged with other supermarkets commercially sensitive information in respect of the retail price of liquidmilk, butter and/or cheese over a two year period (2002-2003). The OFT’s case against the dairy processors (Arla, Dairy Crest, LactalisMcLelland, The Cheese Company andWiseman) is that they facilitated the exchange of commercially sensitive information between supermarkets in respect of the retail price of liquidmilk, butter and/or cheese, over the same two year period.

The dairy retail price initiatives do not, however, fit withinmost people’s idea of a standard cartel dreamt up in smoke filled boardrooms. Rather, the dairy retail price initiatives were carried out under the glare of publicity, with the express purpose of increasing the price for rawmilk paid to farmers. The OFT itself acknowledges the pressure the parties to the alleged infringement were under to increase the price for rawmilk and that the purpose, at least initially, was to passmoney back to the farmers. Since the OFT announcement, all parties involved in the alleged infringement have also been at pains to emphasise themotivation behind the price increases.

The public nature of the retail price initiatives, the “good purpose” behind the initiatives and the pressure placed on the parties were not, however, considered relevant to the assessment of whether the initiatives breached Chapter I of the Competition Act (or Article 81 of the EC Treaty). The OFT took the view that price fixing - which an unjustified exchange of information may be categorised as - is a “per se” infringement; provided the technical elements aremet, the intention of the parties and indeed the economic effect of the infringement are technically irrelevant to the legal analysis.While these factors could have provided the OFT with justification for not proceeding against the dairies and supermarkets (the OFT has a discretion in determining whether to bring a case), the OFT, which initially categorised the initiatives as “a serious infringement”, was clearly not interested in this route.

The parties to the alleged infringement which had agreed to early settlement (Asda, Dairy Crest, Safeway (in relation to conduct prior to its acquisition by Morrisons), Sainsbury’s, The Cheese Company andWiseman will each receive a 35%discount fromthe penalty they would otherwise have received in return for co-operation and admission of involvement in the retail price initiatives. A fourth dairy processor - Arla - already benefits fromtotal immunity as the first (and indeed only) party to come forward with information on the alleged cartel under the leniency regime.

This means that only three parties to the alleged infringement – Tesco,Morrisons and Lactalis McLellandwill continue to dispute theOFT’s provisional findings. These parties could be subject to a lengthy investigation (theOFT has indicated that it hopes to reach a final decision by the end of the 2008 but itmay be considerably later) andwill also be exposed to significantly higherOFT penaltieswithout the benefit of the 35%reduction for co-operation and early settlement. These partiesmay, however, havemore success on appeal.